2013 ACC-SoCal In-House Counsel Conference #IHCC13 Swimming With Piranhas: Hiring Competitor’s Top Talent & Being Fiercely Competitive Without Exposing Your Company Avoiding Trade Secret Misappropriation, False Advertising & Unfair Competition Claims January 23, 2013 Los Angeles, California Moderator: Harrison Perla, Esq. Panelists: Lynda Zadra-Symes, Jeff Van Hoosear, Susan Natland and Diane Reed @KnobbeMartens at Twitter #IHCC12 The recipient may only view this work. No other right or license is granted.
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Hiring Competitor’s Top Talent & Being Fiercely Competitive Without Exposing Your Company
On Wednesday, January 23, Knobbe Martens Partners Jeff Van Hoosear, Susan Natland, Diane Reed and Lynda Zadra-Symes participated in the Association of Corporate Counsel (ACC) - Southern California In-House Counsel Conference. This all day CLE program was just for in-house counsel and panels included: Social Media & Privacy; New Developments in California Employment Law; Lawful Interception; Millennial Engagement in the Workplace; and Helping Sales & Marketing Avoid Defamation/Unfair Competition.
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Via Federal Express Dear President: I am General Counsel for Fierce Competitor, LLC. (“FCL”). It has come to my attention that your company has recently hired Pat O’Neil Riley, a former V.P. of Sales and & Marketing at FCL. Given Pat’s position at FCL, Pat had access to a variety of confidential and proprietary information. Whatever Pat knows clearly qualifies as a TRADE SECRET of FCL and should not be used by your company … We demand that you cease and desist from the use and disclosure of all information and data that Pat obtained while a V.P. at FCL … We further demand your immediate confirmation that your company will not use or disclose any TRADE SECRETS or proprietary information of FCL … Unless I have your immediate confirmation by the close of business yesterday, FCL will proceed to enforce all legal remedies available to it, including, false advertising, unfair competition, trade libel, as well as all other remedies that our outside counsel have not yet even thought of … I expect to hear from you by yesterday. Have a nice day. Sincerely, General Counsel
What are the legal requirements to protect trade secrets?
Generally, the law will recognize and protect a trade secret if it constitutes information that: – Is not generally known (i.e., it is secret or confidential) – Has value to you or would have value to a competitor – Is subject to reasonable efforts/procedures to preserve
its confidentiality
Conversely, if the information is publicly available or otherwise falls into the public domain, it is not protectable as a trade secret
Business information – Financial data – Sales data – Customer or vendor data – Operational information – Branding information – Advertising and marketing data – Prospective products, services, or programs
Technical, engineering, testing or scientific information or data
Computer software and related documentation Manufacturing processes or methodologies Recipes, formulas or instructions The law tends to favor technical information over
business information – so be especially careful with protecting business information to preserve its trade secret status
– Do not publish or distribute the information to the public – Use appropriate agreements with confidentiality clauses – Monitor or audit compliance on a regular basis to ensure
(and demonstrate, if necessary) that the procedures to protect you trade secrets are in force and being followed
– Treat your trade secrets and your NDAs as your other IP (status reports, etc.)
The sale or distribution of a product from which the information can be discerned by reverse engineering will cause the information to lose trade secret status! – Reverse engineering of competitor’s products is often conducted as routine “competitive intelligence” by many companies
– Several labs specialize in reverse engineering products to determine product composition, physical characteristics, and even how the product was made
Other ways to lose trade secret status: – The information is developed independently by another
party The trade secret status may not be lost but you cannot enforce
your trade secret rights against that party
– The information is developed independently or discovered by another party and made available to the public The information falls into the public domain and trade secret
Breach of an NDA or other confidentiality agreement – legal action may be available but the trade secret status is still lost – Even though there is an NDA, it is not a guarantee that
the party receiving the trade secret will honor the confidentiality obligations of the agreement
– Thus, disclosure of trade secrets under the protection of an NDA must be carefully evaluated, including the level of trust that is reposed in the receiving party
Because trade secret status can be easily lost . . .
Serious consideration should be given at the outset to whether the information should be protected by trade secret, copyright, or patent (if available)
Note that if you initially follow the trade secret route, patent protection is likely not available, copyright still possible
Can I be at risk in violating the trade secret rights of others?
Caution should be exercised in hiring employees from competitors – Be sure to consult legal counsel in sensitive situations – Avoid risk of charges that you hired an employee to gain access to the competitor’s trade secrets
– Avoid charges that you “interfered” with a competitor’s contractual or customer relations
– Have provision in employment agreement which confirms employee has no trade secrets or confidential information of prior employers
Can I be at risk in violating the trade secret rights of others?
Even in NDA situations or other agreements, avoid receiving the confidential information of another party unless absolutely necessary to fulfill the purposes of the arrangement
Have a clear policy and educate your team to respect the IP rights (including trade secrets) of others
Advertise for All Positions Do Not Target a Particular Individual Publish Policy Against Misappropriation Similar Provision in Employee Agreement Have a New Project Underway Before Hiring any “Sensitive” Employees
Avoid Hiring a Number of Competitor’s Employees at the Same Time or Within a Short Time Period