Many companies assume that they need to choose between patent protections or trade secret protections for their intellectual property, thereby foregoing an important tool in their arsenal to protect key company assets. Some believe that these protections are diametrically opposed, as patents offer protection of intellectual property in exchange for public disclosure, whereas trade secrets offer protection for ideas, recipes, information, and technology, which has been kept confidential. However, despite the misconception that they are incompatible, trade secret and patent protections can be complementary means to protect IP, as evidenced by a recent Federal Circuit opinion which explored the intersection of patent law and trade secrets. Continue Reading Belt and Suspenders: Recent Federal Circuit Case Highlights Importance of Using Trade Secret and Patent Protections for IP
In Seyfarth’s seventh installment in its 2018 Trade Secrets Webinar Series, Seyfarth attorneys Andrew Boutros and John Schleppenbach focused on criminal liability for trade secret theft, including four key statutes, key elements for criminal prosecution, civil RICO under the Defend Trade Secrets Act, and best practices for avoiding misappropriation and for handling misappropriation when it occurs.
As a conclusion to this well-received webinar, we compiled a summary of takeaways:
- The theft of trade secrets is not only a civil violation — it is also a criminal act subject to serious fines and imprisonment. In an ever-increasing technological age where a company’s crown jewels can be downloaded onto a thumb drive, victims and corporate violators must be mindful of the growing role that law enforcement plays in this active area. And, in doing so, working with experienced counsel is critical to interfacing with law enforcement (especially depending on which side of the “v.” you are on), while still maintaining control of the civil litigation.
- With the advent of the Defend Trade Secrets Act, intellectual capital owners have a powerful new tool to both protect assets with as well potentially defend against. As such, processes must be in place to carefully screen new employees as well as provide vigilance over exiting employees so that one can guard against theft and be prepared to address purported theft brought to ones doorstep with a new hire. Finally, it is important to review and update agreements with the latest in suggested and required language to maximize protections that is best accomplished through annual reviews of local and federal statutes with one’s counsel.
- “Protect your own home” by putting tools in place before a trade secret misappropriation occurs. This includes taking a look at your employment agreements to make sure they are updated to comply with the Defend Trade Secrets Act (DTSA) and that they have been signed. In addition, make sure you have agreements in place with third parties (e.g., clients, vendors, contractors, suppliers) to protect your proprietary information. Finally, secure your network and facilities by distributing materials on a need-to-know basis: Don’t let your entire workforce have access.
On November 1, 2018, the California Court of Appeal, Fourth Appellate District affirmed a trial court’s ruling in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. et al., No. D071924, 2018 WL 5669154 (Cal. App. 2018), which (1) invalidated the plaintiff’s non-solicitation of employees provision in its Confidentiality and Non-Disclosure Agreements (CNDAs), (2) enjoined AMN from enforcing or attempting to enforce the employee non-solicitation provision in its CNDA with any of its former employees, and (3) awarded $169,000 in reasonable attorneys’ fees to defendants for plaintiff’s use of the provision.
The case is a significant decision which may impact some employers’ continued use of employee non-solicitation provisions with their California employees, at least in certain industries. There is now a split in California authorities and the issue is likely ripe for California Supreme Court guidance.
AMN and Aya are competitors in the business of staffing temporary healthcare professionals, namely providing “travel nurses” to medical care facilities across the country. When former employees, named as individual defendants in the action and who worked as travel nurse recruiters in California, left AMN for Aya, AMN brought suit against Aya and the former employees, asserting 11 causes of action, including for breach of contract and trade secret misappropriation. Continue Reading California Appellate Panel Affirms Injunction Blocking Use of Employee Non-Solicitation Provision in Dispute Between Travel Nurse Providers
As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Donal O’Connell, Managing Director of Chawton Innovation Services Ltd., and David Cohen.
Trade Secret’s New Found Prominence:
As we both have written previously, the changing nature of technology, product development and sales, and the patent enforcement landscape, have given trade secrets a new-found prominence.
Trade secrets are now becoming a much more significant part of a company’s value. As a result, trade secret asset management is becoming (and if not, it should become) a regular part of company board discussions and review. Continue Reading Fiduciary Duty with Respect to Trade Secret Asset Management
- Have trade secret protections. Built into the definition of a trade secret is the requirement to have reasonable secrecy measures. Companies that do not use non-disclosure agreements with their employees can be at a tremendous disadvantage if they decide to litigate against former employees for trade secret misappropriation. Well thought out policies, procedures, and agreements are a must to have defensible trade secret protections.
- Be careful who you hire and what baggage they may come with. Sometimes what appears too good to be true is in fact the case. Employers should take particular care when hiring high-level employees or sales employees from direct competitors. They should carefully review any restrictive covenants that the candidate has before extending an offer and ensure that the prospective employee does not bring data from their previous employer.
- Don’t be a company that has a “Do what I say not what I do approach.” Many company sabotage their own trade secret protections by requiring lower level and mid-level employees to follow policies, procedures, and agreements but then upper management, including executives, fail to abide by the same policies, procedures, and agreements—this can lead to a confused and disgruntled workforce. A culture of confidentiality, which is a staple of companies that adequately protect trade secrets, starts at the top.
- Protect your company trade secrets along the supply chain. In today’s global and mobile economy, companies often hire contractors, consultants, or third parties to assist with products or services. Those same third parties are often provided access to the company’s trade secrets as part of their role in the supply chain. Companies need to ensure that they have had adequate agreements and cybersecurity protections in place with those third parties to ensure that trade secrets are not compromised.
- Have coherent computer policies and enforce those policies. Companies conduct business via email and through the transfer and sharing of electronic files. Those files may contain trade secrets and can be easily transferred to a variety of storage devices and accounts, including computers, electronic devices, and the cloud. Companies should provide clear instructions to employees concerning acceptable use, storage, and transfer of company files and should enforce those policies. Some companies use software solutions to monitor compliance and prevent data extraction. Many trade secret cases involve the illicit transfer of company files to personal devices or accounts.
While these tips provide a good overview, it is highly recommended that you consult a Seyfarth attorney familiar with counseling or litigating trade secret matters to develop a robust plan to protect your company’s trade secrets and intellectual property.
On Thursday, October 25, 2018, at 3:30 p.m. Eastern, Seyfarth Partner Dawn Mertineit will be a panelist for Boston Bar Association’s first ever Employment Law Conference. The “Non-Compete Agreements—What You Need to Know About the New Law” presentation is focused on the recently passed Massachusetts non-compete law and how it’s been affecting businesses with Massachusetts employees.
For more information or to register, click here.
On October 9, Los Angeles County Superior Court Judge Frederick Shaller confirmed his tentative decision weeks earlier that the “show cause” penalty in the NCAA’s bylaws violates California law.
The decision was issued as a tentative ruling on plaintiff (former running back coach at USC) Todd McNair’s claim for declaratory relief. McNair sought—and received—a determination that the NCAA bylaw provisions including the “show cause order” penalty levied against him were void under Cal. Bus. & Prof. Code § 16600. Continue Reading California State Court Rules that NCAA “Show Cause” Penalty Constitutes an “Unlawful Restraint” Under California Law
A government contractor learned the hard way that bid documents containing trade secrets are not protected from disclosure in Massachusetts. On September 21, 2018, a Massachusetts U.S. District Court judge ruled that the Defend Trade Secrets Act (DTSA) doesn’t bar requests under the public records law for bid proposals containing a contractor’s trade secrets. Continue Reading No Protection Under The DTSA for Bid Documents Containing Trade Secrets
When negotiations for acquisition and licensing fell through between Swarmify and Cloudflare in 2017, Swarmify brought several claims against Cloudflare, including state and federal claims for misappropriation of trade secrets.
Swarmify, a startup developing video streaming technology, first entered into negotiations with Internet content-delivery giant Cloudflare in 2016. After a second round of acquisition talks in June of 2017 failed to produce an agreement, Swarmify returned to the development of its technology. Three months later, Cloudflare posted two blog articles on its website detailing the introduction of its new video streaming solution to the market. These two blog posts are the main basis for Swarmify’s claims against Cloudflare. Continue Reading California Federal Court Awards Fees From Trade Secret Plaintiff For Continuing To Litigate After Misappropriation Claim Was Rendered “Objectively Specious”
As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Donal O’Connell, Managing Director of Chawton Innovation Services Ltd.
An IP Holding Company exists to hold intellectual property on behalf of one or more other companies but does not necessarily manufacture products or supply services based upon the IP held. Continue Reading IP Holding Companies: Trade Secrets & Trade Secret Asset Management