Protecting YOUR Trade secrets when employees come and go

1. Protecting YOUR Trade secrets when employees come and go Larry L. Turner Partner, Morgan Lewis Kristi D.A. Matthews Labor & Employment Counsel, Newell Brands CCWC Career Strategies Conference September 21-23, 2016

2. Overview • The Defend Trade Secrets Act of 2016 (DTSA) • Best Practices for Hiring New Employees • Dealing with Employee Departures • Duties for Maintaining and Preserving Electronic Data • Creating a Compelling Story An exciting time in trade secrets law!

3. The defend trade secrets act of 2016 (DTSA)

4. Topic #5: Defend Trade Secrets Act The most significant trade secret reform in decades: • DTSA seeks to modernize and strengthen trade secret law while addressing a number of issues that trade secret owners commonly encounter. • For the first time, trade secret owners will be protected under Federal law, not just state law. Legislative History: • DTSA sailed through Congress with overwhelming bipartisan support. • The Bill passed the House by a vote of 410-2 and was unanimously approved by the Senate 87-0. • Signed into law by President Obama on May 11, 2016. Purpose and Motivation: • Congress acknowledged the important role trade secrets play in building the economy and protecting national security. • Lawmakers also recognized that obtaining relief under state laws can be ineffective when stolen secrets are taken to another jurisdiction. • A federal law will provide uniform enforcement and remedies, as well as nationwide subpoena power.

5. Topic #5: Defend Trade Secrets Act Key Features of the DTSA: • DTSA amends the Economic Espionage Act of 1996 (EEA) which provides federal criminal penalties for trade secret misappropriation. DTSA adds new federal civil protections. • Allows a trade secret owner to choose between state law remedies or the new uniform federal remedies • Federal Private Right of Action: For the first time, a federal private right of action exists for misappropriation of trade secrets “related to a product or service used in, or intended for use in, interstate or foreign commerce.” • Seizure and Recovery of Stolen Trade Secrets: Provides a new ex-parte provision to recover stolen trade secrets pending a full court hearing. • Employee Mobility: A court may impose an injunction “to prevent any actual or threatened misappropriation” but may not “prevent a person from entering into an employment relationship.”

6. Topic #5: Defend Trade Secrets Act Key Features of the DTSA (continued): • Statute of Limitations: The SOL for the new federal private right of action is three years. • New Whistleblower Protections: In certain cases, DTSA provides legal protection to whistleblowers who disclose trade secrets to their attorney or federal and state officials. • Stronger Protections for Trade Secrets During Litigation: A court may not authorize the disclosure of trade secret information “unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential.” • Digital Protections: New provisions address trade secrets in the digital era. These provisions do not exists under state law. • Any seized materials in court custody shall be secured “from physical and electronic access during the seizure and while in the custody of the court.” • Any seized storage medium may not be “connected to a network or the Internet without the consent of both parties” pending a full hearing. • A motion for encryption can be filed “at any time” to “encrypt any material seized or to be seized under this paragraph that is stored on a storage medium.”

7. Topic #5: Defend Trade Secrets Act Key Features of the DTSA (continued): • Enhanced Criminal Penalties for Organizations: Increases the maximum penalty for an organization convicted of a criminal violation from $5 million to “the greater of $5 million or three times the value of the stolen trade secret.” • Report on Theft of Trade Secrets Occurring Abroad: Requires an annual report from the attorney general addressing the scope and breadth of trade secret theft occurring abroad. • Judicial Best Practices Report: requires the Federal Judicial Center to “develop recommended best practices for (1) the seizure of information and media storing the information; and (2) the securing of the information and media once seized.”

8. Topic #5: Defend Trade Secrets Act New Obligations for Companies under the DTSA’s Whistleblower Immunity Provisions: • DTSA provides immunity to individuals who disclose a trade secret to their attorney, a court, or government official in certain specified circumstances. • DTSA now requires companies to add an explicit written disclosure that identifies this immunity provisions for certain types of trade secret disclosures. • Employers must provide this disclosure to every “contract or agreement with an employee, [contractor, or consultant] that governs the use of a trade secret or other confidential information … entered into or updated after the date” that the DTSA is enacted(i.e. May 11, 2016). • A company that fails to comply with the new disclosure requirement will forfeit the ability to recover exemplary damages or attorney fees for trade secret misappropriation under the new federal law against an employee, contractor, or consultant whose contract was entered into or updated after the DTSA’s enactment.

9. Topic #5: Defend Trade Secrets Act Recommended Next Steps for Employers: • Review and revise policies, handbooks, and contracts governing the use of trade secrets and add the required notice provision regarding whistleblower immunity. • Because the provision broadly applies to all employees, consultants, and contractors, consider adding the notice to contracts with vendors, service providers, and joint venturers as well, just to be safe. • Because the DTSA provides new, landmark trade secret protections, we recommend that all businesses conduct a “trade secret audit.” First, take an inventory of existing trade secrets and confidential business information. Then, assess whether their trade secrets have “reasonable measures” in place to protect them as required under law. Morgan Lewis is happy to work with your company to revise your policies, handbooks, and relevant contracts to conform with the requirements of the DTSA, and to maximize your benefits under the new law.

10. Best Practices for hiring New employees

11. Topic #2: Hiring Employees The Honeymoon is Over: • New employees could easily bring confidential/proprietary information from his or her former employer. • Your company could be liable even if no one at your company asked the new hire to do so, or even if the transmission was wholly unintentional. • You must take proactive steps during the hiring process to ensure that confidential or proprietary information from a competitor does not end up in your company’s possession. Protective Policies: • Enact a policy explicitly prohibiting the solicitation or dissemination of other companies’ confidential information. • Inform candidates of this policy prior to their official start date – consider sending a letter during final negotiations. • Consider including a clause in the incoming employee’s contract making a violation of the policy ground for termination.

12. Topic #2: Hiring Employees Awareness and Training: • Remind new employees of the confidential information policy during the orientation and training process. • Consider having the legal and IT departments meet with new hires to explain the policy and obtain acknowledgement. • Work with IT department to run searches to ensure that no competitor information has found its way into your system. Documentation: • Documentation of company’s the efforts to avoid obtaining trade secrets is essential. • Trainings should be well documented and attendance should be taken. Written copies of relevant copies should be provided to participants.

13. Dealing with Employee Departures

14. Topic #1: Employee Departures Don’t Add Insult to Injury: • When a key employee departs, it can wreak havoc on a business. Issues such as maintaining clients, ensuring coverage, and managing investor relations all come into play immediately. • Don’t let the inconvenience of an employee departure spiral into a serious problem costing valuable time and resources. • Instead, get ahead of the problem by enacting several day-to-day best practices and reacting quickly when a potential situation arises. Preparation is key.

15. Topic #1: Employee Departures Day-to-Day Best Practices: • Know what’s in the vault: Clearly define what types of company information are confidential and proprietary. Avoid having vague, ambiguous, or overly broad policies. Identify which key employees have access to confidential information in case they depart in the future. • Develop a detailed policy: Adopt a confidentiality/trade secrets protection policy that meets your company’s particular needs. There is no such thing as an effective “one-size-fits-all” policy. Every company has its own unique assets and resources.

16. Topic #1: Employee Departures A sound confidentiality policy MUST include: • The company’s expectations for its employees regarding confidential information, including a prohibition on unauthorized copying or disclosure; • A definition of what is considered confidential or proprietary, including as many specific types of information as possible; • The consequences to the employee for violations of the policy, and the rights of the employer in the event of a violation; • The employee’s responsibility to return all company technology and confidential information before leaving employment; • A mechanism for ensuring that employees receive the policy and sign an acknowledgment of their responsibilities under the policy; and • Continuous training of key employees on a regular basis as part of the company’s compliance program.

17. Topic #1: Employee Departures Day-to-Day Best Practices (continued): • Establish Security Protocols: A well-drafted policy must be supported by certain day-to-day security safeguards. • Limit access to confidential information through password protection and various levels of permission. • Monitor access to databases and track who can view, modify, or delete information. • Embed indentifiers or tags in especially confidential information. This will make clear to anyone in possession of the material that the information is confidential and proprietary property of the company. • Understand the company’s electronically stored information (ESI) storage and destruction policies. Be mindful of how data or information could be intentionally destroyed. For example, ensure that employees are not able to download software that can “wipe” or overwrite memory to their company-owned laptops.

18. Topic #1: Employee Departures Day-to-Day Best Practices (continued): • Enforce Compliance: Ensure that confidentiality policies and security measures are followed. • Have IT department regularly perform forensic reviews. • Additionally, consider a more robust periodic audit. • Provide employees periodic reminders about confidentiality through in-person training sessions or webinars. • Simply enacting a policy is not enough – in the event of litigation you will want to show the judge that you took proactive steps taken to protect trade secrets.

19. Topic #1: Employee Departures Take Immediate Steps with Departing Employees: • Follow a well-established exit protocol, including: • Establish an exit interview team (Exit Team) that is familiar with the employee’s work, projects, and external relationships. • Immediately restrict access to certain files and set a date for the departing employee’s return of computer equipment, mobile devices and security badges. • Follow up the interview with a letter reminding the employee of these responsibilities. Ensure that this letter is given to all employees prior to departure. • Request that the employee work with the IT department to retrieve any personal, non-confidential information from company computers and explicitly instruct the employee not to download, email, or transmit materials without explicit permission and assistance from IT. • On the employee’s last day, ask him to again sign an acknowledgment that he has followed the applicable protocols.

20. Topic #1: Employee Departures Take Immediate Steps with Departing Employees: • Sample Exit Interview Questions: • Do you have any company or proprietary information in files at home? • Have you used your home computer for company work? • Have you downloaded or otherwise transmitted documents to any of your personal accounts? Why? • Does anyone else have access to your electronic work files and accounts? • Do you understand that you must work with the IT department to return all company information from any source, including your home accounts? This also includes retrieving personal information from company systems; we’ll help you do this properly so that you do not inadvertently violate the policy. Do not copy, alter, download, or delete files without conferring with IT. You may violate your obligations as an employee if you do so. • Have you upheld the confidentiality policy and do you agree to continue to do so? • Has anyone asked you to violate the policy or to otherwise obtain confidential information for that person’s benefit? Remember that if you are solicited to provide confidential information to anyone, your duty as an employee is to inform the company immediately.

21. Duties for Maintaining and preserving electronic data

22. Topic #3: Preserving Electronic Data What to Do When Litigation Arises: • Sometimes, even the best policies and enforcement procedures are not enough. If the Company learns that either sensitive information has been taken by a former employee or brought by a new employee, counsel must take immediate action. • Issue a litigation hold describing the information that must be retained and distribute it to all relevant employees. • Work with IT to preserve server information, key files, and other electronically stored information (“ESI”) • Be prepared in the event an employee attempts to deliberate destroy data. • Consider sending a letter to opposing counsel reiterating your efforts to protect confidential information. Obligation to Preserve: • Preservation efforts do not have to be herculean to be effective; rather, they must be reasonable and proportional to the particular situation. • Generally, the duty to preserve documents begins as soon as the Company “reasonably anticipates litigation.” • Once suit is filed, the Company must ensure that a timely effort is made to collect and preserve relevant documents and evidence. Act fast -- do not wait to start preservation or to issue a litigation hold.

23. Topic #3: Preserving Electronic Data The Forensic Examination: • Simply relying on employees to voluntarily disclose information regarding misappropriation will likely be insufficient. Even an in-house IT department may be too “close” to conduct a truly independent investigation. • Instead, consider hiring a third-party to conduct an independent forensic investigation. • As opposed to a typical document review, this investigation should focus on examining ESI systems and history and not the content of the ESI itself. • Conducting a forensic examination early on may help convince the court that you take confidentiality seriously. • Even if issues are discovered, getting them out in the open rather than after prolonged discovery can make a big difference in how a case progresses.

24. Creating a compelling story

25. Topic #4: Creating a Compelling Story In sum, you want to be able to tell a compelling story to the judge, jury, or opposing counsel about how your company makes significant efforts to prevent issues relating to misappropriate of information. Tell the story of your: • Employment Policies • Enforcement Procedures • Diligent Documentation • Frequent Communication By creating clearly defined policies and communicating them early and often, you can save the company serious litigation headaches in the future!

26. Open Discussion Questions and Answers