1. R OAD TO R EFORM ON P ROTECTION & U TILIZATION OF T RADE S ECRET Hirokazu Honda, Attorney-at-Law Abe, Ikubo & Katayama Pre-Meeting AIPLA MWI Orlando, Florida Jan. 27, 2015

2. P RESENT S ITUATION OF L EAKAGE OF T RADE S ECRET Big scale of disputes on leakage of trade secret on basic technologies: the plaintiffs claim damages around/over 100 billion yen Nippon Steel & Sumitomo Metal v. Posco Technology on Manufacture of Steel sheet Toshiba v. Hynix Research data for flash memory Survey on Protection of Trade Secret in 2014 (METI) (through website) 85% of the companies answered the risk of leakage of technology and know-how was getting higher. Jan. 28, 2014 2 Abe, Ikubo & Katayama

3. P RESENT S ITUATION OF L EAKAGE OF T RADE S ECRET Open-Close Strategy -> Increasing Needs to Make Technology Secret Survey on Protection of Trade Secret “Nondisclosure of patentable inventions is increasing” … 29.1% “The leakage of the most important secret technology will fatal damage to management” … 49.6% Trade Secret other than Technical Information In many companies “customer information” and “marketing information” are managed as trade secrets. Jan. 28, 2014 3 Abe, Ikubo & Katayama

4. P ROTECTION OF T RADE S ECRET UNDER THE J APANESE L AW Wrongful acquiring, using, disclosing, etc. of trade secret may constitute torts under Civil Code but the provisions of torts are very general, hard to be established; remedy is basically compensation for damages only “A person who has intentionally or negligently infringed any right of others, or legally protected interest of others, shall be liable …” Article 709, Civil Code Protection under the Unfair Competition Prevention Act Special law of torts law defines “trade secret” and the wrongful acts on trade secret to be “unfair competition” provides remedies including injunction / criminal penalty Jan. 28, 2014 4 Abe, Ikubo & Katayama

5. P ROTECTION OF T RADE S ECRET UNDER THE U NFAIR C OMPETITION P REVENTION A CT Trade Secret means technical or business information useful for business activities, such as manufacturing or marketing methods, that is managed as secret and that is not publicly known Trade secret should be: 1. managed as secret; 2. useful for business activities; and 3. not publicly known. Jan. 28, 2014 5 Abe, Ikubo & Katayama

6. P ROTECTION OF T RADE S ECRET UNDER THE U NFAIR C OMPETITION P REVENTION A CT “managed as secret” Factors Limited Accessibility Limited employees are permitted to access Information in writing is stored in a locked place Electronic information is protected by passwords Copying is limited, etc. One can recognize that the information is secret Seal “secret” on the binders Passwords Knowledge by employees Internal rules on management of trade secret Lecture to employees Letters / agreements for confidentiality with employees Jan. 28, 2014 6 Abe, Ikubo & Katayama

7. P ROTECTION OF T RADE S ECRET UNDER THE U NFAIR C OMPETITION P REVENTION A CT The courts have fluctuated … Following factors have been used for both positive and negative to find the management: Kept information unlocked; employees can access Not requested employees to return information in hand Very few employees in a company Even in a case where the seal “confidential” was put on the documents, the information was not found as managed one, while in “no seal” case the information was found as managed. Jan. 28, 2014 7 Abe, Ikubo & Katayama

8. P ROTECTION OF T RADE S ECRET UNDER THE U NFAIR C OMPETITION P REVENTION A CT “ Trade Secret Management Guidelines” But… Jan. 28, 2014 8 Abe, Ikubo & Katayama -provide companies with strategies for effectively managing their valuable information -describe what measures will be positive on the management of secrets, based on many court decisions -The line is not clear: companies don’t know what to do for obtaining the legal protection -The standards recommended seem too strict: smaller, non-listed companies are hard to follow such standards

9. W HAT C ONSTITUTES “U NFAIR C OMPETITION ”? Acts by “the first acquirer” acquiring TS by theft, fraud, duress, or other wrongful means using / disclosing (incl. the disclosure in confidence to a specific person or persons) TS through the above wrongful acquisition using / disclosing TS disclosed by TS owner for the purpose of acquiring a wrongful gain, or causing injury to such owner Acts by one who acquired TS disclosed by another who conducted the above acts acquiring TS with the knowledge, or with gross negligence in not knowing, that there has been an intervening act of wrongful acquisition / disclosure, or using / disclosing TS so acquired using / disclosing an acquired TS after having learned, or having been grossly negligent in not learning, subsequent to its acquisition, that there has been an intervening wrongful acquisition / disclosure Jan. 28, 2014 9 Abe, Ikubo & Katayama

10. R EMEDIES ; S ANCTIONS Remedy for Infringement of Trade Secret Injunction Compensation for Damages Extinctive prescription (Statutes of Limitation) 3 years from learning of unfair competition and learning of the person committing such act 10 years from the time unfair competition began Penal Provisions Imprisonment with work for not more than 10 years, a fine of not more than ten million yen, or both Entity whose representative, agent, employee, or other worker has committed unfair competition shall be punished by a fine of not more than 300 million yen Except the first acquirer, only one who was disclosed TS from such acquirer (“the second acquirer”) is punished For everyone “for the purpose of acquiring a wrongful gain, or causing injury to such owner” is required Jan. 28, 2014 10 Abe, Ikubo & Katayama

11. D ISCUSSION ON P ROTECTION AND U TILIZATION OF T RADE S ECRETS Subcommittee on Protection and Utilization of Trade Secrets started discussion in September, 2014 Jan. 27, 2015 11 Abe, Ikubo & Katayama Ministry of Economy, Trade and Industry Industrial Structure Council Intellectual Property Committee Subcommittee on Protection and Utilization of Trade Secrets

12. I NTERIM S UMMARY BY S UBCOMMITTEE ( TO COLLECT PUBLIC COMMENTS ) Necessary Circumstances Minimum measurement for obtaining legal protection as trade secrets Multipronged measurement such as personnel matters, information security necessary for more effectiveness of protection of trade secrets Jan. 28, 2014 12 Abe, Ikubo & Katayama Basic Idea 1.Provide necessary circumstances to efficiently exercise the protection of leakage of trade secrets 2.Deter infringement of trade secrets in the aspects of both civil and criminal more strongly ・ Amendment of “Trade Secret Management Guidelines” ・ System on providing advices by lawyers and patent attorneys for such measurement

13. A MENDMENT OF “T RADE S ECRET M ANAGEMENT G UIDELINES ” Minimum standard measures necessary for the legal protection for trade secrets “best practice” “recommended measures” will be described in another “manual for protection of trade secrets” or like Management of trade secret Subject of management as secret (range of secret information) should be clarified to employees so that their foreseeability and stability of business are secured Intention to manage certain trade secrets should be clearly expressed to employees by measures of management so that employees’ recognizability is secured Content and extent of measures depends on the scale and type of companies, employees’ duties, character of information, etc. Jan. 28, 2014 13 Abe, Ikubo & Katayama

14. D ETERMENT OF I NFRINGEMENT OF T RADE S ECRETS IN L EGAL S YSTEM Criminal Provisions Expansion of the range of punishable conducts Raise of upper limit of a fine Amendment to offence without complaint Civil Provisions Mitigation of plaintiff’s burden of proof Extension of the period for enforcing the right to demand injunction, damages, etc. Expansion of the conducts to be the subject of injunction/damages Jan. 28, 2014 14 Abe, Ikubo & Katayama

15. E XPANSION OF THE R ANGE OF P UNISHABLE C ONDUCTS Intentional unfair acquisition of trade secrets abroad should be the subject of punishment. Existing Law “Use / disclosure” of trade secrets abroad which are managed in Japan is punishable. “Acquisition” of trade secrets abroad is not stipulated. Necessity Global business expansion Increase of trade secrets archived abroad, such as in cloud services Jan. 28, 2014 15 Abe, Ikubo & Katayama

16. E XPANSION OF THE R ANGE OF P UNISHABLE C ONDUCTS Intentional use / disclosure of trade secrets with knowledge that it was unjustly acquired should be the subject of punishment. Existing Law One who unjustly acquired trade secrets other than from “the first acquirer” of the secrets is not punished. Necessity Higher risk of stolen secrets widely/quickly distributed through high-spec information communication terminal, etc. Jan. 28, 2014 16 Abe, Ikubo & Katayama

17. E XPANSION OF THE R ANGE OF P UNISHABLE C ONDUCTS Transfer, import and/or export of goods with knowledge that it was made by using trade secrets should be the subject of punishment. Existing Law No punishment. Necessity Use of trade secrets is hard to be proved. Prohibition of the sale of products made by using such trade secrets should lead infringers to considering that such infringement of trade secrets will not pay. Jan. 28, 2014 17 Abe, Ikubo & Katayama

18. M ITIGATION OF B URDEN OF P ROOF If plaintiff proved: defendant unjustly acquired trade secrets; or defendant manufactured products which are manufactured by using trade secrets, the defendant’s use of trade secrets is legally presumed, and in turn the defendant has burden of proof of its non-usage of the trade secrets. Subjects of such shift of burden of proof Process of manufacturing products Technical trade secrets such as a method on assaying Jan. 28, 2014 18 Abe, Ikubo & Katayama

19. M ITIGATION OF B URDEN OF P ROOF … defendant manufactured “products which are manufactured by using trade secrets” Require considerable correlation between trade secrets at issue and defendant’s products, to exclude the technology less relevant to defendant’s products from the subjects for shift of burden of proof ○ [Trade Secret] technology on metal with special structure [Product] metal with special structure similar to the technology × [Trade Secret] technology outside manufacturing process (illumination; method for keeping cleanliness, etc.) [Product] all the products in defendant’s factory Jan. 28, 2014 19 Abe, Ikubo & Katayama

20. M ITIGATION OF B URDEN OF P ROOF Existing Law No provision. Necessity Hurdle to the proof of infringement Evidence on defendant’s use of trade secrets usually exists at the defendant’s side Limits of order to submit documents necessary for proving the infringement under Article 7 of the Act Rare to reach the issuance of the order Substantial time to examine the application of the order Jan. 28, 2014 20 Abe, Ikubo & Katayama

21. T HANK YOU FOR YOUR ATTENTION ! Hirokazu Honda, Attorney-at-Law Abe, Ikubo & Katayama E-mail: hirokazu.honda@aiklaw.co.jp URL: http://www.aiklaw.co.jphttp://www.aiklaw.co.jp Phone: +81-3-3273-2600 Fax: +81-3-3273-2033