Mike Adams Eric Welsh Chris Thomas Parker Poe Adams & Bernstein LLP The New IP Battlefield: Trade Secret Misappropriation -Protect Your Business- © 2015-2015

Mike Adams

Eric Welsh

Chris Thomas

Parker Poe Adams & Bernstein LLP

The New IP Battlefield:Trade Secret Misappropriation

-Protect Your Business-

© 2015-2015 Parker Poe – All rights reserved

“[Things spoken are] forgotten ... passed by—not noticed in a private conversation—but once put your words in writing ... they stand as a living & eternal Monument against you.”

© 2015 – All rights reserved 2






One year later the driver of an SUV ran the stop sign, was hit by a train, and two passengers died and another was seriously injured

A lawsuit was filed Defendant has a video camera on its train

showing clearly that the driver ran the stop sign

But it also has this email


The email has nothing to do with trade secrets

But it is a classic example of a dumb email:• (1) it is from the Director of Grade

Crossing Safety • (2) its subject is about the safety of a

crossing which an employee claims is “illegitimate”

• (3) it references a clearly off-hand comment that the crossing is so unsafe that people are taking bets as to when someone might get hit


Another Example: after a lawsuit was filed, and after having received a litigation hold letter and discovery requests asking for production of any documents that referred to the plaintiff by name, the National Director of Sales for the defendant sent the following email along with information the plaintiff would later claim were trade secrets:


Another example: Email requesting that a company’s sales force obtain “select competitive samples and pricing information” at an industry trade show and the response from one of the sales reps:


Another Scenario: Imagine a Company President asks the V.P. of Marketing for the sales of a group of the company’s largest customers. Rather than taking the time to obtain the information from the different sources, the V.P. of Marketing decides the easiest way to get this information is to ask a friend who works for the Company’s largest competitor and then sends back the following email to the Company president:


Next, he sends a series of emails to his friend at the Company’s largest competitor:


She sends him the information. In another email he requested different information:

When there is a group of companies in a particular industry and they are competing with each other for the same

customers, people will (a) move between those companies and (b) continue to communicate with each other

They will also share information that their employers deem to be confidential, proprietary and/or trade secrets

Yes, emails like this are being sent by people in your companies all the time


There are three legal concepts to protect ideas—trade secret, patent, and contract, (e.g., confidentiality agreement)

Patents and contracts require a single act Trade secrets depend upon a continuing

course of conduct



“Trade secret” means business or technical information,

including but not limited to, a formula, pattern, program,

device, compilation of information, method, technique,

or process that:

derives independent actual or potential commercial value; from not being generally known or readily ascertainable through

independent development or reverse engineering; and is the subject of reasonable efforts to maintain its secrecy.

N.C. Gen. Stat. § 66-152


The following categories of information, depending upon the facts, have sometimes been found to be (or not to be) trade secrets in North Carolina:

• cost history information• price lists• pricing formulas• bidding formulas• customer lists• compilation of business information (made up of

preferred customer pricing, employees' salaries, equipment rates, fleet mix information, budget information and structure of the business)


“Three can keep a secret, if two of them are dead.”



One of the battlefields in trade secret litigation is whether the information at issue was subject to reasonable efforts to maintain its secrecy

What constitutes reasonable efforts to protect trade secrets is fact specific and decided on a case-by-case basis

That means your job is to create the best arguments for your side and to eliminate the obvious arguments for the other side.


Trade Secret Theft Costs US Companies an Estimated $300 billion per year

60% of Employees Surveyed Admitted to Stealing Company Information

Over the past 30 years, trade secret litigation in federal courts has doubled roughly every decade, while federal litigation has decreased overall

Over the past 20 years, trade secret litigation in state courts has increased at a rate faster than that of litigation in general

February 2013 directive from the White House putting a priority on mitigating corporate espionage and theft of U.S. trade secrets by foreign countries


• Most intellectual property is digital

• Most, if not all, of your employees bring cameras and recorders to work every day

• Every single one of your employees with Internet access can likely access a personal web-based email account

• Every single one of your employees can carry an easily concealable drive in their pocket that has massive storage capabilities


© Parker Poe Adams & Bernstein LL P 2010 24© 2015 – All rights reserved



© 2015 – All rights reserved

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http://www.lexisnexis.com/applieddiscovery/lawlibrary/whitepapers/adi_fs_pagesinagigabyte.pdf


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• Jury awarded MGA $88.5 million. Trial judge remitted it to $85 million, and awarded $2.5 million in attorneys fees and $85 million in punitive damages for a total of $172 million for trade secret misappropriation.

• Ninth circuit vacated the award on procedural grounds (non-compulsory counterclaim in a reply) but upheld a $137 million copyright infringement verdict.

• So what did Mattel do?


“For years, the company's senior management encouraged employees to use false pretenses to access competitors' private displays at international toy fairs and improperly acquire competitive information, including price lists, advertising plans, and unreleased product attributes. Mattel disseminated the improperly acquired information through internal memoranda, see, e.g., TX 9275, and company-wide presentations, see Trial Tr., dated March 22, 2011, Vol. I, at 31:2–7; praised the employees that committed the wrongdoing, see TX 27464–158.”


“An internal Mattel document instructed employees to create false identifications before attending toy fairs, using a “home phone number or [ ] a fake number [but not] your Mattel number.” TX 36028. … [M]embers of the company's “Market Intelligence” department used false identifications and posed as retailers to gain access to MGA's private showrooms and at least one former executive admitted that he allowed Mattel’s employees to use his home address. Trial Tr., dated March 24, 2011, at March 23, 2011, Vol. I, at 11:16–12:18; Trial Tr., dated March 22, 2011, Vol. I, at 32:21–37:24.”


© Parker Poe Adams & Bernstein LL P 2010

“Society has an interest in deterring reprehensible conduct of this kind. But that interest in deterrence is not at its strongest here, since other members of the close-knit toy industry have been alerted to Mattel’s misconduct as a result of this litigation and are likely to cast a wary eye towards their competitor in the future. Nor does Mattel’s use of cheap fake business cards, silly nicknames, and amateurish tactics in a futile effort to stave off legitimate competition evoke a strong desire to punish. That one of California's largest companies abandoned innovation and resourcefulness for bumbling fraud evokes disappointment instead.”


• Allergan makes Botox

• Merz makes Xeomin, a Botox competitor

• Spring 2010, Merz starts interviewing sales reps for Xeomin, including Allergan reps, in anticipation of FDA approval of Xeomin

• Allergan GC mails a letter to Merz GC to the effect that Allergan knows employees are being interviewed and “we are watching you”

• July 2010, Merz hires 10 Allergan Botox sales reps

• August 4, 2010, Allergan seeks TRO re: trade secrets

• Merz says it has nothing and Judge denies TRO


Merz’s protection measures:•The new employees signed employment agreements stating that they would not use confidential information

•At a national sales meeting, Merz Aesthetics General Counsel gave all sales representatives a presentation on compliance and confidential information.

•Merz’s asked employees to search their files and return any materials that they might have received in connection with the hiring of any former Allergan employee

•Merz contacted the eight known Allergan sales representatives and instructed them not to send anything Allergan-related to Merz and not to delete anything from their personal computers or media storage devices


Merz’s protection measures:•Merz gave a PowerPoint presentation to its new sales force which discussed avoiding the inadvertent acquisition or use of former employer information

•At an all-company launch meeting in early September, Merz Pharma’s in-house counsel gave another presentation to the entire sales force

•Merz hired a forensic computer consultant who did a poor search for documents and none of the following came out until a year and a half after the TRO hearing


Allergan’s protection measures:•Pre suit letter and immediate TRO discussed above;

•All Allergan employees signed employment agreement which included: “In general, any information relating [to] investigational or marketed products, research or manufacturing processes, business studies, business procedures and finances which has not been made public shall be considered confidential.”

•Upon joining Allergan, and periodically thereafter, the Individual Defendants were all provided with, and required to review, Allergan’s Employee Handbook and Code of Business Ethics containing standard trade secret provisions


Allergan’s protection measures:•Allergan began a forensic examination of the laptops and network activity of the sales reps

•They accessed and sent to their personal email accounts numerous documents and electronic files before giving notice to Allergan that they were leaving the company to join Merz Aesthetics

•For example, Excel spreadsheet containing the entire nationwide list of Allergan’s nearly 24,000 physician customers for Botox, including the identities of those customers, contact information for each, details concerning sales volumes and future targets was sent after one sales rep signed her employment agreement with Merz


What Allergan Found:•Allergan sales training documents, including Allergan’s strategy for competing with Merz marked with the legend “For Sales Training Purposes Only. Do Not Duplicate or Distribute.”

•A 24-page PowerPoint presentation titled “Competitive Framework: Evaluating the Competitive Dermal Filler Market.”

•An Allergan report of every sales representative by name, region or territory covered, specific actual sales amounts, and a numerical ranking of each representative


What Allergan Found:•One sales rep copied her back-up files and other Allergan files to a 2-terabyte external hard drive

•Another copied approximately 30 files from his Allergan laptop to a portable USB drive and, in addition, accessed another 148 distinct files.

•etc. etc. etc.


What Merz had done with the inforation:•It turns out that Merz had confidential Allergan documents going back to March 2010, four months before these employees were hired

•PowerPoint presentations sent by a vice president to the President of Merz

•Excel spreadsheets sent by a regional manager to the National Sales Manager

•A directory of Allergan employees sent in an email with the comment “Please keep this to yourself.”

•Employees called their former colleagues for information: “What????? Come on! You work for the competition now..[sic] sort of.” She eventually obtained the materials from a different current Allergan employee


So what happened:•National Sales Manager sent a broadcast email to new hires “Competitive info – For those of you coming from a competitor or former competitor, please get as much info as you can on KOL’s [Key Opinion Leaders], sales numbers, office volume, product info etc….. [sic] This will be very valuable to everyone in the region.”

•The email states that he “BCC’d everyone on this email so that [they] may remain anonymous and exit [their] current positions without any problems.”

•A new sales rep responded [I have a] “flashdrive loaded up with some key account documents, SPP/payer info, some [sic] BOTOX slide sets, etc.”


So what happened:•Another responded with an email attaching three confidential Allergan documents (the “Xeomin Training Modules”) with a cover note stating that “[t]his is what Allergan is using to prepare for real competition.”

•The Xeomin Training Modules are marked on each page as “For Internal Use Only” and “For your Information Only. Do Not Duplicate, Detail, Distribute, or Use in Any Promotional Manner.”


So what happened:


So what happened:


So what happened:

Who won?



Your company’s information is vulnerable

Your company is vulnerable to being accused of misappropriating your competitors’ trade secrets

Some people are bad

Some people are careless

Some people have judgment and intellectual challenges

Human nature is prone to short cuts and vindictiveness

Technology makes it easier to misappropriate and easier to prove misappropriation

One day, you will be asked to account for your actions


Publication of the secret destroys its value as such because a trade secret is of value only because it is a secret, and only so long as it remains a secret.

Don’t disclose to third parties in absence of an NDA Don’t publish on website Don’t include in patent Don’t include in deposit materials with copyright application Don’t describe in industry trade magazines Don’t describe at trade show or customer demo Don’t show on tours of production facility


“An ounce of prevention is worth at least a pound of cure.”

Confidentiality Procedures:

• Implement and follow a corporate policy regarding confidential information/trade secrets (policy should be in writing and cover computer rights and access)

• Entrance and Exit Interviews and Evaluations

• Confidentiality agreements (CDA’s) with employees• Properly drafted non-compete provisions

• Confidentiality agreements with third-parties• Vendors• Suppliers• Customers• Joint Venture or Business Partners



Physical Security Measures:

• Guarded entrance• Locked doors or filing cabinets• Control visitor access• Prohibiting photography• Signage indicating confidential areas• Use pre-mixed or code-named ingredients• Label confidential documents

• Audit compliance



Technology Security Measures:

• Restrict access (VPN, Wi-Fi, document groups, etc.)

• Passwords and Encryptions

• Policies for USB devices and backup drives

• Monitor and audit access



Corporate Measures:

• Educate key managers on trade secret protection

• Be candid about what is occurring

• Ask for input on how to improve systems

• Create a culture of accountability

• Limit access/distribution of secret information


Who should help formulate these policies:

• IT• HR• R&D• M&A• Sales and Marketing (good luck)• Accounting• Risk management• Security

Do not just write a policy—put it into practice. Speak at the annual sales meeting


Review the new employee hiring process;

Understand your IT Controls;

Review your confidentiality and non-disclosure forms;

Decide what you consider to be your most sensitive information or most important trade secrets and learn how they are handled.


What can you do to avoid claims of misappropriation against your business?

• Company policies against efforts to obtain competitors’ confidential information (e.g. bounty programs)

• Agreements with new employees

• Policies that new employees may not use computers, phones or other devices used in prior employment with competitors

• Tight confidentiality and non-disclosure agreements

• Identify obvious risk situations

• Education

• Corporate culture


• Investigation

• Immediate action is critical• preserve evidence • minimize further damage

• Retain legal counsel as soon as you discover this misappropriation.




Documents

Mike Adams Eric Welsh Chris Thomas Parker Poe Adams & Bernstein LLP The New IP Battlefield: Trade Secret Misappropriation -Protect Your Business- © 2015-2015