Trade-Secrets Interview: Pamela Passman of CREATe.org (Part 2)

Last week, I published part 1 of my interview with Pamela Passman, CEO of CREATE.org regarding its recent trade-secrets report. Here’s part 2:

PamelaPassman CREATe org sm (3)Protecting Trade Secrets: You have done an excellent job setting forth a framework for companies to protect their trade secrets. But I have two issues with your approach. First, I am concerned that this process will result in the creation of documents that, if produced in litigation, will undermine misappropriation claims. This concern can be mitigated if an attorney is involved in creating and maintaining these documents, keeping them as attorney work product.

Pamela Passman: For most companies, lawyers will be involved in implementing the framework we propose and actively engaged in developing the documentation.  However, for many companies in emerging markets, there are small legal teams inside companies and outside lawyers are not generally engaged other than for disputes.  That should not limit a company’s focus on prioritizing, documenting and securing trade secrets, as in most cases, the ability to demonstrate that you have secured your trade secrets is critical to seeking redress if they are misappropriated.

PTS: Second, your approach may be difficult for small and midsize businesses, who have limited resources and in-house capabilities, to implement. 

PP: For many small and mid-size companies, trade secrets are at the core of their value and ability to compete and innovate. While many can’t implement a full comprehensive program, they should consider scaling the recommended steps in a way that is appropriate to the company.  For example, at CREATe.org, we are working with private equity firms that want to ensure that their portfolio companies are aware of leading practices and have the ability to implement business processes to protect IP and prevent corruption. Although the firms are small in size, they scale accordingly by prioritizing areas for improvement.

PTS: Turning to the report’s views of the future, you talk about “the emergence of walled gardens or the creation of IT networks that are separated from the wider Internet.” Can you elaborate more on what the “walled gardens” will look like? How would this differ from company intranets and smartphone apps that exist today?

PP: The walled garden scenarios stemmed out of recent moves that could point towards countries (or sectors or groups of entities) segmenting internet traffic. For example:

  • German telecom giant Deutsche Telekom, in which the government still owns a minority share, has publicly discussed the potential for German companies to place some information and activities on a separate, national internet system. Deutsche Telekom’s proposal is unlikely to be adopted at this point and would require major regulatory, technical and policy changes in Germany and the European Union. However, its announcement confirms that some of the world’s most advanced countries and companies are thinking about walled gardens as an option going forward.
  • Brazil’s government is also considering how it might segment or wall off parts of its internet traffic and emails. Sao Paolo is reacting to the recent US Government contractor who claims that US intelligence agencies were snooping on a large target set.

PTS: Finally, what are your next steps now that the report has been issued?

PP: There is tremendous interest in the topic of trade secret protection. As you know, several months ago the European Commission published draft rules to thwart the theft of trade secrets. This initiative, along with companies facing increased threats, have prompted invitations for CREATe.org to present our report findings to business organizations around the world.  We will be in France,  Germany and China in March, and Mexico in April meeting with companies and business organizations interested in comprehensive ways to advance IP protection, and in particular, mitigating trade secret theft. We are also presenting at conferences and via webinars in the U.S. and elsewhere.

Additionally, CREATe.org continues to work with companies around the world to help them put systems in place to better protect IP, and to work with their supply chain and other business partners. We do this with our three-step service, CREATe Leading Practices for IP Protection, which offers an assessment, benchmarking and tools and resources designed to improve systems for IP protection. It is currently available in English, Brazilian Portuguese, Chinese and Spanish.

Protecting Trade Secrets Blog Quoted in the New York Times

The New York Times has been covering the dispute between David Einhorn’s Greenlight Capital and an anonymous blogger who published Greenlight’s confidential investment strategy. I wrote about the case here. The New York Times published an article about the case that includes a quote from my blog post:

“Laws prohibiting trade-secret misappropriation by definition restrict speech,” Eric W. Ostroff, a commercial litigation and trade secret lawyer with Meland Russin & Budwick, wrote on his blog. “Allowing someone to hide behind an online pseudonym could render these laws ineffective.”

As the article notes, this is a very interesting case that highlights the competing interests between the First Amendment and trade-secret misappropriation laws. In a world where everyone has access to social media and blogging resources that allow for the free, easy, and widespread dissemination of information, trade-secret-misappropriation laws need to restrict people from anonymously disclosing trade secrets.

Trade-Secrets Interview: Pamela Passman of CREATe.org

Protecting Trade Secrets is launching a new regular feature, where we will interview people of interest in the trade-secrets world. Starting with Pamela Passman, President and CEO of CREATe.org. “The Center for Responsible Enterprise And Trade (CREATe.org) is a non-profit organization dedicated to helping companies and their suppliers and business partners reduce corruption and IP theft in the forms of counterfeiting, piracy and trade secret theft.”

Recently, I published a blog post discussing a new trade-secrets report published by CREATe.org. I asked Ms. Passman questions about CREATe.org and the report. I’ll be running the interview in two parts. Check back later this week for part 2.

PamelaPassman CREATe org sm (3)Protecting Trade Secrets: Let’s start with some background on CREATe.org. When was it created? By whom? Why? What are its primary activities?

Pamela Passman: While at Microsoft, as Corporate Vice President and Deputy General Counsel for Global Corporate and Regulatory Affairs, I led  regulatory compliance work on a range of issues in more than 100 countries. For nearly six years I also headed Legal and Corporate Affairs in Asia, based in Tokyo, with a focus on Japan, Korea and the People’s Republic of China.

My collective experience—in compliance, corporate leadership, public policy and emerging markets—led me to consider a new approach to two critical issues for companies around the world: intellectual property (IP) protection and anti-corruption.

The genesis for the idea of CREATe.org was based in recognizing that companies such as Microsoft, GE, P&G and many others have spent years developing robust management systems and best practices to appropriately manage and use IP and to prevent corruption. Equally important, was a belief that the private sector can play a powerful role in driving responsible business practices and bridging regulatory gaps where adequate laws do not exist or enforcement is weak.

From these perspectives, CREATe.org was founded in October 2011. As a non-profit organization, CREATe.org works across industries and geographies with a mission to bring leading practices in IP protection and anti-corruption to all companies. The organization works to provide cost-effective and practical assessments, benchmarking, tools and step-by-step guidance for companies, particularly those that lack a track record of developing and implementing compliance programs.

PTS: Does CREATe.org have any policy objectives (e.g., lobbying for legislation, regulations)?

PP: CREATe.org is focused on ways the private sector can more effectively address the issues of IP protection and anti-corruption. We do this by helping companies around the world improve practices and put systems in place to mitigate the risks of IP theft and corruption. CREATe.org is not a lobbying organization.

PTS: What precipitated the “Economic Impact of Trade Secret Theft” report?

PP: In the organization’s first two years, our team gathered insights from companies around the world, gave countless presentations and partnered with think tanks, academics and experts on IP protection and anti-corruption. The challenge of trade-secret theft was a topic that surfaced throughout these exchanges. Companies are finding it increasingly difficult to protect trade secrets, both within companies and among third-parties.

PTS: Let’s turn to some of the details of the report. Your framework to safeguard trade secrets involves bringing key stakeholders into the process. Often, senior executives can be reluctant to participate in such a process. Any suggestions for building enthusiasm among senior executives?

PP: Most senior executives appreciate that trade secrets are key to the company’s value, ability to innovate and compete. For many, the question is where to start? Our intent was to break down a comprehensive approach into steps and provide tools for making the process practical. Providing a clear path and the benefits of safeguarding trade secrets can be helpful for building support internally.

PTS: Similarly, your report acknowledges that protecting trade secrets can require actions that may cut against other company priorities, such as maximizing productivity. For example, increased security measures may result in it taking longer for employees to access documents they need to perform their jobs. Any suggestions for building a corporate culture that values protecting trade secrets on par with other financial priorities?

PP: Each company must determine the correct level of actions appropriate for their corporate culture and then invest in training and awareness campaigns to help educate employees on the importance of protecting company trade secrets. In our work in Asia, for example, we see companies with increasing focus on building awareness within their employee base and key third parties – including  IP protection campaigns that use a variety of media to promote good practices, from posters in the company cafeteria to e-learning and screen savers for desktop computers.

_______________________________

Later this week, Ms. Passman responds to my two critiques of the report and discusses CREATe.org’s next steps.

9th Circuit Affirms Attorney Sanctions in Trade-Secrets Case

In Heller v. Cepia, Judge Jeffrey White sanctioned the plaintiff’s attorney under Rule 11 and ordered him to pay the defendant $5,000. This week, the 9th Circuit affirmed. Both the district court’s and 9th Circuit’s opinions are linked below.

The plaintiff designed a toy hamster and shared a prototype with one of the defendants. While the opinion below doesn’t discuss the facts in detail, apparently the defendants allegedly stole the plaintiff’s toy hamster design. Trade secrets come in all shapes and sizes.

The court found that two allegations in the complaint lacked a factual basis: (1) sign-in sheets produced by a defendant (The Bean) appeared to confirm that representatives of another defendant (Cepia) were at The Bean’s offices at a time when The Bean had the hamster prototype, and (2) when confronted with information suggesting Cepia was given access to the plaintiff’s trade secrets, the other defendants refused to provide information about their relationship with Cepia.

Regarding the sign-in sheets, the evidence showed that The Bean simply did not produce any sign in sheets for the week in question. Per the court, the plaintiff went too far when it alleged that the sign-in sheets confirmed Cepia’s presence: “contrary to the implication of Heller’s allegation, The Bean’s sign in sheets do not confirm anything.” (emphasis in original).

Regarding the defendants’ refusal to provide information, the court found that “there is no credible evidence to support Heller’s allegation.”

When imposing sanctions, the court found that “the nature of these unsupported allegations stem from exaggerations for which Heller’s counsel is culpable. He is the one who drafted the complaint and the allegations at issue.”

Lawyers sometimes get carried away when drafting a complaint. Obviously, everyone wants their case to sound as strong as possible. But this case shows the value of being conservative when describing the facts in a pleading.

Heller v. Cepia, N.D. Cal.

Heller v. Cepia, 9th Circuit

Sporting Goods Spy Game

So this is a new one. According to a lawsuit filed by national sporting-goods retailer Dick’s Sporting Goods, Inc.. Mitch Modell, the high-profile CEO of rival company Modell’s Sporting Goods, posed as a Dick’s executive when visiting a Dick’s store. Modell’s is a leading sporting-goods retailer in the Northeast, from which I bought plenty of sports equipment when growing up in New York.

By allegedly pretending to be a Dick’s Vice President, Modell gained access to private areas of the Dick’s store. Supposedly, Modell wanted information about Dick’s e-commerce initiatives, including Dick’s “ship from store” program that uses local stores to fulfill online orders.

This is remarkable. Modell is a visible figure, particularly in the sporting-goods industry. For example, he starred in an episode of Undercover Boss. That he would (allegedly) attempt such a scheme is crazy, and is a vivid illustration of the corporate-espionage risk that companies face.

This case shows that companies need to have a clear policy restricting access to nonpublic areas, and all employees need to be trained about the policy. For example, all nonpublic areas should be locked, with video surveillance where possible. All visitors given access to these areas should sign a log. And a company could issue all employees photo IDs, and require that employees call headquarters to confirm any unannounced employee/corporate visit before allowing access to nonpublic areas.

I’m very curious to hear Modell’s defense.

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