The Sedona Conference, Working Group 12 on Trade Secrets, has released for public comment its guidance on the governance and management of trade secrets. This valuable Commentary outlines the inherent challenges in developing a trade secret protection program that aligns with a business’s goals and measurable objectives.

The Commentary recommends businesses focus on the following factors to evaluate trade secret protection programs:

  • The size, maturity, industry, and location of the business;
  • The nature and value of a business’s trade secrets;
  • How the business can leverage its trade secrets to commercialize new services and extract additional value, maintain its competitive advantage, and incentivize innovation;
  • The different measures available to protect the business’s trade secrets and their varying effectiveness; and
  • The extent and cost of measures taken and the rationale for measures not taken.

In the end, the Commentary advocates an “integrated enterprise” approach to trade secret governance in order to accommodate multiple and potentially conflicting corporate interests. This approach requires several steps: Continue Reading The Sedona Conference Solicits Public Comment on its Commentary on the Governance and Management of Trade Secrets

Trade secrets are always at risk when engaging in corporate deals that require the disclosure of confidential information. Though there is no sure-fire solution to protecting a company’s trade secrets, if handled properly, there is legal recourse to help mitigate any loss and deter trade secret theft. In a recent decision, the 8th Circuit affirmed the grant of a motion to dismiss a breach of contract action between a company and its financial advising firm. The facts, as presented in the District Court’s September 29, 2020 decision (19-cv-03125-JRT-HC, EFC No. 73), are instructive:

Protégé specializes in researching and developing blood-clotting products and maintains its work as trade secrets. In late 2017, looking to sell its business, Protégé entered into an Engagement Agreement with Duff & Phelps. The Engagement Agreement required Duff & Phelps to keep confidential any of Protégé’s non-public information, as well as provided immunity for certain corporate and individual liability and disclaimed a fiduciary duty. Smith reached out to Doug Schillinger, a Managing Director at a private equity firm, and board member at Z-Medica, which is also in the blood-clotting products space, to coordinate a meeting between Z-Medica and Protégé. Continue Reading An NDA Leads to the Loss of Trade Secrets, a Failed Deal and No Recourse

In 2004, 19-year-old college sophomore Elizabeth Holmes dropped out of Stanford University to create a company that would change the world. Theranos, Inc. was going to revolutionize medicine with its proprietary blood testing devices that could detect high cholesterol, cancer, and other medical conditions with a single finger pinprick. In 2014, the company’s valuation peaked at over $9 billion, making Holmes the youngest self-made female billionaire in the world with a net worth of about $4.5 billion. Four years later, in June 2018, Holmes was indicted on eleven counts of fraud. On January 3, 2022, Holmes was convicted on one count of conspiracy to defraud investors and three counts of wire fraud. She faces a maximum sentence of twenty years in prison, and a fine of $250,000, plus restitution, for each count.

Hulu’s new limited series, The Dropout, chronicles the rise and fall of Theranos through the lens of its CEO, played by Amanda Seyfried. Episode 7, Heroes, touches on Holmes’s well-documented preoccupation with trade secrets. During its first decade, Theranos operated in stealth mode – no media communications, no public disclosures, and no product releases. Continue Reading The Dropout: Trade Secrets in Pop Culture

In addition to conventional warfare, it was recently confirmed by an arm of the Ukraine Ministry of Defense that it hacked trade secrets from a Russian state nuclear utility, and then leaked the trade secrets to a public website to harm the utility’s commercial prospects. Such “hack and leak” operations have been done before by nation-affiliated hackers to attempt to influence political activities of other nations, but this may be the first operation of this type concerning technical trade secrets during warfare. Although the economic impact from this particular operation may be difficult to gauge at this time, this hack and leak of nation state-affiliated company trade secrets may be a sign of things to come in future armed conflicts. Continue Reading A New Battlefront: Ukraine Resistance Includes Leaks of Russian Trade Secrets

The regular readers of this blog certainly remember the usual suspects of trade secret misappropriation are employees, former employees, and self-employed consultants. In our series of blog posts about international trade secret misappropriation and trade secret enforcement under the Belgian Trade Secrets Act, we also explained that actions based on trade secrets misappropriation are in principle heard by the Enterprise Court. However, if the defendant is an employee or an ex-employee suspected of trade secret misappropriation during the course of employment, then the labor court has jurisdiction. Continue Reading International Issues in Trade Secret Law Series: Longer Statute of Limitations Confirmed in Cases of Trade Secrets Misappropriation by Former Employees

The Sedona Conference, Working Group 12 on Trade Secrets, has issued guidance on protecting trade secrets throughout the employment life cycle. This significant Commentary analyzes the tension between an employer’s interest in protecting its trade secrets and an employee’s interest in engaging in future employment. Continue Reading The Sedona Conference Issues Commentary on Protecting Trade Secrets Throughout the Employment Life Cycle

Earlier this month, the Second Circuit clarified the requirements for alleging a trade secret misappropriation claim under the Defend Trade Secrets Act (“DTSA”). The decision affirmed the Eastern District of New York’s dismissal of a trade secret misappropriation lawsuit against a formerly licensed software user. In short, the Second Circuit’s decision affirmed a more stringent view of DTSA requirements to find that a trade-secret plaintiff alleging misappropriation of software functionality must have direct allegations it had confidentiality and non-disclosure agreements with software’s vendors and end users. Continue Reading Second Circuit Rejects DTSA Claim Due to Weak Software Licensing Agreement

The Sedona Conference, Working Group 12 on Trade Secrets, has issued guidance on protecting trade secrets in litigation about them. This important Commentary recommends courts:

  • Balance the risk of disclosure and harm to the producing party with the need for the other party and to have the information to prepare its case when determining a party’s access to trade secrets;
  • Consider the public’s qualified right of access to documents filed with a court, but exercise discretion to deny public access in compelling circumstances; and
  • Determine whether a party has credibly identified the existence of a trade secret before ordering appropriate protections.

Sedona Conference materials are often relied upon by courts. Trade secret litigants need to be aware of the risks that their trade secrets could be disclosed in litigation and of the legal framework to persuade courts to order appropriate protections. Thus, this Commentary is required reading for trade secret holders.

The US Department of Justice (“DOJ”) recently filed a Statement of Interest in connection with a pending case in Nevada State Court, Samuel Beck, et al. v. Pickert Medical Group, P.C. et al., further highlighting the DOJ’s heightened scrutiny of post-employment restrictive covenants under the antitrust laws and their effects on competition. In this noteworthy Statement of Interest, the DOJ takes the position that post-employment restrictive covenants may constitute both horizontal and vertical restraints of trade that violate the Sherman Antitrust Act. The Statement of Interest follows the DOJ and FTC’s  2017 Antitrust Guidance for Human Resources Professionals which addressed how antitrust law can apply to employee hiring and compensation and a December 2021 DOJ and FTC workshop that addressed how contractual restraints on trade can harm labor markets, as well as recent executive orders and statements by the Biden administration limiting and criticizing the use of noncompetition agreements with employees. The DOJ’s Statement of Interest thus represents yet another step up in pressure by the federal government signaling it will continue taking more action to discourage the use of contractual restraints on trade in employment-related agreements. Continue Reading Enforceability of Non-Compete Agreements; Recent Input from the DOJ

Last week, the Western District of Washington concluded that a multi-level marketing beauty company sufficiently alleged that it exercised reasonable efforts to maintain the secrecy of its training materials, and network salespeople and contact lists, despite the salespeople using their personal Facebook accounts, and despite making the training materials available to a Facebook group comprising thousands of members. Accordingly, the court denied defendants’ motion to dismiss with respect to defendants’ alleged trade secret misappropriation in violation of the Defend Trade Secrets Act.

Plaintiff, Tori Belle Cosmetics LLC (“Belle Cosmetics”), sells its cosmetics and false eyelashes through a network of salespeople, allowing each salesperson to earn a portion of any revenue generated by any salespeople they recruit to join their sales network, i.e., a multi-level marketing business. Defendants are five former network salespeople of Belle Cosmetics, who plaintiff alleges, helped design and launch a competing product line for a company called Juvanae LLC. Belle Cosmetics alleges its trade secrets include, inter alia, lists containing contact information of customers and network salespeople including in the form of social media contacts, and training materials in the form of videos, photos, informational posts, webinars and other instructional materials that it makes available to thousands of its network salespeople through a Facebook group called “Team Lash Out.” Continue Reading Multi-Level Marketing Company Sufficiently Alleges Reasonable Efforts Despite Posting Trade Secret Materials to Thousands