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New York has recently enacted disclosure laws that could impact clean product manufacturers’ ability to protect their trade secret chemical formulations. While California was the first U.S. state to pass a law requiring disclosure of all substances contained in cleaning products, New York’s Department of Environmental Conservation (“DEC”) Household Cleansing Product Information Disclosure Program imposes stricter requirements than California on what must be disclosed.

Both laws require manufactures of cleaning products to disclose all chemicals used in household cleaning products on their websites, and identify any ingredients that appear on authoritative lists of chemicals of concern. However, the New York law also requires manufactures to identify any ingredient that is a nanoscale material.

While both laws have an exemption allowing trade secrets to not be disclosed there are some key differences:

California’s Cleaning Product Right to Know Act of 2017

New York’s Household Cleansing Product Information Disclosure Program

Disclose all intentionally added ingredients unless it is confidential business information (“CBI”) Disclose all intentionally added ingredients, including those present in trace quantities, PLUS all ingredients present only as an unintentional consequence of manufacturing and present above trace quantities (0.1%) where the manufacturer knows or should reasonably know of such ingredients, impurities, or contaminants, unless they are withheld as CBI
Provide CBI justification only on request for audit by the Attorney General Provide CBI justification only on request of the DEC for evaluation
Penalty: prohibited from selling product Penalty: prohibited from selling product PLUS an initial fine of up to $2500, and $500 for each additional day of violation

 

California’s requirements for manufacturers are a lot clearer than New York’s: the “knew or should have known” standard in New York may make full disclosure more difficult. But in either state, manufacturers are able to protect their trade secret information and withhold it from disclosure. What remains to be seen is how (and if) litigation arises challenging a company’s decision to withhold CBI, what kind of information falls within that scope, and what justification is required to maintain trade secret protection.

In July 2018, U.S. District Judge James Patterson imposed a $59 million penalty against China’s largest wind-turbine firm, Sinovel Wind Group LLC (“Sinovel”), for stealing trade secrets from a Massachusetts-based technology company, American Superconductor Inc. (“AMSC”). This fine was imposed as restitution to the American company, AMSC, after Sinovel was found guilty of stealing trade secrets in federal criminal court in January 2018. At trial, the court found that AMSC’s losses from the theft exceeded $550 million. The ordeal left AMSC in perilous financial shape. The U.S. Department of Justice said that the company lost more than $1 billion in shareholder equity and 700 jobs. Because of the severity behind Sinovel’s theft, the court ordered Sinovel to pay $1.5 million in fines and $57.5 million in restitution, and the company was put on probation for one year. The parties reached a settlement with Sinovel, which it agreed to pay the $57.5 million in restitution.

Acting Assistant Attorney General Cronan stated, “[a]s demonstrated by this prosecution, intellectual property theft poses a serious threat to American companies, and the Department of Justice is committed to aggressively investigating and prosecuting individuals and corporations who undermine American competitiveness by stealing what they did not themselves create.” This case further affirms the United States’ commitment to prosecuting the theft of intellectual property through criminal and civil penalties.

Those who perpetrated the thefts live abroad. One has been successfully prosecuted in Austria. U.S. charges are still pending against him, as well as two others who live in China.

On January 11, 2018, the Federal Circuit issued a game-changing decision that addressed the pitfalls of an entity’s attempt to secure the ownership of intellectual property rights through an employment agreement. The Court held that three different provisions that the employer argued effected an assignment of intellectual property rights were not sufficient to convey those rights to the employer.

In Advanced Video Technologies, Inc. v. HTC Corporation, the employment agreement under review had three provisions that the employer unsuccessfully tried to rely upon: (i) a provision that the employee “will assign” to the company the employee’s rights to any inventions, (ii) a provision whereby the employee agreed to hold in trust for the employer any intellectual property rights, and (iii) a provision, whereby the employee agreed that she waived and quitclaimed all interests that the employee had assigned under the employment agreement. The Court held that none of these was enough to confer ownership of the patent at issue. Therefore, the Court ruled that because the company did not own the patent in suit, it lacked standing to bring the lawsuit. All of this because one inventor out of three did not assign her rights to the company.

The patent at issue lists three co-inventors and the invention was created while the co-inventors were all employed with a predecessor in interest to Advanced Video. Two of the three co-inventors assigned their ownership interests during prosecution, so the entire dispute as to ownership in the company centered on whether the third inventor had assigned her interest in the patent to the company. The third inventor asserted that she had not assigned her patent rights to the company. Therefore, HTC moved to dismiss on this basis. In response, Advanced Video argued that the inventor’s ownership rights transferred under the terms of the Employment Agreement. The relevant language is:

I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and will assign to the Company all my right, title, and interest in and to any and all inventions, original works of authorship, developments, improvements or trade secrets which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company. Id. at 6.

The Court stated that “[t]he ‘will assign’ language alone does not create an immediate assignment of [the inventor’s] rights in the invention to [the company].” Id. at 6. The Court reasoned that the “will assign” provision was only a promise to do something in the future, but did not mean that the employee had already effectuated an assignment.

Next, Advanced Video argued that the “will hold in trust” language created an immediate trust under California law in favor of the transfer. But, according to the Court, even if that were the case and the interests were placed into a trust, “ it does not follow that that these interests were automatically, or ever, actually transferred out of trust in favor of [the company].” Id. at 7. Under California trust law, a trust beneficiary “generally is not the real party in interest” and has no standing to bring a patent infringement action. Id. at 7.

Finally, Advanced Video maintained that it has standing to bring this action because it acquired the inventor’s rights in the invention through the quitclaim provision in the Employment Agreement. The quitclaim provision states:

I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may thereafter have infringement of [sic] of any patent, copyrights, or mask work rights resulting from any such application assigned hereunder to the Company. Id. at 8−9.

The Court stated that the language in the quitclaim provision “waives [the inventor’s] rights to interests in any patent rights that she assigned under the agreement.” Id. at 9. Since no patent rights were ever assigned to Advanced Video, the quitclaim provision has no application. Id. at 9. Therefore, the quitclaim provision in the Employment Agreement did not effectuate an assignment of the patent rights.

The takeaways from the Advanced Video decision are relatively simple. First, employers should take a hard look at their employment and/or any confidentiality agreements that address ownership of intellectual property rights. Second, employers should ensure that the provisions dealing with ownership are written to clearly effectuate a current assignment of intellectual property rights instead of a promise to do something in the future.

“Ex-DuPont Worker Wins Discovery Stay In Trade Secrets Suit,” an article published earlier today by Law360, cites Crowell & Moring Partner, Mike Songer, as DuPont’s counsel in E.I. du Pont de Nemours and Co. v. Anchi Hou et al., 1:17-cv-00224 (D. Del). The case involves both a civil proceeding and a related criminal case, and the different strategies available in discovery in these situations. Click here to read more about this trade secrets case, involving alleged theft of the company’s printing plate technology.

Counsel Anne Elise Herold Li will be speaking at the 2017 BIO International Convention on a panel titled, “Keeping it Under Wraps: Protecting, Asserting and Creating Value from Your Trade Secret” that will begin at 1:45 pm on June 21.

The 2017 BIO International Convention will take place June 19 – 22 at the San Diego Convention Center.

Trade secrets are valuable IP assets and can create significant revenue opportunities for companies. Their importance in today’s global economy is growing in an age of digitalization and data sharing. So much so that on May 11, 2016, Congress passed the Defend Trade Secrets Act (DTSA). The DTSA is the product of years of growing concern over the threats to trade secrets in the information economy where companies have lost value due to the loss of trade secrets. This panel will discuss best practices for protecting company innovation and trade secret processes, data and communications in business transactions and day-to-day operations. Particular attention will be focused on best practices to maintain trade secrets, assert trade secrets under the DTSA and recommended language for employee agreements so that they comply with this new law.

The America Invents Act, the Defend Trade Secrets Act, and recent Court decisions demonstrate the ongoing changes affecting intellectual property. The new Trump administration is expected to continue this trend from the legislative perspective, and is expected that Congress will consider further legislation that may rival the size of the America Invents Act. At the same time, there are several key cases before the Federal Circuit and the Supreme Court that will continue to shape how the courts interpret the laws that Congress enacts. IP practitioners need to be aware of the state of play and how it may affect their business. What challenges could you face?

Tune into the Trump Administration’s Focus on IP Webinar, and join Terry Rea and Mike Songer from Crowell & Moring as they discuss key issues and trends affecting intellectual property including a discussion of the administrative and judicial trends that have a direct impact on all forms of intellectual property, including patents and copyrights. Please click here to listen to the webinar or here to access the webinar event page.

Fig cookiesThe Criminal Court of Mechelen (Belgium) ruled in favor of Bofin Biscuits against a former production assistant accused of having stolen the assistant director of the cookie baker’s laptop. The laptop allegedly contained the secret recipes of all the cookies produced by Bofin Biscuits. This case is interesting because of the nature of the secrets and also when compared to that of the “fig spread”-case discussed here two weeks ago. It also confirms that trade secret misappropriation cases do not necessary only involve complex matters on state of the art technology owned by large multinationals.

The facts of the case are rather straight-forward. On November 12, 2013 the assistant-director of Bofin Biscuits noticed that his laptop had gone missing during his absence from November 6 to November 11. Images from the surveillance video system of Bofin Biscuits showed that the actual taking of the laptop had not been filmed. The camera hanging outside the assistant-director’s office did show a production assistant walking down the hallway where the office was located, entering it and leaving with something clearly hidden under his coat. During the trial the production-assistant did not contradict that he was the person that had been filmed, but he denied that he had taken the laptop. When asked what he then was hiding under his coat, he claimed not to recall anything.

For the public prosecutor this was a clear cut case and he requested the court to sentence the former production assistant to a six month effective prison sentence and a 4.800 EUR fine. Bofin Biscuits, who had joined the proceedings by suing its now ex-employee for civil injury, requested 1.500 EUR for the still missing laptop, 2.500 EUR for the time spent on recovering the information stored on the laptop, 500 EUR moral damages and a provisional damages amount of 25.000 EUR for having stolen the secret cookie recipes.

Continue Reading Employee Who Stole the Cookie Recipe From the Cookie Jar Fined €1 (Yes, that’s one single Euro)

Yesterday, an intermediate New York State appellate court, the First Department of the Appellate Division of the New York Supreme Court, reinstated the conviction of an Ex-Goldman Sachs programmer, Sergey Aleynikov. At issue here are allegations that Mr. Aleynikov violated the New York penal code by copying source code for a proprietary high frequency trading system at Goldman Sachs before he left to join a competitor.  This case is noteworthy for the twists and turns it has taken through the federal and state criminal justice systems and how it evidences the trade secret protection challenges faced by employers on Wall Street and in other industries. Continue Reading Not So Fast: Ex-Goldman Sachs Employee’s Conviction For Stealing Source Code Reinstated

Join Crowell & Moring at the American Intellectual Property Law Association in hosting its annual Trade Secret Law Summit on March 2-3 in Atlanta, GA. It will cover everything from the fundamentals of trade secret protection to protecting confidential information from cyber-attacks. Registration is now open; please click here to register at AIPLA.org. Crowell partner, Mark Klapow, is the vice chair of AIPLA’s Trade Secret Law Committee.

1.  Clearly label Christmas cards as “Confidential” if these contain secret wishes.

2.  Amend Confidentiality Agreements and Employee Manual to include the required Whistleblower language – those elves have rights.

3.  Have robust exit interviews with all departing elves, reminding them of their obligations to keep “reindeer games” secret.

4.  Insist that expert toy makers are warned not to reveal secret information while enjoying (too much) mulled wine with ‘Happy Holidays’-industry peers.

5.  Further restrict access to the Sleigh Packing Room with candy cane key fobs.

Continue Reading DTSA UPDATE: Tips for Santa to Maintain Trade Secrets at the North Pole