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May, 2007
 
     
 

PROTECTING YOUR INTELLECTUAL PROPERTY RIGHTS-TRADE SECRETS

A company's intellectual property (IP) is an integral and valuable part of its
business success.  Federal and California law protect IP that are:

  Patents
  Trademarks and trade names
  Copyrights
  Trade Secrets
  Others too numerous to mention

A discussion of all IP areas in one newsletter would not do justice to any.  Over
the coming months, a newsletter will be dedicated to each of the above areas.  
This issue will focus on one of the lesser known, but important, IP rights of any
business, i.e. its trade secrets.

Legal Basis for Trade Secrets

Protection is conferred upon a business's trade secrets by California's Uniform
Trade Secret Act.  California law defines a trade secret as "information, including a
formula, pattern, compilation, program, device, method, technique, or process, that
derives independent economic value, actual or potential, from not being generally
known to the public or to other persons who can obtain economic value from its
disclosure or use; and is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy." 

Types of Trade Secrets Protected

California law protects nearly anything that is valuable and kept secret.  The following
types of technical and business information are examples of material that can be
protected by trade secret law: 

      Customer lists. 
      Designs. 
      Instructional methods. 
      Manufacturing processes. 
      Document-tracking processes. 
      Formulas for producing products.

Inventions and processes that are not patentable can be protected under trade secret
law. Patent applicants generally rely on trade secret law to protect their inventions
while the patent applications are pending.

Misappropriation

Trade secrets, once subjected to efforts to maintain their secrecy, are thereafter
misappropriated by any "improper means."  An improper means includes, but is not
limited to:

      Theft
      Bribery
      Misrepresentation
      Breach or inducement to breach of a duty to maintain secrecy
      Espionage through electronic or other means.

Certain types of misappropriation may result in criminal activity, e.g. theft or bribery.

Misappropriation does not include:

      Acquiring the information from public domain sources
      Reverse engineering
      Independent discovery
      Employee skill development

Though the IP right in a trade secret may potentially last forever, there is no right in
exclusive use, but rather only a right against misappropriation.  Once the trade secret
becomes known by a lawful means, or is abandoned, it may be used by anyone lawfully
acquiring it.


Confidential Relationships

Trade secrets have their origins in the common law recognition of confidential
relationships.  Obligations of confidentiality are both implied and expressed.  Implied
confidence in normal business relationships include:

      Negotiations for sale of a business
      Licensing negotiations
      Independent contractor relationships
      Employment relationships
      Vendor relationships
      Joint venture relationships
      Manufacturer and supplier relationships
      Business negotiations

Hence, to prevent litigation, through misappropriation, it is prudent for the above
relationships to be subject to a properly drafted non-disclosure agreement.  


Maintaining Secrecy

Businesses must take adequate measures to protect their trade secrets.  These
measures may include any or all of the following:

      Using non-disclosure agreements both "within" and "outside" the company, which
may be part of other agreements, e.g. employee agreements.
      Using specific instructions regarding trade secrets and employee awareness
programs.
      Notifying departing employees of their obligations in an exit interview or departure
letter.
      Giving notice to a departing employee's new employer.
      Restricting physical access to trade secrets to both employees and visitors.
      Placing proprietary legends on documents containing trade secrets.
      Imposing "copying" limitations on documents containing trade secrets.
      Using shredders to impose controls over waste disposal or maintaining security
over dumpsters or other waste disposal areas.
      Establishing information dissemination policies and procedures related to trade
secrets.
      Implementing security procedures for computers and computer networks
containing or accessing trade secrets and controlling the disposition of such
equipment.
      Implementing adequate procedures for limiting disclosure through product sales.


Remedies for Misappropriation

Actual or threatened trade secret misappropriation may be enjoined by court order.  
The business may also seek damages for actual losses, as well as unjust
enrichment of the person misappropriating the trade secret.  Moreover, if the
misappropriation is willful and malicious, punitive damages of twice the damages
may be recovered.  Any lawsuit based on trade secret misappropriation must be
brought within 3 years of the actual discovery of the misappropriation or from when it
should have been discovered by the exercise of reasonable diligence.

A company's intellectual property (IP) is an integral and valuable part of its
business success.  Federal and California law protect IP that are:

    Patents
    Trademarks and trade names
    Copyrights
    Trade Secrets
    Others too numerous to mention

A discussion of all IP areas in one newsletter would not do justice to any.  Over
the coming months, a newsletter will be dedicated to each of the above areas.  
This issue will focus on one of the lesser known, but important, IP rights of any
business, i.e. its trade secrets.

Legal Basis for Trade Secrets

Protection is conferred upon a business's trade secrets by California's Uniform
Trade Secret Act.  California law defines a trade secret as "information, including a
formula, pattern, compilation, program, device, method, technique, or process, that
derives independent economic value, actual or potential, from not being generally
known to the public or to other persons who can obtain economic value from its
disclosure or use; and is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy" 

Types of Trade Secrets Protected

California law protects nearly anything that is valuable and kept secret.  The following
types of technical and business information are examples of material that can be
protected by trade secret law: 

      Customer lists. 
      Designs. 
      Instructional methods. 
      Manufacturing processes. 
      Document-tracking processes. 
      Formulas for producing products.

Inventions and processes that are not patentable can be protected under trade secret
law. Patent applicants generally rely on trade secret law to protect their inventions
while the patent applications are pending.

Misappropriation

Trade secrets, once subjected to efforts to maintain their secrecy, are thereafter
misappropriated by any "improper means."  An improper means includes, but is not
limited to:

      Theft
      Bribery
      Misrepresentation
      Breach or inducement to breach of a duty to maintain secrecy
      Espionage through electronic or other means.

Certain types of misappropriation may result in criminal activity, e.g. theft or bribery.

Misappropriation does not include:

      Acquiring the information from public domain sources
      Reverse engineering
      Independent discovery
      Employee skill development

Though the IP right in a trade secret may potentially last forever, there is no right in
exclusive use, but rather only a right against misappropriation.  Once the trade secret
becomes known by a lawful means, or is abandoned, it may be used by anyone lawfully
acquiring it.


Confidential Relationships

Trade secrets have their origins in the common law recognition of confidential
relationships.  Obligations of confidentiality are both implied and expressed.  Implied
confidence in normal business relationships include:

      Negotiations for sale of a business
      Licensing negotiations
      Independent contractor relationships
      Employment relationships
      Vendor relationships
      Joint venture relationships
      Manufacturer and supplier relationships
      Business negotiations

Hence, to prevent litigation, through misappropriation, it is prudent for the above
relationships to be subject to a properly drafted non-disclosure agreement.  


Maintaining Secrecy

Businesses must take adequate measures to protect their trade secrets.  These
measures may include any or all of the following:

      Using non-disclosure agreements both "within" and "outside" the company, which
may be part of other agreements, e.g. employee agreements.
      Using specific instructions regarding trade secrets and employee awareness
programs.
      Notifying departing employees of their obligations in an exit interview or departure
letter.
      Giving notice to a departing employee's new employer.
      Restricting physical access to trade secrets to both employees and visitors.
      Placing proprietary legends on documents containing trade secrets.
      Imposing "copying" limitations on documents containing trade secrets.
      Using shredders to impose controls over waste disposal or maintaining security 
        over dumpsters or other waste disposal areas.
      Establishing information dissemination policies and procedures related to trade
        secrets.
      Implementing security procedures for computers and computer networks
        containing or accessing trade secrets and controlling the disposition of such
        equipment.
      Implementing adequate procedures for limiting disclosure through product sales.


Remedies for Misappropriation

Actual or threatened trade secret misappropriation may be enjoined by court order.  
The business may also seek damages for actual losses, as well as unjust
enrichment of the person misappropriating the trade secret.  Moreover, if the
misappropriation is willful and malicious, punitive damages of twice the damages
may be recovered.  Any lawsuit based on trade secret misappropriation must be
brought within 3 years of the actual discovery of the misappropriation or from when it
should have been discovered by the exercise of reasonable diligence.