TRADE SECRET AUDIT SEQUEL SEMINAR: 1455 Pennsylvania Ave., NW, Suite 400, Washington, DC 20004

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1 SEQUEL SEMINAR: TRADE SECRET AUDIT 1455 Pennsylvania Ave., NW, Suite 400, Washington, DC office: fax:

2 Table of Contents A message from Melise... 3 Purpose of this document... 4 I. Identify Trade Secrets: The Basics... 5 II. Protect Trade Secrets: Employee agreements... 6 III. Trade Secret Survey

3 A message from Melise Welcome to our first Sequel Seminar. The aim of this series is to answer the essential questions related to intellectual property and the internet that you do not feel comfortable asking internally. This Sequel Seminar focuses on trade secrets, a lesser-known area of intellectual property. Trade secrets are important for several reasons. First, every company possesses trade secrets, whether they know it or not. Trade secrets range from simple customer lists to secret formulas to business plans. Second, trade secret litigation is on the rise. The FBI has opened 56 trade secret-related cases within the last year. For these and other reasons, it is important for you to possess the knowledge necessary to identify and protect your company s trade secrets. Future Sequel Seminars will feature interactive elements such as remote participation. Until then we encourage you to explore the following resources: Internet Crimes, Torts and Scams: Investigation and Remedies by Melise Blakeslee SequelTechLaw.com ecrimetools.com If you have a suggestion for future Sequel Seminars, please contact us at info@sequeltechlaw.com. 3

4 Purpose of this document Thank you for taking part in Sequel Seminar: Trade Secrets. This Sequel Seminar features Melise Blakeslee, the founder of Sequel Technology & IP law, and Michael Underhill, a Partner at Boies, Schiller & Flexner LLP. While trade secret law varies from state to state, most jurisdictions apply some version of the model statute, which is known as the Uniform Trade Secrets Act (UTSA). Part one of document uses the UTSA as a guide to explain the basics of the law. The second part lists some important considerations in implementing employee agreements. Finally, part three is a trade secret survey asks some of the most important questions your company should consider in forming and implementing a trade secret strategy. We hope that this document will provide a starting point for identifying and protecting your company s trade secrets. If you have any questions, please contact us at info@sequeltechlaw.com. 4

5 I. Identify Trade Secrets: The Basics A trade secret is really just a piece of information (such as a customer list, or a method of production, or a secret formula for a soft drink) that the holder tries to keep secret, so that the only way the secret can be unmasked is by [a criminal act,] a breach of contract or a tort. ConFold Pac. v. Polaris Indus., 433 F.3d 952, 959 (7th Cir. 2006) (Posner, J.) (citations omitted). Uniform Trade Secrets Act: Trade secret means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: i. derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and ii. is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Elements Information Independent economic value Not generally known Reasonable efforts to maintain secrecy The types of things which might qualify as trade secrets are confidential information, methods, processes, lists, data, and any other thing not known outside your company (except under nondisclosure agreements or NDAs ). Such items need not be novel or unique. It may be useful to think about those things that are not commercialized, yet give your company a competitive advantage or the ability to produce goods and services of value. 5

6 II. Protect Trade Secrets: Employee agreements Employee agreements are an important tool in any trade secret strategy. Below are some important considerations in implementing such agreements: Carefully, properly drafted covenants not to compete Clearly define and categorize confidential information Prohibit employee use of confidential information from prior employment IP assignment clauses (carefully described) Explain agreements to employee and employer Consider a reasonable holdover clause Confirm that agreements conform to employment law and maintain employment relationship Consider risks of exposing secrets through litigation 6

7 III. Trade Secret Survey Business lines should answer the following questions ECONOMIC VALUE 1. What are the five items 1 most critical to the value your business unit creates (produces for sale or license)? a. Why? b. What does it do or how does it function? c. Who is the target market? d. Who uses it? e. What type of third-party access exists? 2. What are the five items most critical to the operations of your business unit (enabling sale or license)? a. Why? b. What does it do or how does it function? c. Who is the target market? d. Who uses it? e. What type of third-party access exists? 3. What are the five items most critical to the success of your business unit? a. Why? b. What does it do or how does it function? c. Who is the target market? d. Who uses it? e. What type of third-party access exists? 4. Which internal analyses, data or databases are material to the success of your business line or products and services? 5. Are there any other items which you believe are valuable to your business? 1 Items may include text, methods, data, databases, information, analysis, software, reports, marketing/support/training materials, forms, or any other tangible or intangible work product or thing original to your company, or embodies the product or services per se. 7

8 GENERALLY UNKNOWN 6. Which of these items do you consider to be confidential? 7. Which of these confers a competitive advantage? 8. Which of these items would you not wish others in your industry to know about or acquire for free? 9. What personal confidential information in your business s possession can be attributed to a non-employee individual? 10. How long is this information likely to remain secret vs. discovered by competitors? 11. What other companies are believed to have the same or similar information? 12. If stolen, how would it impact on your business (Can the loss be quantified)? 13. How would you like to see these items protected? REASONABLE EFFORTS 14. What employees have access to this information? 15. Have employees with access all been instructed concerning the secrecy of the information? 16. Which of these items does your business mark as confidential? 17. Which of these items is password protected? 18. What are the material confidentiality or non-disclosure agreements between your company and any third party? Which of the items above are associated with such agreements? 19. Are departing employees counseled concerning their confidentiality obligations and asked to sign an undertaking not o use or disclose any of the company s proprietary information in any new employment? 20. Can access be further restricted without harming business operations? 21. What is the most likely IP threat to these items (How is it likely to be stolen)? 22. Do any items warrant further protection? 8

9 1455 Pennsylvania Ave., NW, Suite 400, Washington, DC office: fax: