Posts in Trade Secrets

“Need to know” is a bedrock tenet of information security. You only get to see it if you need to see it. The reasoning is that the fewer people who know the details, the lower the risk that information will be compromised by reaching the competition. Another term used among professionals is the “principle of least privilege,” borrowed from the notion in computer science that a user account should be given only that level of privilege that is absolutely necessary to its operation within the system, making failures less likely. By whatever name, the principle increases control by limiting access. The idea that any one person in an organization probably doesn’t need to know much is rooted in the industrial revolution. When we moved from the age of craftsmen who made an entire product to the assembly line, the worker mounting the wheel didn’t have to know anything about the rest of the car…. Keeping secrets has long been viewed through the same lens: compartmentalization helps keep things under control. But interestingly, it doesn’t always make things more efficient or productive.

Although it may seem like the name “startup” says it all, the reality for many inventors, engineers and companies is that it’s difficult to know where to start when what you have is just an idea for a product, a recently discovered process or an innovation. You may have the “million dollar idea,” but where do you start to move it from concept to market? While startups may be selling wildly different products, or developing different processes or innovations, one thing most have in common is a similar starting point, and a limited budget. Product design, branding and identity are always necessary, and protecting your brand, innovations and products from competition is essential.  But how do you allocate your limited resources while developing the best possible brand and product, and ensuring that your intellectual property is adequately protected?

In over 40 years of handling trade secret disputes, I have seen plenty of “successful” results, but never a time when my client said, “Gee that was fun; let’s do it again!” They may tell me they’re happy with the outcome, but hey, I know that it also feels good to stop hitting yourself with a hammer. It’s a fact that more than 90% of trade secret cases settle without a trial. But too often those settlements only happen after years of litigation. There are ways to make that process less painful, and in an earlier article we looked at the advantages and limitations of arbitration and private judging as means to recapture some amount of control over the dispute. But unless the parties already had an arbitration agreement before the problem arose, one of them will probably see an advantage to playing it out in court….This is precisely why that other form of alternative dispute resolution, mediation, is the perfect method for resolving trade secret disputes.

Fundamental to building and executing any successful patent licensing program is the ability to find and prove evidence of infringement, often through reverse engineering methods. A product is purchased and deconstructed to understand how it was built, how it works and what it is made of. The process of reverse engineering usually involves multiple types of analysis; which type of reverse engineering to apply is determined by the type of technology and the industry in which the patented invention is being used.   Intellectual property law does not discourage innovators from dismantling the inventions of their competitors, whether the technology is software, electronic, chemical, or mechanical. But there are still limits on how the results of a reverse engineering effort can be exploited.

Almost five years has passed since the enactment of the Defend Trade Secrets Act (DTSA) on May 11, 2016, which provides for civil relief for the theft of trade secrets. The most controversial provision, 18 U.S.C. § 1836(b)(2), authorizes a federal court to issue an order, in extraordinary circumstances, and upon an ex parte application based on an affidavit or verified complaint, to provide for seizure of property necessary to preserve evidence or to prevent the propagation or dissemination of the trade secret. Thus, the issuance of a seizure order is limited to “extraordinary circumstances.” According to the House Report, the “ex parte seizure provision is expected to be used in instances in which a defendant is seeking to flee the country or planning to disclose the trade secret to a third party immediately or is otherwise not amenable to the enforcement of the court’s orders.” In other words, it is intended to stop the dissemination of a trade secret, especially overseas, before its value has been lost through public disclosure. Thus, it provides a trade secret owner with the ability to mitigate the risk that trade secrets are irrevocably lost, transferred, or moved beyond the jurisdiction of the court.

On March 12, the U.S. Court of Appeals for the Federal Circuit (CAFC) affirmed the Middle District of Florida’s decision directing the clerk to unseal the amended complaint of Plaintiff DePuy Synthes Products, Inc., DePuy Synthes Sales, Inc. (Collectively Depuy), deciding that the district court did not abuse its discretion in ensuring public access to court documents (Depuy v. Veterinary Orthopedic Implants). The CAFC agreed with the district court that VOI “did not establish that it took reasonable measures to protect the Manufacturer Identity.” VOI didn’t enter into an agreement to keep the relationship confidential, but the lack of express agreement is not dispositive of the issue. Where an express agreement doesn’t exist, there must be some other indicia that both parties wanted to maintain a confidential relationship.

A common refrain is that an invention is only as valuable as the patent that protects it. But what happens when you cannot secure the patent? This is a frequent hurdle for inventors seeking to patent products utilizing artificial intelligence (AI). While still in its infancy, at least compared to the lofty expectations of technology enthusiasts, AI has proven integral to driving innovation, but it has also proven equally vexing to fit into the intellectual property legal regime.

The managers of most companies tend to see information security as a Lord of the Rings problem, with the focus on protecting the perimeter. This reflects the popular view. Indeed, from reading headlines about hackers, you might think that cybercrime –malign attacks from evil outsiders – represents the most common way that commercial information is lost. And you would be wrong. It’s not the overlooked vulnerability in the company’s firewall that gets exploited by determined external enemies. Instead, it’s the careless employee who overshares on social media, brags at parties, or leaves a sensitive document in an airport lounge. (Remember traveling on planes?)

The latest in a series of reports by the European Patent Office (EPO) and European Union Intellectual Property Office (EUIPO) studying IP-intensive industries and their contribution to economic performance and employment in the European Union has found that companies owning at least one patent, registered design or trademark generate higher revenues per employee than companies that do not own IP rights and pay higher wages on average than other companies. The EPO-EUIPO report is titled “Intellectual property rights and firm performance in the European Union” and builds on research conducted in 2013, 2016 and 2019 regarding the contribution of IP-intensive companies to the EU economy, as well as a 2015 EUIPO study based on data from 12 Member States. The latest report analyzes over 127,000 European firms and compares the economic performance of firms that own IPRs with those that do not.

Two of the most important issues in trade secret cases involve the timing of when the plaintiff is required to identify its alleged trade secrets and the degree of specificity with which they must be identified. However, the Defend Trade Secrets Act (DTSA) fails to address either of these issues, and most state courts have not agreed on unform standards. In comparison, for example, under Section 2019.210 of the California Code of Civil Procedure, a plaintiff is required to identify its alleged trade secrets with reasonable particularity “to limit the permissible scope of discovery by distinguishing the trade secrets from matters of general knowledge in the trade or of special knowledge of those persons skilled in the trade.” Now the Ninth Circuit in InteliClear LLC v. ETC Global Holdings, Inc., 978 F. F. 3d. 653 (9th Cir. 2020) has held that the DTSA also includes the requirement that the plaintiff must identify, depending on the stage of the litigation, with sufficient particularity to provide the defendant with notice as to the identity of the trade secrets at  issue.

My head was turned by the recent news of President Trump’s final-day pardon of Anthony Levandowski, the former head of Google’s self-driving car unit who was recruited into Uber with full knowledge that he had downloaded 14,000 confidential files on his way out, and who was later convicted of trade secret theft. I was struck by the White House statement of justification. It said that Levandowski – who hadn’t yet served a day of his 18-month sentence – “has paid a significant price for his actions.” I have no doubt that Levandowski has “paid a significant price” for his misdeeds, but it caused me to think about the price paid by others who were involved in this fiasco of a hiring, most specifically Uber. Salacious stories like this one serve as a reminder of all the things that can go wrong when we hire someone from the competition. Especially when we stop thinking about risk and see only upside. So, let’s talk about that risk and what you can do to keep yourself out of trouble – and never, ever need a presidential pardon.

One of the key trade secret trends in 2020 that was not mentioned by James Pooley in his excellent recap of the year’s trends was the continued focus by the government on Chinese economic espionage. Last year marked the two-year anniversary of the Department of Justice’s “China Initiative,” which was announced by Attorney General Jeff Sessions on November 1, 2018, and which was intended to increase the focus on the investigation and prosecution of trade secret theft and economic espionage under the Economic Espionage Act (EEA) and other “unfair trade practices” committed by the Chinese government and Chinese Nationals. The China Initiative reflects the strategic priority of countering Chinese national security threats and reinforces the government’s overall national security plan. The China Initiative is led by the Department of Justice’s National Security Division, which is responsible for countering nation-state threats to the United States.

One of the uniquely fascinating aspects of trade secret disputes is that they are laced with unbridled emotions, accusations of treachery, and actors who angrily disagree over basic facts. In other words, they provide a perfect metaphor for the year 2020. Let’s take a look back at the cases this year that are worthy of comment, either because they involved some unusual set of facts or because they provide useful guidance for behaving better in 2021.

In September, the International Trade Commission (ITC) decided to review an initial final determination (FID) in the Matter of “Certain Botulinum Toxin Products, Processes for Manufacturing or Relating to Same and Certain Products Containing Same,” Investigation No. 337-TA-1145, a complaint filed by Allergan against Botox products made by Daewoong and its partner, Evolus, a “performance beauty company”. On Wednesday, the ITC issued a Final Determination in the case, finding that the sale and importation of the products into the United States violated Section 337 of the U.S. Tariff Act. The Commission issued a Limited Exclusion Order (LEO) prohibiting importation of the products by Daewoong and Evolus for a period of 21 months, as well as a cease and desist order against Evolus preventing the Company from selling, marketing, or promoting the products in the United States for a period of 21 months. However, the Commission reversed the FID’s finding that a trade secret exists with respect to Medytox’s bacterial strain.

In Van Buren v. United States, argued December 1, the Supreme Court has a chance to address how the Computer Fraud and Abuse Act applies when a defendant is authorized to access and obtain information from a computer but subsequently uses this information for a purpose that is not permitted. The outcome of this case is important to every company that has computer data and will provide guidance on how best to protect that data.