Thomson Reuters: What trends are you seeing in trade secret litigation?

Shannon Hampton Sutherland: Last year, President Barack Obama signed into law the Defend Trade Secrets Act, which gives plaintiffs the ability to file trade secret cases in federal court without diversity jurisdiction. That is fairly significant because in the past, plaintiffs would have to file in state court, and now there is a federal cause of action that allows plaintiffs to go directly to federal court, which generally is a benefit. The second thing is that anecdotally, we are seeing more criminal cases come out of trade secrets theft than we’ve seen in the past. Prosecutors are taking up cases at a rate higher than normal, especially when foreign nationals are involved.

Lawrence Pockers: A third development is that seemingly every year, every month, every day almost, defendants get more creative as to how to use technology to steal information from their current or former employers. Twenty-five years ago, the paradigm was someone entering a facility in the dead of night and stealing files. With the evolution of technology, we’ve seen more creative ways in which defendants are covering their tracks. It is an issue Shannon and I deal with on a near daily basis.

TR: Why have federal prosecutors increased their attention on foreign nationals?

Daniel Walworth: Anecdotally, there was an uptick in prosecutions and investigations under the Obama administration. The Justice Department makes it clear in the U.S. Attorneys’ Manual that national security is one of the factors to be considered before pursuing potential criminal consequences for what might otherwise be viewed as a commercial dispute. A national security element is not required for all prosecutions, but if there is some national security concern or if a particular technology has a military application or other defense application, it appears that the government might be more interested in pursuing a criminal investigation or possibly prosecution.

TR: We know that typically, trade secret defendants have ties to the organizations they target. Is the same true for foreign actors?

DW: Generally, foreign defendants are tied to the organizations. We’re not talking about remote actors hacking in. They are people with a relationship with the entity, and are taking the information to benefit their own ventures or a foreign government, agent or foreign instrumentality.

TR: What might we expect moving forward, regarding criminal prosecutions under the Trump administration?

DW: It’s too early to determine how things will shake out, but U.S. Attorney General Jeff Sessions was a cosponsor of the Defend Trade Secrets Act when he was a U.S. senator, so it’s not an insignificant data point in determining how the Justice Department might view its role in investigating and prosecuting criminal violations of the act.

TR: Going back to your earlier point, how are employees becoming more creative in stealing trade secrets?

LP: Well, I am dealing with a case right now where I am representing a Fortune 500 company, and we know that an ex-employee attached various devices to his laptop on the way out the door and also used several different cloud based services to download information. We are in the midst of trying to figure out what was copied by linking up files on the laptop to times when the devices were attached or the cloud services were used.

SHS: I’m also handling a case that involves almost all of the same things Larry just described.[1] There are challenges with mobile applications that may be loaded onto an employee’s personal device. In this particular case, an employee used the device to access information and download information leading up to departure, during departure and after departure. All of those apps require a different sort of forensics.

TR: What if an employee is simply trying to take information that will be helpful for his professional development or wants to take some of his work product for his personal files?

LP: The dividing line is that an employee is allowed to take general information that specifically relates to his or her professional development. An employee cannot take anything that qualifies as trade secret information. Most companies have confidentiality agreements, and the universe those agreements cover is typically broader than what trade secret law covers. The best advice for any departing employee is: don’t take anything. An ex-employer will consider everything to be a trade secret. The employee’s motive will be questioned and timing will be questioned. It will be difficult for an ex-employee to convince their former employer that they had good intentions.

TR: You shared some statistics indicating that trade secret litigation has increased quite substantially over the past 15 or so years. What is causing this upswing?

LP: Over the last six to seven years, especially in Pennsylvania, there have been a few published decisions where judges have entered injunctions prohibiting a former employee who had not signed a noncompete agreement from working for a new employer.[2] The rationale is that the person poses a threat to the old employer. Those decisions give companies the hope that they may be able to use trade secret law in a way that companies have historically used noncompete agreements.

SHS: It’s not just about employees having increased access to technology that can help them misappropriate trade secrets. Employers also have increased access to technology that can help them detect trade secret theft. That involves computer forensics, which is evolving every day to address each type of new technology that rolls out.

TR: Do employers have an obligation, either at the hiring stage or resignation stage, to inform employees that their company-issued devices will be subject to a forensic audit?

LP: Employers have no obligation to tell their employees that they may hire a forensics firm to search a company-issued device. If the employer’s policy is that the device belongs to the company and anything employees do on that device belongs to the employer, then the employer can review emails, etc. without warning. A possible exception is if the employee is having a privileged communication with a lawyer.

TR: What does the litigation upswing mean for workers seeking to leave an employer? What sorts of actions do workers need to take to minimize their risk of being sued?

SHS: Every situation is a little bit different — there are intentional acts where an employee takes something, and unintentional ones where a well-meaning employee takes things in their possession. That said, the rule is: don’t take anything out the door. Regardless of whether the employee has an agreement, the prudent thing is to return items from wherever they may be located.

TR: How can companies that are hiring protect themselves against trade secret theft claims, in the hiring process and even beyond, when a job candidate becomes an actual employee?

LP: This is an issue I deal with all the time. There are a number of steps companies can and should take. Before the offer letter, a company should make it clear to an incoming potential employee that it doesn’t want, doesn’t need and will not tolerate the potential employee bringing and using anything from a former employer. An important distinction is that it’s just not what you may take in hard copy format or electronic format, it’s also what’s in your head. A trade secret doesn’t have to be written down. Companies need to make sure at every step of the hiring process that the behavior won’t be tolerated. We counsel clients on including specific language in the offer letter that the employee won’t engage in that behavior and that their offer is contingent on representations and warranties that employee has not done and will not do anything. This language can also be included in company employee handbooks, etc.

TR: What are the most important points that employers need to emphasize when educating employees about trade secret theft?

SHS: In order for information to qualify as a trade secret, an employer must show that it took reasonable measures to protect the information, among other criteria. It is important to impress upon employees that company information should be safeguarded and shared, even within the company, only on a need-to-know basis. For instance, if there are computers to which employees have access, they should be password protected, and different levels of information should only be distributed to individuals who have a need to know it. An employer needs to demonstrate that they have taken those reasonable measures, not just to prove in court, but for the mere fact that they are just good business practices.

Notes

1. Complaint, Ricoh USA Inc. v. Anderton, No. 17-cv-2690 (E.D. Pa. 2017).
2. Valspar Corp. v. Van Kuren, No. 12-cv-95, 2012 WL 3245477 (W.D. Pa. Aug. 9, 2012). Pockers represented Valspar, which sought to enjoin a former company technical manager from working for a competitor, on the basis that the employee had access to Valspar’s trade secrets. The employee had not signed a noncompete agreement, but U.S. District Judge Joy Flowers Conti of the Western District of Pennsylvania granted the injunction after finding that it would be difficult for the employee to carry out his job functions at his new employer without relying on the trade secrets he had learned at Valspar.

This article first appeared in the August 16, 2017, edition of Westlaw Journal Intellectual Property.

About the Authors

Lawrence Pockers and Shannon Hampton Sutherland are partners in Duane Morris LLP’s Philadelphia office and are co-chairs of the firm’s noncompete and trade secrets practice group. They represent clients nationally in complex commercial litigation, with a primary focus on noncompete, trade secrets and unfair competition cases.

Daniel Walworth is a litigation partner in the same office and represents corporate and individual clients in a variety of criminal and civil litigation matters, including commercial and criminal proceedings in state and federal courts and government enforcement actions.