SSHHHH! It’s a Trade Secret Baron & Lamoureux Fall, 2017 Class 15

A Trade Secret is Information: that has economic value that is not generally known over which reasonable efforts to maintain secrecy have taken place.

Types of Trade Secret Information Technical or non-technical data Formula Pattern Compilation Program Device Method Technique Drawing Process Financial data List of actual or potential customers

Economic Value Actual (could be development/implementation costs; lost profits, etc.) Potential (value that would have been gained had the secret not been misappropriated).

Availability of Information Not generally known by competitors

“Reasonable” Efforts to Maintain Secrecy Absolute secrecy not required Reasonable under the circumstances Comprehensive program

Examples of Methods to Maintain Secrecy Lock & Key Passwords Restricted access Sign-in sheets Confidential stamps Non-Disclosure Agreements

“Beware” of Agreements you are bound by under terms of employment. We’ll cover confidentiality and non-competition agreements later today) Employer expectations and behavior that may be inappropriate (turning you into a spy) Questions you ask your new employees about their former employment.

Advantages/Disadvantages of Trade Secrets No time limit No public disclosure No governmental filing process Depends on employee-employer relationships, and those can change. Pandora’s box May distract from your knitting

What Law Governs Historically – Common Law Uniform Trade Secrets Act Illinois Trade Secrets Act Economic Espionage Act [the American Law Institutue’s Restatement of Torts, 1939 – and subsequent updates—have/has played an important interpretative role. It isn’t law, except as pulled into common law rulings (often).

Historically – Common Law – Six Factor Test Extent known outside company Extent known by employees Measures taken to guard secrecy Value to company and competitors Time, effort and money to develop Difficulty of proper acquisition

Uniform Trade Secrets Act Adopted by nearly 40 states

Illinois Trade Secrets Act Effective since 1988 Adjunct to common law Gives “teeth” to infringement claims

Illinois Trade Secrets Act Remedies Injunction Compensatory damages Punitive damages Attorney’s fees

Economic Espionage Act Gives U.S. Attorney sweeping powers to prosecute any person or company involved in trade secret misappropriation Punishes intentional stealing, copying or receiving of trade secrets For product produced or placed in interstate commerce

Economic Espionage Act Penalities Individual fines up to $500,000 Company fines up to $5 million Prison – up to 10 years for individuals and 15 years if theft performed for foreign government

Proper Methods to Obtain Trade Secrets Legitimate Observation Reverse Engineering Independent Invention

Trade Secrets Take Aways Any information can fall within the ambit of trade secrets if its secret, you take reasonable steps to maintain secrecy and the info has economic value (e.g. source code, customer data, pre-public ad campaign) Even if you don’t sign a contract, you owe a “duty of loyalty” to your employer and a duty to maintain confidentiality. When you leave a company, don’t download company data onto your own computer or a flash drive. There’s no worse way to start a new employment relationship than to invite a lawsuit against you and your new employer.

Trade Secrets Take Aways Be careful what information you get and from whom. Understand what it means to indemnify another party i.e. Assume the legal responsibility to pay if they get hit by a money judgment

Trade Secrets Take Aways Once the cat’s out of the bag, it’s tough to get it back in. Court’s favor injunctive relief in trade secret cases. You can’t cover your tracks on a computer so don’t try. Computer forensic experts will get you You may subject yourself to claims under the Computer Fraud and Abuse Act

Confidentiality Agreements Protect against disclosure of confidential information and trade secrets of employer. Term: during employment and potentially forever. May not cover stuff you already know. But, how do you prove you already knew it. Check terms of employee handbook.

Confidentiality Agreements Confidentiality. Employee will not disclose any Confidential Information to any person or entity for any reason, except as required to perform its obligations under this Agreement. For purposes of this Agreement, Confidential Information shall include the financial terms of this Agreement and all records, reports, documents, designs, plans, contracts, literature, data, concepts, ideas, software, computer programs, source code, object code, information, memoranda, correspondence, and other material created, developed or used by Employer or Employee pursuant to this Agreement, or delivered or transmitted to Employer by Employee pursuant to this Agreement or otherwise. Confidential Information shall also include information in Employee’s knowledge or possession concerning Employer’s business, marketing, administrative, advertising, budgeting or organizational plans, practices, policies and procedures, as well as Employer’s customer lists and scientific or technical information, Employer’s advertising rates, information about users of any Employer Web site, and any traffic patterns or usage information about Employer Web sites, regardless of whether such knowledge or information was obtained pursuant to this Agreement or otherwise. Employer shall own all rights, title and interest in all Confidential Information. Employee acknowledges that much of this information constitutes trade secrets or proprietary information unique to Employer, and that disclosure in breach of this Paragraph will result in irreparable injury to Employer for which Employer shall be entitled to injunctive relief in addition to all other remedies available at law or in equity.

Non-Competition Agreements & Restrictive Covenants Prevent employee/independent contractor from engaging in work or projects that may compete with business of employer. Disfavored (but enforceable) under the law. Must be limited in scope, geography and time. No bright line test on what’s acceptable.

Non-Competition Agreements & Restrictive Covenants Upon termination of this Agreement and/or the date Optometrist ceases to perform services for Corporation for any reason, with the sole exceptions of termination by the Optometrist for “Cause” as defined in Section 14(b), or termination by Corporation without cause pursuant to Section 13(b), and for a period of five (5) years following termination, Optometrist will not, without written consent of Corporation, engage in the Practice of Optometry (i) at either of the ___________, or (ii) at any other facility within the Service Area. The parties agree that these covenants are necessary to protect the activities of Corporation and the professional practices of employees of Corporation. Optometrist agrees that any breach of these restrictive covenants will result in irreparable damage to Corporation for which it will have no adequate remedy at law, and hereby consents to an injunction by any court of competent jurisdiction in favor of Corporation enjoining any breach of such covenants, without prejudice to any other right or remedy to which Corporation may be entitled. If Corporation institutes a suit or takes action against Optometrist for violation of or to enforce this Section 16, Corporation shall be entitled to all of its costs and expenses, including, without limitation, reasonable attorney’s fees. In the event that these covenants shall be determined by any court of competent jurisdiction to be unenforceable by reason of their being extended to too great a period of time or too large a geographic area or over too great a range of activities, they should be interpreted to extend only over the maximum period of time, geographic area, or range of activities as to which they may be enforceable.

NDA summary An NDA can last forever (if it does not restrain trade or employment). When drafting, be broad but be specific in defining information covered and permitted uses. An NDA will not protect information that is otherwise generally available. NDAs enforceable only if reasonable efforts made to keep information confidential.  (i.e. same level of care given to trade secrets).

NDA summary NDA’s can cover confidential customer information. Faced with an expressed NDA, courts will not find an implied duty of non-disclosure (but employee may owe duties of loyalty etc.). Follow NDA’s provisions (e.g. proper marking on documents). Parties may be bound by oral NDA’s. In Illinois, courts seem to follow all-or-nothing approach (not selective and/or interpreted)

Non-Competition Agreements Nomenclature: Confidentiality: defines the subject matter considered confidential Non-Disclosure: prohibits disclosure Non-Compete: prohibits working for competitive venture for period of time and in a specific geography

Non-Competition Agreements BEWARE OF: Job subject matter limitations that are too broad “Employee shall not work in any capacity for a company that competes, directly or indirectly, with Employer.” Competitive market descriptions that are too broad or vague “Employee shall not work in the computer industry.”

Non-Competition Agreements BEWARE OF: Geographic areas that are too large “Employee shall not work for a competitor in North America.” Time limitations that are too long “For a period of five years following separation from Employer, Employee shall not….”

Non-Competition Agreements Fifield v. Premier Dealer Services, Inc., 2013 WL 3192931 (Ill. App. 1st June 24, 2013) court refused to enforce two-year non-solicitation and noncompetition provisions in employment agreement because employee’s employment, which lasted for three months before he decided to resign, was deemed to be inadequate consideration. Implications: employers may need to offer additional consideration at time employee is asked to agree to non-competition clause

Emerging Trends Increases in Trade Secret Litigation and Skyrocketing Awards High Profile Criminal Prosecutions Trade Secrets in a Social Media World Esp. “who owns the account”

Pepsi Co. v. Redmond 54 F.3d 1262 (7th Cir. 1995) Redmond was high-ranking executive with Pepsi. Had access to confidential information about Pepsi’s sports-drink division. Strategic Plan Annual Operating Plan Attack Plans for Specific Markets New Delivery System Agreed not to disclose confidential business information of Pepsi. Left Pepsi to work for Quaker Oats – maker of Gatorade.

Pepsi Co. v. Redmond Pepsi sues Redmond and Quaker Oats for misappropriation of trade secrets – based on mere threat of misappropriation District Court enjoins Redmond from assuming his new position for six months and from ever using Pepsi’s trade secrets Court of Appeals affirms the ruling.

Pepsi Co. v. Redmond “[W]hen we couple the demonstrated inevitability that Redmond would rely on PCNA trade secrets in his new job at Quaker with the district court's reluctance to believe that Redmond would refrain from disclosing these secrets in his new position (or that Quaker would ensure Redmond did not disclose them), we conclude that the district court correctly decided that PepsiCo demonstrated a likelihood of success on its statutory claim of trade secret misappropriation.”

Pepsi Co. v. Redmond Implications Where you gain access to confidential and trade secret information while employed by Company 1, you may be prevented (at least for a period of time) from working with a competing Company 2 if you would inevitably disclose the information you learned while employed by Company 1. No need for Company 1 to prove that you took the information.

PhoneDog v. Kravitz, (N.D. Cal. Nov. 8, 2011) PhoneDog reviews and rates mobile products and services. Noah Kravitz works as reviewer at PhoneDog. PhoneDog provides Twitter handle: @PhoneDog_Noah Kravits tweets reviews Gains 17,000 Twitter followers

PhoneDog v. Kravitz Kravitz leaves PhoneDog PhoneDog askes Kravitz to relinquish Twitter account Kravitz changes handle to @noahkravitz and continues to use account PhoneDog sues for misappropriation of trade secrets - account followers and password

PhoneDog v. Kravitz Kravitz asks court to dismiss claims. Court refuses to dismiss the trade secret claim. Court suggests that it will be necessary to hear evidence about whether Twitter followers and account passwords are trade secrets. Case settles – terms confidential but Kravitz still using @noahkravitz

PhoneDog v. Kravitz Implications: Companies seek to protect social media accounts more vigorously now via contracts with employees.

EF Cultural Travel BV v. Explorica, Inc. 274 F.3d 577 (1st Cir. 2001) EF offers global teen tours Explorica competes with EF Several former EF employees work for Explorica Explorica's Internet consultant designs computer program called a "scraper" to glean all of the necessary information from EF's website.

EF Cultural Travel BV v. Explorica, Inc. Zefer utilized tour codes whose significance was not readily understandable to the public. With tour codes, scraper accessed EF's website repeatedly and easily obtained pricing information for those specific tours. Scraper sent more than 30,000 inquiries to EF's website and recorded the pricing information into a spreadsheet

EF Cultural BV v. Explorica, Inc. EF sues under the Computer Fraud and Abuse Act [Whoever] knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value ... shall be punished. Why CFAA? Federal jurisdiction

EF Cultural BV v. Explorica, Inc. District Court finds that act of scraping EF’s website using tour codes was violation of CFAA. Enters preliminary injunction. Appellate Court agrees and affirms. Implications There’s good scraping (e.g. Google, Yahoo!) There’s bad scraping (e.g. using confidential information in conjunction with bots)