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JAMS ADR Insights

Alternative Dispute Resolution Intellectual Property

IP, Trade Secrets and Employee Mobility- Judges and attorneys discuss top-of-mind issues for Silicon Valley tech employers

By Judge James Ware (Ret.)

Judge James Ware (Ret.) joined JAMS after spending 16 years as a civil litigator, and 24 years as a judge. He served as a United States District Judge on the Northern District of California, including a year and a half as the Chief Judge of the Northern District.

INTELLECTUAL PROPERTY Increasingly today, the value of a company is measured not by its physical assets, but by the talents of its employees and the utility of its intellectual property. Because of their knowledge and experience, talented employees are constantly wooed by competitors. Many believe that innovation is the product of employee mobility. However, as employees leave, many of them carry with, mentally and sometimes physically, intellectual property belonging to their employer.

Recently a roundtable discussion— jointly sponsored by The Recorder and JAMS—addressed the topic “Trade Secrets and Intellectual Property in the Age of Employee Mobility.” Panelists included Judge James Kleinberg, Santa Clara Superior Court; Bradford Newman, Paul Hastings; Dan Feldstein, Zynga Inc.; and yours truly. The discussion was moderated by U.S. District Court Magistrate Judge Laurel Beeler. Some practical points can be derived from the discussion.

DEFINING “TRADE SECRETS” The general term “intellectual property” is used to describe multiple types of information: copyrights, patents, trademarks, trade secrets, other confidential business information. Unlike other forms of IP, there is no formal system in which trade secrets are defined or registered. Thus, when employees leave, the protection of trade secrets presents special challenges.

The panel agreed that in order to protect trade secrets after employment ends important steps must be taken at the beginning of employment.

Although misappropriation of a trade secret is actionable in the absence of a contract, many employers require employees who will be exposed to trade secrets and other confidential information to sign a contract prohibiting improper disclosure or use. Care should be taken to distinguish between contractual language in which the employee agrees not to compete and a promise not to use or disclose trade secrets or confidential information. A non-competition covenant might be regarded by a court as void. See California Bus. & Prof. Code §16600. On the other hand, a thoughtfully drafted employment contract can protect both the employee’s interest in mobility and the employer’s interest in its intellectual property.

Many businesses regard all business information as “trade secrets.” Under the laws of many states, including California, the only information that is protectable as a trade secret is that which meets the statutorily definition. Most states have adopted a version of the Uniform Trade Secrets Act. In California a ‘trade secret’ is defined as information such as a formula, method, or compilation that is known by others and actually or potentially could be economically valuable to others if it were disclosed or used by them. In other words, the information has value because it is a secret. In addition, the information must be the subject of efforts that are “reasonable under the circumstances to maintain its secrecy.” Civil Code §3426.1.

In many trade secrets disputes, considerable time and resources are expended over the identification of the alleged trade secret. Cases have been dismissed or summarily adjudicated against the owner of the alleged trade secret because the owner could not identify the alleged trade secret with sufficient precision. See e.g., All Business Solutions, Inc. v. NationsLine, Inc., 629 F. Supp. 2d 553 (W.D. va. 2009). Therefore, the more precisely a company identifies its trade secrets during the course of employment, the more likely the company will be able to successfully protect its trade secrets when a dispute arises.

For the rest of Judge Ware’s discussion on trade secrets in Intellectual Property, please read his full article from The Recorder by clicking here.

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