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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 §6254.7(d)  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
    • 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

James C. Yang

  • 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.  Method of Disclosure  3.4
  • III.  STEP 2: RECIPIENT’S RECEIPT OF UNSOLICITED IDEAS  3.5
    • A.  No Review or Consideration Whatsoever
      • 1.  Policy Procedures  3.6
      • 2.  Form: Transmittal Letter Describing Policy  3.7
    • B.  No Review or Consideration Without Waiver Agreement
      • 1.  Policy 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 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.  Policy Procedures  3.19
      • 2.  Form: Agreement for Submission of Ideas  3.20
    • B.  No Delivery Without Agreement
      • 1.  Policy 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

Protecting a Company’s Trade Secrets

Bruce B. Brunda

Carol L. Smith

Stephen M. Westbrook

James C. Yang

  • I.  INTRODUCTION  4.1
  • II.  MAINTAINING SECRECY  4.2
    • A.  Form of Obligation of Confidence
      • 1.  Implied Confidential Relationships  4.3
      • 2.  Contractual Confidentiality Obligations  4.4
    • B.  Creating Contractual Confidentiality Obligations
      • 1.  Should the Contract Be Written or Oral?  4.5
      • 2.  Contracts With Employees  4.6
      • 3.  Contracts With Outsiders  4.7
  • III.  REASONABLE EFFORTS TO MAINTAIN SECRECY
    • A.  Reasonable Efforts Requirement  4.8
      • 1.  Cases Showing Adequate Measures to Protect Trade Secrets  4.9
      • 2.  Cases Showing Inadequate Measures to Protect Trade Secrets  4.10
    • B.  Procedures in Dealing With Employees
      • 1.  Interviewing Job Applicants  4.11
      • 2.  Threatened Misappropriation, Inevitable Disclosure  4.11A
      • 3.  Employee Instruction and Employee Awareness Program  4.12
      • 4.  Employee Departures
        • a.  Exit Interview  4.13
        • b.  Documenting Departing Employees’ Obligations  4.14
        • c.  Notice to New Employer  4.15
    • C.  Procedures Concerning Physical Access  4.16
      • 1.  Physical Restrictions Generally  4.17
      • 2.  Restricting Visitors’ Access  4.18
    • D.  Procedures Protecting Documents
      • 1.  Proprietary Legends  4.19
      • 2.  Copyright Notices  4.20
      • 3.  Access Limitations  4.21
      • 4.  Copying Limitations  4.22
      • 5.  Waste Disposal  4.23
    • E.  Procedures for Information Dissemination  4.24
    • F.  Procedures for Computer Data and Equipment; Other Technology  4.25
    • G.  Procedures Concerning Product Sales  4.26
  • IV.  GOVERNMENT SUBMISSIONS AND DISCLOSURES  4.27
  • V.  COUNTERESPIONAGE  4.28

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

Nancy O. Dix

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 Exemption  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)  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  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.  ADOPTING CORPORATE TRADE SECRETS POLICY
    • A.  New Companies
      • 1.  Have Trade Secret Protection Policy in Place From Inception  10.2
      • 2.  Employee Confidentiality Agreements  10.3
      • 3.  Confidentiality Agreements With Third Parties  10.4
      • 4.  Reasonable Efforts to Maintain Secrecy  10.5
    • B.  Established Companies  10.6
  • III.  REDUCING TRADE SECRET RISKS IN HIRING
    • A.  Counseling Employer of Prospective New Employee  10.7
      • 1.  Prehiring Advice  10.8
      • 2.  Investigate New Employee’s Knowledge and Experience
        • a.  Collect Information  10.9
        • b.  Form: Client Interview Sheet: Information on Change of Employment  10.10
      • 3.  Avoid Appearance of Impropriety  10.11
      • 4.  Educate Employee  10.12
      • 5.  Posthiring Conduct  10.13
      • 6.  Responding to Threatening Letter  10.14
    • B.  Counseling Mobile Employees
      • 1.  Attorney’s Role  10.15
      • 2.  Review Relevant Agreements  10.16
      • 3.  Identify Information Owned by Former Employer  10.17
      • 4.  Ascertain Character of Information Acquired by Employee  10.18
      • 5.  Comply With Announcement Rule  10.19
  • IV.  COUNSELING IN DISPUTES OVER NONDISCLOSURE AGREEMENTS  10.20
  • V.  COMPETITIVE INTELLIGENCE GATHERING  10.21
  • VI.  COUNSELING FORMER EMPLOYER  10.22
  • VII.  WHAT INFORMATION IS AVAILABLE FOR USE?
    • A.  Overview  10.23
    • B.  Is Information Available for Use?  10.24
      • 1.  Preutilization Checklist  10.25
      • 2.  Method of Searching for and Evaluating Trade Secret Information  10.26
      • 3.  Method of Searching for and Evaluating Copyright Information  10.27
      • 4.  Method of Searching for and Evaluating Patent Information  10.28
  • VIII.  SOURCES OF INFORMATION
    • A.  Information in Public Domain Not Trade Secret  10.29
      • 1.  General and Basic Knowledge  10.30
      • 2.  Published Literature and Internet Websites  10.31
      • 3.  Expired United States Patent  10.32
      • 4.  Foreign Patents  10.33
    • B.  Nonpublic, Specialized Knowledge May Be Protected as Trade Secret  10.34
    • C.  Information Obtained by Independent Research and Investigation
      • 1.  Results of Independent Research May Be Used  10.35
      • 2.  Results of Reverse Engineering May Be Used  10.36
    • D.  Information Obtained Under Confidentiality Obligation  10.37
      • 1.  Employee-Employer Relationship  10.38
      • 2.  Licensee-Licensor Relationship  10.39
      • 3.  Officer’s or Director’s Relationship With Corporation  10.40
      • 4.  Relationship With Partner or Joint Venturer  10.41
      • 5.  Relationship With Consultants and Independent Contractors  10.42
      • 6.  Relationship With “Idea Man”: Unsolicited Disclosures  10.43
      • 7.  Relationship With Suppliers and Vendors; Purchaser’s Specifications and Technical Manuals  10.44
      • 8.  Relationship With Prospective Purchaser or Licensee  10.45
      • 9.  Relationship With Buyer of Business  10.46
    • E.  Information Obtained by Theft  10.47
    • F.  Information Obtained by Accident or Mistake  10.48

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 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

Tae Im

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.  Electing §174(a) Treatment  15.15
      • 2.  Electing §174(b) Treatment  15.16
      • 3.  Interplay Between §174(a) and §174(b) Elections  15.17
      • 4.  Amortization Period Under §174  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.  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.  Additional Strategies for Maintaining Trade Secrets in Mass-Marketed Software  16.42
    • F.  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.  Protection for GUIs  16.49
    • D.  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 2020

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

 

§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

10-010

§10.10

Client Interview Sheet: Information on Change of Employment

10-025

§10.25

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 2020 Update

The first case to reject a trade secret claim on grounds that the information was nonsecret was Avocado Sales Co. v Wyse (1932) 122 CA 627; the rule has been applied many times since. See, e.g., Amgen Inc. v California Correctional Health Care Servs. (2020) 47 CA5th 716 (company disclosed information to registered purchasers and others). See §1.7.

In both the California Uniform Trade Secrets Act (CC §§3426–3426.11) and the federal Defend Trade Secrets Act of 2016 (DTSA) (Pub L 114–153, 130 Stat 376), an issue arises as to ownership if the trade secret has not been clearly identified. When defending against an allegation of trade secret misappropriation in a case where the plaintiff has not identified the trade secret “with sufficient particularity,” attacks should be considered against both ownership and the existence of a justiciable trade secret. See Lamont v Krane, (ND Cal., May 14, 2019, No. 5:18-cv-04327-EJD), 2019 US Dist Lexis 81451. See also CleanFish, LLC v Sims, (ND Cal., Mar 17, 2020, No. 19-cv-03663-HSG) 2020 US Dist Lexis 46191. See §2.1C.

In Techno Lite, Inc. v Emcod, LLC (2020) 44 CA5th 462, the court held that Bus & P C §16600 does not apply during employment; however, an employer is entitled to rely on the employees’ duty of loyalty owed to the employer. There is no statutory authorization or public policy that would allow employees to compete with their employer during employment. An employee who does so could be liable for fraud for false promise. See §§2.32, 4.6., 6.21., 11.90, 11.102.

Another area in which proof of trade secret ownership issues arise is where independent contractors are used to write computer programs. In the case of Citcon USA, LLC v RiverPay Inc. (ND Cal, May 31, 2019, No. 18-cv-02585-NC) 2019 US Dist Lexis 91630, the defendant moved for summary judgment claiming that the plaintiff had no ownership rights to the trade secret source code. The defendant claimed that it programmed the source code, not the plaintiff, and therefore, the defendant was the rightful owner. However, the plaintiff was able to provide documents showing that its employees as well as a second contractor company had also programmed parts of the source code. This was sufficient to raise an issue of fact, and the plaintiff prevailed against the summary judgment motion. See §2.32H.

The U.S. Copyright Office is a public entity, and the mere filing of a copyright registration application with that office constitutes a disclosure of the filed materials to the public. Filing may have the effect of destroying ownership of a trade secret because the information in the filed materials is no longer secret. See Patel Burica & Assocs. v Lin (CD Cal, Dec 19, 2019, No. 19-CV-01833 CAS) 2019 US Dist Lexis 218533, *14 (“defendants are correct that a plaintiff who discloses his trade secret information to the public by registering it with the copyright office extinguishes his right to protect that information from misappropriation as a trade secret.”). In Patel Burica, the court found that “the alleged trade secret materials (i.e., the CAD files and coded spreadsheets) are not the same as the materials that PBA claims to have filed publicly with the copyright office.” 2019 US Dist Lexis 218533, *14. The court then allowed the misappropriation of trade secrets case to proceed. See §2.34.

Even inadvertent or unintentional disclosure of trade secrets to the public, whether generally or only to a limited external audience of industry insiders or investors, destroys the “secret” status of the subject information and thus trade secret protection for such information. See, e.g., Amgen Inc. v California Correctional Health Care Servs. (2020) 47 CA5th 716, 734 (company previously disclosed information at issue to over 170 registered purchasers who were pharmacy benefit managers, who in turn were required by statute to inform their “large contracting public and private purchasers.” The information at issue was therefore not a trade secret. See §§4.2, 4.10, 10.31.

In Food Mktg. Inst. v Argus Leader Media (2019) 588 US___, 139 S Ct 2356, the U.S. Supreme Court held that where commercial or financial information is both customarily and actually treated as private by its owner and provided to the government under an assurance of privacy, the information is “confidential” within the meaning of the fourth Freedom of Information Act (FOIA) (5 USC §552) exemption. See §§4.27, 5.14, 17.9.

In February 2020, the U.S. government reported that the FBI is investigating over 1000 cases of Chinese theft of US-based technology, in all 56 of its field offices, spanning almost every industry and sector. See https://www.fbi.gov/news/speeches/ responding-effectively-to-the-chinese-economic-espionage-threat. See §4A.1A.

The importance of a trade secret audit to ensure that trade secrets are adequately protected cannot be overemphasized, as high-profile cases of alleged trade secret theft continue to be reported on a regular basis. See, e.g., Niskayuna Man Pleads Guilty to Stealing Trade Secrets from GE (May 28, 2020), at https://www.justice.gov/usao-ndny/pr/niskayuna-man-pleads-guilty-stealing-trade-secrets-ge; Former Uber Self-Driving Car Executive Signs Agreement To Plead Guilty To Theft Of Trade Secrets From Google (Mar. 19, 2020), at https://www.justice.gov/usao-ndca/pr/former-uber-self-driving-car-executive-signs-agreement-plead-guilty-theft-trade-secrets. See §4A.2.

On May 13, 2020, the Federal Bureau of Investigation (FBI) and the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) issued a joint Public Service Announcement (PSA) about a threat to academic institutions and business entities engaged in COVID-19-related research and development entitled People’s Republic of China (PRC) Targeting of COVID-19 Research Organizations. In the PSA, the FBI and CISA warned that PRC-affiliated cyber actors and nontraditional collectors may try to steal intellectual property and public health data related to COVID-19 vaccines, treatments, and testing. According to the PSA, “[t]he potential theft of this information jeopardizes the delivery of secure, effective, and efficient treatment options for our citizens.” The FBI and CISA issued the following recommendations:

  • Assume that press attention affiliating your organization with COVID-19 related research will lead to increased interest and cyber activity;

  • Patch all systems for critical vulnerabilities, prioritizing timely patching for known vulnerabilities of internet-connected servers and software processing internet data;

  • Actively scan web applications for unauthorized access, modification, or anomalous activities;

  • Improve credential requirements and require multifactor authentication; and

  • Identify and suspend access of users exhibiting unusual activity.

See People’s Republic of China (PRC) Targeting of COVID-19 Research Organizations (May 13, 2020), at https://www.cisa.gov/news/2020/05/13/fbi-and-cisa-warn-against-chinese-targeting-covid-19-research-organizations. See §4A.7.

The COVID-19 pandemic led to a dramatic rise in the number of employees working remotely. Many corporate information technology (IT) departments have suddenly been stretched to capacity as they support a newly-remote workforce. Internal IT departments, working together with management in a thoughtful manner, can pivot their focus after the pandemic to shoring up their technical infrastructure for employees who continue to work remotely by doing the following:

  • Researching and determining which data storage and transfer, videoconferencing, communications, presentation, and monitoring software and platforms are both secure and user friendly (so that employees actually utilize them and don’t look for workarounds that seem more convenient ).

  • Implementing administrative safeguards on existing systems and databases, such as multitiered password protection, to ensure access is granted only to those employees who truly need such access, and setting up reminders that pop up every time an employee logs into the company’s systems, or into a particular database or program, of their obligation to maintain confidentiality.

  • Maintaining and regularly checking logs monitoring access to sensitive data for unauthorized access, perhaps even setting up alerts for activities that raise red flags.

  • Providing and requiring the use of company-issued computers and devices, or at the very least personal computers and devices that meet certain security standards and have protocols that permit the employer to lock and/or remotely wipe company data and have built in protections against hacking or other cyberthreats.

  • Reinstituting or strengthening any security measures that were relaxed during the time of COVID-19 in the name of convenience or efficiency.

  • Taking the time to perform a thorough trade secret audit to identify trade secrets, detect weaknesses in security, and implement effective technical protections, as well as policies and protocols for storing, accessing, using, and transferring data in a secure manner.

See §4A.8.

The California Public Records Act (CPRA) (Govt C §§6250–6276.48) provides that public records are open to inspection by members of the public unless exempted by law. See Govt C §§6253(a), (b), 6254. “‘In other words, all public records are subject to disclosure unless the Legislature has expressly provided to the contrary.’” American Civil Liberties Union Foundation v Superior Court (2017) 3 C5th 1032, 1038; Amgen Inc. v California Correctional Health Care Services (2020) 47 CA5th 716, 731. See §5.21.

The exemptions in Govt C §6254 “are permissive, not mandatory: They allow nondisclosure but do not prohibit disclosure.” Marken v Santa Monica-Malibu Unified School Dist. (2012) 202 CA4th 1250, 1262. See Govt C §6254, next to last paragraph (“This section does not prevent any agency from opening its records concerning the administration of the agency to public inspection, unless disclosure is otherwise prohibited by law”). Thus a government agency has discretion to invoke an exemption under Govt C §6254, but it is not required to do so, and a party bringing a reverse-CPRA action must show disclosure is “‘otherwise prohibited by law,’” that is, that the government agency lacks discretion to disclose. Amgen Inc. v California Correctional Health Care Services (2020) 47 CA5th 716, 732. See §§5.21, 5.22.

General and basic knowledge that is anticipated by prior art cannot be the subject of patent protection. See 35 USC §102; Internet Law and Practice in California, chap 2 (Cal CEB); California Business Litigation, chap 8 (Cal CEB); Rosenberg, Patent Law Fundamentals §§1.04, 7.00 (2d rev ed 2004). Also excluded from patent protection are laws of nature, physical phenomena, and abstract ideas. Mayo Collaborative Servs. v Prometheus Labs., Inc. (2012) 566 US 66, 132 S Ct 1289, 1293; Illumina, Inc. v Ariosa Diagnostics, Inc. (Fed Cir 2020) 952 F3d 1367, 1371 (claims at issue were not “directed to” a natural phenomenon but rather to a patent-eligible method that utilized it). See §10.30.

In Lange v Monster Energy Co. (2020) 46 CA5th 436, the court found an arbitration agreement to be unconscionable and unenforceable as it required the employee to waive punitive damages for all nonstatutory claims, allowed the employer to obtain an injunction without proving essential elements, and had a predispute jury trial waiver. See §11.12.

In Zehia v Superior Court (2020) 45 CA5th 543, 554, the court held that a substantial connection to California arose under the effects test from a nonresident's alleged intentional conduct in sending targeted private social media messages directly to California residents, with knowledge that they were California residents, intending to disrupt their relationships with each other and to cause reputational injury in California through defamatory and harassing conversations, which was sufficient to establish purposeful availment of the forum’s benefits. See §11.13.

In MGA Entertainment, Inc. v Mattel, Inc. (2019) 41 CA5th 554, 565, the court held that a manufacturer’s misappropriation of trade secrets claims accrued when it suspected that a competitor was gaining knowledge of its trade secrets, and that the competitor’s alleged concealment of the nature and scope of misappropriation of trade secrets claims did not toll the statute of limitations. See §§11.21, 11.24.

Until the California Supreme Court’s decision in Ixchel Pharma, LLC v Biogen, Inc. (Aug. 3, 2020, No. S256927) ___C5th___, 2020 Cal Lexis 4876, it was uncertain whether Bus & P C §16600 extended beyond the employment setting to contractual restraints on business operations. In Ixchel, the California Supreme Court held that §16600 is best interpreted not to render void per se all contractual restraints on business dealings, but rather to subject such restraints to a rule of reason. The court found that it had a long history of applying a reasonableness standard to contractual restraints on business operations and commercial dealings. The court emphasized that it did not disturb the holding in Edwards and other cases that invalidated noncompetition agreements following the termination of employment or sale of interest in a business, but that those cases did not cast doubt on the applicability of a reasonableness standard to contractual restraints on business operations and commercial dealings. See §§11.90, 11.94.

Carefully drafted nonsolicitation-of-employees clauses may still be enforceable, although they will be closely scrutinized by the courts. See W.R. Berkley Corp. v Niemela (D Del, Oct. 24, 2019, No. 17-32 (MN)) 2019 US Dist Lexis 183772, **8 (acknowledging split in California authority addressing validity of antirecruitment covenants). See §11.94.

In Colucci v T-Mobile USA, Inc. (2020) 48 CA5th 442, 453, the court held that given the low to moderate range of reprehensibility of T-Mobile’s conduct, a 1.5-to-one ratio between punitive and compensatory damages was the federal constitutional maximum. See §12.22.

Because CD-ROMs are becoming obsolete and most software is distributed electronically online, click-wrap licenses, discussed in §16.41, are becoming the most common method for software distribution. A form of click-wrap license agreement has been added in §16.41A. This form is designed for a software company that may offer multiple products and refers out to a product description and licensee’s account online for some specific terms such as pricing and scope of use, i.e., how many license-seats are purchased. This form contemplates that the licensed software will be downloaded and run locally and that the licensee will need a product key to activate the software. See §§16.41, 16.41A.

In In re Global IP Holdings LLC (Fed Cir 2019) 927 F3d 1373, 1376 (citations omitted), the court explained that

This written description requirement is met when the specification clearly allows persons of ordinary skill to recognize that the inventor “invented what is claimed.” . . . . In other words, the test for sufficiency is whether the specification “reasonably conveys to those skilled in the art that the inventor had possession of the claimed subject matter as of the filing date.” . . . This test involves an inquiry into the four corners of the specification from the perspective of a person of ordinary skill. . . . Determining whether a patent complies with the written description requirement is a question of fact that necessarily varies depending on the context. . . . “[T]he level of detail required to satisfy the written description requirement varies depending on the nature and scope of the claims and on the complexity and predictability of the relevant technology.”

In Ariad Pharm., Inc. v Eli Lilly & Co. (Fed Cir 2010) 598 F3d 1336, the Federal Circuit affirmed the court’s prior decisions that 35 USC §112 requires that the written description of the specification “demonstrate possession” as well as enablement of the invention. See §16.61A.

The basic reason given by the Supreme Court for the exclusion of laws of nature, physical phenomena, and abstract ideas from patentability under 35 USC §101 is that laws of nature and natural phenomena are in essence manifestations of nature (i.e., not “new”), free to all, and reserved exclusively to none. Software, however, is not considered a law of nature or natural phenomenon. See, e.g., Uniloc USA, Inc. v. LG Elecs. USA, Inc. (Fed Cir 2020) 957 F3d 1303, 1306 (“[i]n cases involving software innovations, [patentability] often turns on whether the claims focus on specific asserted improvements in computer capabilities or instead on a process or system that qualifies an abstract idea for which computers are invoked merely as a tool. . . . We have routinely held software claims patent eligible under Alice step one when they are directed to improvements to the functionality of a computer or network platform itself”). See §§16.63, 17.11.

In Amgen Inc. v California Correctional Health Care Services (2020) 47 CA5th 716, the court held that a pharmaceutical manufacturer was not entitled to a preliminary injunction preventing a state agency from disclosing a drug price increase notice as a public record because the manufacturer did not show that confidentiality had been maintained after its disclosure to registered purchasers and others and thus did not meet its burden of proof under Govt C §6254(k) in asserting the trade secret privilege. See §17.9.

In Ajinomoto Co., Inc. v International Trade Commission (Fed Cir 2019) 932 F3d 1342, the Federal Circuit held that a “sufficient description of a genus … requires the disclosure of either a representative number of species within the scope of the genus or structural features common to the members of the genus so that one of a skill in the art can ‘viusalize or recognize’ the members of the genus.” See §17.12.

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, 4, 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 and also assisted in the preparation of chapter 4.

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 and also assisted in the preparation of chapter 4.

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, http://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 is a partner with the firm of Morrison & Foerster LLP in Palo Alto, specializing in intellectual property litigation, with a special emphasis on trade secret and patent matters. 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. He is the author of numerous texts and articles on the trial and management of intellectual property matters, is a frequent speaker to professional and trade organizations, and is an adjunct professor teaching trade secret law at the University of California, Berkeley, School of Law. Mr. Pooley is a coauthor of chapters 1 and 13.

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, http://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 chapters 2 and 4.

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 and also assisted in the preparation of chapter 4.

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, 3, and 4.

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 http://www.ocpatentlawyer.com. He is a coauthor of chapters 3, 4, and 6.

About the 2020 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.

CLARA RUYAN MARTIN is the update author of chapter 16. See her biography in About the Authors.

DIANE J. MASON is the update author of chapter 17. See her biography in About the Authors. She now practices law at Drinker Biddle & Reath LLP, San Francisco.

ROBERT B. MILLIGAN is an update coauthor of chapters 4A, 11, and 12. 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.

EDWARD SUSOLIK is an update coauthor of chapter 14. See his biography in About the Authors.

SHARON T. YUEN is an update coauthor of chapter 14. She is a senior trial attorney with Callahan & Blaine, Santa Ana, where she practices in the areas of insurance recovery and bad faith, professional liability, and complex business litigation. She received her B.A. in 1997 from the University of California, Berkeley, and her J.D. in 2003 from the University of California, Davis, School of Law, where she was a member of Order of the Coif and received the Witkin Award for Academic Excellence.

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