confidentiality agreements

Throughout 2018, Seyfarth Shaw’s dedicated Trade Secrets, Computer Fraud & Non-Competes Practice Group hosted a series of CLE webinars that addressed significant issues facing clients today in this important and ever-changing area of law. The series consisted of seven webinars:

  1. 2017 National Year in Review: What You Need to Know About the Recent Cases/Developments in Trade Secrets, Non-Compete and Computer Fraud Law
  2. Protecting Confidential Information and Client Relationships in the Financial Services Industry
  3. The Anatomy of a Trade Secret Audit
  4. Protecting Trade Secrets from Cyber and Other Threats
  5. 2018 Massachusetts Non-Compete and Trade Secrets Reform
  6. Protecting Trade Secrets Abroad and Enforcing Rights Abroad and in the U.S.
  7. Criminal Trade Secret Theft: What You Need to Know

As a conclusion to this well-received 2018 webinar series, we compiled a list of key takeaway points for each program, which are listed below. For those clients who missed any of the programs in this year’s series, recordings of the webinars are available on the blog, or you may click on the title of each available webinar below for the online recording. Seyfarth Trade Secrets, Computer Fraud & Non-Compete attorneys are happy to discuss presenting similar presentations to your company for CLE credit. Seyfarth will continue its trade secrets webinar programming in 2019, and we will release the 2019 trade secrets webinar series topics in the coming weeks. Continue Reading 2018 Trade Secrets and Non-Competes Webinar Series Year in Review

A small, Chicago-based magnetic picture frame developer’s claims for trade secret misappropriation against a photo album manufacturer will be headed to trial after an Illinois federal district court largely denied the parties’ cross-motions for summary judgment. Puroon, Inc.’s (“Puroon”) founder and CEO, Hyunju Song, developed the “Memory Book,” “an all-in-one convertible photo frame, album, and scrapbook” that included magnetic openings and an “interchangeable outside view.” In 2013, Puroon launched a website displaying the Memory Book and Song attended various trade shows where attendees were able to interact with the product. Song also sent samples of the Memory Book to representatives of certain retailers without requiring them to sign a nondisclosure agreement. Continue Reading Are Mom-and-Pop Companies Treated Differently When it Comes to Abandoning Trade Secrets? A Federal Court in Illinois Says Yes.

In Seyfarth’s sixth installment in its 2018 Trade Secrets Webinar Series, Seyfarth attorneys Daniel Hart, Marjorie Culver, Alex Meier, and Paul Yovanic Jr. focused on how to identify the greatest threats to trade secrets, tips and best practices for protecting trade secrets abroad, and enforcement mechanisms and remedies.

As a conclusion to this well-received webinar, we compiled a summary of takeaways:

  • You don’t want to be in a position where you’re relying exclusively on trade secrets law to protect proprietary information. When possible, execute a confidentiality agreement. This will not only protect a wider range of information, but also often helps with securing pre-discovery injunctive relief.
  • In order to adequately protect trade secrets abroad, companies should inform employees of the important nature of secret information, take steps to secure secret information and limit access only to necessary employees, and avoid liability without culpability by revising employment agreements and informing new hires of the prohibited conduct.
  • Restrictive covenants abroad are easier to enforce when agreements are narrowly tailored for duration, geographic scope, and nature and when penalties are reasonable.
  • For international misappropriation, consider whether you want to pursue relief in the foreign jurisdiction or in the United States. The Defend Trade Secrets Act and, in some instances, Section 337 actions before the International Trade Commission rules offer powerful alternatives to proceedings in other jurisdictions.

Tervis Tumbler Company, the maker of the infamous insulated tumblers, has found itself in hot water with a former supplier, Trinity Graphic. Trinity filed suit in the Middle District of Florida against Tervis and its new supplier, Southern Graphics, alleging misappropriation of trade secrets under both the Defend Trade Secrets Act (“DTSA”) and Florida trade secret statute along with breach of confidentiality and non-disclosure agreement, fraud, aiding and abetting, and civil conspiracy. Trinity seeks compensatory, exemplary and punitive damages, disgorgement of profits related to the misappropriation and attorney’s fees and costs.

In support of its claims, Trinity alleges that it “revolutionized” the creation of tumbler inserts with the development of its “Trinity Wrap.” Trinity further alleges that before it created the Trinity Wrap at Tervis’ request, Tervis was limited to the use of “crude and costly embroidery or flat one-sided images.” In creating the Trinity Wrap, Trinity purports to have developed two trade secrets: a printing method that reduces static electricity during the printing process, resulting in increased visual sharpness and a second printing method using a state of the art printer to perfectly align images printed on both sides of a transparent medium. Continue Reading Popular Insulated Cup Manufacturer in Hot Water over Alleged Trade Secret Misappropriation

Throughout 2017, Seyfarth Shaw’s dedicated Trade Secrets, Computer Fraud & Non-Competes Practice Group hosted a series of CLE webinars that addressed significant issues facing clients today in this important and ever-changing area of law. The series consisted of six webinars:

  1. 2016 National Year in Review: What You Need to Know About the Recent Cases/Developments in Trade Secrets,
    Non-Compete and Computer Fraud Law
  2. Simple Measures for Protecting Intellectual Property and Trade Secrets
  3. Protecting Confidential Information and Client Relationships in the Financial Services Industry
  4. Protecting Your Trade Secrets in the Pharmaceutical Industry
  5. Trade Secret Protection: What Every Employer Needs to Know
  6. Protecting Trade Secrets in the Social Media Age

Continue Reading 2017 Trade Secrets Webinar Series Year in Review

In Seyfarth’s third webinar in its series of 2017 Trade Secrets Webinars, Seyfarth attorneys Justin Beyer, Marcus Mintz, Dean Fanelli, and Thomas Haag focused on how to define and protect trade secrets in the pharmaceutical industry, including: reviewing significant civil and criminal cases in the industry, discussing how federal and state trade secret statutes and decisions may impact the protection of trade secrets, and suggested best practices for protecting trade secrets from invention through sale.

As a conclusion to this well-received webinar, we compiled a summary of takeaways: Continue Reading Webinar Recap! Protecting Your Trade Secrets in the Pharmaceutical Industry

shutterstock_370595594We are pleased to announce the webinar “Trade Secret Audits: You Can’t Protect What You Don’t Know You Have” is now available as a webinar recording.

In Seyfarth’s ninth installment in the 2016 Trade Secrets Webinar Series, attorneys Robert Milligan, Eric Barton, and Scott Atkinson focused on trade secret audits. It is not uncommon for companies to find themselves in situations where important assets are overlooked or taken for granted. Yet, those same assets can be lost or compromised in a moment through what is often benign neglect. Experience has shown that companies gain tremendous value by taking a proactive, systematic approach to assessing and protecting their trade secret portfolios through a trade secret audit.

As a conclusion to this well-received webinar, we compiled a summary of three takeaways that were discussed during the webinar:

  • As part of any trade secret audit, confidentiality agreements should be updated to include the new immunity language required by the Defend Trade Secrets Act (DTSA) to preserve the company’s right to exemplary damages and attorney’s fees under the DTSA.
  • A trade secret audit, and the resulting protection plan, should have three primary goals:

(1)  Ensure that a company’s trade secrets are adequately identified and protected from disclosure;

(2)  Ensure that a company has taken adequate steps to protect itself in litigation if a trade secret is misappropriated; and

(3)  Limit the risk of exposure to other companies’ claims of trade secret misappropriation.

  • As part of a trade secret audit, onboarding and off-boarding procedures are evaluated to ensure that the intellectual property rights of third parties and the company are respected.

shutterstock_263632130By Ada W. Dolph

In a post-script to the SEC’s April 1 cease and desist order penalizing KBR, Inc. for a confidentiality statement that failed to carve out protected federal whistleblower complaints (our alert on it here), SEC Office of the Whistleblower Chief Sean McKessy today made additional comments that suggest public companies as well as private companies that contract with public companies should immediately review their agreements for compliance.

In a webinar sponsored by the American Bar Association titled “New Developments in Whistleblower Claims and the SEC,” McKessy commented on the recent KBR Order. Here are the key takeaways:

SEC Rule 21F-17 is “Very Broad

McKessy stated that he views the SEC Rule 21F-17 as “very broad,” and “intentionally so.” The Rule provides in relevant part:

(a)       No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.

McKessy said that he reads the Rule as stating that “no person shall take any action” to impede an individual from communicating directly with the SEC.

Agreement Review a Continued High Priority for the SEC

McKessy stated that this initiative remains a “priority” for him and his office. “To the extent that we have come across this language [restricting whistleblowers] in a Code of Conduct” or other agreements, the SEC has taken the position that it “falls within our jurisdiction and we have the ability to enforce it.”

He noted that “KBR is a concrete case to demonstrate what I have been saying,” referencing public remarks he has made in the past regarding SEC scrutiny of employment agreements. He stated that the agency is continuing to take affirmative steps to identify agreements that violate the Rule, including soliciting individuals to provide agreements for the SEC to review. Additionally, he reported that the SEC is reviewing executive severance agreements filed with Forms 8-K for any potential violations of the Rule.

The KBR Language is Not a “Safe Harbor”

When asked whether the language required as part of the KBR Order constituted a “safe harbor,” McKessy stated that he would “not go that far,” and that each agreement will be viewed in context. He described the language in the KBR Order as “certainly instructive” but “not restrictive” and not insulating a company from further scrutiny by the SEC. He also stated that it is “really not appropriate for me to bless any language,” and suggested that the same language could be acceptable in one context but not in another depending on the company’s approach to encouraging employees to come forward to report alleged securities fraud.

KBR Could Be Applied to Private Companies

McKessy was also asked whether the SEC would apply the KBR Order to private companies under the U.S. Supreme Court’s 2014 ruling in Lawson v. FMR LLC, 134 S.Ct. 1158 (2014), which expanded Sarbanes-Oxley’s whistleblower protections to employees of private companies who contract with public companies.

McKessy stated that the SEC has not officially taken a position on this issue, but in his personal opinion he can “certainly can see a logical thread behind the logic of the Lawson decision” to be “expanded into this space [private companies],” and that “anyone who has read the Lawson decision can extrapolate from it the broader application.”

SEC Not Bound By Agreements Precluding Production of Company Documents

McKessy was asked regarding the SEC’s position regarding the disclosure of company documents by whistleblowers in their complaints to the agency. He said that it will “surprise no one that companies have a 100% record” of preferring that company documents not be provided to the SEC. But, “[a]t the end of the day” he stated that any kind of agreement restricting an employee from providing company documents to the SEC is not enforceable against the SEC and companies should not “bank on the fact” that the SEC would “feel bound” by that agreement in any way.

McKessy took a more measured approach with regard to privileged company documents, however. McKessy stated that the SEC is “not interested in getting privileged information” and that the SEC discourages whistleblowers and their counsel from providing privileged information as part of their complaints. He noted that while there are “certain exceptions to privilege,” he would “hate to leave the impression that [the agency] is looking to create to create an army of lawyers who can ignore their confidentiality requirements because of the possibility of being paid under our [Dodd-Frank bounty] program.”

Next Steps for Companies

McKessy concluded his remarks on this issue by stating that “[t]his is the time for the company to take a look at standard, standing severance and confidentiality agreements.”

In short, it is clear that we can expect further SEC enforcement actions in this area. Public companies and private companies that contract with public companies should consult with counsel to review their employment agreements to be sure they will not be the next to be caught in the SEC’s crosshairs.

Ada W. Dolph is Team Co-Lead of the National Whistleblower Team. If you would like further information on this topic, please contact a member of the Whistleblower Team, your Seyfarth attorney or Ada W. Dolph at adolph@seyfarth.com.

By Joshua Salinas and Jessica Mendelson

The secret is out, Tic Tacs and bubblegum have the most valuable and desirable real estate in the entire grocery store.

On September 27, 2012, a district court for the Eastern District of New York granted in part and denied in part a motion to dismiss in a commercial dispute arising out of the home of these consumables–grocery checkout displays. Dorset Industries, Inc. v. Unified Groceries, Inc, 2012 WL 4470423 (E.D.N.Y. Sept. 27, 2012).

The dispute arose when the defendant, inter alia, allegedly misappropriated the plaintiff’s trade secrets and confidential information to allegedly create a competing business program that marketed checkout areas, which also allegedly “cut out” the plaintiff from their alleged exclusive business arrangement.

Plaintiff Dorset Industries develops and implements “checkout programs,” which allegedly allow grocers to maximize their sales opportunities by utilizing the front end of checkout areas. These areas are believed to be the most desirable real estate in the store as the volume of foot traffic is unmatched. To capitalize on this valuable marketing opportunity, Dorset allegedly uses its “knowhow, experience, and intellectual property” to design and manufacture display units for the grocers, and accordingly leases space in those displays to manufacturers of grocery products (e.g. candy, magazines, and health and beauty products).

Defendant Unified Groceries is allegedly one of the largest retailer-owned grocery cooperatives, and allegedly the largest wholesale grocery distributor in the Western United States. Unified allegedly signed agreements with Dorset to implement Dorset’s checkout programs. Under the alleged agreements, Unified would be responsible for finding retail grocers within its member stores to sign up for Dorset’s checkout program; Dorset would be exclusively responsible for providing the displays and leasing the spaces out to manufacturers. Both parties would share in the resulting income stream.

Unified also signed confidentiality and non-disclosure agreements that restricted the use and disclosure of any business information provided by Dorset concerning the business methods and procedures of its checkout programs.

A dispute arose when Unified allegedly attempted to circumvent the parties’ business arrangement by creating its own checkout program and dealing directly with the manufacturers to lease the checkout display space. Consequently, Unified was allegedly able to “cut out” the intermediary (i.e. Dorset) and contract with the manufacturers directly–thereby obtaining 100% of the income stream. Unified also allegedly notified Dorset that it was terminating their program agreements, although the timing and sufficiency of that notification was disputed.

Dorset sued Unified in New York state court, alleging breach of contract, breach of the confidentiality agreement, usurpation of corporate opportunity, and unfair competition. Dorset also sought a declaratory judgment that the agreement’s termination was invalid. Unified subsequently removed the case to the Eastern District of New York and filed a motion to dismiss the entire lawsuit pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.

The significance of this case concerns the Court’s analysis of the third cause of action–breach of confidentiality and non-disclosure provisions. Unified contended that (1) Dorset failed to identify any confidential information allegedly used by Unified in creating its competing checkout program, (2) any such information was not confidential, and (3) Dorset failed to adequately allege that Unified misappropriated any confidential information. The Court disagreed.

The Court recognized that under New York law, a combination of characteristics and components in the public domain could be a protectable trade secret when uniquely combined into a unified process or product. The Court found that Dorset had set forth facts plausibly alleging that the information allegedly utilized by Unified constituted confidential information and/or trade secrets when Dorset identified this information as “checkout counter programs and its business model, plan-o-grams and designs, methods and procedures … including creating and designing the specific Program for Unified.”

Additionally, the Court found that Dorset adequately alleged that it took reasonable efforts to guard the secrecy of its trade secret, confidential, and proprietary information because Dorset alleged that it (i) restricted access to certain information within the company, (ii) utilized passwords to protect its computer system, (iii) limited remote access to those with authority, and (iv) limited access to certain documents containing confidential information within the company. The Court also underlined Dorset’s use of confidentiality and non-disclosure agreements, which defined such confidential and proprietary information and which also contained several express restrictive covenants, including specific covenants of non-disclosure of trade secrets and confidential and proprietary information.

The Court emphatically rejected Unified’s argument that Dorset’s complaint required a greater level of specificity at the pleading stage.

This case is also noteworthy considering the fact that Dorset allegedly admitted that it does not even know whether Unified had actually used or disclosed any confidential information, or whether it was merely speculating that it might do so at some unspecific future date. Unified contended that, at most, Dorset had alleged that Unified misappropriated a single form used for entering into agreements with vendors, and that the form did not constitute trade secret or confidential information because it was a one page five line form that contained nothing more than basic contact information.

The Court explained that it could plausibly infer that the confidentiality provisions were violated by Unified when it allegedly created its competing checkout program. Specifically, the court reasoned that (1) the form supported the inference that Unified created a checkout program that utilized the same methods and procedures as the Dorset program, (2) Unified had previously admitted to Dorset its intent to take over Dorset’s program after observing it for several years, and (3) the subsequent decline of customers that signed up for Dorset’s program compared to previous years implied that Unified began enrolling customers into its competing program. Thus, the Court found a reasonable inference from Dorset’s allegations that Unified had created a checkout display program that would replicated the allegedly confidential “methods or procedures” used in operating Dorset’s program.

Accordingly, the court denied Unified’s motion to dismiss as to Dorset’s claim for breach of confidentiality and non-disclosure provisions. The court also granted Unified’s motion to dismiss on the unfair competition and usurpation of opportunities claims, and granted in part and denied in part the claims for declaratory judgment and breach of implied covenant of good faith and fair dealing.

This case reminds us of the importance of non-disclosure and confidentiality agreements when conducting business with third parties. The existence of these agreements is often the deciding factor when analyzing whether the trade secret holder took reasonable efforts to maintain and protect the secrecy of the information. This case also reiterates that allegations for misappropriation of trade secrets and confidential information (at least in this Court) are not subject to a heightened level of specificity at the pleading stage. Indeed, as with other claims, the Court accepted as true the factual allegations set forth in the complaint and drew all reasonable inferences in the plaintiff’s favor. As illustrated in this case, a plaintiff that lacks direct evidence of misappropriation of trade secrets or confidential information should plead all corresponding facts that support a plausible inference that misappropriation occurred.

On March 29, 2012, the Seventh Circuit upheld summary judgment in favor of a defendant on plaintiff’s claims for trade secrets misappropriation and unjust enrichment, holding that plaintiff failed to take any measures, let alone reasonable measures, to protect its alleged trade secrets during joint marketing negotiations with defendant. Fail-Safe LLC v. A.O. Smith Corp., No. 11-1354 (7th Cir. Mar. 29, 2012). The decision highlights the need for written confidentiality agreements signed, sealed, and delivered before people explore doing business with each other.

Fail-Safe developed an anti-entrapment pump which prevents pool drains from trapping swimmers. After A.O. Smith representatives learned of Fail-Safe’s pump at a trade show and in a magazine ad, the two companies had several meetings and extensively negotiated A.O. Smith’s possibly marketing and selling the pump for Fail-Safe. Never during the negotiations did Fail-Safe require A.O. Smith to sign a confidentiality agreement not to use or disclose the alleged secret technology, nor did Fail-Safe even raise confidentiality during any meeting or correspondence, even though it had done so in the past with other potential marketing partners. The only confidentiality obligation was on Fail-Safe, which signed a one-way confidentiality agreement without asking for a reciprocal obligation from A.O. Smith. The Seventh Circuit held that the failure to take any precaution to protect the technology precluded Fail-Safe’s trade secrets claim as a matter of law, rejecting Fail-Safe’s argument that whether its protective measures were sufficient was a question to be decided by the jury. The court went so far as to say “you can’t steal free advice,” and that “Fail-Safe courted its own disaster by failing to take any protective measures.”

On the same grounds, the court upheld the district court’s summary judgment on plaintiff’s unjust enrichment claim, holding that defendant could not have been unjustly enriched if plaintiff did not seek to protect the information. Notably, the court did not address any preemption argument; that is, whether an unjust enrichment claim would be preempted by Section 7 of the Trade Secrets Act.

Missing from the court’s opinion was any comment on A.O. Smith’s ostensibly suspect conduct in bringing a competing pump to market after Fail-Safe provided A.O. Smith with the necessary know-how. A.O. Smith sought out Fail-Safe to market the pump, not vice versa, and the parties appeared to closely engage each other regarding joint marketing possibilities. Fail-Safe disclosed its alleged secret technology apparently in good faith, and with hopes for future mutual profit. After Fail-Safe sought to commit the parties’ relationship to writing, A.O. Smith called everything off, and less than two years later (after a reportedly contentious letter-writing campaign with Fail-Safe regarding their alleged rights in the pump), began selling its own pump. Fail-Safe should have at least asked for a non-disclosure agreement, to be sure, and the court noted that Fail-Safe waited nearly two years after A.O. Smith began selling its alleged copycat pump before bringing suit – perhaps an inexplicable lapse of time to enforce rights in alleged proprietary assets. Nevertheless, A.O. Smith’s alleged betrayal of Fail-Safe’s trust appeared to be irrelevant to the court, and the Seventh Circuit’s decision may mean that district courts in the circuit can properly condone allegedly underhanded conduct in the absence of a confidentiality agreement or other demonstrable security measures.