PROTECTING THE COMPANY S CROWN JEWELS WHEN EMPLOYEES DEPART

Transcription

1 PROTECTING THE COMPANY S CROWN JEWELS WHEN EMPLOYEES DEPART Michael G. King, Esq. (mking@hgla.com) Paul T. Martin, Esq. (pmartin@hgla.com) 4640 Admiralty Way Suite 850 Marina del Rey, CA (310)

2 INTELLECTUAL PROPERTY THEFT IS A SERIOUS PROBLEM Recent Survey Nearly 60% of Departing Employees Admitted Taking Company Data 40% Took Customer Lists 67% of Respondents Took Data to Leverage a New Job Q: How Many of Your Company s Employees Are Departing/Arriving with Data? Estimated Annual Cost of IP Theft - $250 Billion 2

3 WHO IS MOST LIKELY TO STEAL A COMPANY S IP? Insiders Employees and Contractors Employees Are Turning Over More Frequently Turnover Increases Risk of IP Theft 3

4 IMPACT OF NEW TECHNOLOGY & SOCIAL MEDIA More Tools to Take IP More Difficult to Detect/Prevent Increased Costs of Litigation 4

5 CIVIL & CRIMINAL CASES OF IP THEFT ARE COMMON Mattel Awarded $100 Million in Bratz Lawsuit Coca-Cola Secretary Convicted of Trade Secrets Theft Intel Insider Indicted for Stealing $1 Billion in Trade Secrets G-Men's Interest in Hilton's Alleged Trade Secret Theft 5

6 INTELLECTUAL PROPERTY THEFT IS A CRIME Employees/Contractors the #1 Threat to a Company s IP ISSUE - What Can In-House Counsel Do to Protect IP Amid Employee Turnover? Problem - Theft Only Evident Months After Employee Has Left Result - Potentially Valuable Information Lost 6

7 INTELLECTUAL PROPERTY THEFT IS A CRIME What Can Counsel Do to Detect, Deter and Preserve Evidence of IP Theft? What Civil Claims Can Be Asserted When IP Is Stolen? What Criminal Claims May Be Filed? 7

8 INTELLECTUAL PROPERTY THEFT IS A CRIME Discuss What to Do When: Hiring Employees/Contractors Key Employees/Contractors Are Leaving Evidence of Misappropriation Comes to Light 8

9 EMPLOYEE TURNOVER Where Does Fair Competition End and Unfair Competition Begin? What Employees Can Do Work for Competitor Business & Professions Code Solicit Co-Workers (Absent Contract Provision) Solicit Customers (Not Using Trade Secret Customer List) Use Skill, Knowledge, Training, Know-How 9

10 EMPLOYEE TURNOVER Where Does Fair Competition End and Unfair Competition Begin? What Employees Cannot Do Work for Competitor Before Quitting Solicit Co-Workers or Customers Before Quitting Use Former Employer s IP for New Employer 10

11 EMPLOYEE TURNOVER Where Does Fair Competition End and Unfair Competition Begin? Underlying Tension Employees Rights to Use Knowledge & Skill in New Job B&P vs. Employers Rights to Protect IP 11

12 INTELLECTUAL PROPERTY Where Do Intellectual Property Rights End and Unprotectable Information Begin? Copyrights Patents Trademarks Trade Secrets Where Intellectual Property Ends and Information Begins 12

13 WHAT IS A TRADE SECRET? 1. Information Formula, Pattern, Compilation, etc. 2. Economic Value, Actual or Potential 3. Value Derived from Not Being Generally Known to the Public or to Other Persons Who Can Obtain Economic Value from its Disclosure or Use 4. Reasonable Efforts to Maintain Secrecy Civil Code (d) 13

14 WHAT IF THE STOLEN INFORMATION ISN T PROTECTED BY COPYRIGHT, TRADEMARK, PATENT OR TRADE SECRET LAW? May Have Contract Claim Injunction and Damages CA Unauthorized Access to Computers Statute Federal Computer Fraud and Abuse Act Authorize a Civil Suit for Damages without Trade Secrets 14

15 WHAT TO DO WHEN HIRING TO PROTECT IP Each Employee Should Sign a Confidentiality and Non-Disclosure Agreement with the Following Provisions: 1. Non-Disclosure of Confidential Information 2. Don t Want Other Companies Confidential Information 3. Non-Solicitation of Employees 4. Ownership of Works 5. Cooperation 15

16 WHAT TO DO WHEN HIRING TO PROTECT IP Agreement re Non-Disclosure of Confidential Information Define Confidential Information Use Plain Language Not Too Broad Employee Promises: Not to Disclose Confidential Information Use It Only for Employer, Not Anyone Else Return It When Employment Ends Authorize Injunctive Relief Contract May Be Only Protection for Non-Trade Secrets 16

17 WHAT TO DO WHEN HIRING TO PROTECT IP For Sample Employee NDA, Contact: Mike King Paul Martin (310)

18 DURING EMPLOYMENT Identify Key Employees Access to the Company s IP Could Cause Serious Harm at a Competitor 18

19 WHEN A KEY EMPLOYEE LEAVES THE COMPANY Exit Interview Give Copy of Contracts with the Company Have Employee Sign Acknowledgement That: Aware of Agreement(s) and Their Continuing Effect Returned All Confidential Information to Company ID what needs to be returned or destroyed Confirm that laptop, home computer, home office, and garage were searched and all information returned Won t Use any Confidential Information for New Employer 19

20 WHEN A KEY EMPLOYEE LEAVES THE COMPANY Exit Interview (cont.) Where Is Employee Going to Work? ID All Patents, Inventions, Copyrights, & Trade Secrets Helped Create During Employment 20

21 PROTECT, PRESERVE & INVESTIGATE Computers Protect Change Password to Prevent Remote Access Forward Monitor Received After Employee Leaves Phones & Voic Forward Calls Change Password to Prevent Access 21

22 PROTECT, PRESERVE & INVESTIGATE Computers Preserve Phones Individual s Computer Take Out of Commission Ghost or Forensic Image of Hard Drive Server - Back-up Tape Blackberry Keep Copy of s Voic Messages 22

23 PROTECT, PRESERVE & INVESTIGATE Investigate Thieves Are Often Procrastinators Review the Last Few Days for Irregularities Check the Employee s Computer Crashed or Scrubbed? Any Forensic Analysis Should Be Done on Copies or Digital Images 23

24 PROTECT, PRESERVE & INVESTIGATE Investigate (cont.) Review Employee s s Review Access Logs to Company s IP Databases Night Before Resigned Access Company s IP 24

25 WHEN KEY EMPLOYEES LEAVE, NOTIFY THE NEW EMPLOYER Send Letter to the New Employer Attach Employee s Agreements Request Confirmation that Both Employer and Employee Will Comply Notice & Opportunity to Do the Right Thing May Help Establish Authorization/Ratification 25

26 NEW EMPLOYER S INVESTIGATION AND RESPONSE Opportunity to Investigate and Discover Bad Facts Before a Lawsuit is Filed Investigate to Determine: If New Employee Has Former Employer s Information Whether Former Employer s Information Is Trade Secret Whether Information Has Been Used for the Company 26

27 NEW EMPLOYER S INVESTIGATION AND RESPONSE Investigator Lawyer or Layperson? Advantage of Lawyer-Investigator Officers Can Testify They Took Allegations Seriously and Retained Outside Counsel to Fully Investigate Disadvantages of Lawyer-Investigator Lawyer-Witness Potential Work Product & Privilege Issues 27

28 NEW EMPLOYER S INVESTIGATION AND RESPONSE If New Employee Misappropriated Information, Consider: Firing Employee Returning Confidential Information Preserving Evidence Without Investigation & Action, New Employer Increases Risk of Authorization or Ratification 28

29 CIVIL LITIGATION: OVERVIEW OF TRADE SECRETS LITIGATION Race to the Courthouse When Hiring Out-of-State Employees When Competitor/Infringer Is Out-of-State E.g., CA company hiring MA employee to work in CA MA enforces non-compete, customer non-solicitation provisions 29

30 CIVIL LITIGATION: OVERVIEW OF TRADE SECRETS LITIGATION Disputed Issues Secret? Economic Value Derive from Being Secret? Reasonable Efforts to Maintain Secrecy? 30

31 CIVIL LITIGATION: OVERVIEW OF TRADE SECRETS LITIGATION Plaintiffs Perspective View Stolen Information in Aggregate Claim Compilation Constitutes a Trade Secret Conseco Fin. Servicing Corp. v. N. Am. Mortgage Co., 381 F.3d 811 (8th Cir. 2004) (affirming finding that plaintiff s compilation of customer information its customers financial statements, loan applications, payroll, tax and banking information was a trade secret even though some information could be obtained from third parties and none was generated by plaintiff) 31

32 CIVIL LITIGATION: OVERVIEW OF TRADE SECRETS LITIGATION Defendants Perspective View Alleged Trade Secrets Individually Preemption Trade Secrets Statute May Preempt Common Law Claims (excluding contract and criminal claims) Based on Same Facts Potential Result If No Trade Secrets Then No Torts Still Have Contract Claim & Possibly Unauthorized Access to Computer Claims 32

33 CIVIL LITIGATION: COST OF TRADE SECRETS LITIGATION Expensive Attorneys Fees Potentially Recoverable Against Plaintiff or Defendant 33

34 CIVIL CLAIMS Copyright Patent Trademark Claims Breach of Contract Misappropriation of Trade Secrets Interference with Contract/Prospective Economic Advantage Unfair Competition Statutory & Common Law Breach of Fiduciary Duty (if Officer) Conversion Fraud 34

35 CRIMINAL STATUTES THAT PROVIDE CIVIL REMEDIES Receiving Stolen Property Authorizes Victim to Sue Civilly Treble Damages and Attorneys Fees [CA P.C. 496(c)] Unauthorized Access to Computers, Computer Systems and Computer Data Crime to Access or Use any Computer Hardware, Software or Data Without Authorization [CA P.C. 502] 35

36 CRIMINAL STATUTES THAT PROVIDE CIVIL REMEDIES Authorizes Civil Suit by the Owner or Lessee of the Computer System or Data Compensatory damages (including reasonable and necessary expenditures to verify that a computer system or data was or was not altered, damaged, or deleted by the access) Injunctive Relief Attorneys Fees Punitive Damages Federal Computer Fraud and Abuse Act 36

37 CRIMINAL LITIGATION: TRADE SECRETS Criminal Trade Secret Statute Trade Secrets Defined Effectively Same as UTSA Crime to Misappropriate Trade Secrets by Wrongful or Dishonest Means Crime to offer an Inducement or Reward to Misappropriate Trade Secrets [CA P.C. 502] 37

38 CRIMINAL LITIGATION: TRADE SECRETS Federal Economic Espionage Act Criminalizes Trade Secret Misappropriation Trade Secrets Definition Very Similar to UTSA Federal Jurisdictional Requirement - trade secret must relate to a product that is produced for or placed in interstate or foreign commerce Fines may be imposed up to $250,000 (for individuals) and $5 million (for organizations) and 10 years in prison. 18 U.S.C Federal mail and wire fraud and RICO statutes may apply 38

39 ADVANTAGES OF CRIMINAL INVESTIGATION/PROSECUTION Free Government Has Substantial Resources May Obtain Statements from Departing Employee Search Warrants - Seize Computers and Stolen Property Preserve Evidence Prosecutors May Seize Evidence Before Destroyed Defendants May Be Less Likely to Destroy Evidence in Face of Criminal Investigation 39

40 ADVANTAGES OF CRIMINAL INVESTIGATION/PROSECUTION Lends Credence to Civil Case - TRO Puts Pressure on Defendants Possible Jail Time Cost of Defending Two Proceedings 5th Amendment dilemma Taking 5th may be used against a defendant in a civil case. Unlike a criminal case, "taking the 5th" in a civil case is reason for a jury to properly infer (what they likely infer anyway) that the defendant did what he's accused of. Baxter v. Palmigiano, 425 U.S. 308, 318 (1976); Szmaciarz v. State Personnel Board, 79 Cal.App.3d 904, 919 (1978); Cf., CACI Instruction

41 ADVANTAGES OF CRIMINAL INVESTIGATION/PROSECUTION Conviction May Help Civil Suit Resolve (Issue/Claim Preclusion) Sends a Message that Company Is Serious about Protecting IP 41

42 DISADVANTAGES OF CRIMINAL INVESTIGATION/PROSECUTION Loss of Control Delay No Control Over When or Whether Prosecuted Less Control Over Settlement Defendants may be less motivated to settle civil suit with no guarantee that criminal suit will also resolve May Take Years to File Charges 3-Year Statute Stay of Discovery or Entire Action Possible Communications with Government are Discoverable Ensure Accuracy of Statements 42

43 FACTORS TO CONSIDER IN INITIATING CRIMINAL PROCEEDINGS Strong Evidence of Misappropriation? Absent Strong Evidence, Government Not Likely to Prosecute Respective Resources of Parties Defendant Judgment-Proof? Criminal Threat May Stop Misconduct Defendant Have Greater Resources? Criminal Case May Level Playing Field 43

44 CONCLUSION IP Theft Is Serious Problem Insiders #1 Threat to IP Hiring Have Employees Sign Confidentiality & Non- Disclosure Agreements Leaving Cut-off Access to the Company Preserve Hard Drives and Back-Up Tapes Investigate Employee s Actions in Last Few Days 44

45 CONCLUSION Notify New Employer of Employee s Obligations and Misappropriation If New Employer, Investigate and Take Remedial Action Litigation: Civil Claims Include Criminal Statutes with Civil Remedies Trade Secret Preemption Even if Not Trade Secret, Contract and Unauthorized Computer Claims Available Options Include Initiating Criminal Investigation 45