1. Navigating Trade Secrets
Charlie Damschen

2. Trade Secrets Are Fun! (And they can be quite valuable.)
© Hamilton IP Law, PC, 2016.

5. Trade Secrets Are Fun! (And they can be quite valuable.)
Popeyes Louisiana Kitchen
Recipes were owned by DFS
Popeyes paid DFS a royalty to use various recipes for over 20 years
In 2014 Popeyes acquired trade secret recipes from DFS for $43MM
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6. Trade Secrets Are Delicate
Trade Secrets Are Delicate! (And if one is made public, it is lost forever.)

7. Trade Secrets Are Powerful! (Some are constantly changing and improving.)

8. Overview Uniform Trade Secrets Act (“UTSA”)
Economic Espionage Act (“EEA”)
Defend Trade Secrets Act (“DTSA”), which amended the EEA
Key differences between DTSA and UTSA
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9. UTSA
Completed by the Uniform Law Commissioners in 1979, amended in 1985
From ULC website, “UTSA provides a legal framework for improved trade secret protection for industry”
Versions of the UTSA have been enacted in 48 states, DC, Puerto Rico and U.S. Virgin Islands (versions introduced in Massachusetts and New York this year)
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10. UTSA
Key Provisions
Generally, liability requires improper acquisition, disclosure, or use of a trade secret (Prefatory Note)
Actual or threatened misappropriation may be enjoined (Sec. 2)
Aggrieved party may receive damages for both (1) actual loss and (2) unjust enrichment (Sec. 3)
Prevailing party may receive attorney’s fees if (1) claim of misappropriation made in bad faith; (2) motion to terminate injunction is made or restricted in bad faith; or (3) misappropriation is willful and malicious (Sec. 4)
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11. Key Provisions (con’t.)
UTSA
Key Provisions (con’t.)
Three-year statute of limitations based on reasonable diligence to discover misappropriation (Sec. 6)
Other remedies still available, such as contractual remedies, criminal remedies, and other civil remedies not based upon trade secret misappropriation (Sec. 7)
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12. UTSA Key Definitions “Trade Secret”
information (e.g., formula, pattern, compilation, program, device, method, technique, process) that
derives independent economic value from not being generally know or readily ascertainable and
is the subject of reasonable efforts to maintain its secrecy
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13. Key Definitions (con’t.)
UTSA
Key Definitions (con’t.)
“Misappropriation” applies to three acts
acquisition of a trade secret by a person who knows or has reason to know that it was acquired by improper means or
disclosure or use of a trade secret without express or implied consent by a person who
used improper means to acquire knowledge of trade secret, or
at time of disclosure or use, knew or had reason to know that knowledge of trade secret was: (1) derived from person who utilized improper means; (2) acquired under circumstances implicating duty to maintain secrecy; or (3) derived from person under duty to maintain secrecy; or
before a material change of the person’s position, knew or had reason to know that information was a trade secret and that it had been acquired by accident or mistake
© Hamilton IP Law, PC, 2016.

14. Key Definitions (con’t.)
UTSA
Key Definitions (con’t.)
“Improper means” include
theft
bribery
misrepresentation
breach of duty to maintain secrecy
inducement of breach of duty
espionage
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15. UTSA State Implementation
Some states have enacted UTSA as amended in 1985, some have enacted 1979 version, and some have enacted a version with language from both
Some states have only enacted portions, and many have modified language
Additional variation in court interpretation
Fifteen states did not include Sec. 8 (AL, AZ, GA, HI, ID, IL, IA, MN, ND, ME, NM, NE, NV, NJ, NC)
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16. State Implementation (con’t.)
UTSA
State Implementation (con’t.)
Iowa—Iowa Code § 550
Definition of misappropriation removed language “without express or implied consent,” which applies to acts of disclosure and use
Express or implied consent related to disclosure or use must be plead as an affirmative defense
Did not enact Sec. 7 regarding preemption of other remedies
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17. State Implementation (con’t.)
UTSA
State Implementation (con’t.)
Minnesota—even without express or specific notice that information constituted a trade secret, trade secret can still exist if under the circumstances employee should know
Illinois—definition of “trade secret” does not include requirement that the information cannot be readily ascertainable and included “technical or non-technical data,” “drawing,” “financial data,” and customer and supplier lists
© Hamilton IP Law, PC, 2016.

18. State Implementation (con’t.)
UTSA
State Implementation (con’t.)
Wisconsin—amended definition of “misappropriation” to remove requirements that person knew or had reason to know, that knowledge of it was acquired by accident or mistake, and that it occur before a material change in the person’s position
Missouri—did not adopt section for attorney’s fees; 5-year statute of limitations
Nebraska—did not adopt exemplary damages or attorney’s fees provisions; 4-year statute of limitations; eliminated “readily” as modifier in definition of “trade secret”
© Hamilton IP Law, PC, 2016.

19. UTSA Interesting Cases
Silleck et al. v. PepsiCo (S.D.N.Y., filed 05/03/12)
Heirs of creator of Pepsi filed DJ asking court to rule that the documents relating to creation of the formula in 1931 are their property
Pepsi claims those documents are its trade secrets
Pepsi creator developed formula in 1931 while working for another company and did not work for Pepsi until 1939; left Pepsi in 1951 and signed agreement to not disclose formula to competitors, but silent regarding heirs’ use of formula and returns of documents
© Hamilton IP Law, PC, 2016.

20. Interesting Cases (con’t.)
UTSA
Interesting Cases (con’t.)
Zynga v. Alan Patmore (San Francisco County Sup. Ct. CA, filed 10/12/12)
Zynga (Words With Friends) alleges former employee Patmore stole game designs and strategic roadmaps and breached confidentiality agreement
Patmore allegedly transferred over 700 confidential files to his personal Dropbox before he left
Settled in 2013 with Patmore admitting taking confidential information and apology
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21. Interesting Cases (con’t.)
UTSA
Interesting Cases (con’t.)
America’s Test Kitchen v. Christopher Kimball et al. (Suffolk County Sup. Ct., Mass., filed 10/31/16)
Kimball founded America’s Test Kitchen magazine and hosted Public Television show America’s Test Kitchen from 2011 to 2015
In 2015, Kimball founded Milk Street Kitchen
ATK alleges Kimball stole recipes, TV show ideas, and media contracts and subscriber info
ATK seeking disgorgement of profits for misappropriation and breach of fiduciary duty
© Hamilton IP Law, PC, 2016.

22. Economic Espionage Act (“EEA”)
Federal law enacted in 1996, 18 U.S.C. §§ 1831–39 (subsequently amended by the Foreign and Economic Espionage Penalty Enhancement Act of 2012 and Defend Trade Secrets Act of 2016)
Implemented in response to attempts by foreign governments to gain access to trade secrets of US companies (See Senate testimony by then-FBI director Louis J. Freeh)
Applies to conduct occurring outside the US
Originally provided no private civil causes of action (standing limited to U.S. Attorney General)
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23. EEA Two separate offenses:
Misappropriation of trade secret with the intent to benefit a foreign entity (§ 1831, entitled “Economic espionage”)—requires approval by Assistant Attorney General for the Nat’l Sec. Div.
Misappropriation of trade secret with the intent to benefit anyone other than lawful owner or to injure the owner (§ 1832, entitled “Theft of trade secrets”)
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24. EEA
§ 1831 Provisions
Requires intent or knowledge that trade secret misappropriation will benefit a foreign entity
Actions that may constitute misappropriation include (knowingly)
stealing, taking, and carrying away
obtaining by fraud or deception
copying, duplicating, sketching, drawing, photographing, downloading, transmitting
knowingly receiving, buying, or possessing
conspiring with one or more persons to commit one or more of the above
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25. EEA § 1831 Provisions (con’t.)
Penalties for individual includes fines up to $5MM and/or imprisonment for up to 15 years
Penalties for organization includes fines up to $10MM or 3 times the value of the stolen trade secret to owner (including R&D costs)
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26. EEA
§ 1832 Provisions
Requires intent to convert a trade secret, and intent or knowledge that misappropriation will injure trade secret owner
Trade secret related to product or service used in foreign or interstate commerce
Actions that may constitute misappropriation include (knowingly) those from § 1831
© Hamilton IP Law, PC, 2016.

27. EEA § 1832 Provisions (con’t.)
Penalties for individual includes fines and/or imprisonment for up to 10 years
Penalties for organization includes fines up to $5MM or 3 times the value of the stolen trade secret to owner (including R&D costs)
© Hamilton IP Law, PC, 2016.

28. EEA (DTSA) Key Definitions, § 1839 “Trade Secret” (similar to UTSA)
all forms and types of information (e.g., financial, business, scientific, technical, economic, engineering) that
the owner thereof has taken reasonable measures to keep secret and
derives either actual or potential economic value from not being readily know or generally ascertainable by another person who can obtain that economic value
© Hamilton IP Law, PC, 2016.

29. Key Definitions, § 1839 (con’t.)
EEA (DTSA)
Key Definitions, § 1839 (con’t.)
“Misappropriation” (nearly identical to UTSA and also applies to three acts):
acquisition of trade secret by a person who knows or has reason to know acquisition was by improper means or
disclosure or use without express or implied consent by a person who
used improper means to acquire knowledge of trade secret, or
at time of disclosure or use, knew or had reason to know that knowledge of trade secret was: (1) derived from person who utilized improper means; (2) acquired under circumstances implicating duty to maintain secrecy; or (3) derived from person under duty to maintain secrecy; or
before a material change of the person’s position, knew or had reason to know that the information was a trade secret and that it had been acquired by accident or mistake
© Hamilton IP Law, PC, 2016.

30. Key Definitions, § 1839 (con’t.)
EEA (DTSA)
Key Definitions, § 1839 (con’t.)
“Improper means” include
theft
bribery
misrepresentation
breach of duty to maintain secrecy
inducement of breach of duty
espionage
*explicitly does not include
reverse engineering
independent derivation
any other lawful means of acquisition
© Hamilton IP Law, PC, 2016.

31. EEA
Notable Cases
United States v. Liew (Chinese individual)—N.D. Cal. (2014)
Walter Liew sentenced to 15 years in prison and fined $28MM for theft of DuPont trade secrets pertaining to production of white pigment, titanium dioxide (China)
Walter Liew’s wife plead out for 3 years of probation and restitution to IRS for $6MM
© Hamilton IP Law, PC, 2016.

32. EEA Notable Cases (con’t.)
United States v. Wang Dong et al. (Five Chinese state actors)—W.D. Penn. (filed 05/01/14)
Filed in 2014 alleging cyber espionage resulting in
theft of technical and design specs for pipes, pipe supports, pipe routing, etc. of Westinghouse power plant
theft of confidential info from SolarWorld regarding cash flow, manufacturing metrics, production line, costs, etc.
installing malware on U.S. Steel computers to identify and exploit vulnerable servers
theft of ATI employee credentials
theft of USW and Alcoa s
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33. EEA Notable Cases (con’t.)
United States v. Hanjuan Jin (Chinese individual)—N.D. Ill. (aff’d, 7th Cir. 2013)
Jin was employee of Motorola from 1998 to 2007 and worked for Chinese company during one-year leave of absence
Apprehended by customs at O’Hare with $31k cash, one-way ticket to China, and thousands of Motorola documents describing Motorola’s iDEN mobile communications system
7th Circuit upheld 48-month jail sentence
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34. Defend Trade Secrets Act (DTSA)
Enacted on May 11, 2016 and applies to acts of trade secret misappropriation on or after that date
Substantially amended the EEA to provide a private cause of action for misappropriation
Does not preempt any state law causes of action for misappropriation
Provides unique seizure mechanism to prevent wrongful dissemination
Congress desired to make DTSA parallel with UTSA
Can use civil action to make criminal referral
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35. DTSA Key Provisions, § 1833 Provides immunity for
government entity (state and federal)
individual (civil and criminal) for disclosure of a trade secret to the government or in a court filing if disclosure
is made in confidence to government official, either directly or indirectly, or to an attorney, and
solely for the purpose or reporting or investigating suspected illegal act OR
is made under seal in lawsuit or other proceeding
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36. Key Provisions, § 1833 (con’t.)
DTSA
Key Provisions, § 1833 (con’t.)
If individual files a lawsuit for claiming retaliation by employer, anti-retaliation provision allows disclosure of trade secret from individual to attorney if
any document containing trade secret filed under seal and
individual does not disclose trade secret except pursuant to court order
Immunity provisions require employer to provide notice of same
© Hamilton IP Law, PC, 2016.

37. DTSA
Key Provisions, § 1836
Amended to include new private civil cause of action (§ 1836(b)(1)) and civil seizure provision (§ 1836(b)(2))
Seizure provision—court may, upon ex parte application under extraordinary circumstances, issue order for seizure of property deemed necessary to prevent dissemination of the trade secret
to grant such an order, court must find that
another form of equitable relief would be inadequate
an immediate and irreparable injury will occur if seizure is not ordered
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38. Key Provisions, § 1836 (con’t.)
DTSA
Key Provisions, § 1836 (con’t.)
harm to applicant in denying seizure outweighs harm to other party and substantially outweighs harm to any third parties
applicant is likely to succeed in showing that (1) the information is a trade secret; and (2) the other party misappropriated the trade secret by improper means OR conspired to use improper means
the other party has actual possession of both the trade secret and any property to be seized
application describes property to be seized and location of same with reasonable clarity
other party would destroy, move, hide, etc. such property if notified and
applicant has not publicized the requested seizure
© Hamilton IP Law, PC, 2016.

39. Key Provisions, § 1836 (con’t.)
DTSA
Key Provisions, § 1836 (con’t.)
Remedies (§ 1836(b)(3)) include
injunction
however, injunction requires actual evidence of threatened misappropriation and cannot conflict with other state law
damages for
actual loss caused by misappropriation
unjust enrichment not addressed in actual loss or
reasonable royalty
© Hamilton IP Law, PC, 2016.

40. Key Provisions, § 1836 (con’t.)
DTSA
Key Provisions, § 1836 (con’t.)
Remedies (§ 1836(b)(3)) include
willful and malicious misappropriation may allow doubling of damages
attorney’s fees may be awarded if
claim for misappropriation is brought in bad faith
motion to terminate an injunction is made or opposed in bad faith or
misappropriation was willful and malicious
three-year statute of limitations based on reasonable diligence to discover misappropriation
© Hamilton IP Law, PC, 2016.

41. DTSA Recent Cases Panera v. Nettles and Papa John’s (filed 07/19/16)
Panera brought suit under DTSA and Missouri Uniform Trade Secret Act seeking injunctive relief; also claims of breach of contract and tortious interference with contractual relations
Nettles was Panera’s VP of Architecture in its IT department
Panera alleges Nettles misused or will misuse confidential information such as thought processes, visions, and schematics for technology systems, and that he has intimate knowledge of Panera’s strategic plans and copied Panera’s confidential info to his personal devices
On August 15, 2016, judge ordered Nettles to quit at Papa John’s
© Hamilton IP Law, PC, 2016.

42. DTSA Recent Cases (con’t.) Shapiro v. Hasbro (C.D. CA, filed 08/02/16)
Shapiro submitted new pony designs to Hasbro, which passed on the idea, then begin selling very similar ponies about 1.5 years later
Shapiro had previously filed suit alleging misappropriation under California state law, breach of contract, and copyright infringement
Court denied Shapiro’s motion for a preliminary injunction in this case based on a finding of independent creation
© Hamilton IP Law, PC, 2016.

43. Key Differences between DTSA and UTSA
Original federal jurisdiction for DTSA actions
Ex parte seizure available in DTSA
Extraterritorial provision in DTSA (§ 1837)
Immunity for certain disclosures in DTSA (employer responsibility to notify employees)
Potential to refer to criminal action in DTSA and RICO predicate act
DTSA limits inevitable-disclosure type injunctions and those that would conflict with other state law
Can enjoin threatened misappropriation under UTSA
DTSA applies to conduct that began prior to May 11, 2016 provided that conduct continues (Adams Arms v. Unified Weapons Systems)
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44. Potential Differences between DTSA and UTSA
UTSA definition of “trade secret” might be broader
“under the circumstances” regarding reasonableness
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45. Questions? Charlie@HamiltonIPLaw.com www.HamiltonIPLaw.com
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