2013 Trade Secrets Webinar Series - Year in Review

Throughout 2013, Seyfarth Shaw LLP’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 twelve webinars:

2012 National Year in Review: What You Need to Know About the Recent Cases/Developments in Trade Secrets, Non-Compete, and Computer Fraud Law
Trade Secrets in the Telecommunications Industry
Employee Privacy and Social Networking: Can Your Trade Secrets Survive?
How the America Invents Act Increases the Importance of Trade Secrets
Protecting Confidential Information and Client Relationships in the Financial Services Industry
Trade Secret and Non-Compete Legislative Update
The Big Data Revolution: How Big Data Impacts Trade Secret, Computer Fraud and Privacy
Trade Secret and Non-Compete Considerations in Asia
How and Why California Is Different When It Comes To Trade Secrets and Non-Competes
Trade Secrets in the Pharmaceuticals Industry
My Company’s Confidential Information is Posted on the Internet! What Can I Do?
The Stakes Just Got Higher: Criminal Prosecution of Trade Secret Misappropriation

As a conclusion to this well-received 2013 webinar series, we compiled a list of key takeaway points for each of the webinars, which are listed below. For those clients who missed any of the programs in this year’s webinar series, the webinars are available on CD upon request or you may click on the title listed below for each webinar to access the online recording. We are also pleased to announce that Seyfarth will continue its trade secrets webinar programming in 2014 and has several exciting topics lined up. We will release the 2014 trade secrets webinar series schedule in the coming weeks.

2012 National Year in Review: What You Need to Know About the Recent Cases/Developments in Trade Secrets, Non-Compete, and Computer Fraud Law

The first webinar of the year, led by Michael Wexler, Robert Milligan and Joshua Salinas reviewed noteworthy cases and other legal developments from across the nation from 2012 in the areas of trade secrets and data theft, non-compete enforceability, computer fraud, and company owned social media accounts and social media policies, as well as provided predictions for what to watch for in 2013.

As government agencies are becoming more active in the areas of trade secret law, such as the FBI’s initiative to curb the growing rise of trade secret and other intellectual property theft, high profile prosecutions under the Economic Espionage Act, and the National Labor Relations Board’s increased scrutiny of employers’ social media policies, employers should consider these government agencies’ reports and memoranda when analyzing and revising company policies and practices.
Disputes over the ownership of company social media accounts and account “followers” involving Twitter, LinkedIn, Facebook, and Myspace illustrate the necessity for employers to have social media ownership agreements with their employees when utilizing company social media accounts to conduct business.
Trade secret preemption remains a significant issue in many jurisdictions as courts grapple with whether the theft of non-trade secret information is actionable in tort and, thus, claimants should consider, before filing any pertinent pleadings, the existence of any potential alternative theories for their non-trade secret claims (and any corresponding support thereof), and then draft the pleadings such that it is clear that the alternative theories are distinct from a misappropriation of information theory.

Trade Secrets in the Telecommunications Industry

In our second webinar of the series, Justin Beyer, Mark Hansen and James McNairy addressed the role that trade secrets play in the telecommunications industry.

Due to the nature of the telecommunications industry, information tends to be quite portable (for example, courts have held the following constitute trade secrets: search index and query logs of Google; telephone company’s electronic database containing customer information; elements of technology for DVD encryption system; and product descriptions for international telephone switching system), and companies need to be forever diligent in protecting that information from employee misappropriation, particularly through use of external storage devices and smart phones.
Telecomm trade secrets also take somewhat unique forms such as infrastructure and wireless hardware technologies, as well as future programming. Given these somewhat industry-specific trade secrets, companies should be consistent in entering into non-disclosure or confidentiality agreements with any employees exposed to such projects as well as entering into invention assignment agreements to ensure there is no concern over disclosure or question of ownership.
As more and more companies utilize social media through Twitter, Instagram, and Facebook, for example, companies need to design and develop policies as to who owns the account, what to do when the employee who manages the account leaves, and policies for account usage. In the long-run, requiring employees to enter into contracts regarding social media usage is likely cheaper than litigation over these questions. But, in crafting such policies, it is important to be mindful of NLRB policies and opinions, as well as any state-specific statutes and regulations concerning social media.

Employee Privacy and Social Networking: Can Your Trade Secrets Survive?

The third installment of the series was presented by Gary Glaser, Scott Schaefers and Jessica Mendelson as they discussed the relationship between trade secrets and social media.

For social networking sites (e.g., LinkedIn, Twitter), have clear written policies that spell out what company information may/may not be posted on such sites, and identify what information belongs to the company (e.g., contact lists, company photos or graphics, etc.), as well as a process for purging the company-owned information from their contact lists posted on social networking sites such as LinkedIn at the time the employee departs (but remember that LinkedIn contact lists can generally be downloaded and copied by the exiting employee once they know they are leaving the company). One should strongly consider using ownership agreements that specify that the company owns the particular social media accounts that the employee may use for networking or use for other business-related purposes, and remember to include in the agreement or the company’s social media policy that the employee has an obligation to provide their password to the company and notify the company if/when they change the password, and that the company has the right to obtain the password from the employee to the company-owned social media account before the employee leaves. (But check to make sure that you are not in a state that has passed a social media privacy law that would prohibit such requirement – see below.)
An exit interview should also be conducted at the time any employee separates, and as part of that exit interview process, each exiting employee should be given a written reminder of their ongoing trade secret, confidentiality and social networking obligations, and should be asked to sign the reminder acknowledging receipt and their agreement to comply with such obligations. If an employee leaves the company without such clear written direction, the company risks waiving a proprietary interest in the information in his/her LinkedIn or other social media.
State social media legislation has become increasingly common in the United States. Issues related to social media privacy in the workplace are not going away and we expect to see more litigation and legislation to define acceptable practices in this area. In light of this uncertainty, employers should determine whether their company has employees in any of the states that have adopted or are planning on adopting social media privacy laws in order to ensure compliance with such laws. Employers should also be aware that state laws may restrict requests for information about such activity. Counsel should review the applicable state social media access law before asking an employee for any account-related information. Additionally, employers should not overlook social media evidence in conducting employee investigations and in employee lawsuits but make sure that your company’s review and access of such information does not violate applicable law.

How the America Invents Act Increases the Importance of Trade Secrets

The fourth webinar in the series, presented by Michael Baniak, James McNairy and Joseph Walker, deliberated how the America Invents Act (AIA) impacts the value of trade secret and patent protection, and what the implications may be for technology innovators.

Neither trade secret nor patent protection will be available if the information/idea/innovation is disclosed to the public (failure to maintain secrecy destroys trade secret status; as to patents, patentability is lost if the innovation is disclosed by the inventor and more than a year goes by). Thus, it is never too early to create a culture of confidentiality within your organization.
Questions bearing on whether trade secret or patent protection may be more advantageous include: Does innovation have value that may go beyond 20-year patent term (if so, perhaps trade secret protection is desirable)? Is the innovation susceptible to reverse engineering (if yes, perhaps patent protection is more advisable)? Can reasonable steps to preserve secrecy be implemented? Implemented indefinitely? Can the owner of the innovation make more money from the innovation as a trade secret or patent?
The America Invents Act’s expansion of the prior commercial use defense and continual use requirement to patent types beyond business method patents creates a greater likelihood that more innovations will be protected as trade secrets, and for longer periods of time, than prior to enactment of the AIA.

Protecting Confidential Information and Client Relationships in the Financial Services Industry

The fifth webinar in the 2013 series was presented by Scott Humphrey, Dan Lanciloti and Jason Stiehl and focused on trade secret and client relationship considerations in the banking and finance industry, with a particular focus on a firm’s relationship with its FINRA members.

Enforcement of restrictive covenants and confidentiality obligations for FINRA and non-FINRA members are different. Although FINRA allows a former employer to initially file an injunction action before both the Court and FINRA, FINRA, not the Court, will ultimately decide whether to enter a permanent injunction and/or whether the former employer is entitled to damages as a result of the former employee’s illegal conduct.
Address restrictive covenant enforcement and trade secret protection before a crisis situation arises. An early understanding of the viability of your restrictive covenants and the steps that you have taken to ensure that your confidential information remains confidential will allow you to successfully and swiftly evaluate your legal options when a crisis arises.
Understand the Protocol for Broker Recruiting’s impact on your restrictive covenant and confidentially requirements. The Protocol significantly limits the use of restrictive covenants and allows departing brokers to take client and account information with them to their new firm.

Trade Secret and Non-Compete Legislative Update

The sixth webinar of the year, led by Bob Stevens, Erik Weibust and Dan Hart, focused on new and pending legislative changes to non-compete, trade secret and social media laws, including recent and pending legislative changes to state restrictive covenant laws; recent and proposed statutory changes to trade secret laws, incorporating the proposed national trade secret law; and the avalanche of social media laws proposed and passed in state houses throughout the United States in 2013.

To the extent employers have not already done so, they should re-evaluate their restrictive covenant agreements in states, which are considering or who have enacted new or revised restrictive covenant laws in 2013 including New Jersey, Massachusetts, New Hampshire, Illinois, Minnesota and Maryland.
With respect to the protection of employers’ trade secrets, employers should not only remain vigilant in their efforts to protect their trade secrets by using the tools at their disposal such as non-disclosure agreements and password protection, but they should also remain aware of their current and proposed legal remedies including the proposed federal trade secret statute – “Protecting American Trade Secrets and Innovation Act of 2012”; the White House’s 5-Point Plan intended to combat American trade secret theft; and state trade secret statutes including the new law in Texas and the proposed statute in Massachusetts.
Given the lighting quick evolution of social media laws on a state-by-state basis, enacted by different states at times throughout 2013 on almost a weekly if not monthly basis, employers need to ensure that they have policies in effect to comply with the state’s patchwork of social media laws. Depending on the state or states that an employer operates its business, it needs to ensure that its employment, labor and trade secret policies and practices do intentionally or inadvertently violate one of the newly minted laws by taking or permitting newly illegal actions such as requesting employees’ passwords to their social media accounts or taking an adverse action based on the employees refusal to provide access to such an account.

The Big Data Revolution: How Big Data Impacts Trade Secret, Computer Fraud and Privacy

The seventh webinar in our series, presented by Robert Milligan, John Tomaszewski and Joshua Salinas, along with Anthony Wong a renowned IP and IT expert from AGW Consulting in Australia, discussed how the Big Data Revolution created a new age of discovery and opportunity by equipping companies with tools to derive valuable insight from once unnavigable oceans of data.

Privacy isn’t going away. Understanding how to manage data collection, use, and distribution is becoming more and more critical to the viability of businesses. Be clear on what you are going to do with the data you collect - especially if it is from a third party data source. When the data subject doesn’t expect you to use data about them in a certain way, that use creates risks.
“Do No Harm.” While this was Google’s mantra, it works for everyone else. If the use of big data or analytics has an adverse effect on a person, the risk of liability being realized increases. Make sure you understand the “unintended consequences” of using big data analytics - you may inadvertently discriminate against a protected class.
Don’t rely on anonymization alone as a privacy protection. Data, by itself, isn’t actionable. When it comes into contact with other data, it transforms into information - which *is* actionable. Information is what is protected (not raw data). Since anonymization seeks to decouple data points so that they stop being “information,” any “recoupling” may end up destroying the anonymization. Also remember, context is data as well. Where data comes from is just as valuable (sometimes *more* valuable) than the discrete data point itself.
Good privacy is like good security - it’s context-based, and requires a “defense in depth” mentality. There is no “silver bullet,” or one answer. Privacy programs need to be flexible and contextually oriented, so that they can keep up with business without strangling business.

Trade Secret and Non-Compete Considerations in Asia

The eighth installment was led by Wan Li, Dominic Hodson, Robert Milligan and Leon Mao as they focused on non-compete and trade secret considerations from an international perspective. Specifically, the webinar involved a discussion of non-compete and trade secret issues in China, which included best practices to protect trade secrets and confidential information in the country. The similarities and differences in approach among China and other Asian countries or provinces were touched upon and compared to the United States. This webinar provided valuable insight for companies who compete in the global economy and must navigate the legal landscape in these regions and ensure protection of their trade secrets and confidential information, including the effective use of non-compete and non-disclosure agreements.

Legal systems differ widely across Asia and courts and other forms of legal redress do not always provide a predictable outcome, particularly in developing and emergent economies. It is particularly important for companies to take proactive practical steps to protect themselves from misuse of their trade secrets because legal remedies may be of little help.
One Chinese court has recently ruled, for the first time, in favor of the company to ban the circulation of trade secrets by a former employee. Future cases may be judged based on such milestone, but prevention is always better than cure.
In China, non-compete duties shall be imposed on employees with specific positions and within limited time period. Compensation is required, otherwise the non-compete duties may be determined null and void by the court.

How and Why California Is Different When It Comes To Trade Secrets and Non-Competes

The ninth webinar this year, presented by Mark Hansen, James McNairy and Jessica Mendelson, discussed the ways in which California trade secret law is similar to and diverse from other jurisdictions, including the California Uniform Trade Secrets Act, trade secret identification requirements, remedies, and the interplay between trade secret law and Business & Professions Code Section 16600, which codifies California’s general prohibition of employee non-compete agreements.

California Code of Civil Procedure section 2019.210 requires that, prior to commencing discovery, trade secret Plaintiffs describe with reasonable particularity the information claimed to be trade secret and misappropriated by defendant.

Because preemption (or “supersession”) under California’s Uniform Trade Secrets Act increasingly is invoked by defendants as a basis to dismiss claims related to the taking of trade secret information, it is imperative that potential plaintiffs plead carefully non-trade secret claims as distinct from the trade secret allegations within the complaint. Failure to do so can cause related claims to be preempted, resulting in their dismissal. And, if the trade secret claim itself is faulty, it too may be dismissed, potentially resulting in dismissal of the entire lawsuit.
Create a culture of confidentiality within your company so that at every turn employees are aware of the importance of protecting confidential, proprietary, and trade secret information and the steps required of all employees to protect the company’s information assets. Doing so may help moderate high employee mobility in California.
When trying to invoke California Business & Professions Code Section 16601’s “sale of business” exception to California’s general prohibition against contractual provisions that impair employee mobility and competition, such non-competition provisions should be incorporated into the terms of the purchase agreements (as opposed to stand alone but related employment agreements) and reflect a clear purpose to protect business goodwill. Reasonable and limited non-compete provisions may also be enforced in connection with the dissolution of a partnership or a limited liability corporation.
Recently, federal courts in California have exhibited a willingness to enforce forum selection provisions in employment contracts requiring California-based employees to litigate the enforceability of non-compete provisions in states other than California. Doing this increases the likelihood that the non-compete provision will be enforced against the California employee by an out-of-state court despite California’s strong public policy to the contrary. California state courts continue to look beyond forum selection clauses, applying choice of law principles which usually result in the application of California law and thus the invalidation of the non-compete provision.

Trade Secrets in the Pharmaceuticals Industry

The tenth installment in our 2013 series, led by Justin Beyer, Scott Schaefers and Shashank Upadhye, focused on trade secrets in the pharmaceutical industry.

Require NDAs and IP-ownership agreements of all key participants at each and every step of the R&D and clinical-trial process.
Re-visit your R&D security measures (restricted access to campus; limited, need-to-know permissions to R&D files; periodic reminders of confidentiality restrictions and policies).
Consider law-enforcement assistance against egregious misappropriation and NDA breaches, especially if the time has passed for emergency injunctive relief, or if you have jurisdictional issues regarding defendant’s residence.

My Company’s Confidential Information is Posted on the Internet! What Can I Do?

The eleventh webinar was led by Paul Freehling, Scott Humphrey and Jeffrey Swatzell, and involved a high-level discussion about the steps and responses companies should take when their confidential information and/or trade secrets appear, or are threatened to appear, on the internet.

The Uniform Trade Secrets Act most likely applies to any misappropriation of your trade secrets. Under the Act, a “trade secret” is confidential information that (i) has independent economic value; (ii) is not generally known or readily ascertainable by proper means; and (iii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Do not wait until after a crisis arises; address trade secret protection before information is misappropriated.
If your trade secrets are misappropriated and posted on the Internet or social media, but you don’t know who did the posting, you may be able to identify that person by demanding the information in a subpoena served on the Internet service provider or host of the social media site.

The Stakes Just Got Higher: Criminal Prosecution of Trade Secret Misappropriation

In Seyfarth’s final installment of its 2013 Trade Secret Webinar series, attorneys Michael Wexler, Molly Joyce and Justin Beyer presented on criminal liability for trade secret misappropriation.

Private companies can investigate misappropriation claims and provide information to authorities for purposes of prosecuting Economic Espionage Act and/or Computer Fraud & Abuse Act claims, but be certain to follow accepted forensic practices in collecting information.
When considering criminal prosecutions always be cognizant of the ethical rule that generally prohibits threatening or initiating criminal proceedings to gain an advantage in a civil proceeding.
No private right of action exists yet under the Economic Espionage Act.

2014 Trade Secret Webinar Series

Beginning in January 2014, we will begin another series of trade secret webinars. The first webinar of 2014 will be “2013 National Year in Review: What You Need to Know About the Recent Cases/Developments in Trade Secrets, Non-Compete, and Computer Fraud Law.” To receive an invitation to this webinar or any of our future webinars, please sign up for our Trade Secrets, Computer Fraud & Non-Competes mailing list by clicking here.

If you have any questions, please contact Michael Wexler at mwexler@seyfarth.com /(312) 460-5559, Robert Milligan at rmilligan@seyfarth.com /(310) 201-1579, the Seyfarth Shaw attorney with whom you work or any Trade Secrets, Computer Fraud & Non-Compete attorney on our website (www.seyfarth.com/tradesecrets). You may also access our blog, Trading Secrets, at www.tradesecretslaw.com.