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Trade Secrets Practice in California

Help your clients guard their trade secrets, enforce trade secret protections, or defend against trade secret misappropriation.

Help your clients guard their trade secrets, enforce trade secret protections, or defend against trade secret misappropriation.

  • Ownership of trade secrets
  • Idea submissions
  • Trade secret audits
  • Trade secrets licensing
  • Security interests in trade secrets
  • Avoiding misappropriation claims
  • Litigation issues; remedies for misappropriation
  • Criminal liability for misappropriation
  • Insurance coverage
  • Protecting technologies and customer information
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Help your clients guard their trade secrets, enforce trade secret protections, or defend against trade secret misappropriation.

  • Ownership of trade secrets
  • Idea submissions
  • Trade secret audits
  • Trade secrets licensing
  • Security interests in trade secrets
  • Avoiding misappropriation claims
  • Litigation issues; remedies for misappropriation
  • Criminal liability for misappropriation
  • Insurance coverage
  • Protecting technologies and customer information

1

Overview of California Trade Secrets Law

John Allcock

David J. Murphy

James H. Pooley

James G. Roberts

Donald J. Sullivan

  • I.  PROTECTING INFORMATION  1.1
  • II.  SOURCES OF TRADE SECRET LAW
    • A.  California Law: the Uniform Trade Secrets Act  1.1A
    • B.  Federal Law: the Defend Trade Secrets Act of 2016  1.1B
    • C.  Chart: Comparison of California and Federal Trade Secret Acts  1.1C
  • III.  WHAT IS A TRADE SECRET?
    • A.  UTSA Definition  1.2
    • B.  Information Commonly Found to Be Trade Secret  1.3
      • 1.  Customer Lists  1.4
      • 2.  Negative Information  1.5
    • C.  Independent Economic Value Requirement  1.6
    • D.  “Not Generally Known” Requirement
      • 1.  Secrecy  1.7
      • 2.  Ready Ascertainability  1.7A
      • 3.  General Knowledge and Skill Versus Trade Secrets  1.8
    • E.  Combination Trade Secrets  1.8A
    • F.  Reasonable Efforts Requirement  1.9
  • IV.  WHAT IS MISAPPROPRIATION?
    • A.  UTSA Definition of Misappropriation  1.10
    • B.  Common Types of Misappropriation  1.11
    • C.  Disproving Misappropriation
      • 1.  Independent Development and Reverse Engineering  1.12
      • 2.  Ready Ascertainability  1.13
  • V.  POSSIBLE REMEDIES  1.14
  • VI.  ALTERNATIVE CLAIMS AND PREEMPTION  1.15
  • VII.  CIVIL TRADE SECRETS STATUTES IN OTHER JURISDICTIONS  1.16
  • VIII.  COMPARISON OF TRADE SECRETS, PATENTS, COPYRIGHTS, AND TRADEMARKS  1.17

2

Ownership of Trade Secrets

Bruce B. Brunda

Thomas A. Runk

Carol L. Smith

Stephen M. Westbrook

  • I.  SCOPE OF CHAPTER  2.1
    • A.  Importance of Issue of Trade Secret Ownership  2.1A
    • B.  Ownership Distinct From Standing  2.1B
    • C.  Need for Identification of a Trade Secret  2.1C
  • II.  COMMON LAW RULE: OWNERSHIP DEPENDS ON EQUITY AND FIDUCIARY OBLIGATIONS  2.2
    • A.  Employer Versus Employee  2.3
      • 1.  When Is Employee “Hired to Invent”?  2.4
      • 2.  Determining Who Owns Certain Procedures, Methods, and Expertise  2.5
      • 3.  Resolving Concurrent Interests: Shop Rights Doctrine  2.5A
        • a.  Employee Uses Employer’s Time and Resources to Develop  2.6
        • b.  Shop Right Arises by Estoppel  2.7
        • c.  Possible Exception to Shop Rights Doctrine: Employee Breach of Confidentiality  2.8
        • d.  Limited Transferability of Shop Rights  2.9
    • B.  Alter Ego, Principal Shareholder, or Officer Versus Corporation: Corporate Opportunity Doctrine  2.10
    • C.  Other Business Relationships  2.11
  • III.  STATUTES AFFECTING OWNERSHIP  2.12
    • A.  Statutory and Restatement Definitions of Trade Secrets  2.13
      • 1.  Uniform Trade Secrets Act (CC §3426.1(d))  2.14
      • 2.  Penal Code §499c  2.15
      • 3.  Government Code §7924.510(f)  2.16
      • 4.  Business and Professions Code §§16606, 16607(a)  2.17
      • 5.  Evidence Code §§1060–1061  2.18
      • 6.  Labor Code §§2860, 2870–2872  2.19
      • 7.  Revenue and Taxation Code §11342  2.20
      • 8.  18 USC §1905  2.21
      • 9.  Economic Espionage Act of 1996 (18 USC §§1831–1839)  2.21A
      • 10.  Tariff Act of 1930 (19 USC §§1202–1683g)  2.21B
      • 11.  Restatement of the Law (Third) on Unfair Competition  2.21C
      • 12.  Fifth Amendment Takings Clause  2.21D
      • 13.  Bankruptcy Code–Title 11 USC  2.21E
    • B.  Application of 2860 Definitions  2.22
      • 1.  Ownership Depends on Employment  2.23
      • 2.  Ownership Depends on Who Controls Tangibles  2.24
      • 3.  Ownership Depends on Who Made Effort to Protect  2.25
  • IV.  CONTRACTUAL PROVISIONS AFFECTING OWNERSHIP  2.26
    • A.  Need for Consideration  2.27
      • 1.  Consideration Sufficient  2.28
      • 2.  Consideration Not Sufficient  2.29
    • B.  Contract of Adhesion and Other Contract Defenses  2.30
      • 1.  Employee Assignment Agreements  2.31
      • 2.  Noncompetition Agreements
        • a.  Bus & P C §16600 and Exceptions  2.32
        • b.  General Rule: Noncompetition Agreements Void  2.32A
        • c.  Status of Trade Secret Exception  2.32B
        • d.  Status of Narrow-Restraint Exception  2.32C
        • e.  Other Potential Exceptions  2.32D
      • 3.  Liquidated Damages Provisions  2.32E
    • C.  Need for Clarity  2.32F
    • D.  Confidentiality Agreements  2.32G
  • V.  PROVING OWNERSHIP  2.32H
  • VI.  EFFECTS OF OTHER INTELLECTUAL PROPERTY ON OWNERSHIP  2.33
    • A.  Copyright Protection  2.34
    • B.  Patent Protection  2.35

3

Idea Submissions

Bruce B. Brunda

Jack Russo

Stephen M. Westbrook

  • I.  INTRODUCTION
    • A.  Scope of Chapter  3.1
    • B.  How the Issue Arises  3.2
  • II.  STEP 1: SUBMITTER’S INITIAL CONTACT
    • A.  Submitter’s Goals  3.3
    • B.  Potential Legal Protections
      • 1.  Nondisclosure Agreement (NDA)  3.3A
      • 2.  Implied-in-Fact Contract Claim (Desny Claim)  3.3B
      • 3.  Implied Confidential Relationship  3.3C
      • 4.  Formal Intellectual Property Law Protection  3.3D
    • C.  Method of Disclosure  3.4
  • III.  STEP 2: RECIPIENT’S RECEIPT OF UNSOLICITED IDEAS  3.5
    • A.  No Review or Consideration Whatsoever
      • 1.  Policy and Procedures  3.6
      • 2.  Form: Transmittal Letter Describing Policy  3.7
    • B.  No Review or Consideration Without Waiver Agreement
      • 1.  Policy and Procedures  3.8
      • 2.  Form: Policy Statement  3.9
      • 3.  Form: Transmittal Letter to Submitter Enclosing Company Policy  3.10
      • 4.  Confidential Disclosure Waiver Agreement: Need for Clear Terms  3.11
        • a.  Form: Confidential Disclosure Waiver Agreement  3.12
        • b.  Form: Transmittal Letter to Submitter Enclosing Waiver Agreement  3.13
    • C.  No Distribution Pending Notice of Policy
      • 1.  Policy and Procedures  3.14
      • 2.  Form: Notice of Policy Statement  3.15
    • D.  Using Outside Consultants  3.16
    • E.  Using In-House Committee  3.17
  • IV.  STEP 3: SUBMITTER’S RESPONSE TO COMPANY POLICY  3.18
    • A.  No Disclosure Without First Securing Statutory Rights
      • 1.  Procedures  3.19
      • 2.  Form: Agreement for Submission of Ideas  3.20
    • B.  No Delivery Without Agreement
      • 1.  Procedures  3.21
      • 2.  Form: Agreement for Submission of Ideas  3.22
    • C.  Delivery With “Shrink-Wrap” Agreement  3.23
    • D.  Delivery With Confidentiality Notices and Other Proprietary Legends  3.24
    • E.  Delivery in Person Based on Implied Understanding  3.25
  • V.  STEP 4: RECIPIENT’S FOLLOW-UP  3.26
  • VI.  LITIGATION STRATEGIES
    • A.  By Recipient  3.27
    • B.  By Submitter  3.28

4

Strategies for Protecting a Company’s Trade Secrets

James Pooley

  • I.  SCOPE OF CHAPTER  4.1
  • II.  IMPORTANCE OF TRADE SECRETS IN THE MODERN ENTERPRISE
    • A.  Data as a Business Asset  4.2
    • B.  Vulnerability of Confidential Information  4.3
  • III.  IDENTIFICATION OF TRADE SECRET ASSETS
    • A.  Defining the Company’s Trade Secrets  4.4
    • B.  Processes and Tools for Identification  4.5
  • IV.  CREATING STRATEGIES AND POLICIES
    • A.  Importance of Strategic Direction  4.6
    • B.  Objectives of a Trade Secret Protection Program  4.7
    • C.  Principles for Trade Secret Management  4.8
  • V.  CONFIDENTIAL RELATIONSHIPS
    • A.  Establishing Confidentiality  4.9
    • B.  Significance of Contract  4.10
  • VI.  REASONABLE EFFORTS TO MAINTAIN SECRECY
    • A.  What Is “Reasonable Under the Circumstances”?  4.11
    • B.  Pleading and Proof  4.12
  • VII.  EMPLOYEE ISSUES
    • A.  Employees as a Category of Risk  4.13
    • B.  Recruiting and Onboarding  4.14
    • C.  Communication and Education  4.15
    • D.  Termination  4.16
  • VIII.  THIRD PARTY ISSUES
    • A.  Management of Confidentiality Agreements  4.17
    • B.  Potential Acquisition or License  4.18
    • C.  Collaborations  4.19
  • IX.  INDUSTRIAL ESPIONAGE
    • A.  External and Internal Electronic Threats  4.20
    • B.  Competitive Intelligence  4.21
  • X.  INTERNATIONAL ISSUES
    • A.  Trade Secret Laws Outside the U.S.  4.22
    • B.  Importance of Contract and Relationship Management  4.23

4A

Trade Secret Audits and Protection Plans

Robert B. Milligan

D. Joshua Salinas

  • I.  INTRODUCTION  4A.1
  • II.  TRADE SECRET THEFT  4A.1A
  • III.  TRADE SECRET AUDITS  4A.2
    • A.  Audit Team  4A.3
    • B.  Scope of Audit  4A.4
    • C.  Identify Potential Trade Secrets  4A.5
    • D.  Review Current Policies and Procedures  4A.6
    • E.  Review Current Physical and Electronic Security Measures  4A.7
    • F.  Account for Technological Advances  4A.8
    • G.  Review Current Protective Agreements  4A.9
  • IV.  TRADE SECRET PROTECTION PLANS  4A.10
    • A.  Benefits of Formal Procedures  4A.11
    • B.  Elements of Effective Trade Secret Protection Plans  4A.12
    • C.  Employee Relationships  4A.13
    • D.  Government and Third Party Relationships  4A.14
    • E.  Precautions With Visitors  4A.15
    • F.  Facilities Protection  4A.16
    • G.  Document Security  4A.17
    • H.  Electronic Security  4A.18
    • I.  Unsolicited Inventions and Ideas  4A.19
  • V.  CONCLUSION  4A.20
  • VI.  SAMPLE TRADE SECRET AUDIT CHECKLIST
    • A.  Introduction  4A.21
    • B.  Sample Trade Secret Audit Checklist  4A.22

5

Protecting Information Disclosed to Government Agencies

Sharon K. Sandeen

  • I.  INTRODUCTION
    • A.  Scope of Chapter  5.1
    • B.  Applicable Laws  5.2
  • II.  PROTECTING PROPRIETARY INFORMATION IN DEALING WITH FEDERAL GOVERNMENT
    • A.  Who Owns the Rights to Data When Contracting With the Government: Federal Acquisition Regulations System
      • 1.  Overview  5.3
      • 2.  Determining the Scope of the Government’s License Under the FAR  5.4
      • 3.  Source of Funding as a Basis for the Government’s Rights Under DFARS  5.5
        • a.  Government Funding  5.6
        • b.  Private Funding
          • (1)  Commercial Data  5.7
          • (2)  Noncommercial Data  5.8
        • c.  Mixed Funding  5.9
      • 4.  Other Types of Government Rights  5.10
      • 5.  Requirements for Limiting Government Rights  5.11
    • B.  Who Can Access Your Proprietary Information: Freedom of Information Act
      • 1.  Overview  5.12
      • 2.  Exemption 3 of FOIA  5.13
      • 3.  Exemption 4 of FOIA  5.14
    • C.  Challenging Government Release of Your Proprietary Information
      • 1.  Executive Order 12600  5.15
      • 2.  Objecting to Disclosure of Records Under FOIA Request  5.16
      • 3.  “Reverse FOIA”—Administrative Procedure Act  5.17
    • D.  Federal Trade Secrets Act  5.18
    • E.  Privacy Act of 1974  5.19
  • III.  PROTECTING PROPRIETARY INFORMATION IN DEALING WITH STATE OF CALIFORNIA
    • A.  Sources of Protection  5.20
    • B.  California Public Records Act
      • 1.  Overview  5.21
      • 2.  Trade Secret Exemptions  5.22
      • 3.  “Catchall” Exemption  5.23
      • 4.  Developments Under California Public Records Act  5.23A
    • C.  California Information Practices Act  5.24
    • D.  California Consumer Privacy Act (CCPA) (CC §§1798.100–1798.199.100)  5.24A
  • IV.  PROTECTING PROPRIETARY INFORMATION IN DEALING WITH LOCAL GOVERNMENT  5.25
  • V.  LIABILITY OF GOVERNMENT AGENCIES OR EMPLOYEES FOR IMPROPER DISCLOSURE OF TRADE SECRET INFORMATION  5.26
  • VI.  IMPORTANCE OF KNOWING APPLICABLE LAW  5.27
  • VII.  CHECKLIST: PRACTICAL POINTERS FOR PROTECTING TRADE SECRETS WHEN DEALING WITH GOVERNMENT  5.28

6

Form Protective Agreements and Provisions

Bruce B. Brunda

Geoffrey M. Creighton

John D. Croll

Suzanne Springs

James C. Yang

  • I.  COLLECTING BACKGROUND INFORMATION
    • A.  Necessary Preliminary Information  6.1
    • B.  Checklist: Client Interview  6.2
  • II.  PROPRIETARY RIGHTS LEGENDS  6.3
    • A.  Form: Short-Form Legends  6.4
    • B.  Form: Long-Form Restricted Rights Legend (General Use)  6.5
    • C.  Form: Long-Form Restricted Rights Legend for Electronic Mail and Facsimile Transmissions  6.6
    • D.  Copyright Notices
      • 1.  Need for Notice  6.7
      • 2.  Form: Copyright Notices  6.8
    • E.  Federal Acquisition Regulations
      • 1.  Need for Legend  6.9
      • 2.  Form: Legends for Technical Data or Computer Software and Software Documentation Provided to Federal Government  6.10
      • 3.  Form: Legend Claiming Exemption From Freedom of Information Act  6.11
  • III.  EMPLOYEE CONFIDENTIALITY AGREEMENTS  6.12
    • A.  Form: Short-Form Confidentiality Agreement for Interviews With Prospective Employees  6.13
    • B.  Form: Long-Form Confidentiality Agreement for Interviews With Prospective Employees  6.14
    • C.  Form: New Employee’s Acknowledgment of Confidentiality Agreement  6.15
    • D.  Employee Confidentiality and Intellectual Property Assignment Agreement  6.16
      • 1.  Form: Title and Introduction   6.17
      • 2.  Form: Definitions  6.18
      • 3.  Form: Effective Date  6.19
      • 4.  Form: Protection of Company’s Confidential Information  6.20
      • 5.  Form: Noncompetition, Nonsolicitation  6.21
      • 6.  Form: Prior Knowledge and Relationships  6.22
      • 7.  Form: Assignment of Employee Inventions and Copyrights  6.23
      • 8.  Form: Termination of Employment  6.24
      • 9.  Form: Specific Performance  6.25
      • 10.  Form: Notice; Record Addresses  6.26
      • 11.  Form: Amendment  6.27
      • 12.  Form: Exhibits  6.28
      • 13.  Form: No Waiver  6.29
      • 14.  Form: Attorney Fees  6.30
      • 15.  Form: Governing Law  6.31
      • 16.  Form: Severability  6.32
      • 17.  Form: Binding Effect  6.33
      • 18.  Form: Integration  6.34
      • 19.  Form: Warning of Effect of Agreement  6.35
      • 20.  Form: Signature Block  6.36
      • 21.  Form: Exhibit A—Prior Knowledge and Inventions  6.37
      • 22.  Form: Exhibit B—Company’s Written Notification of Lab C §2870  6.38
      • 23.  Form: Exhibit C—Termination Certificate  6.39
  • IV.  TERMINATION PROCEDURES
    • A.  Need for Termination Procedures  6.40
    • B.  Checklist: Exit Interview  6.41
    • C.  Form: Letter to Former Employee  6.42
    • D.  Form: Letter to New Employer  6.43
  • V.  CONFIDENTIALITY AGREEMENTS WITH OUTSIDERS
    • A.  Casual Visitors
      • 1.  Need for Visitor’s Agreement and Identification Badge  6.44
      • 2.  Form: Visitor’s Agreement  6.45
      • 3.  Form: Log Book Agreement Provisions  6.46
    • B.  Preliminary Disclosures  6.47
      • 1.  Form: Bilateral Confidential Disclosure Agreement  6.48
      • 2.  Form: Unilateral Confidential Disclosure Agreement  6.49
    • C.  Vendors and Suppliers
      • 1.  Need for Confidentiality Provisions  6.50
      • 2.  Form: Confidential Disclosure Provisions for Inclusion in Purchase Agreements and Purchase Orders  6.51
      • 3.  Form: Confidential Disclosure Provisions for Cover Sheet on Proprietary Information  6.52
    • D.  On-Site Employees From Another Company
      • 1.  Need for Confidentiality Agreement  6.53
      • 2.  Form: On-Site Employee Confidentiality Agreement  6.54
    • E.  Buy-Sell Agreements
      • 1.  Introduction  6.55
      • 2.  Form: Buy-Sell Agreement Clause  6.56
    • F.  Clients
      • 1.  Introduction  6.57
      • 2.  Form: No-Hire Provision  6.58

7

Exploiting Trade Secrets by Licensing

Kevin D. DeBré

David N. Makous

  • I.  INTRODUCTION: ASSIGNMENT OR LICENSE  7.1
  • II.  TYPES OF LICENSES
    • A.  Express Versus Implied License  7.2
    • B.  Licenses of Trade Secrets in Combination With Patent Rights (“Hybrid Licenses”)  7.3
      • 1.  Special Issues Raised by Hybrid Licenses
        • a.  The Lear Doctrine  7.4
        • b.  Exceptions to the Lear Doctrine  7.4A
      • 2.  Domestic Versus Foreign Patent Rights
        • a.  Value of Patent  7.5
        • b.  Effect of Patent Issuance on Trade Secret License  7.6
  • III.  PRIMARY ISSUES IN TRADE SECRET LICENSE AGREEMENTS
    • A.  Grant Clause  7.7
      • 1.  Licensed Property  7.8
      • 2.  Licensed Product  7.9
      • 3.  Licensed Territory  7.10
      • 4.  Exclusivity  7.11
      • 5.  Sublicenses  7.12
    • B.  Valuation of Trade Secrets  7.13
      • 1.  Proprietor’s Experience With Secret  7.14
      • 2.  Cost of Developing Trade Secret  7.15
      • 3.  Allocation of Percentage of Projected Net Profit  7.16
      • 4.  Desirability of Trade Secret  7.17
      • 5.  Alternative Costs: Projected Legal Fees, Consequences of Delay  7.18
    • C.  Royalty Payments  7.19
      • 1.  Term  7.20
      • 2.  Establishing Royalty Rate  7.21
      • 3.  Basis of Royalty Calculation  7.22
      • 4.  Minimum and Maximum Royalties  7.23
    • D.  Hybrid Licenses  7.24
  • IV.  ANTITRUST PROBLEMS: DEPARTMENT OF JUSTICE GUIDELINES  7.25
    • A.  Exclusivity Issues Raised by Guidelines  7.26
    • B.  Territorial Restrictions  7.27
    • C.  Price Controls and Use Restrictions  7.28
    • D.  Grant-Back Provisions  7.29
    • E.  Tying Provisions  7.30
    • F.  Granting or Revoking Licenses in Concert With Other Licensees  7.31
  • V.  DISCLOSURE BEFORE LICENSING
    • A.  Initial Logistic Problem  7.32
    • B.  Approaches to Disclosure Prior to License
      • 1.  Disclosure of Nonconfidential Information  7.33
      • 2.  Confidential Disclosure Agreement  7.34
      • 3.  Look-See Fee  7.35
      • 4.  Learned Intermediary  7.35A
      • 5.  Form: Simple Confidentiality and Nondisclosure Letter Agreement  7.36

8

Form Licensing Agreements and Provisions

Kevin D. DeBré

Peter C. Pang

  • I.  QUESTIONNAIRE: PRELIMINARY INFORMATION  8.1
  • II.  LICENSE AGREEMENT PROVISIONS
    • A.  Form: Title and Introduction  8.2
    • B.  Form: Recitals  8.3
    • C.  Form: Definitions  8.4
    • D.  License Grant  8.5
      • 1.  Form: Basic Grant Clause  8.6
      • 2.  Form: Restrictive Grant Clause  8.7
      • 3.  Form: Grant Clause for Trade Secret and Patent Hybrid Licenses  8.8
      • 4.  Form: Grant Clause for Licensing Trade Secrets Disclosed in Patent Applications  8.9
      • 5.  Form: Grant Clause for Trade Secret and Trademark Hybrid Licenses  8.10
      • 6.  Form: Grant Clause With No Right of Sublicense  8.11
      • 7.  Form: Grant Clause With Right of Sublicense  8.12
      • 8.  Form: Grant Clause Including Licensee’s Modifications to Licensed Subject Matter  8.13
    • E.  Compensation
      • 1.  Form: Down Payment  8.14
      • 2.  Royalty Payments
        • a.  Form: Basic Royalty Provision  8.15
        • b.  Form: Royalty Provision Providing Economic Incentive to Practice Trade Secrets in Designated Territory  8.16
        • c.  Form: Allocation of Royalties if Hybrid Trade Secret and Patent License  8.17
      • 3.  Form: Payment Terms; Paid-Up License  8.18
    • F.  Form: Use of Trademarks  8.19
    • G.  Form: Warranties  8.20
    • H.  Form: Limitation of Warranties  8.21
    • I.  Form: Future Improvements  8.22
    • J.  Form: Grant-Back  8.23
    • K.  Form: Disclosure of Technical Information Pursuant to Agreement  8.24
    • L.  Form: Secrecy  8.25
    • M.  Form: Effect of Disclosure  8.26
    • N.  Form: Reports  8.27
    • O.  Form: Records  8.28
    • P.  Form: Third Party Claims  8.29
    • Q.  Form: Duration of Agreement  8.30
    • R.  Form: Events of Default  8.31
    • S.  Form: Remedies  8.32
    • T.  Form: Arbitration  8.33
    • U.  Form: Notices; Record Address  8.34
    • V.  Form: Amendments  8.35
    • W.  Form: Construction  8.36
    • X.  Form: Integration  8.37
    • Y.  Form: Exhibits  8.38
    • Z.  Form: No Waiver  8.39
    • AA.  Form: Headings  8.40
    • AB.  Form: Governing Law and Choice of Forum  8.41
    • AC.  Form: Attorney Fees  8.42
    • AD.  Form: Severability  8.43
    • AE.  Assignment  8.43A
    • AF.  Form: Binding Effect  8.44
    • AG.  Form: Signature Block  8.45

9

Security Interests in Trade Secrets

Lisa L. Ditora

Ellen A. Friedman

Lawrence T. Woodlock

  • I.  SCOPE OF CHAPTER  9.1
  • II.  USE OF TRADE SECRETS AS COLLATERAL
    • A.  Advantages of Using Trade Secrets as Collateral  9.2
    • B.  Disadvantages of Using Trade Secrets as Collateral  9.3
  • III.  APPLICABLE LAW
    • A.  California Commercial Code Governs Security Interests  9.4
    • B.  Definition of General Intangibles Includes Trade Secrets  9.5
  • IV.  ATTACHMENT OF SECURITY INTEREST  9.6
    • A.  Written Security Agreement
      • 1.  Refer to Trade Secret  9.7
      • 2.  Form: Security Agreement Granting Clause Describing Trade Secrets Collateral  9.8
    • B.  Value Given  9.9
    • C.  Debtor’s Rights in Collateral  9.10
  • V.  PERFECTION OF SECURITY INTEREST
    • A.  Effect of Perfection  9.11
    • B.  Perfecting Security Interests in Intellectual Property
      • 1.  UCC  9.11A
      • 2.  Federal Law  9.11B
    • C.  Perfection by Filing  9.12
      • 1.  Methods for Filing Financing Statements  9.13
      • 2.  Form: Financing Statement (UCC1)   9.14
      • 3.  Form: Financing Statement Addendum (UCC1Ad)  9.14A
      • 4.  Form: Additional Language for Description of Trade Secrets Collateral  9.15
    • D.  Verifying Priority  9.16
  • VI.  RIGHTS OF SECURED CREDITOR  9.17
  • VII.  SPECIAL CONSIDERATIONS IN USE OF TRADE SECRETS AS COLLATERAL  9.18
    • A.  Maintaining Value of Trade Secret  9.19
    • B.  Obtaining Value From Trade Secret  9.20
  • VIII.  CHECKLIST: STEPS FOR SETTING UP SIMPLE SECURED TRANSACTIONS  9.21
  • IX.  CONCLUSION  9.22

10

Avoiding Misappropriation Claims

Sharon K. Sandeen

  • I.  SCOPE OF CHAPTER  10.1
  • II.  ADOPT TRADE SECRETS PROTECTION POLICY
    • A.  Importance of Trade Secrets Protection Policy  10.2
      • 1.  Established Companies  10.3
      • 2.  Public Companies  10.4
      • 3.  Start-up Companies  10.5
    • B.  Elements of Trade Secrets Protection Policy  10.6
    • C.  Benefits  10.7
    • D.  Employee Confidentiality Agreements
      • 1.  Confidentiality Agreement Provisions  10.8
      • 2.  Employee Handbooks  10.9
      • 3.  Confidentiality Exceptions  10.10
        • a.  Scope Exception  10.11
        • b.  DTSA Notice  10.12
        • c.  SB 1300 Exception  10.13
        • d.  NLRA and Whistleblower Exception  10.14
    • E.  Confidentiality Agreements With Third Parties  10.15
    • F.  Documentation of Company Protocols  10.16
  • III.  COUNSELING EMPLOYER OF PROSPECTIVE NEW EMPLOYEE  10.17
    • A.  Prehiring Advice  10.18
    • B.  Investigate New Employee’s Knowledge and Experience  10.19
    • C.  Form: Client Interview Sheet: Information on Change of Employment  10.20
    • D.  Avoid Actions That “Look Bad”  10.21
    • E.  Onboarding A New Employee  10.22
    • F.  Posthiring Conduct  10.23
    • G.  Responding to Threatening Letter  10.24
  • IV.  COUNSELING DEPARTING EMPLOYEES
    • A.  Attorney’s Role  10.25
    • B.  Review Relevant Agreements  10.26
    • C.  Identify Information Owned by Former Employer  10.27
    • D.  Ascertain Character of Information Acquired by Employee  10.28
    • E.  Comply With Announcement Rule  10.29
  • V.  COUNSELING FORMER EMPLOYER  10.30
  • VI.  COUNSELING IN DISPUTES OVER NONDISCLOSURE AGREEMENTS  10.31
  • VII.  COMPETITIVE INTELLIGENCE GATHERING  10.32
  • VIII.  WHAT INFORMATION IS AVAILABLE FOR USE?
    • A.  Overview  10.33
    • B.  Is Information Available for Use?  10.34
      • 1.  Preutilization Checklist  10.35
      • 2.  Method of Searching for and Evaluating Trade Secret Information  10.36
      • 3.  Method of Searching for and Evaluating Copyright Information  10.37
      • 4.  Method of Searching for and Evaluating Patent Information  10.38
  • IX.  EVALUATING WHETHER INFORMATION IS A TRADE SECRET
    • A.  Information in Public Domain Not Trade Secret  10.39
      • 1.  General and Basic Knowledge  10.40
      • 2.  Published Literature and Internet Websites  10.41
      • 3.  Expired United States Patent  10.42
      • 4.  Foreign Patents  10.43
    • B.  Nonpublic, Specialized Knowledge May Be Protected as Trade Secret  10.44
    • C.  Information Obtained by Independent Research and Investigation
      • 1.  Results of Independent Research May Be Used  10.45
      • 2.  Results of Reverse Engineering May Be Used  10.46
    • D.  Information Obtained Under Confidentiality Obligation  10.47
      • 1.  Employee-Employer Relationship  10.48
      • 2.  Licensee-Licensor Relationship  10.49
      • 3.  Officer’s or Director’s Relationship With Corporation  10.50
      • 4.  Relationship With Partner or Joint Venturer  10.51
      • 5.  Relationship With Consultants and Independent Contractors  10.52
      • 6.  Relationship With “Idea Man”: Unsolicited Disclosures  10.53
      • 7.  Relationship With Suppliers and Vendors; Purchaser’s Specifications and Technical Manuals  10.54
      • 8.  Relationship With Prospective Purchaser or Licensee  10.55
      • 9.  Relationship With Buyer of Business  10.56
    • E.  Information Obtained by Theft  10.57
    • F.  Information Obtained by Accident or Mistake  10.58

11

Litigation Issues

Lowell Anderson

Robert B. Milligan

D. Joshua Salinas

  • I.  OVERVIEW  11.1
  • II.  PRELIMINARY ISSUES
    • A.  Prefiling and Filing
      • 1.  Need for Prefiling Investigation  11.2
      • 2.  Cease and Desist Letters  11.3
      • 3.  The Complaint  11.4
    • B.  Whom to Sue
      • 1.  Parties
        • a.  Joint Tortfeasors, Generally  11.5
        • b.  Investors as Joint Tortfeasors  11.6
        • c.  Tortfeasor’s Spouse  11.7
        • d.  Corporate Shareholders and Directors  11.8
      • 2.  Declaratory Judgment Actions  11.9
      • 3.  Insurance Coverage  11.10
    • C.  Where to Sue
      • 1.  Evaluating Jurisdiction  11.11
      • 2.  Contractual Limitations on Jurisdiction  11.12
      • 3.  Jurisdiction and the Internet  11.13
      • 4.  Choice of Law Issues  11.14
      • 5.  Applicable Law in Federal Court  11.15
      • 6.  Removal to Federal Court  11.16
      • 7.  Diversity Jurisdiction  11.17
      • 8.  Federal Question Jurisdiction  11.18
      • 9.  Supplemental Federal Jurisdiction  11.19
      • 10.  Unfair Competition Claims Related to Patent, Trademark, or Copyright Claims  11.20
    • D.  When to Sue
      • 1.  Three-Year Statute of Limitations  11.21
      • 2.  Reasonable Diligence Requirement  11.22
      • 3.  Continuous Misappropriation; Third Party Misappropriation  11.23
      • 4.  Tolling Statute of Limitations  11.24
    • E.  What Other Claims Can Be Made  11.25
  • III.  PRETRIAL MOTIONS
    • A.  Injunctions  11.26
    • B.  Transfer of Venue  11.27
    • C.  Demurrers Under CCP §430.10 and Motions to Dismiss Under Fed R Civ P 12(b)(6)  11.28
    • D.  Anti-SLAPP Motions Under CCP §425.16  11.29
    • E.  Summary Judgment
      • 1.  Mixed Question of Law and Fact  11.30
      • 2.  Defendant’s Burden  11.31
  • IV.  INVESTIGATION AND DISCOVERY ISSUES
    • A.  Prefiling Investigation  11.32
    • B.  Protective Orders Before Discovery
      • 1.  Benefits of Protective Orders  11.33
      • 2.  Form of Order  11.34
      • 3.  One- or Two-Tier Order  11.35
      • 4.  Scope of Order  11.36
      • 5.  Compliance With Procedural Requirements  11.37
      • 6.  Effect of Protective Orders  11.38
      • 7.  Treatment of Privileged Information  11.39
      • 8.  Protective Orders in Federal Court  11.40
      • 9.  Internet Issues  11.41
      • 10.  Penalties for Violation  11.42
    • C.  Identifying Trade Secrets
      • 1.  CCP §2019.210, Generally
        • a.  Identification of Trade Secrets Required  11.43
        • b.  “Reasonable Particularity” Requirement
          • (1)  CCP §2019.210  11.44
          • (2)  How Much Identification Is Needed  11.45
          • (3)  How Trade Secret Differs From General Knowledge  11.46
          • (4)  Use of General Categories of Information  11.47
          • (5)  Use of Lengthy Descriptions  11.48
          • (6)  Use of Catch-All Language  11.49
          • (7)  Out-of-State Cases  11.50
      • 2.  CCP §2019.210 in Federal Court  11.51
      • 3.  Identification Strategies  11.52
      • 4.  Separate CCP §2019.210 Statement  11.53
      • 5.  Effect of Failure to Identify  11.54
    • D.  Limiting Discovery Plans  11.55
    • E.  E-Discovery  11.56
    • F.  Party and Nonparty Discovery
      • 1.  Information Subject to Disclosure  11.57
      • 2.  Privilege Not to Disclose  11.58
      • 3.  Evidence Code §1060 Privilege  11.59
      • 4.  Discovery From Nonparties  11.60
    • G.  Employee Interviews  11.61
    • H.  Standing: Ownership of Trade Secrets  11.62
    • I.  Estoppel  11.63
    • J.  Litigation Privileges
      • 1.  Testimony Privilege (CC §47)  11.64
      • 2.  Trade Secret Exception to Testimony Privilege (CC §3426.11)  11.65
      • 3.  Advice of Counsel  11.66
      • 4.  Anti-SLAPP Claims (CCP §425.16(e)(2))  11.67
      • 5.  Identifying Anonymous Online Posters; California Reporter’s Shield Law (Cal Const art I, §2(b), Evid C §1070(a))  11.68
    • K.  Fifth Amendment  11.69
    • L.  Freedom of Information Act and Other Disclosure Laws  11.70
  • V.  TRIAL ISSUES
    • A.  General Considerations; Jury Trial Right  11.71
    • B.  Burden of Proof  11.72
    • C.  Expert Witnesses  11.73
    • D.  Special Masters  11.74
    • E.  Motions In Limine  11.75
    • F.  Public Access  11.76
    • G.  Sealing the Record  11.77
    • H.  Jury Instructions  11.77A
  • VI.  POSTRESOLUTION ISSUES  11.78
  • VII.  CLAIMS NOT BASED ON UTSA  11.79
    • A.  UTSA Preemption  11.80
    • B.  Antitrust Violations  11.81
    • C.  Breach of Confidence  11.82
    • D.  Breach of Express or Implied-in-Fact Confidentiality Agreements
      • 1.  Nature of Cause of Action
        • a.  Express Contracts  11.83
        • b.  Implied-in-Fact Contracts  11.84
        • c.  Contractual Remedies  11.85
        • d.  Punitive Damages: When Available  11.86
        • e.  Advantages of Contract Actions  11.87
        • f.  Enforceability Issues  11.88
      • 2.  Actions Arising From Invention Assignments  11.89
    • E.  Breach of Noncompetition Agreements
      • 1.  Noncompetition Agreements in Employment Context Generally Unenforceable in California  11.90
      • 2.  Statutory Exceptions to Nonenforceability  11.91
      • 3.  Status of Trade Secrets Exception  11.92
      • 4.  Customer Lists  11.93
      • 5.  Nonsolicitation of Employees  11.94
      • 6.  Drafting Considerations  11.95
      • 7.  Choice-of-Law Issues  11.96
    • F.  Civil Conspiracy
      • 1.  Elements of Claim  11.97
      • 2.  Corporation as Conspirator  11.98
      • 3.  Limitations Period  11.99
    • G.  Conversion and Trespass to Chattels  11.100
    • H.  Fraud and Constructive Fraud  11.101
    • I.  Breach of Fiduciary Duty  11.102
    • J.  Common Law Misappropriation  11.103
    • K.  Interference With Prospective Business Advantage  11.104
    • L.  Trade Libel  11.105
    • M.  Unfair Competition  11.106
    • N.  Unjust Enrichment  11.107
    • O.  Civil Writ of Possession for Stolen Property  11.108
    • P.  Copyright Act of 1976  11.109
    • Q.  Lanham Act  11.110
    • R.  Patents
      • 1.  Patents Versus Trade Secrets  11.111
      • 2.  Required Disclosure; Limits on Trade Secret Protection  11.112
      • 3.  Extent of Required Disclosure  11.113
      • 4.  Patent Publication Date Crucial  11.114
      • 5.  Risks of Not Seeking Patent  11.115
      • 6.  Damages for Loss of Patent Rights  11.116
    • S.  Racketeer Influenced and Corrupt Organizations Act  11.117
    • T.  Computer Fraud and Abuse Act; Pen C §502  11.118
    • U.  Defend Trade Secrets Act  11.119

12

Remedies for Trade Secret Misappropriation

Lowell Anderson

Robert B. Milligan

D. Joshua Salinas

  • I.  SUMMARY OF REMEDIES AVAILABLE  12.1
  • II.  INJUNCTIVE RELIEF
    • A.  Availability of Injunctive Relief  12.1A
    • B.  Illustrative Injunction Remedies  12.2
    • C.  Preliminary Injunctions  12.3
      • 1.  Standards for Preliminary Injunctions in California Courts  12.4
      • 2.  Standards for Preliminary Injunctions in Federal Courts  12.5
    • D.  Temporary Restraining Orders  12.6
    • E.  Permanent Injunctions
      • 1.  Standards for Permanent Injunctions  12.7
      • 2.  Specificity and Scope  12.8
      • 3.  Duration
        • a.  General Rule  12.9
        • b.  Variable Termination Date  12.10
      • 4.  Ordering Affirmative Acts to Protect Trade Secrets  12.11
      • 5.  Royalty in Lieu of Injunction  12.12
      • 6.  International Trade Commission Exclusion Order  12.12A
    • F.  Threatened Misappropriation  12.13
    • G.  Choice of Law  12.13A
    • H.  Orders; Findings of Fact and Law; Enforcement  12.14
    • I.  Bond for Interlocutory Injunctions  12.15
      • 1.  California State Courts  12.16
      • 2.  Federal Courts  12.17
    • J.  Appellate Review
      • 1.  California State Court  12.18
      • 2.  Federal Court  12.19
  • III.  DAMAGES AND OTHER MONETARY AWARDS
    • A.  Basis for Relief: Actual Loss or Unjust Enrichment  12.20
    • B.  Reasonable Royalty  12.21
    • C.  Punitive Damages  12.22
    • D.  Attorney Fees  12.23
    • E.  Costs  12.24
  • IV.  REMEDIES NOT BASED ON UTSA  12.25

13

Criminal Liability for Trade Secret Misappropriation

David J. Murphy

James H. Pooley

Perry J. Viscounty

  • I.  CRIMINAL LIABILITY FOR TRADE SECRET MISAPPROPRIATION  13.1
  • II.  CRIMINAL STATUTES PROTECTING TRADE SECRETS  13.2
    • A.  Penal Code §499c: Theft of Trade Secret  13.3
    • B.  Penal Code §496: Receiving Stolen Property  13.4
    • C.  Penal Code §502: Unauthorized Access to Computers, Computer Systems, and Computer Data  13.5
    • D.  18 USC §1030: Fraud and Related Activity in Connection With Computers  13.5A
    • E.  18 USC §§1341, 1343: Mail Fraud and Wire Fraud  13.6
    • F.  18 USC §§1961–1968: Racketeer Influenced and Corrupt Organizations Act (RICO)  13.7
    • G.  18 USC §§2311–2322: National Stolen Property Act  13.8
    • H.  18 USC §1029: Fraud and Related Activity in Connection With Access Device  13.9
    • I.  18 USC §§1831–1839: Economic Espionage Act of 1996  13.9A
    • J.  Avoiding Exposure to EEA Liability  13.9B
  • III.  DECIDING WHETHER TO PURSUE CRIMINAL OR CIVIL ACTION
    • A.  Advantages of Criminal Action  13.10
    • B.  Disadvantages of Criminal Action  13.11
  • IV.  INITIATING A CRIMINAL ACTION
    • A.  Evidence Memorandum  13.12
    • B.  Contacting Proper Authorities  13.13
    • C.  Advice for Alleged Misappropriator  13.14

14

Insurance Coverage for Misappropriation Claims

Daniel J. Callahan

Edward Susolik

  • I.  PRINCIPLES OF INSURANCE COVERAGE
    • A.  Importance of Insurance Coverage  14.1
    • B.  Basis of Insurance Coverage  14.2
    • C.  Insurance Coverage Generally  14.3
  • II.  COVERAGE UNDER PERSONAL AND ADVERTISING INJURY PROVISIONS OF GENERAL LIABILITY POLICIES  14.4
    • A.  Definition of “Personal and Advertising Injury”
      • 1.  1973 ISO Form  14.5
      • 2.  1986, 1998, 2001, 2004, 2007, and 2010 ISO Forms  14.6
      • 3.  Nonstandard Policies; Other Types of Policies  14.6A
    • B.  Application of Personal and Advertising Injury Provisions to Trade Secret Litigation  14.7
      • 1.  Misconduct Must Constitute “Covered Offense”  14.8
        • a.  Misappropriation of Advertising Ideas or Style of Doing Business
          • (1)  Trade Secret Misappropriation Coverage  14.9
          • (2)  Trademark Infringement Coverage  14.9A
          • (3)  Patent Infringement Coverage  14.9B
        • b.  Infringement of Title  14.10
        • c.  Piracy and Unfair Competition  14.11
      • 2.  Was Insured Engaged in Advertising Activity?  14.12
      • 3.  Causal Nexus Between Advertising Injury and Advertising Activity  14.13
  • III.  COVERAGE STRATEGY FOR TRADE SECRET CASES
    • A.  Plaintiff’s Strategies  14.14
    • B.  Insured’s Strategies
      • 1.  Insurance Policy Review  14.15
      • 2.  Allegations of Other Covered Claims  14.15A
      • 3.  Declaratory Relief  14.16
      • 4.  Bad Faith Denial of Insurance Coverage  14.17
      • 5.  Procedural Issues  14.18
      • 6.  Choice of Forum and Choice of Law  14.19
    • C.  Counsel’s Professional Responsibilities  14.20

15

Taxation of Trade Secrets

Andrew L. Gradman

James G. Roberts

  • I.  INTRODUCTION
    • A.  Scope of Chapter  15.1
    • B.  Tax Law and Trade Secrets  15.2
  • II.  COSTS INCURRED IN ACQUIRING TRADE SECRETS AND RIGHTS TO TRADE SECRETS  15.3
    • A.  Purchaser’s Tax Treatment of Cost of Purchased Trade Secrets: Amortization Under IRC §197  15.4
      • 1.  Section 197 Intangibles Defined  15.5
      • 2.  Amortization Period  15.6
      • 3.  Effective Dates  15.7
      • 4.  Exceptions to Application of §197 for Related Party and Churning Transactions  15.8
      • 5.  Subsequent Transfers of §197 Property  15.9
    • B.  Licensee’s Tax Treatment of Licensed Trade Secrets
      • 1.  Treatment of Consideration Paid for License  15.10
      • 2.  Timing of Deduction  15.11
      • 3.  Method of Depreciation Under IRC §167  15.12
  • III.  OWNER’S TAX TREATMENT OF SELF-DEVELOPED TRADE SECRETS  15.13
    • A.  Deduction, Capitalization of, or Credit for Development Costs  15.14
    • B.  Deduction Under IRC §174
      • 1.  General Rules  15.15
      • 2.  Disposition, Retirement, or Abandonment  15.16
      • 3.  Interplay Between §174(a) and §174(b) Elections [Deleted]  15.17
      • 4.  Amortization Period Under §174 [Deleted]  15.18
      • 5.  Trade or Business Requirement  15.19
      • 6.  Research and Experimental Expenses  15.20
        • a.  Management and Operating Expenses  15.21
        • b.  Land and Depreciable Assets  15.22
        • c.  Literary and Similar Projects  15.23
        • d.  Contracted Services  15.24
      • 7.  Former Reasonableness Requirement  15.25
      • 8.  Research and Experimental Expenditures and Alternative Minimum Tax  15.26
    • C.  Amortization of Development Costs Under IRC §167
      • 1.  Must Costs Be Capitalized?  15.27
      • 2.  Determining Ascertainable Useful Life  15.28
      • 3.  Goodwill and Related Mass Assets Not Depreciable  15.29
      • 4.  Method of Depreciation  15.30
  • IV.  EXPLOITATION OF TRADE SECRETS
    • A.  Manner of Trade Secret Exploitation  15.31
    • B.  Sale or License: Capital Gains Treatment on Recognized Gain  15.32
      • 1.  Trade Secrets Constitute Property  15.33
      • 2.  Capital Asset or IRC §1231 Asset [Deleted]  15.34
      • 3.  “Sale or Exchange” Requirement: The “All Substantial Rights” Test  15.35
        • a.  Transfers in Form of Sale  15.36
        • b.  Exclusive Licenses  15.37
        • c.  Limited Exclusive Licenses  15.38
      • 4.  Holding Period  15.39
      • 5.  Limitation on Capital Gain Treatment; Installment Sale Reporting; Imputed Interest  15.40
      • 6.  Limitation on Losses on Transfer of Acquired Trade Secrets Subject to IRC §197  15.41
    • C.  Taxation of License Payments Received by Licensor  15.42
    • D.  Tax Consequences of Internal Use  15.43
  • V.  OTHER DISPOSITIONS OF TRADE SECRETS
    • A.  Abandonment and Worthlessness  15.44
      • 1.  Abandonment  15.45
      • 2.  Worthlessness  15.46
    • B.  Transfers to Legal Entities  15.47
    • C.  Transfer on Death  15.48
    • D.  Transfer by Gift  15.49
    • E.  Transfer on Liquidation or Sale of Business  15.50
  • VI.  TRADE SECRETS VALUATION  15.51
  • VII.  TAX CONSEQUENCES OF TRADE SECRET LITIGATION  15.52

16

Protecting Computer Technology

Louis J. Knobbe

Clara Ruyan Martin

David J. Murphy

Ronald J. Schoenbaum

  • I.  INTRODUCTION  16.1
  • II.  TRADE SECRET PROTECTION  16.2
    • A.  Form: Confidential Notice and Copyright Notice for Software  16.3
    • B.  Sample Software License Agreement
      • 1.  Form: Introduction  16.4
      • 2.  Form: Definitions  16.5
      • 3.  Form: Term of License  16.6
      • 4.  Form: Nonexclusive License  16.7
      • 5.  Form: Confidential Information  16.8
      • 6.  Form: Copies  16.9
      • 7.  Form: Security  16.10
      • 8.  Form: License Fee  16.11
      • 9.  Form: Termination  16.12
      • 10.  Form: Title to Licensed Program  16.13
      • 11.  Form: Disclaimer of Warranty  16.14
      • 12.  Form: Assignment and Sublicensing  16.15
      • 13.  Form: Remedies  16.16
      • 14.  Form: Independent Contractor Status  16.17
      • 15.  Form: Governing Law  16.18
      • 16.  Form: Binding Effect  16.19
      • 17.  Form: Export Controls  16.19A
      • 18.  Form: Government Ownership  16.19B
      • 19.  Form: Notices  16.20
      • 20.  Form: Waiver of Breach  16.21
      • 21.  Form: Attorney Fees and Costs  16.22
      • 22.  Form: Severability  16.23
      • 23.  Form: Headings  16.24
      • 24.  Form: Entire Agreement  16.25
      • 25.  Form: Concluding Clause and Signatures  16.26
    • C.  Preemption of Trade Secret Rights  16.27
    • D.  Proof Requirements  16.28
  • III.  TRADE SECRET PROTECTION FOR MASS-MARKETED SOFTWARE  16.29
    • A.  By Use of Shrink-Wrap Licenses  16.30
    • B.  Using Shrink-Wrap License  16.31
      • 1.  Form: Introduction  16.32
      • 2.  Form: Confidentiality  16.33
      • 3.  Form: License Grant  16.34
      • 4.  Form: Term  16.35
      • 5.  Form: Limited Warranty  16.36
      • 6.  Form: Limitation of Remedies  16.37
      • 7.  Form: Sublicensing, Assignment, and Transfer  16.38
      • 8.  Form: Governing Law  16.39
      • 9.  Form: Acceptance of License  16.40
    • C.  Click-Wrap and Browse-Wrap Licenses  16.41
    • D.  Form: Click-Wrap License Agreement  16.41A
    • E.  Scroll-Wrap and Sign-In-Wrap Agreements  16.41B
    • F.  Additional Strategies for Maintaining Trade Secrets in Mass-Marketed Software  16.42
    • G.  Internet Publication of Trade Secrets  16.42A
  • IV.  PROTECTION UNDER FEDERAL COPYRIGHT LAW
    • A.  Computer Programs  16.43
    • B.  Preserving Copyright Protection  16.44
    • C.  Rights Against Infringers Under Copyright Law  16.45
    • D.  Copyright Registration for Trade Secret Software  16.46
    • E.  Contributory Infringement  16.46A
  • V.  LIMITATIONS ON SCOPE OF COPYRIGHT PROTECTION
    • A.  Statutory Limitations on Copyright Protection  16.47
    • B.  Copying to Reverse Engineer  16.48
    • C.  Limited Protection for APIs  16.48A
    • D.  Limited Protection for GUIs  16.49
    • E.  Limitations on Protection of Object Code  16.50
  • VI.  OWNERSHIP OF COPYRIGHTED SOFTWARE  16.51
  • VII.  CONSULTANT’S COPYRIGHT ASSIGNMENT
    • A.  Form: Introduction  16.52
    • B.  Form: Agreement to Create Software  16.53
    • C.  Form: Consultant’s Warranties  16.54
    • D.  Form: Confidentiality  16.55
    • E.  Form: Consideration  16.56
    • F.  Form: Ownership of Copyright  16.57
    • G.  Form: Assignment of Copyright  16.58
    • H.  Form: Signatures  16.59
  • VIII.  PROTECTION UNDER DIGITAL MILLENNIUM COPYRIGHT ACT  16.59A
  • IX.  PROTECTION UNDER THE COMPUTER FRAUD AND ABUSE ACT  16.59B
  • X.  PATENT PROTECTION FOR COMPUTER TECHNOLOGY
    • A.  Advantages of Patent Protection  16.60
    • B.  Disadvantages of Patent Protection  16.60A
    • C.  Sufficiency of Disclosure  16.61
    • D.  Written Disclosure Requirement: 35 USC §112.  16.61A
    • E.  Strategies for Mitigating Effect of 35 USC §112 Disclosure Requirements  16.62
  • XI.  PATENTABLE SUBJECT MATTER
    • A.  Interpretation of 35 USC §101  16.63
    • B.  Patent Office Position  16.64
    • C.  Invention Must Have Some Practical Application  16.65
    • D.  Doctrine of Obviousness  16.65A
    • E.  Claims Directed to Computer Processes  16.66

17

Protecting Biotechnology

Lisa E. Alexander

Lynne M. Brennan

David J. Brezner

Diane J. Mason

Peter C. Pang

  • I.  INTRODUCTION
    • A.  The Nature of Biotechnology  17.1
    • B.  Practitioner’s Role  17.2
  • II.  PROTECTING PROPRIETARY RIGHTS IN BIOLOGICAL MATERIALS  17.3
    • A.  Difficulty of Detecting Theft  17.4
    • B.  Economic Espionage Act of 1996  17.4A
    • C.  Academic Practices and Problems With Proprietary Rights  17.5
      • 1.  Institut Pasteur v U.S.  17.6
      • 2.  Genentech, Inc. v Eli Lilly & Co. [Deleted]  17.7
    • D.  Ascertaining Proprietary Rights in Human-Derived Biomaterial  17.8
    • E.  Government Regulations on Biotechnology Research  17.9
    • F.  Employee Knowledge Versus Proprietary Information  17.10
    • G.  Potential Conflicts of Interest Within Single Law Firm  17.10A
  • III.  PATENT AND TRADE SECRET PROTECTION
    • A.  U.S. Patent Protection for Biotechnology Products  17.11
    • B.  Microorganism Deposits Associated With Patent Filings  17.12
      • 1.  Disadvantages of Patents Flowing From Foreign Laws on Deposits  17.13
      • 2.  Rules Under Budapest Treaty  17.14
      • 3.  European Patent Practice  17.15
    • C.  Choosing Patent or Trade Secret Protection  17.16
      • 1.  Advantages and Disadvantages of Patent Protection; Paris Convention  17.17
      • 2.  Advantages and Disadvantages of Trade Secret Protection  17.18
  • IV.  DISSEMINATION AND RECEIPT OF BIOLOGICAL MATERIALS  17.19
    • A.  Maintaining a Culture Collection  17.20
    • B.  Requests From Outsiders for Company Materials  17.21
    • C.  Accepting Biological Materials and Compounds From Outsiders  17.22
  • V.  PROTECTING AGAINST THEFT OF BIOLOGICAL MATERIALS  17.23
    • A.  Tagging Microorganisms to Protect Biotechnology Trade Secrets  17.24
    • B.  Using Other Precautions Reasonable Under Circumstances  17.25
    • C.  Using Safety Precautions to Enhance Security  17.26
    • D.  Dealing With New and Departing Employees  17.27
  • VI.  FORM DOCUMENTS
    • A.  Form: Employee’s Request for Approval to Release Biological Materials or Unpublished Information  17.28
    • B.  Form: Letter for Release of Biological Materials as Unrestricted Gift  17.29
    • C.  Form: Letter for Release of Biological Materials With Restrictions  17.30
    • D.  Form: Agreement on Use of Biological Materials  17.31
    • E.  Form: Employee’s Request for Approval to Solicit Biological Materials or Unpublished Information  17.32
    • F.  Form: Letter Requesting Biological Materials  17.33
    • G.  Form: Receipt of Biological Material From Outsiders  17.34

TRADE SECRETS PRACTICE IN CALIFORNIA

(2d Edition)

November 2022

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH03

Chapter 3

Idea Submissions

03-007

§3.7

Transmittal Letter Describing Policy

03-009

§3.9

Policy Statement

03-010

§3.10

Transmittal Letter to Submitter Enclosing Company Policy

03-012

§3.12

Confidential Disclosure Waiver Agreement

03-013

§3.13

Transmittal Letter to Submitter Enclosing Waiver Agreement

03-015

§3.15

Notice of Policy Statement

03-020

§3.20

Agreement for Submission of Ideas

03-022

§3.22

Agreement for Submission of Ideas

CH04A

Chapter 4A

Trade Secret Audits and Protection Plans

04A-022

§4A.22

Sample Trade Secret Audit Checklist

CH05

Chapter 5

Protecting Information Disclosed to Government Agencies

05-028

§5.28

CHECKLIST: PRACTICAL POINTERS FOR PROTECTING TRADE SECRETS WHEN DEALING WITH GOVERNMENT

CH06

Chapter 6

Form Protective Agreements and Provisions

06-002

§6.2

Checklist: Client Interview

06-004

§6.4

Short-Form Legends

06-005

§6.5

Long-Form Restricted Rights Legend (General Use)

06-006

§6.6

Long-Form Restricted Rights Legend for Electronic Mail and Facsimile Transmissions

06-008

§6.8

Copyright Notices

06-010

§6.10

Legends for Technical Data or Computer Software and Software Documentation Provided to Federal Government

06-011

§6.11

Legend Claiming Exemption From Freedom of Information Act

06-013

§6.13

Short-Form Confidentiality Agreement for Interviews With Prospective Employees

06-014

§6.14

Long-Form Confidentiality Agreement for Interviews With Prospective Employees

06-015

§6.15

New Employee’s Acknowledgment of Confidentiality Agreement

06-017

§§6.17-6.39

Title and Introduction

 

§6.18

Definitions

 

§6.19

Effective Date

 

§6.20

Protection of Company’s Confidential Information

 

§6.21

Noncompetition, Nonsolicitation

 

§6.22

Prior Knowledge and Relationships

 

§6.23

Assignment of Employee Inventions and Copyrights

 

§6.24

Termination of Employment

 

§6.25

Specific Performance

 

§6.26

Notice; Record Addresses

 

§6.27

Amendment

 

§6.28

Exhibits

 

§6.29

No Waiver

 

§6.30

Attorney Fees

 

§6.31

Governing Law

 

§6.32

Severability

 

§6.33

Binding Effect

 

§6.34

Integration

 

§6.35

Warning of Effect of Agreement

 

§6.36

Signature Block

 

§6.37

Exhibit A—Prior Knowledge and Inventions

 

§6.38

Exhibit B—Company’s Written Notification of Lab C §2870

 

§6.39

Exhibit C—Termination Certificate

06-041

§6.41

Checklist: Exit Interview

06-042

§6.42

Letter to Former Employee

06-043

§6.43

Letter to New Employer

06-045

§6.45

Visitor’s Agreement

06-046

§6.46

Log Book Agreement Provisions

06-048

§6.48

Bilateral Confidential Disclosure Agreement

06-049

§6.49

Unilateral Confidential Disclosure Agreement

06-051

§6.51

Confidential Disclosure Provisions for Inclusion in Purchase Agreements and Purchase Orders

06-052

§6.52

Confidential Disclosure Provisions for Cover Sheet on Proprietary Information

06-054

§6.54

On-Site Employee Confidentiality Agreement

06-056

§6.56

Buy-Sell Agreement Clause

06-058

§6.58

No-Hire Provision

CH07

Chapter 7

Exploiting Trade Secrets by Licensing

07-036

§7.36

Simple Confidentiality and Nondisclosure Letter Agreement

CH08

Chapter 8

Form Licensing Agreements and Provisions

08-001

§8.1

QUESTIONNAIRE: PRELIMINARY INFORMATION

08-002

§§8.2-8.45

Title and Introduction

 

§8.3

Recitals

 

§8.4

Definitions

 

§8.6

Basic Grant Clause

 

§8.7

Restrictive Grant Clause

 

§8.8

Grant Clause for Trade Secret and Patent Hybrid Licenses

 

§8.9

Grant Clause for Licensing Trade Secrets Disclosed in Patent Applications

 

§8.10

Grant Clause for Trade Secret and Trademark Hybrid Licenses

 

§8.11

Grant Clause With No Right of Sublicense

 

§8.12

Grant Clause With Right of Sublicense

 

§8.13

Grant Clause Including Licensee’s Modifications to Licensed Subject Matter

 

§8.14

Down Payment

 

§8.15

Basic Royalty Provision

 

§8.16

Royalty Provision Providing Economic Incentive to Practice Trade Secrets in Designated Territory

 

§8.17

Allocation of Royalties if Hybrid Trade Secret and Patent License

 

§8.18

Payment Terms; Paid-Up License

 

§8.19

Use of Trademarks

 

§8.20

Warranties

 

§8.21

Limitation of Warranties

 

§8.22

Future Improvements

 

§8.23

Grant-Back

 

§8.24

Disclosure of Technical Information Pursuant to Agreement

 

§8.25

Secrecy

 

§8.26

Effect of Disclosure

 

§8.27

Reports

 

§8.28

Records

 

§8.29

Third Party Claims

 

§8.30

Duration of Agreement

 

§8.31

Events of Default

 

§8.32

Remedies

 

§8.33

Arbitration

 

§8.34

Notices; Record Address

 

§8.35

Amendments

 

§8.36

Construction

 

§8.37

Integration

 

§8.38

Exhibits

 

§8.39

No Waiver

 

§8.40

Headings

 

§8.41

Governing Law and Choice of Forum

 

§8.42

Attorney Fees

 

§8.43

Severability

 

§8.43A

Assignment

 

§8.44

Binding Effect

 

§8.45

Signature Block

CH09

Chapter 9

Security Interests in Trade Secrets

09-008

§9.8

Security Agreement Granting Clause Describing Trade Secrets Collateral

09-015

§9.15

Additional Language for Description of Trade Secrets Collateral

09-021

§9.21

CHECKLIST: STEPS FOR SETTING UP SIMPLE SECURED TRANSACTIONS

CH10

Chapter 10

Avoiding Misappropriation Claims

10-020

§10.20

Client Interview Sheet: Information on Change of Employment

10-035

§10.35

Preutilization Checklist

CH16

Chapter 16

Protecting Computer Technology

16-003

§16.3

Confidential Notice and Copyright Notice for Software

16-004

§§16.4-16.26

Introduction

 

§16.5

Definitions

 

§16.6

Term of License

 

§16.7

Nonexclusive License

 

§16.8

Confidential Information

 

§16.9

Copies

 

§16.10

Security

 

§16.11

License Fee

 

§16.12

Termination

 

§16.13

Title to Licensed Program

 

§16.14

Disclaimer of Warranty

 

§16.15

Assignment and Sublicensing

 

§16.16

Remedies

 

§16.17

Independent Contractor Status

 

§16.18

Governing Law

 

§16.19

Binding Effect

 

§16.19A

Export Controls

 

§16.19B

Government Ownership

 

§16.20

Notices

 

§16.21

Waiver of Breach

 

§16.22

Attorney Fees and Costs

 

§16.23

Severability

 

§16.24

Headings

 

§16.25

Entire Agreement

 

§16.26

Concluding Clause and Signatures

16-032

§§16.32-16.40

Introduction

 

§16.33

Confidentiality

 

§16.34

License Grant

 

§16.35

Term

 

§16.36

Limited Warranty

 

§16.37

Limitation of Remedies

 

§16.38

Sublicensing, Assignment, and Transfer

 

§16.39

Governing Law

 

§16.40

Acceptance of License

16-041A

§16.41A

Click-Wrap License Agreement

16-052

§§16.52-16.59

Introduction

 

§16.53

Agreement to Create Software

 

§16.54

Consultant’s Warranties

 

§16.55

Confidentiality

 

§16.56

Consideration

 

§16.57

Ownership of Copyright

 

§16.58

Assignment of Copyright

 

§16.59

Signatures

CH17

Chapter 17

Protecting Biotechnology

17-028

§17.28

Employee’s Request for Approval to Release Biological Materials or Unpublished Information

17-029

§17.29

Letter for Release of Biological Materials as Unrestricted Gift

17-030

§17.30

Letter for Release of Biological Materials With Restrictions

17-031

§17.31

Agreement on Use of Biological Materials

17-032

§§17.32-17.34

Employee’s Request for Approval to Solicit Biological Materials or Unpublished Information

 

§17.33

Letter Requesting Biological Materials

 

§17.34

Receipt of Biological Material From Outsiders

 

Selected Developments

November 2022 Update

Neither ownership nor standing exists for mere shareholders of a corporation. In Latham v NVest SV, Inc. (9th Cir, Nov. 24, 2021, No. 20-16164) 2021 US App Lexis 34980, *1, a memorandum opinion, the court held that a “basic tenet” of corporate law is that “individual shareholders do not own or have legal title to the corporation’s assets.” The plaintiffs’ status as shareholders did not confer any ownership interest; they therefore lacked standing. See §2.1B.

Government Code §7924.510(f) defines trade secrets as follows:

As used in this section, “trade secret” may include, but is not limited to, any formula, plan, pattern, process, tool, mechanism, compound, procedure, production data, or compilation of information that satisfies all of the following requirements:

(1) It is not patented.

(2) It is known only to certain individuals within a commercial concern who are using it to fabricate, produce, or compound an article of trade or a service having commercial value.

(3) It gives its user an opportunity to obtain a business advantage over competitors who do not know or use it.

See §2.16.

Under the Defend Trade Secrets Act of 2016 (18 USC §1839(3)(A)), confidentiality agreements between the owner and another can be essential to the existence of a trade secret. In Woodall v Walt Disney Co. (CD Cal Aug. 5, 2021, No. CV 20-3772-CBM-(Ex)) 2021 US Dist Lexis 190332, *13, the court stated that “[c]ourts have found trade secret claims fail as a matter of law where the trade secret owner fails to obtain a non-disclosure agreement from persons receiving the purported trade secret information.” See also Corbel Communications. Indus. LLC v Lat Long Infrastructure LLC (CD Cal, Oct. 28, 2021) US Dist Lexis 219132. See §2.32G.

A trade secret owner may be entitled to ownership of the patent obtained by a wrongdoer on a misappropriated trade secret, unless the patent contains significant inventive elements that were not misappropriated. See BioCorRX, Inc. v VDM Biochemicals, Inc. (CD Cal July 21, 2021, No. SACV 21-938 JVS (KESx)) 2021 US Dist Lexis 136097 for a discussion of ownership of a trade secret versus ownership of a patent in the context of an attempt to remove a case to federal court. See §2.35.

In MBS Eng’g INC v Black Hemp Box, LLC (ND Cal, June 16, 2021, No. 20-cv-02825-JD) 2021 US Dist Lexis 113054, the court rejected the defendant’s argument that the mere possibility of reverse engineering by a third party purchaser necessarily invalidates a trade secret. See §4A.1.

In April 2022, the Office of the U.S. Intellectual Property Enforcement Coordinator (IPEC) issued its Annual Intellectual Property Report to Congress. The report provides an overview of the intellectual property enforcement strategy and related efforts undertaken by various departments and agencies. The included trade secret theft and economic espionage cases from 2021 highlight the importance of monitoring employee access to secure company databases and limiting access to important data on a need-to-know basis. See https://www.whitehouse.gov/wp-content/uploads/2022/04/FY21-IPEC-Annual-Report-Final.pdf. See §4A.1A.

In Bladeroom Group, Ltd. v Emerson Elec. Co. (9th Cir 2021) 11 F4th 1010, the court reversed a $60 million verdict for trade secret theft on grounds that defendant’s confidentiality obligations had expired before its alleged misappropriation. See §4A.9.

The California Public Records Act (CPRA) (former Govt C §§6250–6276.48) was reorganized and restated in 2021 and newly codified at Govt C §§7920.000–7931.000, effective January 1, 2023. However, nothing in connection with the restatement was intended to substantively change the law relating to inspection of public records. The changes were intended to be entirely nonsubstantive in effect. See Govt C §7920.100. See §5.21.

Under the CPRA, public records are generally open to inspection by members of the public unless exempted by law. See Govt C §§7921.000, 7921.500, 7922.000, 7922.500, 7922.525. The purpose for which the record has been requested is irrelevant. The CPRA does not permit limiting access to a public record based on the purpose for which the record is being requested if the record is otherwise subject to disclosure. Govt C §7921.300. “Members of the public” include individual persons, corporations, partnerships, limited liability companies, firms, and associations, other than a member, agent, officer, or employee of a federal, state, or local agency who is acting within the scope of that membership, agency, office, or employment. Govt C §§7920.515–7920.520. An agency may comply with the inspection requirement by making records publicly available on the internet. Govt C §7922.545. Social security numbers are required to be redacted from any record before it is disclosed. Govt C §7922.200. See §5.21.

In general, records are exempted from disclosure under the CPRA if they are exempted from disclosure under federal or state law (Govt C §7927.705) or if they are personnel, medical, or similar files the disclosure of which would constitute an unwarranted invasion of personal privacy (Govt C §7927.700). Although principally a law that allows the disclosure of information in the government’s possession, the CPRA also protects from disclosure many specified classes of information. Dozens of categories of documents are exempt from disclosure under the CPRA (see Govt C §§7928.000–7929.605, 7930.100–7930.215). See §5.21.

In Becerra v Superior Court (2020) 44 CA5th 897, 914, the court held that the CPRA balances dual concerns for privacy and disclosure. See §5.21.

In Voice of San Diego v Superior Court (2021) 66 CA5th 669, the court held that, under the catchall exemption to the CPRA news media requests for unredacted records from San Diego County showing the exact location of disease outbreaks during the COVID-19 pandemic were properly denied. The county had submitted uncontradicted evidence that disclosing the exact name and address of an outbreak location would have a chilling effect on the public’s willingness to cooperate with contact tracing efforts; therefore, disclosure was not in the public interest. See §§5.21, 5.23.

The principal exemption for trade secrets provides that records are exempt from disclosure under the CPRA if their disclosure “is exempted or prohibited pursuant to federal or state law, including, but not limited to, provisions of the Evidence Code relating to privilege.” Govt C §7927.705 (former Govt C §6254(k)). This exemption has been held to apply only to “records which would be held not to be covered by one or more specific exemptions.” City of Hemet v Superior Court (1995) 37 CA4th 1411, 1422, citing Roberts v City of Palmdale (1993) 5 C4th 363, 373. See also Govt C §§7927.605 and 7930.205, which lists eight categories of trade secrets that are expressly exempt. The term “trade secret” is used 40 times in the CPRA; thus, a comprehensive search of the CPRA may be useful to determine whether a specific trade secrets exemption exists in a particular case. Note that after the 2021 restatement, the applicable statute no longer includes a subsection “k.” See §5.22.

Designating specific items of nonpublic information as trade secrets may be proof of the existence of the trade secrets and the receiving party’s agreement to their trade secret status when seeking remedies for the receiving party’s subsequent misappropriation. See Olaplex, Inc. v L’Oréal U.S., Inc. (Fed Cir 2021) 855 Fed Appx 701. See §7.8.

When a trade secret is apparent to users of a product, such as the functionality of computer software, including specific protections in the license agreement will help demonstrate that the licensor has taken reasonable measures to keep this information secret. Those protections may include requiring the licensee to have confidentiality and nondisclosure agreements in place with third parties who are given access to the software. See Turret Labs U.S. v CargoSprint, LLC (2d Cir, Mar. 9, 2022, No. 21-952) 2022 US App Lexis 6070. See §7.12.

Government Code §12964.5 was amended in 2021 in SB 331 (Stats 2021, ch 638) to further restrict the permissible contents of certain agreements with employees. Government Code §12964.5(a)(2)(B) defines “information about unlawful acts in the workplace” broadly to include any “information pertaining to harassment or discrimination or any other conduct that the employee has reasonable cause to believe is unlawful.” Government Code §12964.5(a)(2) (see also Govt C §12964.5(b)(1)(B)(2)) states that “[a]ny agreement or document in violation of this subdivision is contrary to public policy and shall be unenforceable.” See §10.13.

In addition, Govt C §12964.5(a)(1)(B)(ii) (see also Govt C §12964.5(b)(1)(B)) requires specific language in certain employee agreements, as follows:

A nondisparagement or other contractual provision that restricts an employee’s ability to disclose information related to conditions in the workplace shall include, in substantial form, the following language: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”

Importantly, Govt C §12964.5(f) provides that “[t]his section does not prohibit an employer from protecting the employer’s trade secrets, proprietary information, or confidential information that does not involve unlawful acts in the workplace.” See §10.13.

In Blue Mountain Enters, LLC v Owen (2022) 74 CA5th 537, the court held that the sale of goodwill exception (Bus & Prof C §16601) to the general prohibition against noncompetition covenants applied; the nonsolicitation covenant was enforceable when multiple contracts were properly construed together to dispose of the appellant’s entire ownership interest. See §§10.56, 11.91.

In Huy Fong Foods, Inc. v Underwood Ranches, LP (2021) 66 CA5th 1112, the court entered a judgment finding fraudulent concealment liability under CC §1710 and affirmative misrepresentation under CC §1709 when a hot sauce manufacturer induced a pepper farmer to purchase more land in reliance on manufacturer’s assurance that it would buy entire crop of peppers produced but the manufacturer later refused to buy the crop. See §11.101.

In Lee v Luxottica Retail N. Am., Inc. (2021) 65 CA5th 793, the court held that Bus & P C §17203 does not authorize compensation for lost market share, because lost market share does not constitute restitution; unearned income is not restitution. See §11.106.

In June 2021, the Supreme Court adopted the narrow interpretation of the “exceeds authorized access” clause of the Computer Fraud and Abuse Act (CFAA) (18 USC §1030) and resolved the circuit split in authority. See Van Buren v U.S. (2021) 141 S Ct 1648 (police officer who was allowed to use system to retrieve license-plate information did not exceed authorized access to database, as CFAA defined that phrase, even though he had obtained information for improper purpose). See §§11.118, 12.1, 13.5A.

The Ninth Circuit in hiQ Labs, Inc. v LinkedIn Corp. (9th Cir 2022) 31 F4th 1180, relying on Van Buren, reaffirmed that data scraping from public websites does not violate the CFAA. The Ninth Circuit held that the CFAA’s prohibition on accessing a computer “without authorization” is violated when a person circumvents a computer’s generally applicable rules regarding access permissions, such as username and password requirements, to gain access to a computer. When a computer network generally permits public access to its data, a user’s accessing that publicly available data will not constitute access without authorization under the CFAA. The Ninth Circuit noted, however, that entities that view themselves as victims of data scraping are not without resort as other causes of action, such as trespass to chattels, copyright infringement, misappropriation, unjust enrichment, conversion, breach of contract, or breach of privacy may present separate, viable claims. See §§11.118, 12.1, 13.5A.

In Five Star Gourmet Foods, Inc. v Fresh Express, Inc. (ND Cal, Jan. 31, 2020, Case No. 19-cv-05611-PJH) 2020 US Dist LEXIS 16368, *25, the district court found the plaintiff stated a claim under the Defend Trade Secrets Act of 2016 (DTSA) (Pub L 114–153, 130 Stat 376) when the defendant was accused of misappropriating plaintiff’s trade secrets and using them to replicate the plaintiff’s salad production facility. The district court found that touring the plaintiff’s production facilities and gathering information under a nondisclosure agreement sufficiently alleged access to the trade secrets. Those allegations along with allegations that defendant copied the plaintiff’s business operations, down to using the same tool set to create its packaging, was sufficient to allege misappropriation under the DTSA. See also Applied Biological Labs., Inc. v Diomics Corp. (SD Cal, Sept. 6, 2021) 2021 US Dist Lexis 169251, *15 (“Defendants’ contention that Plaintiff must affirmatively demonstrate how Defendant used its trade secrets is not feasible.…To require Plaintiff to convey such a level of specificity in its pleadings would be unusual, if not unattainable.”). See §11.119.

In SG Blocks, Inc. v Hola Cmty. Partners (CD Cal 2021) 521 F Supp 3d 881, the court held that the economic loss rule barred a contractor’s claims for conversion, misappropriation of trade secrets, and negligence because each claim sought relief for the same economic harm caused by the hirer’s alleged failure to pay. See §12.20.

Effective January 1, 2022, the costs for developing software must be treated as research and experimentation expenditures and amortized over 5 years. IRC §174(c)(3), as modified by the Tax Cuts and Jobs Act §13206(a) (Pub L 115–97, 131 Stat 2054). This treatment modifies prior guidance, under which these costs could be currently deducted, amortized over a period of 60 months, or amortized over a period of 36 months. Rev Proc 2000–50. See §15.5.

Under both prior and current law, the deduction in IRC §174 applies to expenditures for research and experimentation that are paid or incurred during the year in connection with a trade or business. Simply for ease of reference, the Tax Cuts and Jobs Act (Pub L 115–97, 131 Stat 2054) labels these expenditures with a new term, “specified research and experimentation expenditures.” Effective January 1, 2022, IRC §174(a)(1) sets forth the general rule that no deduction is allowable for specified research and experimentation expenditures of any kind. Thus, if an expenditure falls within this definition, it cannot be deducted under IRC §162 as a business expense, under IRC §167 as depreciation, or otherwise under IRC §174. However, this general rule has a single exception: Under IRC §174(a)(2), these expenditures may be amortized in a straight-line fashion over 5 years (or 15 years if attributable to foreign research), from the midpoint of the year in which the amount is paid or incurred. See §15.15.

Effective January 1, 2022, if a taxpayer acquires or improves property with research expenditures, then disposes of the property, the taxpayer must continue amortizing the research expenditures over the original 5- (or 15-) year period. The statute provides that “no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment.” By implication, any basis attributable to these expenditures will not be available to reduce the amount of gain arising from the disposition. See Joint Committee on Taxation, General Explanation of Public Law 115–97 (JCS–1-18 (Dec. 20, 2018)), available at https://www.jct.gov/publications/2018/jcs-1-18/. See §15.16.

Two other types of internet contracts by which providers seek to impose contract terms on consumers have been identified by the courts: scroll-wrap agreements and sign-in-wrap agreements. A scroll-wrap agreement is similar to a click-wrap agreement, but the user is presented with the entire text of the agreement, typically in a separate window, and must physically scroll down to the end of the agreement and click on a button labeled “I accept” or “I agree” in order to proceed with the transaction. A sign-in-wrap agreement is one by which a consumer signs up for an internet product or service, and the webpage states that signing up for that product or service constitutes acceptance of a separate agreement with the provider. Although the webpage usually provides a nearby link to the separate agreement, consumers are typically not required to indicate that they have read or agree to the terms of the separate agreement before signing up for the product or service. Sellers v JustAnswer LLC (2021) 73 CA5th 444, 463–464. See §16.41B.

About the Authors

LISA E. ALEXANDER is an associate with the firm of Morrison & Foerster in San Francisco. Ms. Alexander received her B.A. degree in 1986 at Northwestern University, her C.Phil. degree in 1988 from the University of California, Berkeley, and her J.D. degree in 1992 from the University of California, Hastings College of the Law, where she was a member of the Order of the Coif. Ms. Alexander is a coauthor of chapter 17.

JOHN ALLCOCK is a partner with the firm of Gray Cary Ware & Freidenrich LLP in San Diego, specializing in intellectual property litigation and media law. Mr. Allcock received his B.A. degree (summa cum laude) in 1978 from Boston College and his J.D. degree (cum laude) in 1981 from Harvard Law School. Mr. Allcock is a coauthor of chapter 1.

LOWELL ANDERSON is a principal with the firm of Stetina Brunda Garred & Brucker, PC, in Aliso Viejo. Mr. Anderson received his B.S.M.E. degree in 1972 from the University of Nebraska, his M.S.M.E. degree in 1977 from the University of Michigan, and his J.D. degree in 1982 from the University of California, Hastings College of the Law, where he was managing editor of the Hastings Constitutional Law Quarterly. He is the past chair of the State Bar’s Intellectual Property Law Section and writes numerous articles for that section’s quarterly publication. Mr. Anderson is a coauthor of chapters 11 and 12.

LYNNE M. BRENNAN is a member of the firm of Campbell & Flores LLP in San Diego. Ms. Brennan received her B.A. degree in 1986 from the University of California, Berkeley, and her J.D. degree in 1990 from the University of California, Los Angeles, School of Law. Ms. Brennan is a coauthor of chapter 17.

DAVID J. BREZNER is a member of the firm of Dorsey & Whitney LLP in San Francisco, specializing in intellectual property counseling and litigation, with particular emphasis in patents and trade secrets in the biotechnology and chemical fields. Mr. Brezner received his B.S. degree in 1962 from the University of Rochester, his LL.B. degree in 1965 from the University of California, Hastings College of the Law, and attended the masters program in patent law at George Washington University from 1965 to 1967. Mr. Brezner is a coauthor of chapter 17.

BRUCE B. BRUNDA is a principal with the firm of Stetina Brunda Garred & Brucker, PC, in Aliso Viejo. He specializes in patent, trademark, copyright, and trade secret law. Mr. Brunda received his B.S.M.E. degree in 1972 from the New Jersey Institute of Technology and his J.D. degree in 1977 from Franklin Pierce Law Center. Mr. Brunda is a coauthor of chapters 2, 3, and 6.

DANIEL J. CALLAHAN is the managing principal of the firm of Callahan & Blaine, Santa Ana, specializing in complex business litigation, insurance coverage, insurance bad faith, unfair competition, banking, real estate, and commercial and construction law. Mr. Callahan received his B.A. degree (magna cum laude) in 1976 from Western Illinois University and his J.D. degree (with honors) in 1979 from the University of California, Davis, School of Law, where he was editor of the University of California, Davis, Law Review. Mr. Callahan is a coauthor of chapter 14.

GEOFFREY M. CREIGHTON is corporate counsel to SoftBank Expositions & Conference LP in Foster City. Mr. Creighton received his B.A. degree in 1977 from Stanford University and his J.D. degree in 1984 from the University of Michigan. Mr. Creighton is a coauthor of chapter 6.

JOHN D. CROLL is vice president and general counsel to Sun Microsystems Computer Company in Mountain View. Mr. Croll received his A.B. degree in 1978 from Stanford University and his J.D. degree in 1981 from the University of Michigan. He is a contributing editor in the area of science and technology for the CEB California Business Law Reporter and author of Implementing a Trade Secrets Protection Program (Cal CEB). Mr. Croll is a coauthor of chapter 6.

KEVIN D. DEBRÉ is a partner with Stubbs Alderton & Markiles, LLP, a corporate, securities, mergers and acquisitions, and intellectual property law firm in the Los Angeles area, where he leads the firm’s intellectual property practice. He is a registered patent lawyer and specializes in intellectual property licensing and other transactions, and strategic planning of intellectual property protection. Mr. DeBré is the founder and chair of the Licensing Interest Group of the State Bar of California Intellectual Property Section. He received a B.S. degree from the University of California, Davis, and his J.D. degree from the University of California, Hastings College of the Law. Mr. DeBré served as a judicial law clerk for Hon. John G. Davies, United States District Court for the Central District of California. He is a coauthor of chapters 7 and 8.

LISA L. DITORA is a partner with the firm of Downey, Brand, Seymour & Rohwer in Sacramento, specializing in bankruptcy law and civil litigation. Ms. Ditora received her B.A. degree (with highest honors) in 1982 from Montana State University and her J.D. degree in 1985 from the University of California, Davis, School of Law. Ms. Ditora is a coauthor of the original version of chapter 9.

ELLEN A. FRIEDMAN is a member of the firm of Friedman & Springwater LLP in San Francisco. She specializes in commercial finance and creditors’ remedies. Ms. Friedman received her A.B. degree (magna cum laude) in 1982 from Princeton University and her J.D. degree in 1985 from Vanderbilt University. Ms. Friedman is the author of revised chapter 9.

ANDREW L. GRADMAN received his B.A. in 2006 from Stanford University, his J.D. in 2011 from Columbia Law School, and his LL.M. in Taxation in 2016 from New York University. He advises clients on income tax and estate planning. Before opening the Law Office of Andrew L. Gradman, he worked in government, first at the U.S. Attorney’s Office and later as a staff attorney at the Ninth Circuit Court of Appeals, as well as at a midsize Los Angeles firm. Mr. Gradman is a coauthor of chapter 15.

LOUIS J. KNOBBE is a partner with the firm of Knobbe, Martens, Olson & Bear in Irvine. Mr. Knobbe received his B.S.E.E. degree in 1953 from Iowa State College of A. & M. (now Iowa State University) and his J.D. degree in 1959 from Loyola Law School, Los Angeles. He cofounded Knobbe, Martens, Olson & Bear and is currently a mediator and arbitrator with JAMS. He is also a frequent author and speaker at seminars on intellectual property issues. Mr. Knobbe is a coauthor of chapter 16.

DAVID N. MAKOUS is a registered patent attorney and partner with the firm of Lewis, D’Amato, Brisbois & Bisgaard in Los Angeles, where he chairs the firm’s Intellectual Property Group. Mr. Makous received his B.S. degree in 1973 from Duke University and his J.D. degree in 1978 from the University of Pittsburgh. He is a frequent speaker at seminars on intellectual property issues. Mr. Makous is a coauthor of chapter 7.

CLARA RUYAN MARTIN received her B.A. from the University of California, Berkeley, in 1985 and her J.D. from the University of Michigan Law School in 1989. She specializes in the structuring, drafting, negotiation, and implementation of complex corporate and technology transactions. Her corporate work includes mergers and acquisitions, joint ventures, corporate finance, and venture representation. Her technology practice is broad, ranging from software licensing and development to strategic alliances and e-commerce. Ms. Martin is an adjunct professor at the University of Southern California Gould School of Law. She has served on the Cyberlaw Committee of the State Bar of California and is a frequent lecturer on topics such as software licensing agreements, internet-related agreements, complex joint ventures, venture finance, and mergers and acquisitions. Ms. Martin is a coauthor of chapter 16.

DIANE J. MASON is a shareholder with LeClair Ryan, LLP, in San Francisco, where she focuses her practice on assisting national and international clients develop, maintain, and protect their trademark portfolios, advises clients on the clearance of marks, and has globally prosecuted hundreds of trademarks involving well-known consumer brands and goods. She also enforces client trademarks, copyrights, and patents in federal and state courts, as well as before the U.S. Trademark Trial and Appeal Board and ICANN. Ms. Mason received her B.S. from the University of California, Davis, in 1984, and her J.D. from the University of Houston Law Center in 1993. She is a member of the San Francisco Intellectual Property Law Association, the International Trademark Association, and the State Bar of California Intellectual Property Section. She is a coauthor of chapter 17.

ROBERT B. MILLIGAN is a partner with the firm Seyfarth Shaw LLP in Los Angeles, where he practices commercial litigation and employment, with a focus on trade secret and noncompete counseling and litigation. He regularly assists businesses with these issues, including trade secret audits, and has significant experience litigating actions in state and federal courts throughout the United States. He is a frequent speaker and lecturer in the area of trade secrets and a regular contributor to his firm’s law blog, https://www.tradesecretslaw.com. Mr. Milligan received his B.A. degree (summa cum laude) from Gonzaga University and his J.D. degree from the University of California, Davis, School of Law. Mr. Milligan is a coauthor of chapters 4A, 11, and 12.

DAVID J. MURPHY is a partner with the Silicon Valley Law Group in San Jose. Mr. Murphy has worked extensively on intellectual property matters both in the transactional and litigation settings, with a special emphasis on trade secret and employee mobility matters. He received his B.A. degree in 1972 and his J.D. degree in 1974 from the University of Wisconsin. Mr. Murphy is a coauthor of chapters 1, 13, and 16.

PETER C. PANG is the founder and principal attorney of IPO Pang P.C., Guangzhou, PRC, and Oakland, specializing in corporate intellectual property law issues and international joint ventures. Mr. Pang’s expertise includes protecting famous brands from piracy and counterfeiting in the People’s Republic of China. Mr. Pang received his B.A. degree in Biochemistry in 1976 from the University of California, Berkeley, his J.D. degree in 1979 from the University of Santa Clara, and his LL.M. degree in International Economic Law in 1985 from the University of Houston. Mr. Pang is a frequent speaker on joint ventures, technology transfers and protection, and international dispute resolution. Mr. Pang is a coauthor of chapters 8 and 17.

JAMES H. POOLEY focuses on trade secret law and management, as an advocate, advisor, testifying expert and neutral. He is an author or co-author of several major intellectual property works, including his treatise Trade Secrets (Law Journal Press) and the Patent Case Management Judicial Guide (Federal Judicial Center). His most recent business book is Secrets: Managing Information Assets in the Age of Cyberespionage (Verus Press 2015). The Senate Judiciary Committee relied on him for expert testimony and advice regarding the 2016 Defend Trade Secrets Act. From 2009 to 2014 Mr. Pooley managed the international patent system for the World Intellectual Property Organization (WIPO) in Geneva. He is a past President of the American Intellectual Property Law Association (AIPLA) and Chairman of the National Inventors Hall of Fame. He currently serves as Chair of the Sedona Conference Working Group 12 on Trade Secrets. In 2016 Mr. Pooley was inducted into the IP Hall of Fame for his contributions to intellectual property law and practice. He is the author of chapter 4 and a co-author of chapters 1 and 13. Mr. Pooley received his B.A. degree (with honors) in 1970 from Lafayette College and his J.D. degree (with honors) in 1973 from Columbia University.

JAMES G. ROBERTS is a partner with the firm of Horton, Roberts, Raskin & Hand LLP in Oakland. Mr. Roberts received his A.B. degree (with honors) in 1972 from Brown University, his J.D. degree in 1979 from the University of California, Berkeley, School of Law, where he was associate editor of the California Law Review, and his LL.M. Taxation degree in 1992 from Golden Gate University. Mr. Roberts is a coauthor of chapters 1 and 15.

THOMAS A. RUNK is a partner with the intellectual property law firm of Brooks Kushman, P.C., Los Angeles. He is a registered patent attorney specializing in the preparation, prosecution, and litigation of patents and trademarks, post-grant patent proceedings at the U.S. Patent and Trademark Office, intellectual property portfolio development and management including acquisitions and divestitures, copyright, licensing, and trade secret matters. His primary focus is in the fields of electrical, mechanical, signal processing, control systems, information management and processing systems, computer hardware, and software technologies. Mr. Runk is a member of the American Bar Association, Los Angeles IP American Inn of Court, and the Los Angeles IP Law Association. He received his B.S. degree in Electrical Engineering from Lowell Technological Institute in 1970 and his J.D. degree from Western State University in 1981. Mr. Runk is a coauthor of chapter 2.

JACK RUSSO is the Managing Attorney of ComputerLaw Group, LLP, in Palo Alto, where he specializes in internet, computer law, and intellectual property litigation in both state and federal trial and appellate courts. He has a degree in computer science and received his J.D. degree from the University of California, Los Angeles, School of Law, where he participated in law review. He is a member of the California, New York, District of Columbia, Oregon, Washington, and Hawaii State Bars, and he is the Chairman of the Foundation for Creativity in Dispute Resolution. Mr. Russo is the author of numerous articles on computer law and has spoken widely on intellectual property, internet, artificial intelligence, and related issues to both the computer industry and the legal profession. He is a coauthor of chapter 3.

D. JOSHUA SALINAS is an attorney at Seyfarth Shaw LLP in Los Angeles, where he practices commercial litigation, with a focus on trade secrets, employee mobility, and computer fraud. He has spoken in the area of internet piracy and is also a regular contributor to his firm’s law blog, https://www.tradesecretslaw.com. Mr. Salinas received his B.A. degree from the University of San Diego and his J.D. degree from California Western School of Law. Mr. Salinas is a coauthor of chapters 4A, 11, and 12.

SHARON K. SANDEEN is the director of the Intellectual Property Concentration and a lecturer in law at the University of the Pacific, McGeorge School of Law in Sacramento. Ms. Sandeen received her B.A. degree (with honors) in 1980 from the University of California, Berkeley, and her J.D. degree (with great distinction) in 1985 from the University of the Pacific, McGeorge School of Law, where she was valedictorian and a member of the Order of the Coif. She is also the Director of Intellectual Property Programs at the University of the Pacific, McGeorge School of Law, an adjunct professor of law at the University of the Pacific, McGeorge School of Law, and a frequent speaker and author on trademark and trade secret law. Ms. Sandeen is a coauthor of chapters 5 and 10.

RONALD J. SCHOENBAUM is an associate with the firm of Knobbe, Martens, Olson & Bear in Newport Beach, specializing in patent prosecution and licensing with emphasis on computer hardware- and software-related technologies. Mr. Schoenbaum received his B.S.E.E. degree (summa cum laude) in 1987 from Tulane University, his M.S.E.E. degree in 1988 from Cornell University, and his J.D. degree (with honors) in 1993 from the University of Florida. Mr. Schoenbaum is a coauthor of chapter 16.

CAROL L. SMITH is senior counsel to Intel Corporation in Santa Clara, specializing in intellectual property. Ms. Smith received her B.A. degree in 1977 from San Francisco State University and her J.D. degree in 1981 from the University of California, Hastings College of the Law. She is a frequent speaker at seminars on trade secrets law. Ms. Smith is a coauthor of chapter 2.

SUZANNE SPRINGS is counsel to Sun Microsystems, Inc., Santa Clara. Ms. Springs received her B.A. degree in 1980 from San Francisco State University and her J.D. degree in 1984 from Santa Clara University. Ms. Springs is a coauthor of chapter 6.

DONALD J. SULLIVAN is an associate with the firm of Gray Cary Ware & Freidenrich LLP in San Diego, specializing in commercial, intellectual property, and products liability litigation. Mr. Sullivan received his B.A. degree (magna cum laude) in 1987 from the University of New Mexico and his J.D. degree in 1990 from the University of Michigan. Mr. Sullivan is a coauthor of chapter 1.

EDWARD SUSOLIK is a supervising trial attorney with the firm of Callahan & Blaine, Santa Ana, where he specializes in multiple areas of complex business litigation, insurance bad faith and coverage, and catastrophic personal injury, from both the plaintiff and defense perspectives. Mr. Susolik was voted a “Top 100 Attorneys in Southern California” for 7 years in a row. He received his B.A. degree and his law degree from the University of Southern California, where he was articles editor of the Southern California Law Review. Mr. Susolik is a coauthor of chapter 14.

PERRY J. VISCOUNTY is a partner with the firm of Sheppard, Mullin, Richter & Hampton in Orange County, where he chairs the firm’s Intellectual Property and Technology Practice Group. Mr. Viscounty received his B.S. degree in 1984 from the University of Southern California and his J.D. degree in 1987 from the University of Southern California. He is the author of numerous articles on intellectual property issues. Mr. Viscounty is a coauthor of chapter 13.

STEPHEN M. WESTBROOK is associate general counsel to The Clorox Company in Oakland, specializing in intellectual property. Mr. Westbrook received his B.S. degree in 1962 from Case Western Reserve University and his J.D. degree in 1967 from the University of California, Hastings College of the Law. He is a frequent speaker at seminars on trade secrets law. Mr. Westbrook is a coauthor of chapters 2 and 3.

LAWRENCE T. WOODLOCK is counsel at the firm of Downey, Brand, Seymour & Rohwer in Sacramento, specializing in commercial and bankruptcy litigation. Mr. Woodlock received his B.A. degree in 1975 from the University of Michigan, his Ph.D. degree in 1980 from Stanford University, and his J.D. degree in 1988 from Stanford Law School. Mr. Woodlock is a coauthor of the original version of chapter 9.

JAMES C. YANG is a principal partner with the firm of Stetina Brunda Garred & Brucker, PC, in Aliso Viejo. Mr. Yang received his B.S.M.E. degree in 1995 from California State Polytechnic University, Pomona, and his J.D. degree in 2003 from Loyola Law School, Los Angeles. He also authors a patent blog at https://www.ocpatentlawyer.com. He is a coauthor of chapters 3 and 6.

About the 2022 Update Authors

KEVIN D. DEBRÉ is the update author of chapters 7 and 8. See his biography in About the Authors.

ELLEN A. FRIEDMAN is the update author of chapter 9. See her biography in About the Authors.

ANDREW L. GRADMAN is the update author of chapter 10. See his biography in About the Authors.

ROBERT B. MILLIGAN is an update coauthor of chapters 4A, 11, and 12. See his biography in About the Authors.

JAMES H. POOLEY is the author of chapter 4. Mr. Pooley is in private practice at James Pooley LLC in Menlo Park. See his biography in About the Authors.

THOMAS A. RUNK is the update author of chapter 2. See his biography in About the Authors.

D. JOSHUA SALINAS is an update coauthor of chapters 4A, 11, and 12. See his biography in About the Authors.

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