Protecting Against the Overseas Theft of Trade Secrets

Marcia Swihart Orgill

By Marcia Swihart Orgill

Part of a series on issues related to Manufacturers, Distributors and International Trade

The overseas theft of trade secrets is a major concern of companies with business operations outside of the United States. A recent decision by the Court of Appeals for the Federal Circuit provides U.S. companies with a new weapon to protect against trade secret misappropriation that occurs completely outside the United States. While welcome news for U.S. businesses, it is important that they remain vigilant in developing and implementing preventive measures for the international protection of their trade secrets.

In TianRui Group Co., et al. v. ITC et al., 661 F.3d 1322 (Fed Cir. Oct 11, 2011), the U.S. Court of Appeals for the Federal Circuit held that the U.S. International Trade Commission (ITC) has the authority to exclude imports of products into the United States that are manufactured outside the United States using a misappropriated trade secret process, even when the misappropriation occurs outside the United States and there are no goods being manufactured in the U.S. using the protected process.

The Court held that in determining whether a trade secret has been misappropriated, the ITC should apply U.S. federal common law of trade secret misappropriation rather than the law of any particular U.S. state or of the country where the misappropriation occurred. The application of federal common law in actions brought before the ITC involving the overseas theft of trade secrets will make it easier in many cases for U.S. companies to prove the theft of their trade secrets, because proving trade secret misappropriation is generally more difficult under the laws of many other countries.

The holding in TianRui has no bearing on the sale or importation of goods outside the United States that were manufactured using misappropriated trade secrets of a U.S. manufacturer. Consequently, U.S. companies will still need to think globally when adopting trade secret protection measures.

The definition of what constitutes a trade secret and the elements for proving trade secret misappropriation vary from country to country. Additionally, there are regional competition laws that affect trade secret protection. Taking into account these laws when drafting confidentiality and non-compete provision is necessary to ensure trade secret protection and the enforceability of the provisions or agreements. Post-employment restrictive covenants need to be drafted to take into account the relevant statutory and judicial law, because if they are drafted too broadly they will be unenforceable.

In many countries a post-employment non-compete clause is not valid unless there is separate compensation for the restrictive covenant (e.g., China and Germany). In other countries, non-compete agreements are prima facie void on public policy grounds, and therefore, particular care is required when drafting a non-competition agreement in order to ensure that it will be considered reasonable under the applicable country’s laws.

To prove access to confidential information, it is advisable for a company to require written acknowledgement of the receipt of company information from employees, consultants, subcontractors and any other third parties at the time of disclosure, as well as having these individuals sign confidentiality agreements. In some countries, having a signed confidentiality agreement is not sufficient to prove access to a trade secret.

As a result of the decision of the U.S. Court of Appeals for the Federal Circuit in TianRui, U.S. companies have a powerful enforcement mechanism to protect against the imports of competitor products into the United States if the foreign manufacturer engaged in conduct that constitutes an unfair trade practice under U.S. law.

However, when drafting confidentiality agreements, trade secret preventive measures and post-employment restrictive covenants, U.S. companies still need to consider carefully the statutory and judicial laws of the relevant foreign country and region.

Posted by Attorney Marcia S. Orgill. Orgill concentrates her practice in the area of business and personal taxation—especially complex domestic and international tax strategies.

Employee Social Media Griping: Can An Employer Terminate Employees Because of Their Social Media Posts Without Violating Section 8(a)(1) of the National Labor Relations Act

Ruth Binger

By Ruth Binger

Social Media is the new water cooler conversation. It enables and facilitates conversations that years ago would have taken places at the old-fashioned water cooler. In today’s world of Facebook and Twitter, employee complaining is instantly, electronically and permanently transmitted to the world. Social Media users think less about their posts and disclose more so that a simple gripe monologue is turned into dialogue – on steroids – with the world. Such platforms encourage employees to blur their personal and professional lines of behavior and blurt out what is bothering them without engaging their higher level thinking tools.

With seven hundred and fifty million people actively using Facebook, there is a significant chance that a post about working conditions, compensation or other issues related to their employment will spark a conversation with an employee’s colleagues, and such conversations may constitute concerted activity under the National Labor Relations Act.

The question remains, if your employees say something negative on Facebook about your company, their fellow employees or their supervisors, can you terminate without running afoul of the National Labor Relations Act?

The answer depends on the facts surrounding the post(s). The test is whether the employee is engaging in activity solely for himself or on behalf of other employees.

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Beware the Trojan Horse that is Social Media

Ruth Binger

By Ruth Binger

While establishing and maintaining an organizational presence on popular media websites and blogs (Facebook, LinkedIn, etc.), businesses need to be aware of the legend of Troy and its supposed downfall due to a Trojan Horse. Greek mythology states that Greek warriors concocted a scheme whereby they built a wooden horse and offered it as a gift to the Trojans. The Trojans, in their greed and arrogance, accepted the gift and brought it within their gates. Then, at night as the Trojans slept, the Greek warriors emerged from the belly of the Trojan horse and defeated the Trojans changing the course of a ten-year siege.

Today, a Trojan Horse is more often thought of as a destructive software program that disguises itself as a helpful application. Similarly, although social media may be helpful for your business, be aware what could be lying in the belly of that Trojan Horse.

Line Between Private vs. Public Blurred

According to the Socialnomics web site, Generation Y will outnumber baby boomers sometime this year and 90% of them have already joined an online social network. For many young people, and even 50 year-olds, the line between private and public has disappeared as they tweet, blog, text and share the minutiae of both their personal lives and everyone around them – including their employer. Social media users are under the mistaken assumption that they own the web content they are generating and can retrieve it and delete it if needed.

They are also under the mistaken impression that what they say is protected by some cocoon and that the content they generate is private. This is not true, as evidenced by a Detroit hospital worker who was terminated after she posted a comment on Facebook about a man she treated who was accused of killing a police officer. She was fired for violating strict patient privacy rules under the federal HIPAA law. A Massachusetts 54 year old high school teacher also learned this lesson when posting negative comments about her school community, students, and parents even though she had set the privacy setting on her Facebook account. Moreover, cases are clear that locking a profile from public access does not prevent discovery in litigation either.

Disclosure of Company Information at Risk

Given the fact that technology is moving so fast and disclosure is instantaneous, worldwide and permanent, companies need to train their employees on the dangers of purposeful or inadvertent disclosure of company information. What is at stake for the employer is the loss of confidential information and trade secrets, disclosure of protectable third party information or medical information, suits from other companies for disclosure of secrets, and discrimination suits. For instance, companies recruiting and hiring managers often use social media in order to obtain more information on a candidate than they otherwise could. Continue reading »

Mergers and Sales – Trade Secrets & Confidential Information

Ruth Binger

By Ruth Binger

Who Owns the Salesperson’s LinkedIn Account?

Owners/shareholders own businesses for many reasons, including selling the business at a value higher than the investment cost. However, when a business owner goes to sell his or her business and attempts to obtain the highest price available, it is important to understand where the value of that business lies and how to maximize that value to any potential buyer.

In many instances, a significant part of the business’s value is found in the intellectual property possessed by the employees.

Part of that intellectual property is found in the trade secrets and confidential information that the company develops to provide its services and products faster, cheaper, and better over time. A very critical component is the customer networks that its sales/marketing people developed over time.

Who owns those networks, especially LinkedIn, and the data associated with them? Continue reading »

Choosing a Trademark or Servicemark

David R. Bohm

By David R. Bohm

So, you’ve decided to open a new business, or your current business is set to begin offering a new product line or set of services. Now you need to decide what you are going to call this new business, product or service. In other words, what trademark or servicemark (collectively referred to herein as “mark”) are you going to adopt to identify your product? This was a question my father faced when he opened his first photo studio in 1942. He chose the name Rembrandt Portrait Studio. As will be explained in this article, this was a good choice.

A company wanting protection for a mark that it will use in interstate commerce will generally want to register it with the United States Patent and Trademark Office (“USPTO”). If the mark is only used in one state or a limited number of localities, a company may choose to register with a state trademark registry, or rely on common law protection (even unregistered marks may be entitled to some protection). A mark may not be registered if it (or a similar mark) is already in use to describe a competing product or service.

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Protecting Your Company’s Intellectual Property from Predation by Employees and Independent Contractors

David R. Bohm

By David R. Bohm

The success of a company in the technology sector is largely dependent upon its intellectual property, which, in turn, is derived from investment in human capital. It is the company’s employees (as used herein, the term “employee” will include independent contractors and contract employees) who develop software, invent new products or techniques, and generate other types of trade secrets and confidential information. Today, because employees are more mobile than ever, it is extremely important that businesses take precautions to keep their intellectual property from being utilized by an employee who goes to work for a competitor.

Patent and copyright law provide an entrepreneur some rights in relation to employees involved in developing patented or copyrighted material. Additionally, an entrepreneur has some common law rights in its trade secrets and confidential information. However, in order for a business to fully protect its interests in intellectual property developed and utilized by it, it is important to implement written agreements
that specifically address the rights of the business and its employees relative to such inventions and information.

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