A few days ago, in a federal court in Chicago gave a manufacturer some tough love about trade secret law. In the case, the long time president of a the plaintiff left to start a competing business and took a flash drive with him that included information about his former company’s pricing, customers, and suppliers. The former president later hired another former employee to join him, and she too brought with her information from her former employer. Some of this information was used “as a general reference point and a benchmark when determining” the new company’s needs and some of it was shared with the new company’s sales representatives, who were “instructed” to “target key” distributors of the plaintiff.
Sounds like a compelling trade secret claim for misappropriation likely to receive injunctive relief?
Perhaps the single most important part of outsourced manufacturing is to select a trustworthy partner. A company should not enter into any transaction unless it has a good basis to believe that the manufacturer will be an acceptable partner. This requires rigorous due diligence, including:
- Background checks of the manufacturer’s principal officers, directors, and key personnel.
- Audits of the manufacturer’s financial statements.
- Inspections of the manufacturer’s facilities.
- Investigations of the manufacturer’s supply chain and trading partners.
A company’s internal controls may help to ensure proper:
- Vetting and selection of the prospective manufacturer during the due diligence process.
- Negotiation of the outsourced manufacturing relationship.
- Management of the outsourced manufacturing transaction and relationship with the manufacturer.
Nearly all manufacturing processes involve a significant number of intellectual assets. These assets may include registered intellectual property (designs, patents, copyrights, or trademarks) or unregistered trade secrets, know-how, confidential information, or other intangibles. Read more
There are two common categories of outsourced manufacturing: toll manufacturing and contract manufacturing. While both these manufacturing options have distinct and clear characteristics, their strategic advantage is their ability to provide customers with valuable ways to save both time and capital on their product line development. Read more
Since the beginning of the industrial age, companies have outsourced part of the manufacturing process to third-party providers. In the twentieth century, as manufacturing processes became more complex and distribution more global, this trend accelerated.
By David Cohen & Donal O’Connell
“China national charged with stealing trade secrets” – U.S. Justice Department
“Chinese battery expert is charged with stealing trade secrets from US employer, as he prepared to join mainland firm” – South China Morning PostRead more
Very interesting study from the UK Intellectual Property Office and the British Business Bank about using IPR (at least in part) as collateral for business loans.
Very odd, however, is that there is NO mention of trade secrets at all. Which is quite surprising actually. While analyzing trade secrets usage as collateral is (understandably) more challenging that for registered IPR, not to even mention it seems like a major flaw in the study.
Regardless, the conclusion seems promising and there is a lot of data included in the annexes to review.
Donal O’Connell and I recently posted an article on trade secrets and director liability. https://kidonip.com/news/company-directors-duties/
A great piece published by Columbia University Law School earlier this year http://clsbluesky.law.columbia.edu/2018/04/04/wachtell-lipton-discusses-risk-management-and-the-board-of-directors/ provides a good summary of the many issues related to risk management and the board of directors.
Another piece https://pomerantzlawfirm.com/publications/2018/2/8/recent-derivative-actions-highlight-directors-obligation-to-monitor-and-prevent-employee-misconduct discusses a recent case In re Wells Fargo & Company Shareholder Derivative Litigation where the court refused to dismiss a shareholder derivative action against the board of directors holding that the numerous allegations of “red flags” of which the board was aware regarding the practices of the company bolstered the conclusion that the director defendants consciously disregarded their fiduciary duties to the company. http://www.wlrk.com/docs/InreWellFargoOrderonMotiontoDismissenteredMay42017.pdf