EMPLOYEE MOBILITY AND TRADE SECRETS THE DEFEND TRADE

EMPLOYEE MOBILITY AND TRADE SECRETS: THE DEFEND TRADE SECRETS ACT OF 2016 JUNE 2016 © 2016 Kaliko & Associates, LLC

TRADE SECRET THEFT $5 trillion is the estimated value of trade secrets owned by U. S. companies* The FBI reports that their caseload for economic espionage and trade secret theft cases increased more than 60% from 2009 to 2013 *U. S. Chamber of Commerce Report © 2016 Kaliko & Associates, LLC

HISTORY OF THE DTSA Patents, Copyrights, Trademarks: All are protected by Federal Law Trade Secrets: Previously no federal civil protection until the passage ot the Lanham Act Previously the Uniform Trade Secrets Act: Differed from state to state; and those differences could be dispositive of the case Uniform Trade Secret Act was Not adopted in Massachusetts and New York © 2016 Kaliko & Associates, LLC

A HISTORY OF THE DTSA The Economic Espionage Act (EEA) of 1996, codified at 18 U. S. C. Sections 1831 et seq. , made it a federal crime to misappropriate a trade secret in interstate commerce. The Defend Trade Secrets Act 1. DTSA amends the EEA 2. Now provides a federal civil remedy 3. Codified at 18 U. S. C. 1831 et seq.

The Defend Trade Secrets Act The DTSA had bipartisan support Passed unanimously in the Senate Only 2 dissenters in the House of Representatives President Obama signed the DTSA into law on May 11, 2016 Senator Grassley, of Iowa stated: The DTSA allows trade secret owners “to protect their innovations by seeking redress in federal courts, bringing their rights into alignment with those long enjoyed by owners of other forms of intellectual property, including copyrights, patents and trademarks. ”

THE DTSA CON’T Trade Secret Misappropriation is an international issue; On May 27, 2016, the European Commission unanimously adopted the EU Trade Secrets Directive; Introduced a harmonized standard of protections across EU Member States; Each Member State must implement the Directive into national law by mid-2018; Similar to DTSA, although there are differences; and Also provides strong protections for whistleblowers.

WHAT DOES THE DTSA PROVIDE DTSA permits a trade secret owner to bring a claim in federal court for the actual or threatened wrongful acquisition, use, or disclosure of a trade secret; DTSA permits an award of actual damages, disgorgement of unjust gains, a reasonable royalty, and injunctive relief; and DTSA, in cases of willful and malicious misappropriation, or where claims are made or resisted in bad faith, exemplary damages of up to twice actual damages, and attorneys’ fees may be available (Plaintiff or Defendant may use).

STANDARD DEFINITIONS PORVIDED WITHIN THE DTSA Definition of Trade Secret “[T]he term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if – 1) the owner has taken reasonable measures to keep such information secret; and 2) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information. ” 18 U. S. C. § 1839(3)

PROVISIONS UNIQUE TO THE DTSA Ex Parte Seizure: The DTSA creates a new remedy, allowing ex parte seizure of property necessary to prevent the propagation or dissemination of a trade secret – without notice 1. Seizure will only be granted if the trade secret owner can satisfy strict requirements, including a) Establishing injunctive relief is insufficient b) Describing with reasonable particularity the matter to be seized, and to the extent reasonable, the location c) Establishing that the seizure target would destroy, move, hide, or otherwise make such matter inaccessible to the court, if given notice

PROVISIONS UNIQUE TO THE DTSA CON’T Injunctions: Injunctions prohibiting employment are barred, but conditions on employment are not: a) Unlike certain states that embrace the “inevitable disclosure” doctrine, the DTSA bars injunctions that “prevent a person from entering an employment relationship” b) Permits injunctions that place conditions on employment, as long as they are based “on evidence of threatened misappropriation, and not merely on the information the person knows”

PROVISIONS UNIQUE TO THE DTSA CON’T Immunity: The DTSA contains immunity provisions related to certain conduct; Notice: The DTSA contains notice provisions related to immunity; and Penalty: If an employer does not comply with the notice requirement, it may not be awarded exemplary damages or attorneys’ fees; but these remedies are still available under state law.

STRATEGIES IN TRADE SECRET LITIGATION IN VIEW OF THE DTSA Don’t Forget about State Law: a) Other than in the whistleblower context, the DTSA does not preempt existing state law remedies. Differences could prove case dispositive, and may affect: a) Which party has the burden of establishing that a trade secret is not readily ascertainable; b) Whether the owner has any rights against a party that innocently acquires a trade secret; c) The scope of information protectable as trade secret; d) What measures are necessary to satisfy the requirement that the owner employ “reasonable measures” to maintain secrecy; and e) Ithe Doctrine of inevitable disclosure. © 2016 Kaliko & Associates, LLC

STRATEGIES IN TRADE SECRET LITIGATION IN LIGHT OF THE DTSA Deciding whether to assert a DTSA claim consider the following: Interstate commerce Can file DTSA in State or Federal Court Consider forum, caseload, strength of case Ease of interstate discovery Need for seizure order

WHAT SHOULD AN EMPLOYER CONSIDER NOW? Immediately review all template agreements, handbooks, and policies pertaining to employees and contractors to ensure trade secrets are addressed: a) b) c) d) e) Employment Agreements; Confidentiality and Invention Agreements; Separation Agreements; Handbooks; and Policies.

WHAT MIGHT AN EMPLOYER CONSIDER NOW? a) Understand the scope of the immunity; it is not a get-out-of-jail- free card; b) Notify government entities of FOIA limitations; c) Understand potential rights under non-trade secret laws; d) Ensure confidentiality agreements include a right to demand return at any time, and an obligation to return information upon termination; e) The exit interview: ask each employee if he/she has retained confidential information, and whether he/she has provided confidential information to any third party; f) Require that employees sign a termination certificate; and g) Request all company information in discovery.

WHAT MIGHT A BUSINESS CONSIDER IN COMMERCIAL AGREEMENTS WITH VENDORS? Require any vendor or other counterparty that receives access to trade secrets to comply with the immunity disclosure requirements of the DTSA Consider exceptions to arbitration clauses to facilitate seizure orders Consider exceptions to mandatory venue provisions to facilitate seizure orders Prohibit transfers of trade secrets outside of the United States Take particular care to limit disclosure by vendors or other counterparties to those of its personnel who strictly require disclosure Ensure that security precautions apply internally (to counterparty personnel) as well as externally Require that the discloser of the information receive a log indicating all counterparty personnel that receive access to its trade secrets Impose strict requirement to return all trade secret information (and all copies) when no longer required Require that each counterparty employee or contractor that receives trade secrets be required to certify in writing its compliance with that obligation to return

LAWYER BIOGRAPHY Scott H. Kaliko Managing Member Kaliko & Associates, LLC Franklin Lakes, NJ P: 201 -739 -5555 F: 201 -644 -0039 skaliko@kalikolaw. com Intellectual Property & Compliance Mr. Kaliko is a licensed attorney, a registered patent attorney, and a Certified Anti-Money Laundering Specialist (CAMS). For more than 15 years as an attorney he acted as counsel for a variety of intellectual property clients by performing patent and trademark prosecution, IP Audits, Intellectual Property, IP Litigation, IP Asset Management, and IP Counseling. Mr. Kaliko is responsible for conducting compliance reviews, audits, and examinations for the firm’s Banking and Capital Market clients. He has extensive knowledge of Investment Advisers Act, Investment Company Act, Advisory Compliance, Broker-Dealer Operations, Securities Exchange Act, AML/BSA Program Development, USA PATRIOT Act Compliance, Regulatory Documentation, Policy Review, Risk Management, and Corporate Agreements. Mr. Kaliko has also served as lead counsel for clients in FINRA and SEC investigations for financial institutions and reviewing and implementing compliance programs for banks and brokerdealers regarding AML and General Compliance matters.

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