Posts in Trade Secrets

Company Policy Issues and Examples Relating to Employee Use of AI-Generated Content

Artificial Intelligence (AI) has become a crucial tool for organizations in various sectors, particularly in the generation of content and code by generative AI systems such as ChatGPT, GitHub Copilot, AlphaCode, Bard and DALL-E, among other tools. As the promise of incorporating these generative tools in the corporate setting is all but assured in the near term, there are a number of risks that need to be minimized as companies more forward. In particular, as AI applications grow increasingly sophisticated, they raise concerns with several forms of intellectual property (IP), such as patents, copyrights, and trade secrets. This article aims to discuss these issues and provide a sample company policy for using AI-generated content such as software code.

Planning for Independent Development

The story seems to unfold the same way every time, whether the actor is a high-level departing employee or a customer or business partner. When sharing confidential information in a long-term relationship results in the release of a similar product by the recipient, the reaction is a claim of theft, laced with accusations of treachery and betrayal. And the response is equally strong: “no, I did this on my own”; in legal terms, “I engaged in ‘independent development.’” Strictly speaking, this means that the development of the new product was accomplished “independently” of the information shared in the confidential relationship. As a practical matter, this can be difficult to prove. Once you have been exposed to the secret process or design, or other related information, how do you demonstrate that your work was entirely your own?

Preventing an IP Infection: Clean Room Development Procedure

As I described in my previous article about the protocol for clean room product development, there are often situations where a company has come into contact with intellectual property that it cannot allow to spread to a product in development. In that article, I described the concepts of a clean room. In this article, I describe the practical implementation details. Once a clean room protocol has been set up, the following sections describe the recommended procedure to implement.

Pro-Patent Panel Tells Senate IP Subcommittee It’s Time for a Better IP Strategy

The Senate Judiciary Committee’s Subcommittee on Intellectual Property held a hearing today featuring a panel of patent-savvy witnesses to underscore the crucial role intellectual property plays in the U.S. economy and to define the biggest threats to IP rights, both foreign and domestic. The conclusion of most panelists as to what one step is most important in reestablishing the United States as an IP powerhouse was that we need to clean up our own IP system at home in order to even begin addressing threats from foreign competitors like China.

U.S. Chamber Tells FTC it Should Withdraw Its Proposal on Noncompetes

In January of this year, the Federal Trade Commission (FTC) proposed a new rule that would ban employers from using noncompete clauses for their employees. In an announcement, the FTC said that the use of noncompete clauses is “a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.” The agency estimated the new rule could increase wages by $300 billion a year, as firms would be encouraged to do more to keep their workers. The proposed rule change was opened for public comment in January, and the deadline for submissions was extended from March 20 to April 19 in early March. As of April 18, the Regulations.gov website indicated that 24,259 comments had been received and 14,946 posted. With the comment period coming to a close this week, the U.S. Chamber of Commerce has weighed in, urging April Tabor, FTC Secretary to withdraw the proposed rule.

The Messy Process of Making and Applying the Law

It was a hot August afternoon in 1984, and I had just finished testifying to the California Senate committee considering a new law, the Uniform Trade Secrets Act (UTSA). I had been sent to Sacramento to support this legislation, which was supposed to provide a “uniform” standard among the states. But some lawyers from the State Bar were pushing for changes that I thought might cause problems. One of these was to remove the requirement that a trade secret owner prove the information was not “readily ascertainable.” If you’re still reading, well done! You’ve demonstrated your intellectual curiosity. Please keep going; I promise this will not be a dry, academic rant about something that can’t possibly matter to you. Instead, this is a story about the unintended consequences of casual law-making and the ways that courts can amplify those effects without really understanding what they’re doing.

Trusting the Talent: Imagining a Future Without Noncompete Agreements

It’s getting pretty rough out there for employers who want to control their employees’ behavior. Think back to March 2020, when the pandemic was just beginning and we took a look at this new phenomenon of widespread remote work. We imagined managers wistfully recalling the Renaissance, when artisans could be imprisoned, or even threatened with death, to make sure they didn’t breach confidence. Well, in modern times at least, companies can use noncompete agreements with departing employees to avoid messy and unpredictable litigation over trade secrets. Maybe not for long. As we learned last month, the FTC is on the warpath about noncompetes, and it may not be long before the entire country is forced to emulate California and just do without. Whatever happens with the FTC proposal, it’s pretty clear that noncompetes are also under attack by the states, where new laws limit their effectiveness.

Proposed FTC Ban on Non-Competes: Considerations for Companies to Protect Trade Secrets

In January 2023, the Federal Trade Commission (FTC) unveiled a proposed ban on non-compete clauses that prohibits employees from joining or forming competitive firms following the termination of their employment. According to the FTC, non-compete clauses unfairly and unnecessarily stifle employees’ ability to pursue better employment opportunities. While this criticism may ring true in the case of lower-wage workers, such as restaurant and warehouse employees, even the staunchest critics of non-compete clauses will typically acknowledge that they can — and often do — play a legitimate role in the protection of trade secrets. This is why the FTC’s proposed rulemaking is causing consternation in the intellectual property community.

New Federal Law and FTC Rule Will Imperil Trade Secret Protection

When Adam Smith spoke about an “invisible hand,” he was talking about a good thing – the way that free markets harness the laws of competition, supply and demand and self-interest to improve the economy. But he also could have been thinking of another law. The law of unintended consequences: that actions of people, and especially of governments, always have unanticipated effects. Sometimes these effects can be perverse, reflecting a profound failure of “second-order thinking” (in other words, thinking ahead about “how could this possibly go wrong?”). On January 5, 2023 – a day that may go down in IP infamy – we saw two bold actions. First, the “Protecting American IP Act” became law; and second, the Federal Trade Commission (FTC) proposed a new rule that would invalidate noncompete agreements across the United States. But wait, you might say, that actually sounds great! What’s the problem with protecting American IP, and making the rest of the country join California in unleashing talent to go where it likes? Well, don’t be too hasty. Stay with me on this, and you will see just how shortsighted our government can be.

What You Need to Know About Trade Secrets in 2022

Trade secret jurisprudence, originally conceived in the common law of torts as a way to enforce confidential relationships, now has a sharper focus directed at the property interest of businesses in the data that forms the major portion of their asset base. In the process, trade secrets have taken their place of respect alongside the “registered rights” of patents, copyrights, trademarks and designs. But just because we now enjoy statutory guidance through the Uniform Trade Secrets Act (“UTSA”), enacted with some variations in every state but New York, and national uniformity in federal courts through the Defend Trade Secrets Act of 2016 (“DTSA”), the law continues to evolve much as it did a century ago—that is, through the opinions of judges deciding individual cases on their facts.

Court Throws Out Trade Secrets Lawsuit Filed Against IBM China

The U.S. District Court for the Southern District of New York last week dismissed a trade secrets lawsuit against International Business Machines Corp (IBM) and IBM China by Beijing Neu Cloud Oriental System Technology Co. The Chinese firm alleged that IBM stole trade secrets from its joint venture in order to sell IBM products to the Chinese market. IBM China and Beijing Teamsun Technology Co. originally formed Beijing Neu Cloud in 2014 as a joint venture to distribute IBM technology in China. But in a 2021 complaint, Beijing Neu Cloud alleged that IBM induced “Neu Cloud and its majority owner through later-breached contracts to expend resources and provide IBM with access to sensitive, confidential customer information, which IBM then secretly used to create competing ventures in China.”

Lessons from the Levandowski Case: Reimagining the Exit Interview as Risk Management

It was February 2017 when Waymo, Google’s self-driving car unit, sued Uber in what would become the biggest trade secret case of the century. Waymo alleged that its former manager, Anthony Levandowski, had organized a competing company while still at Waymo, and before leaving had downloaded 14,000 confidential documents. As it turned out, Uber had known about this when it agreed to pay $680 million for Levandowski’s brand new startup; and we’ve already looked at how the hubris of that hasty transaction provides lessons for hiring in new markets driven by emerging technology.

The Judicial Balancing Act: How Judges Manage Competing Interests in Trade Secret Cases

I was recently reminded of a contest that we often played in Scouts, called Kim’s Game. Derived from a story in Rudyard Kipling’s 1903 novel Kim, it gave you a few minutes to stare at a tray full of diverse objects you might find in a junk drawer – things like a key, pocketknife, nickel, compass, button, crystal. At the end of the allotted time, you were challenged to write down as many as you could remember. My recollection was triggered by a court order. Silicon Valley startups Wisk Aero and Archer Aviation have been slugging it out in trade secret litigation over “flying taxis” that are designed to take off and land like helicopters but fly with wings and propellers. The basic technology has been around for quite a while but making it practical as a battery-powered (and ultimately autonomous) taxi service demands a lot of creative engineering. Wisk, a joint venture between Boeing and a company owned by Google founder Larry Page, has been developing its models for more than a decade. Aero, which has a relationship with United Airlines, is a more recent entrant, and ramped up its workforce by hiring away 17 of Wisk’s engineers, including its vice president of engineering. For more salacious details, see this piece in Fast Company.

First Circuit Affirms Dismissal of Trade Secret Claims Under Forum Selection Clause But Allows Amended Claims Against U.S. Subsidiary

On September 2, the U.S. Court of Appeals for the First Circuit issued a decision in Amyndas Pharmaceuticals, S.A. v. Zealand Pharma AS affirming the District of Massachusetts’ decision to dismiss trade secret misappropriation claims between former drug development partners. However, the First Circuit found that the district court abused its discretion in denying Amyndas’ motion to file an amended complaint and vacated the dismissal of trade secret claims against Zealand’s U.S. subsidiary.

Third Circuit: Costs Avoided Due to Trade Secrets Misappropriation Can Be Basis for Damages Award

The U.S. Court of Appeals for the Third Circuit on Monday said in a precedential decision that Jiangsu Tie Mao Glass Co. Ltd. (TMG) should have shown up sooner in a trade secrets misappropriation lawsuit brought against it by PPG Industries if it wanted to have a chance at winning. But by failing to enter the litigation until after PPG asked the district court to enter default judgment and award damages for unjust enrichment, “its protestations were and are too little and much too late,” said the appellate court.

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