Protecting Your IP When Doing Business with Third Parties Presented By Henry B. Ward, III W. Kevin...

Protecting Your IP When Doing Business with Third Parties

Presented By

Henry B. Ward, IIIW. Kevin Ransom

November 1, 2013

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• Pre-Contract Considerations

• Contract Considerations


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Pre-Contract Considerations

1. DUE DILIGENCE & REGISTRATION • Copyrights• Patents• Trademarks

2. CONFIDENTIALITY


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Safeguarding Confidentiality & Trade Secrets

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Protecting Your IP When DoingBusiness with Third Parties

What is a Trade Secret?

• A formula, practice, process, design, instrument, pattern, or compilation of information that is:

• not generally known or reasonably ascertainable;• confers economic benefit to the holder (benefit

derives not only from the information but from its secrecy); and

• is subject to reasonable efforts under the circumstances to maintain its secrecy.

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• A trade secret is the owner’s possession of information of a type that can, at the owner’s option, be made known to others or withheld from others, i.e., kept secret.

• Trade secret law is not a protection of rights to an idea, but a right to control dissemination of an idea or fact.


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• Trade secret law has evolved from common law to what is now the prevailing standard in most states known as the Uniform Trade Secrets Act.

• To date forty-six states, including North Carolina and South Carolina, have adopted the Uniform Trade Secrets Act in large part.

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• North Carolina -- “The North Carolina Trade Secrets Protection Act”, N.C.G.S. §66-152 et seq.

• As with the Uniform Act, the North Carolina statute defines what a trade secret is, prohibits misappropriation, and sets remedies in the form of damages and, in certain instances, attorneys’ fees for misappropriation.

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• Examples: • Customer lists;• Pricing or margin data;• Client date – more than mere “contact information”;• Research and development data;• Non-public product drawings;• Strategic business plans;• Sales, marketing, or product manufacturing

methodologies;• Sales data;• Critical self-analysis data.

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Then, what is Confidential Information?

• Trade secrets are a subset of confidential information.

• Not all confidential information satisfies the statutory definition of a trade secret.

• For example, the information in question:• may not derive economic value from being kept

secret;• might be ascertainable by proper means by third

parties who wish to obtain economic value from the disclosure or use of the information; or

• may not have been adequately safeguarded in secrecy to the extent required by statute.

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Then, what is Confidential Information?• The terms “trade secret” and “confidential

information” are not interchangeable.• Confidential information is not protected by

statute.• Confidential information is protected via contract,

such as “non-disclosure agreements” or “confidentiality agreements”.

• General rule is that confidential information can be anything parties to a confidentiality contract agree is “confidential information” (with exceptions).

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Then, what is Confidential Information?

• Exceptions:• was already known by the receiving party;• becomes public knowledge through no fault of the

receiving party or any of its Affiliates or Subsidiaries;

• obtained by receiving party from a third party that is under no obligation of confidentiality; or

• independently developed by receiving party without the aid or use of disclosing party’s confidential information (typically evidenced in writing).

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Tools for Protection

• Trade Secret Policy – guidelines for identifying trade secret information and provide reasonable safe guards for such information (should be comprehensive and written).

• Employment Agreements – suitable confidentiality, non-disclosure, and non-compete clauses in employment agreements.

• Non-Disclosure Agreements – written agreement third parties defining treatment of trade secret and confidential information.

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• Trade Secret Policy• effective procedures for identifying trade secret and

confidential information.• marking identified information as “confidential”• employee agreements.• effective computer use and electronic rights policy

(restrictions on social media use and download of data).

• limit access to facilities, databases, and other sources of information.

• scrutinize marketing, website, and other informational materials.

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• Confidentiality Agreement Terms• Identify by type the business information to be

kept confidential.• Indicate purpose for maintaining confidentiality.• Employee, agents, etc. acknowledgement as to

the need for maintaining confidentiality.• Duration (discussed later).• Remedies available.

• No limitation on types of damages or cap.

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Confidentiality Agreement

• Trade secret and confidential information should be treated separately.

• No duration on trade secret information.• Confidential information limited time duration (if

required by receiving party) (e.g., 5 years).• No time limit on trade secret information.

• Time limit may destroy trade secret protection.

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Trade Secret Time Limit

• Case studies:• Silicon Image, Inc. v. Analogk Semiconductor, Inc.

• Trade secret – registers map of semiconductor chip.• Third party NDAs included two year duration on

confidentiality.• Court found that reasonable steps to protect trade

secrets were not shown where obligations to maintain information as confidential had expired.

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• Case studies:• D.B. Riley, Inc. v. AB Engineering Corp

• Trade secret – drawings and specifications for fuel systems manufactured for Riley by AB.

• NDA included ten year duration on confidentiality.• Court found that reasonable steps to protect trade

secrets were not shown where obligations to maintain information as confidential had expired.

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• Case studies:• ECT Intern., Inc. v. Zwerlein

• Trade secret – designs for electrical control systems, customer list, and prospects.

• Employee agreement included one year duration on confidentiality.

• Court found that ECT manifested an intent that after expiration of the year, the employee was under no restriction to maintain the secrecy of confidential information.

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Contract Considerations

1. Scope of License Grants- Trademarks (advertise, distribute, manufacture (have

manufactured), market, offer for sale, promote, sell)

- Patents (import, make, offer for sale, sell, use)

- Copyrights (display, distribute, perform, prepare derivative works, reproduce)


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2. Covenants

• Restrictions on use• Restrictions on challenging or contesting rights

• Not patents


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3. Trademark-Specific Issues

• Quality control obligations

• Approval Rights

• Co-branding


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5. Derivatives, Enhancements and Improvements• Ownership

• Need a written assignment • Trademarks – Need goodwill

• License• Restrictions on 3rd party use

• Other considerations• Representations and warranties (ownership, employee/contractor

assignments, originality, no adverse acts/omissions)


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6. Other Considerations• Reporting obligations and Audit rights

• Underpayments – Interest, audit costs and attorneys fees

• Infringements

• Right to enforce

• Recovery


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6. Other Considerations (Continued)

• Indemnification

• Unauthorized use

• If mutual, include exceptions – combination, unauthorized use, breach

• Limitation on Liability and Disclaimer of Consequential Damages


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• Breach remedies

• Jurisdiction

• Equitable relief

• Attorneys’ fees


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• Obligations upon expiration/termination

• Discontinue use

• Inventory issues

• Wind-down period – Under what circumstances?


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Questions?


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