Today's General Counsel, Fall 2018

Page 32

FALL 2018 TODAY’S GENER AL COUNSEL

Intellectual Property

Trade Secret Tips for Strategic Buyers By Christopher J. Cox, Kyle C. Krpata and Edric C. Itchon

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rguably, more than with other forms of intellectual property, a buyer’s exposure to the seller’s trade secrets can cause potential liability and restrict the buyers’ business moving forward. The buyer’s actions in the context of a strategic acquisition can also impact the value of the trade secrets being acquired. Whether the strategic buyer is a serial acquirer or making its first major acquisition, the following seven tips help ensure that the buyer protects and preserves not only the trade secrets being acquired but also the buyer’s own business.

1

Think Broadly When Assessing What Is a Trade Secret. A buyer should have a broad view of what constitutes a trade

secret. Common trade secrets include confidential business plans, product designs, cost and pricing information, customer lists and source code. Any information that derives independent economic value from remaining secret and is subject to reasonable efforts to maintain its secrecy could qualify for trade secret protection. For example, negative information, such as initial designs that failed or failed process recipes, can be incredibly valuable to a competitor by saving time and resources in an R&D budget. A company may also presume that products or processes covered by issued patents no longer qualify for trade secret protection, but certain non-public, product-related information held by the company could still qualify as trade

secrets. As a general rule, don’t presume a lack of trade secret protection.

2

Sign a Non-disclosure Agreement That Contains a Residuals Clause. It is important to have a signed nondisclosure agreement in place at the beginning of the diligence process. This may seem counter-intuitive for a buyer, because it usually will have fewer trade secret exposure concerns than a seller. However, accessing trade secret information carries the risk of potential trade secret misappropriation claims from the discloser should the relationship become contentious. A buyer should try to ensure that any non-disclosure agreement contains a residuals clause that provides the recipient of trade secret information


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