B. Differences With Other Types of Intellectual Property.
Trade secrets differ significantly from other types of intellectual property. As will be seen below, many of the differences affect the steps a trade secret owner must take protect the secret. First, trade secret protection is not enhanced by registration with government; it depends instead on contractual, statutory or common law enforcement. Second, unlike patents, trademarks and copyrights, trade secrets rely for their protection primarily on state rather than federal law. Third, the term of protection of trade secrets is indefinite. Fourth, trade secret law only protects against improper means of discovery, including industrial espionage *396 or conversion. Proper means of discovery -- e.g., reverse engineering or independent invention -- are not prohibited. Finally, the policies underlying trade secret protection conflict in important respects with the goals of other forms of intellectual property protection, most notably the patent law, which is designed to encourage the dissemination and sharing of the fruits of invention. These distinctions between trade secrets and other forms of intellectual property are discussed at greater length in Dratler, Intellectual Property Law (1994), §4.01[1], at pp. 4-2 through 4-5.
C. Examples of Trade Secrets.
1. Software.
Computer software qualifies as a trade secret provided it meets the tests of restricted availability, independent *397 economic value, and reasonable efforts to maintain secrecy. The courts' early willingness to grant blanket trade secret protection to computer software has evolved to a standard requiring more stringent proof that the software is indeed a trade secret.
a. Blanket Protection
An example of the courts' former leniency is Structural Dynamics Research Corp. v. Engineering Mechanics Research Corp., 401 F.Supp. 1102 (E.D. Mich. 1975). Structural Dynamics, a developer of computer programs, sued three former employees and their new employer, a direct competitor, for misappropriation and misuse of trade secret material. Without any discussion, the court granted trade secret protection to the software, holding simply that the "selection of elements, solver routine, organization of *398 sub-routines, coding, and other factors contributing to the efficiency and effectiveness of the program constituted important and confidential information * * *." Id. at 1116.
To the same effect is ComShare v. Computer Complex, Inc., 338 F.Supp. 1229, 1234 (E.D. Mich. 1971), where the court held that the "specific engineering of * * * software systems, and their underlying technologies and design * * *," without further analysis or discussion, constituted protectable trade secrets.
b. Stringent Proof of Trade Secret Status
As computers have become a familiar fixture in our society, courts have begun requiring a stricter standard for protecting computer software as a trade secret. For example, in *399 MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993), the Ninth Circuit denied relief on the basis that plaintiff had failed to identify specifically its alleged trade secrets, rejecting plaintiff's amorphous claim that the software contained "valuable trade secrets of MAI." MAI Systems, 991 F.2d 511, 522.
In accord is Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 665 (4th Cir. 1993), where the court required that plaintiff describe its trade secrets in detail. While holding that plaintiff's source code was protectable because it was kept completely secret, the court rejected plaintiff's claim as to program modules within its "Tunnel System" software:
Trandes * * * failed to meet its burden of proof with respect to the structure and organization of the Tunnel System modules. Trandes presented evidence that the *400 Tunnel System had both a structure and an organization but explained neither how the program was structured nor how it was organized. Without such evidence, no reasonable jury could have concluded that the structure and organization of the software was unique or was not generally known in the industry.
Id. at 662.
2. Customer Lists.
Information relating to the identity and requirements of customers can likewise qualify for trade secret protection. Restatement of Unfair Competition, § 42, Comment f (1995). Customer lists are protectable provided they are sufficiently valuable and secret to afford an economic advantage to the holder of the list. Id. at § 39.
In MAI Systems, supra, the Ninth Circuit held that a customer database qualified for trade secret protection. The court reasoned that the database had *401 potential economic value because it allowed competitors to direct their sales efforts to those potential customers already using plaintiff's system. Id. at 521.
On the other hand, courts are reluctant to protect customer lists to the extent they embody information which is "readily ascertainable." For instance, in Liberty Mutual Ins. Co. v. Gallagery & Co., 1994 WL 715613 at *4 (N.D. Cal. 1994), the court held that "[i]nformation which is readily obtainable through public sources such as directories, including the identities of prospective customers, does not derive the independent economic value necessary to the existence of a trade secret."
Once an employer proves that a customer list is capable of trade secret protection, it must then prove that the *402 former employee misappropriated the list. Generally, a former employee must actively "solicit" customers before his or her actions rise to the level of misappropriation. Most courts have held that merely obtaining a customer list is not sufficient to impose liability. In other words, a mere announcement of a former employee's departure to a new company does not rise to the level of misappropriation. (For a discussion of the distinction between an announcement and solicitation, see Aetna Bldg. Maintenance Co. v. West, 39 Cal.2d 198, 203 (1952), where the court stated: "'Solicit' means: 'To appeal to (for something); to apply to for obtaining something * * *"'. By contrast, "[m]erely informing customers of one's former employment, without more, is not solicitation." Id. at 204.)
*403 An example of solicitation is found in American Credit Indemnity Co. v. Sacks, 213 Cal.App.3d 622, 626 (1989). There, the defendant Sacks wrote a letter to all of her former employer's customers. The letter stated in relevant part:
"[I] have left [ACI] and am very pleased to announce the formation of an independent insurance agency * * * I would like you to learn more about the policy, I will be happy to discuss it in detail with you when you are ready to review your ongoing credit insurance needs at renewal time."
The court found that defendant's conduct rose to the level of solicitation because the letter informed the customers of the new competitive policy and invited their inquiries.
By contrast, the court in Hilb, Rogal & Hamilton Ins. v. Robb, 33 Cal.App.4th 1812, 1821 (1995), held that a former employee's conduct did not rise *404 to the level of solicitation where defendant simply "[l]awfully informed some of [plaintiff's] clients of his change in employment * * *."
3. Employee Knowledge, Training and Experience.
In Metro Traffic Control v. Shadow Traffic, 22 Cal.App.4th 852 (1994), the court held that an employee's knowledge, training and experience do not to constitute a trade secret. There, plaintiff sought to enjoin three of its former radio traffic announcers from announcing for a competitor. Metro made the novel claim that its former employees' "unique format for traffic reporting," "peculiar idiosyncrasies of word choice" and the audience's "expectations about the personality of a traffic reporter" constituted trade secrets. Id. at 861. The court rejected this argument, noting that "[s]imply *405 hiring personnel who possess the requirements specified by a customer does not convert the employee into a 'trade secret'. In other words, a stable of trained and talented at-will employees does not constitute an employer's trade secret." Id. at 863.
4. Ideas.
Cases involving the submission of ideas by employees, customers, inventors, and others to businesses capable of reducing the idea to practice are sometimes analyzed under separate rules referred to as "the law of ideas." However, some decisions explicitly incorporate such claims within the scope of trade secret law. Restatement of Unfair Competition, § 39, Comment h.
For example, in Intermedics, Inc. v. Ventritex, 152 F.R.D. 188, 189 (N.D. Cal. 1993), while acknowledging it to be "a *406 matter of some subtlety," a magistrate judge rejected the proposition that an idea had to be commercially feasible (for use, in that case, in an implantable defibrillator) to qualify as a trade secret. In accord is U.S. Surgical Corp. v. Origin Medsystems, Inc., 27 U.S.P.Q.2d 1526 (N.D. Cal. 1993), where the court granted a preliminary injunction enjoining defendant's use of plaintiff's preliminary design for a retracting tip trocar used in arthoscopic surgery, even though the idea was never reduced to a functional model. Whether or not the design worked, the court stated, was irrelevant to a determination of its status as a trade secret; the issue was whether plaintiff's design was used by defendant as a starting point for its product. Id. at 1530.
5. Combination of Elements.
*407 A unique combination of elements which individually are in the public domain can be a trade secret. In Rivendell Forest Products, Ltd. v. Georgia-Pacific Corp., 28 F.3d 1042 (10th Cir. 1994), the Tenth Circuit held that a computer software system, comprised of elements in the public domain, was protectable as a trade secret where a combination afforded a competition advantage.
There are limits to the "combination of elements" doctrine, however. In Precision Moulding & Frame, Inc. v. Simpson Door Co., 77 Wash.App. 20, 888 P. 2d 1239 (1995), plaintiff's use of an automatic banding machine to hold molding together while adhesive was setting was held not protestable as a trade secret. The court reasoned that the information *408 was readily available to others in the woodworking business.
6. Specially-Developed Customer Information and Sales Route.
Details concerning a specially developed sales route may receive trade secret protection. [FN3] However, information regarding "non-route" customers, i.e., those who purchase from several suppliers, may not constitute a trade secret. For example, in Corroon & Black-Rutters & Roberts, Inc. v. Hosch, 109 Wis.2d 290, 298 (1982), defendant's active solicitation of his former employer's insurance accounts was held not actionable. Because the account list "* * * contained only the names and addresses of the individuals to be contacted, rather than complicated marketing data concerning the customer's projected market needs or the customer's *409 market habits" (id. at 296), no trade secrets were involved.
7. "Negative Information".
The modern trend is to find "negative information" to be a trade secret. For example, negative results of research and development could qualify for protection. "The definition [of a trade secret] includes information that has commercial value from a negative view point, for example, the results of lengthy and expensive research which proves that a certain process will not work, could be of great value to a competitor." (Uniform Trade Secrets Act, § 1, Commissioner's Comment, 14 Uniform Laws Annot. 439 (1990)).
8. Genetic Footprints.
In Pioneer Hi-Bred International v. Holden Foundation Seeds, Inc., 35 F.3d 1226 (8th Cir. 1994), the Eighth Circuit *410 held that the district court had properly inferred trade secret misappropriation of the genetic makeup of seed corn, affirming a $46 million damage award. Defendant argued that the plaintiff had failed to maintain secrecy of the genetic messages, and failed to prove that defendant obtained the material by improper means.
With respect to the first ground, the court noted that "reasonable precautions" to protect the secrecy of a trade secret will suffice. Here, plaintiff had taken several steps to preserve secrecy, including entering into contracts with growers prohibiting disclosure of the genetic makeup of the seed; coding seed bags, and deleting field labels, to avoid identification; and co-mingling male inbred lines with *411 other corn, thereby frustrating those seeking to obtain the inbred seed.
With regard to the second defense, the court held that while the issue was close, plaintiff presented sufficient circumstantial evidence from which the inference could be drawn that defendant had misappropriated the genetic information. Plaintiff showed that defendant had a long history of attempting to obtain plaintiff's genetic material. An inference of misappropriation from limited facts, the court stated, "* * * is especially warranted in situations such as this where the secret itself is so unique that any form of duplication would probably be improper." (Id. at 1240.)
9. Production Processes.
When trade secret information is "inextricably connected" to *412 manufacturing, an injunction for trade secret violations may properly bar not only the use of the misappropriated information but also the production which the information facilitates. In General Electric Co. v. Sung, 843 F.Supp. 776 (D. Mass. 1994), the court imposed an injunction against the production of saw grade synthetic industrial diamonds. Defendant, a former GE technician, took documents, drawings and process instructions relating to diamond production to a competitor, who then perfected in two years a process which had taken GE 20 years to develop. Because the defendant had no pre-existing and independently developed manufacturing processes of its own, and could not be expected to "unlearn" or abandon the misappropriated technology, the court *413 imposed a seven-year production injunction.
II. Typical Situations (Danger Zones) Where Trade Secret Protection May be Lost.
A. Employment Relationship and Employee Departures.
Without question, the employment relationship is the most common ground within which trade secret disputes arise. As one commentator has noted:
"The rights and duties arising from the employer/employee relationship are the context of the great majority of reported trade secret cases. As reliance on trade secret rather than patent protection increases, controversies between former employers and ex-employees (and their new employers) will not only increase in number, they will be contested for significantly higher stakes." (1 Milgrim on Trade Secrets, § 5.01, p. 5-2 (Rel. No. 50, September 1995.)
Thus, as a practical matter, the most critical area of focus for effective trade secret protection must be on the *414 company's employees. Given the ease of electronic transmission of data, a disgruntled employee with access to proprietary information has the potential to wreak havoc in the business. Internal measures to limit access to trade secret information to employees with a need to know, as well as systems to record actual access to such information, can significantly lessen the company's vulnerability. In addition, managers should carefully monitor (within the bounds of sound employment practices) employees who are known to be unhappy and who also have access to sensitive information.
Measures should also be taken to prevent the inadvertent disclosure of proprietary information by employees. Confidentiality agreements, regular reminders, and procedures for marking and *415 controlling access to sensitive information all go a long way toward creating an environment in which employees handle trade secrets with caution and respect.
Where the employee's knowledge and skills are regarded as inextricably linked to his former employer's trade secrets, and his or her subsequent employment raises a risk of the almost inevitable use of those secrets, the courts have not hesitated to act in favor of the former employer, even in the absence of a signed covenant not to compete. One of the more famous examples of this doctrine is DuPont v. American Potash & Chem. Corp., 200 A.2d 428, 141 U.S.P.Q. 447 (Del. Ch. 1964). DuPont sought an injunction prohibiting Hirsch, a former employee, from disclosing trade secrets and other confidential *416 information relating to the manufacture of titanium dioxide pigments, and preventing Hirsch from taking a position with defendant Potash, a competitor. Hirsch had not signed a covenant not to compete in connection with his employment with DuPont; he did agree, however, in conjunction with his Potash employment, not to disclose proprietary or confidential information of third parties to Potash without their prior written consent. Potash had originally sought a license from DuPont for the commercial manufacture of titanium dioxide by a chloride process, but DuPont had declined to grant such a license. Potash, located in California, then advertised in Wilmington, Delaware (in the vicinity of the DuPont plant) for a plant manager and ultimately hired Hirsch.
*417 The court denied Potash's motion for summary judgment, noting that it seemed impossible for Hirsch to isolate DuPont's trade secrets and not use them in his new employment. Rather, the court found inferences of probable wrongful disclosure and held that a trial was required to evaluate the evidence.
A very recent example of the "inevitability" doctrine is PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995). There, defendant Redmond, a ten-year PepsiCo employee and former General Manager of Pepsi's California business unit, left to join PepsiCo's arch rival, Quaker Oats Company. Quaker's "Gatorade" sports drink was the dominant brand in its market niche and competed directly against PepsiCo's "All Sport."
Redmond was privy to PepsiCo's highly confidential strategic sales plan *418 and Annual Operating Plan, which set PepsiCo's strategies for manufacturing, production, marketing, packaging and distribution, including information about PepsiCo's "pricing architecture." Given Redmond's knowledge of these plans, Pepsico argued that he would inevitably disclose that information to Quaker in his new position, where he would have substantial input as to Gatorade and Snapple pricing, costs, margins, distribution systems, products, packaging and marketing.
The court noted that under the Illinois Trade Secrets Act, an injunction against "actual or threatened misappropriation" of a trade secret is permissible. The question of threatened or inevitable misappropriation, the court stated, lies at the heart of a basic tension in trade secret law between the *419 protection of standards of commercial morality and encouraging invention and innovation, on the one hand, while maintaining the public interest in free and open competition, on the other. This tension is exacerbated, the court said, when the plaintiff sues to prevent not actual misappropriation of trade secrets but the mere threat that such misappropriation will occur.
The Seventh Circuit affirmed the district court's grant of injunctive relief. The danger was not that Quaker would use PepsiCo's secrets to create a distribution system or co-opt PepsiCo's advertising and marketing ideas, the court stated:
"Rather, PepsiCo believes that Quaker, unfairly armed with knowledge of [PepsiCo's] plans, will be able to anticipate its distribution, packaging, pricing and marketing moves. Redmond and Quaker even concede that Redmond might be faced *420 with a decision that could be influenced by certain confidential information that he obtained while at PepsiCo." (Id. at 1270.)
The district court was also influenced by evidence that defendant Redmond's actions demonstrated a lack of candor in dealing with Pepsi immediately prior to his departure, and the Seventh Circuit agreed. His lack of forthrightness on certain occasions, and expressly lying in others, led the court to believe that "Redmond could not be trusted to act with the necessary sensitivity in good faith under circumstances in which the only practical verification that he was not using plaintiff's secrets would be defendant Redmond's word to that effect." (Id. at 1270.)
*421 B. Sales of Divisions and Subsidiaries.
An implied duty not to disclose a business owner's manufacturing process may be created where the process is revealed during the course of negotiations for the sale of a business. This view was adopted by the Fifth Circuit in Phillips v. Frey, 20 F.3d 623 (5th Cir. 1994). There plaintiff was the owner of manufacturing process for single pole deer stands which are used by hunters. During negotiations for sale of plaintiff's business, defendant learned of plaintiff's process for manufacturing and distributing such stands. The defendants eventually backed out of the proposed sale and later began manufacturing and marketing competing stands.
The court held that defendants improperly misappropriated plaintiff's *422 trade secrets. The court reasoned that there is a restriction "against the disclosure or unauthorized use by those to whom the secret has been confided under either express or implied restriction of nondisclosure or by one who has gained knowledge by improper means" (emphasis added). Phillips, 20 F.3d 623, 629. Thus the court concluded that even though plaintiff "never explicitly requested that the secret of his manufacturing process * * * be held in confidence, both parties mutually came to the negotiation table, and the disclosure was made within the course of negotiations for the sale of a business." Id. at 632.
In contrast, the court in Smith v. Snap-On Tools, 833 F.2d 578 (5th Cir. 1987), held that in the absence of a confidential relationship, no protectable *423 trade secrets existed. In Smith, plaintiff made a ratchet by combining parts of two existing tools and disclosed this to Snap-On. Snap-On then began manufacturing the ratchet without compensating Smith. Smith sued, claiming that the process for making the ratchet was a trade secret. The court held that no confidential relationship existed between the parties because Smith voluntarily disclosed his process and never explicitly requested that it be held in confidence. Id. at 580.
C. Customer and Vendor Relationships.
A third critical area for protecting trade secrets is customer and vendor relationships. In order to preserve legal protection for trade secrets, the company must be able to demonstrate that it has taken sufficient steps to ensure that proprietary information shared with *424 customers and vendors is maintained by them in confidence. Conspicuous marking of confidential information and the signing of non-disclosure agreements (see section IIIA, infra) are the bare minimum necessary to preserve trade secret status.
D. Patent Applications.
Although irreparable harm may be proved by threatened disclosure of a trade secret, such harm may not be proved by the "further disclosure" of a secret that has already been revealed in a patent application. In Campbell Soup Co. v. ConAgra, 977 F.2d 86 (3d Cir. 1992), plaintiff argued that defendant misappropriated its trade secrets for non-fried chicken. The court disagreed, stating, "[w]e fail to see how immediate irreparable harm could arise * * * in light of the fact that [plaintiff] has *425 already revealed the non-fried process in a patent application * * *. A threat of disclosure may establish immediate irreparable harm but 'further' disclosure of something already revealed cannot." Id. at 92.
III. "Reasonable Efforts": What Steps Should the Company Take to Protect its Trade Secrets?
In order to be entitled to legal remedies for misappropriation of its trade secrets, a company must be able to demonstrate that the matter claimed to be a trade secret was "the subject of efforts that are reasonable under the circumstances to maintain its secrecy." (Uniform Trade Secrets Act § 1(4), 14 Uniform Law Annot. 438 (1990)). What constitutes "efforts that are reasonable under the circumstances" is a factual issue that depends on the nature of the business, the types of matter for which *426 protection is sought, and the circumstances surrounding the alleged misappropriation. Attempting to ensure compliance with the "reasonable efforts" standard should, in most cases, have the tangible benefit of deterring misappropriation and avoiding the necessity for legal action.
The following are some concrete examples of measures that should be undertaken in an effective trade secret protection program.
A. Contracts.
1. Employee Confidentiality Agreements.
A very important first step in the protection of trade secrets is to have every employee sign an employee confidentiality agreement. Many companies in California's Silicon Valley, for example, require every new employee, irrespective of his or her position, to *427 sign one. It is relatively easy to have the signing of such an agreement be part of the corporate orientation process and be a condition of employment.
Key elements of such an agreement include:
a. A promise by the employee to maintain the company's proprietary information in confidence except to the extent necessary to perform his or her duties for the company.
b. A general definition of what constitutes proprietary information, with a non-exclusive list of examples that are specific to the company's business. The definition should also include confidential information of customers and suppliers that is entrusted to the company.
c. A promise to return to the company upon termination of *428 employment all written and tangible material embodying confidential information.
d. A promise not to undertake during the term of employment any consulting or moonlighting positions in any business competitive with the company (or at all, depending on the company's policy).
e. A representation that the employee is not subject to any other agreement or obligation that would be breached by employment with the company, and a related promise not to disclose to the company any confidential information of any previous employer or other third party.
f. An agreement by the employee to assign to the employer all inventions conceived or created by the *429 employee in the course of employment with the company.
g. The employee's consent to injunctive relief and/or specific performance in the event of a breach of the agreement.
An example of an employee confidentiality agreement is found in Appendix A.
2. Contractor Confidentiality Agreements.
All contractors or temporary employees working on site should also execute confidentiality agreements. These can be provisions woven into an independent contractor service agreement or they can form a stand-alone contract. In some circumstances, both may be necessary.
For example, where the company retains another company to perform a *430 service that will involve exposure to trade secrets, the company performing the service should sign an independent contractor agreement that includes confidentiality provisions. The individual employees of the contracting company who will be fulfilling the assignment should also sign a confidentiality agreement. The latter agreement not only provides an extra layer of legal protection but also reminds the individuals of the importance of maintaining the confidentiality of the company's proprietary information. This is particularly important if the contractor may be next assigned to perform a similar project for another company.
An example of a contractor confidentiality agreement is found in Appendix B.
*431 3. Non-Disclosure Agreements.
Another important contractual method to protect trade secrets is the third-party non-disclosure agreement. Non-disclosure agreements should be used in any circumstance where confidential information is to be disclosed to a third party such as a vendor, customer, or potential business partner. Typical examples include the following scenarios: The company wishes to discuss its future product road map with Company B in the course of exploring a possible strategic alliance. The company intends to provide sensitive financial information to bankers in the course of seeking a loan or a capital investment. The company plans to exchange technical information with Company C in order to determine whether Company C can design the company's new chip into its computer *432 system. The company is contracting with Company D for Company D to manufacture the company's key products.
All of these scenarios require non-disclosure agreements. The agreements may be mutual or one-directional. Key elements include:
a. Specific identification of the confidential matter to be disclosed and the purpose for which it is to be disclosed.
b. An agreement by the recipient of the confidential matter to maintain it in confidence and to use it only for the purpose for which it is disclosed. The agreement to keep the matter confidential may also include a promise to limit disclosure only to employees who have a need to know and who have signed confidentiality agreements.
*433 c. A promise by the recipient immediately to notify the discloser of any unauthorized disclosure and to help remedy the breach.
d. An exclusion from the scope of the agreement of information that is not actually confidential, is publicly disclosed, was already in the recipient's possession, is received without restriction from a third party, or must be disclosed to a government agency or court.
e. Where appropriate, a statement that no license to the confidential matter is granted by the agreement.
f. A promise by the recipient to return materials embodying the confidential information on demand.
*434 For an example of a third party confidentiality agreement, see Appendix C.
B. Physical Security.
Physical security is one of the most challenging elements of trade secret protection. As a practical matter, the nature and extent of physical security can have a significant impact on, or be influenced by, corporate culture. It can be difficult to find the right balance between maintaining the open, friendly atmosphere that many smaller companies want to preserve and having sufficient physical security to ensure trade secret protection. Anyone seeking to implement a physical security program should ensure that upper management has been consulted and that cultural issues have been considered.
*435 The following are examples of physical security measures:
1. Controlling Access to the Facilities.
Controlling physical access to the location of trade secrets is critical to any effective protection program. Depending on the nature of the business, this may mean controlling access to specific buildings or areas within buildings, or it may mean controlling access to an entire complex or facility. Controlling physical access includes:
a. Requiring all employees to wear identification badges with photographs.
b. Limiting access to sensitive buildings, rooms, and work areas, with electronic and/or video mechanisms to monitor who has entered and when.
*436 c. Requiring all visitors to enter through the lobby, sign in, and wear temporary badges.
d. Requiring visitors to be escorted at all times.
2. Providing Locked Areas to Employees.
Employees need to have the ability to store proprietary material in locked areas. This means that every office or cubicle should have a cabinet with locks and/or locking desk drawers.
3. Utilizing Monitoring Cameras.
Monitoring cameras (with videotaping) provide a very useful element of a physical security program. They should be strategically and prominently placed at all entrances and exits, and in areas where sensitive information is kept. Tapes should be removed when they are fully recorded and *437 retained for at least a few months. The cameras may have a deterrent effect, and the tapes can provide critical information and evidence in the event a theft actually occurs. The company can also use the cameras to monitor employee compliance with security procedures.
4. Conducting Physical Searches.
Some companies require that all boxes, bags, briefcases and the like be subject to search upon entry and departure from the building, applying this policy to visitors, contractors, and employees alike. In order to avoid right to privacy issues, a search policy must be conspicuously posted, and employees should be notified about the company's intentions before the policy is put into place. Any company implementing a search policy should also be sure that it is not enforced in a manner that discriminates *438 on the basis of race or any other protected factor. Given the ease with which sensitive data can be transmitted or carried electronically, the practical value of a search policy is questionable, and it can be controversial or even counter-productive if it is at odds with an open corporate culture.
C. Implementing an Effective Marking System.
Trade secrets that are in documentary or electronic form should be conspicuously marked. A three tiered system is recommended: "Company Secret" for information that is never disclosed outside the company and which is maintained under the strictest controls; "Company Confidential" for information that may be disclosed outside the company, but only under a non-disclosure agreement; and unmarked for information that is not restricted. Employees must *439 be carefully educated and reminded on an ongoing basis about the parameters and importance of marking. Management should develop and encourage the use of watermarks, macros and templates for marking all sensitive material.
"Company Secret" documentation should be tightly controlled. Copies should be made only for those who need to have them, and these should be marked with the name of the individual to whom the copy is assigned (preferably on every page). Copies should be printed on paper with a red "Company Secret" watermark so that unauthorized copies can be easily identified. A list of the number, holders and locations of all copies should be maintained and regularly updated.
*440 D. Exit Interviews.
Personal interviews with employees who are leaving the company provide an excellent vehicle for reminding employees of their obligation to maintain the confidentiality of company trade secrets and what to expect if they don't. These interviews are particularly important if the employee is going to work at a competitor, but even if he or she is not, the employee may land at a competitor six months to a year later, and the interview will have been very important. The interview can also be used to answer any questions the employee may have about his or her obligations, and to ferret out potential problems.
If the company has a legal department, the interview should be conducted by an attorney if the departing employee is going directly to a *441 competitor or is known to be disgruntled. Otherwise, the interview can be conducted by trained human resources personnel or management.
The exit interview should include the following:
1. A discussion of the employee's new position, including any involvement with competing products.
2. A review of the key provisions of the confidentiality agreement the employee (hopefully) signed at the commencement of his or her employment.
3. A discussion of the types of matters that the company considers to be trade secrets, including a specific review of any trade secrets that the employee has developed or been exposed to.
*442 4. An explanation of the steps the company will take in the event it believes the employee has misappropriated trade secrets.
5. A discussion of any specific issues the employee believes could arise in connection with his or her new position, and clarification of any points about which the employee has questions.
6. A confirmation that all proprietary information used by the employee in the course of employment has been returned to a manager, and a review of all materials the employee is taking from the company.
Following the interview, the interviewer should put a memorandum in the employee's file. If the interview was routine, a form or checklist can be used, documenting the fact that each of *443 the above items was discussed. If the employee has raised specific issues, or if there was anything else unusual about the interview, that should be clearly documented. If there is a dispute later, the employee cannot claim that he or she did not understand the confidentiality obligation or have an opportunity to ask questions.
E. Dealing with Paper.
A variety of measures can be undertaken to deter misappropriation of sensitive documentation. In addition to the marking policies discussed above, the company should also consider:
1. Maintaining locked bins for confidential trash, which are regularly emptied and the contents shredded. The effective use of these bins requires education of employees, especially if the company also maintains paper recycling *444 bins. Proprietary material should never be placed in recycling bins or regular trash cans.
2. Not locating copy machines in close proximity to areas in which sensitive documentation is located or in secluded locations where copies can be made in privacy.
3. Having a clean desk policy. Employees should be required to keep their desks clean, with confidential information stored in locked drawers or cabinets when the employee is not actively using it.
F. Computers.
The ease of electronic transmission of sensitive data - through the Internet, on floppy disks, and through internal networks - makes it particularly important that adequate security measures be in place to protect company secrets *445 that are in electronic form. While the details of such measures require a review of the company's particular configurations, as well as expertise beyond the scope of this paper, the fundamental protection principles reflect the themes that have already been articulated: access by employees and visitors must be controlled physically and through the use of passwords; security against access through the Internet and internal networks must be established; and confidential information must be clearly delineated. In addition, extreme care should be taken with electronic transmission of trade secrets; the Internet is not a safe route for transmission.
G. Education and Review.
The establishment of a trade secret protection program, as a result of audit *446 or otherwise, should not be an isolated event. Adequate protection requires ongoing review of procedures and systems, as well as periodic training of and reminders to employees. (For an example of a reminder memorandum to employees working on currently sensitive projects, see Appendix D.) As companies grow, expand or change their focus, or implement new technologies, they should be constantly reviewing their trade secret protection measures to be sure they are adequate and up-to-date. More important than any procedures, however, are loyal employees who have been well educated about the importance of trade secret protection and who take pride in being part of the effort to preserve the company's most valuable property.
*447 Conclusion
A working understanding of the basics of trade secret law is critical for anyone advising a company on the treatment of this unique variety of intellectual property. This article has sought to outline practical steps to identify and protect trade secrets in the company environment. Creation and monitoring of a trade secret audit and maintenance program can be a significant help in proving that a company has made "reasonable efforts" to preserve these vital assets.
[FN1]. The authors sincerely appreciate the contributions of Colita Ellis, a third-year student at the University of San Francisco Law School, to the research for and writing of this paper.
[FN2]. The Restatement's definition of a trade secret has been very frequently cited:
"Any formula, pattern, device or compilation of information which is used in one's business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it." (Restatement of Torts §757, Comment b (1939)).
[FN3]. "The typical and classical case of a route customer is the relationship between a householder and a milk delivery salesman. In that situation, the householder, during the course of the relationship, typically buys exclusively from the particular salesman; and it is assumed that, therefore, a special personal relationship will develop which will continue even though the salesman should commence his own enterprise or switch employers." Corroon & Black-Rutters & Roberts Inc. v. Hosch, 109 Wis.2d 290, 298 n. 6 (1982), (quoting Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis.2d 202, 215 (1978)).
Appendix A:
Employee Confidentiality Agreement
Appendix B:
Contractor Confidentiality Agreement
Appendix C:
Mutual Confidentiality Agreement
Appendix D:
Reminder Memorandum to Employees re Confidential Company Information

*450 Appendix A:

Employee Confidentiality Agreement

This Agreement is intended to set forth in writing my responsibility to XYZ CORPORATION ("XYZ"). I recognize that XYZ is engaged in a continuous program of research, development, and production respecting its business, present and future. As part of my employment with XYZ, I have certain obligations relating to inventions which I develop during that employment.

In return for my employment by XYZ, I acknowledge and agree that:

1. Effective Date. This agreement ("Agreement") shall be effective on , 19 , the first day of my employment with XYZ.

2. Confidentiality. I will maintain in confidence and will not disclose or use, either during or after the term of my employment any proprietary or confidential information or know- how belonging to XYZ ("Confidential Information"), whether or not in written form, except to the extent required to perform duties on behalf of XYZ. Confidential Information refers to any information, not generally known in the relevant trade or industry, which was obtained from XYZ, or which was learned, discovered, developed, conceived, originated or prepared by me in the scope of my employment. Such Confidential Information includes, but is not limited to, software, technical and business information relating to XYZ's inventions *451 or products, research and development, production processes, manufacturing and engineering processes, machines and equipment, finances, customers, marketing, and production and future business plans and any other information which is identified as confidential by XYZ. Upon termination of my employment or at the request of my supervisor before termination, I will deliver to XYZ all written and tangible material in my possession incorporating the Confidential Information or otherwise relating to XYZ's business. These obligations with respect to Confidential Information extend to information belonging to customers and suppliers of XYZ who may have disclosed such information to me as the result of my status as an employee of XYZ.

3. Inventions.

3.1 Definition of Inventions. As used in this Agreement, the term "Inventions" means any new or useful art, discovery, contribution, finding or improvement, whether or not patentable, and all related know-how. Inventions include, but are not limited to, all designs, discoveries, formulae, *452 processes, manufacturing techniques, semiconductor designs, computer software, inventions, improvements, and ideas.

3.2 Disclosure and Assignment of Inventions.

(a) I will promptly disclose and describe to XYZ all Inventions which I may solely or jointly conceive, develop, or reduce to practice during the period of my employment with XYZ (i) which relate at the time of conception, development, or reduction to practice of the Invention to XYZ's business or actual or demonstrably anticipated research or development, (ii) which were developed, in whole or in part, on XYZ's time or with the use of any of XYZ's equipment, supplies, facilities or trade secret information, or (iii) which resulted from any work I performed for XYZ ("XYZ Inventions"). I assign all my right, title, and interest worldwide in XYZ Inventions and in all intellectual property rights based upon XYZ Inventions. However, I do not assign or agree to assign any Inventions relating in any way to XYZ business or demonstrably anticipated research and development which were made by me prior to my employment with XYZ, which Inventions, if any, are identified on Exhibit A to this Agreement. Exhibit A contains no confidential information. I have no rights in any Inventions other than the Inventions specified in Exhibit A. If no such list is attached, I have no such Inventions or I grant an irrevocable, nonexclusive, royalty-free, worldwide license to XYZ to make, use, *453 and sell Inventions developed by me prior to my employment with XYZ.

(b) I recognize that Inventions relating to my activities while working for XYZ and conceived or made by me, alone or with others, within one year after termination of my employment may have been conceived in significant part while employed by XYZ. Accordingly, I agree that such Inventions shall be presumed to have been conceived during my employment with XYZ and are to be assigned to XYZ as an XYZ Invention unless and until I have established the contrary. I agree to disclose promptly in writing to XYZ all Inventions made or conceived by me for one (1) year after my term of employment, whether or not I believe such Inventions are subject to this Agreement, to permit a determination by XYZ as to whether or not the Inventions should be the property of XYZ. Any such information will be received in confidence by XYZ.

3.3 Nonassignable Inventions. This Agreement does not apply to an Invention which qualifies fully as a nonassignable Invention under the provisions of Section 2870 of the California Labor Code.

4. XYZ's Materials. Upon termination of my employment with XYZ or at any other time upon XYZ's request, I will promptly deliver to XYZ, without retaining any copies, all documents and other materials furnished to me by XYZ or prepared by me for XYZ.

*454 5. Competitive Employment. During the term of my employment with XYZ, I will not engage in any employment, consulting, or other activity in any business competitive with XYZ without XYZ's written consent.

6. Non-solicitation. During the term of my employment with XYZ and for a period of two (2) years thereafter, I will not solicit or encourage, or cause others to solicit or encourage, any employees of XYZ to terminate their employment with XYZ.

7. Acts to Secure Proprietary Rights.

7.1 Further Acts. I agree to perform, during and after my employment, all acts deemed necessary or desirable by XYZ to permit and assist it, at its expense, in perfecting and enforcing the full benefits, enjoyment, rights and title throughout the world in the XYZ Inventions. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in the registration and enforcement of applicable patents and copyrights or other legal proceedings.

7.2 Appointment of Attorney-In-Fact. In the event that XYZ is unable for any reason whatsoever to secure my signature to any lawful and necessary document required to apply for or execute any patent, copyright or other applications with respect to any XYZ Inventions (including improvements, renewals, extensions, continuations, divisions or continuations in part *455 thereof), I hereby irrevocably appoint XYZ and its duly authorized officers and agents as my agents and attorneys-in-fact to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights or other rights thereon with the same legal force and effect as if executed by me.

8. No Conflicting Obligations. My performance of this Agreement and as an employee of XYZ does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me prior to my employment with XYZ. I will not disclose to XYZ, or induce XYZ to use, any confidential or proprietary information or material belonging to any previous employer or other person or entity. I am not a party to any other agreement which will interfere with my full compliance with this Agreement. I will not enter into any agreement, whether written or oral, in conflict with the provisions of this Agreement.

9. Survival. Notwithstanding the termination of my employment, Section 3.2 and Articles 2, 6, and 7 shall survive such termination. This Agreement does not in any way restrict my right or the right of XYZ to terminate my employment at any time, for any reason or for no reason.

10. Specific Performance. A breach of any of the promises or agreements contained herein will result in irreparable and continuing damage to XYZ *456 for which there will be no adequate remedy at law, and XYZ shall be entitled to injunctive relief and/or a decree for specific performance, and such other relief as may be proper (including monetary damages if appropriate).

11. Waiver. The waiver by XYZ of a breach of any provision of this Agreement by me will not operate or be construed as a waiver of any other or subsequent breach by me.

12. Severability. If any part of this Agreement is found invalid or unenforceable, that part will be amended to achieve as nearly as possible the same economic effect as the original provision and the remainder of this Agreement will remain in full force.

13. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the United States and the State of California as applied to agreements entered into and to be performed entirely within California between California residents.

14. Choice of Forum. The parties hereby submit to the jurisdiction of, and waive any venue objections against, the United States District Court for the Northern District of California, San Jose Branch and the Superior and Municipal Courts of the State of California, Santa Clara County, in any litigation arising out of the Agreement.

15. Entire Agreement. This Agreement, including all Exhibits to this Agreement, constitutes the entire *457 agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral. This Agreement may be amended or modified only with the written consent of both me and XYZ. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

*458 16. Assignment. This Agreement may be assigned by XYZ. I may not assign or delegate my duties under this Agreement without XYZ's prior written approval. This Agreement shall be binding upon my heirs, successors, and permitted assignees.

EMPLOYEE:

Date:_______________ __________
Signature
____________________
Printed Name
XYZ:
Date:_______________ XYZ CORPORATION
By____________________
Title_________________
*459 LIMITED EXCLUSION NOTIFICATION

THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor Code that the above Agreement between you and XYZ does not require you to assign to XYZ, any invention for which no equipment, supplies, facility or trade secret information of XYZ was used and which was developed entirely on your own time, and (a) which does not relate (1) to the business of XYZ or (2) to XYZ's actual or demonstrably anticipated research or development, or (b) which does not result from any work performed by you for XYZ. This limited exclusion does not apply to any patent or invention covered by a contract between XYZ and the United States or any of its agencies requiring full title to such patent or invention to be in the United States.

I ACKNOWLEDGE RECEIPT of a copy of this notification.

______________________________
Signature
______________________________
Printed Name of Employee
Dated: ______________________________
Witnessed by:
XYZ CORPORATION
______________________________
Representative
Dated: _________________________
*460 EXHIBIT A

PRIOR INVENTIONS

*461 Appendix B:

Contractor Confidentiality Agreement

THIS AGREEMENT ("Agreement") is entered into as of the ________ day of __________, 199__ by and between XYZ CORPORATION ("XYZ"), a Delaware corporation, and the undersigned, __________ ("Contractor").

1. Engagement of Services.

Contractor agrees to perform services for XYZ as follows:

XYZ selected Contractor to perform these services based upon XYZ receiving Contractor's personal service and therefore Contractor may not subcontract or otherwise delegate its obligations under this Agreement without XYZ's prior written consent.

2. Compensation.

2.1 Fees and Approved Expenses. XYZ will pay Contractor a fee for services rendered by Contractor pursuant to this Agreement. Contractor will not be reimbursed for any expenses incurred in connection with the performance of services under this Agreement, unless those expenses are approved in advance and in writing by an XYZ manager.

2.2 Timing. XYZ will pay Contractor for services and will *462 reimburse Contractor for previously approved expenses within thirty (30) days of the date of Contractor's invoice.

3. Independent Contractor Relationship.

Contractor and XYZ understand, acknowledge and agree that Contractor's relationship with XYZ will be that of an independent contractor and nothing in this Agreement is intended to or should be construed to create a partnership, joint venture, or employment relationship.

4. Trade Secrets - Intellectual Property Rights.

4.1 Disclosure of Inventions.

(a) Contractor agrees to disclose promptly in writing to XYZ, or any person designated by XYZ, every invention, including but not limited to computer programs, processes, know-how and other copyrightable material, which is conceived, made or reduced to practice by Contractor within the scope of the work under this Agreement.

(b) Contractor represents that his performance of all of the terms of this Agreement does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data of a third party and Contractor will not disclose to XYZ, or induce XYZ to use, any confidential or proprietary information belonging to third parties unless such use or *463 disclosure is authorized in writing by such owners.

(c) Contractor represents that any inventions or copyrighted works relating to XYZ's actual or anticipated business or research and development which Contractor has made, conceived, or reduced to practice at the time of signing this Agreement, have been disclosed in writing to XYZ and attached to this Agreement as Exhibit A.

4.2 Confidential Information.

Contractor agrees during the term of this Agreement and thereafter to take all steps reasonably necessary to hold in trust and confidence information which he knows or has reason to know is considered confidential by XYZ ("Confidential Information"). Contractor agrees to use the Confidential Information solely to perform the project hereunder. Confidential Information includes, but is not limited to, technical and business information relating to XYZ's inventions or products, research and development, manufacturing and engineering processes, and future business plans. Contractor's obligations with respect to the Confidential Information also extend to any third party's proprietary or confidential information disclosed to Contractor in the course of providing services to XYZ. This obligation shall not extend to any information which becomes generally known to the public without breach of this Agreement. This *464 obligation shall survive the termination of this Agreement.

4.3 No Conflict of Interest. Contractor agrees during the term of this Agreement not to accept work or enter into a contract or accept an obligation inconsistent or incompatible with Contractor's obligations or the scope of services rendered for XYZ under this Agreement.

4.4 Assignment of Inventions.

(a) Inventions resulting from Contractor's work for XYZ under this Agreement are the exclusive property of XYZ. "Inventions" includes any and all inventions, improvements, discoveries, and technical developments that Contractor, solely or jointly with others, conceives, makes, or reduces to practice within the scope of the work under this Agreement. Contractor assigns to XYZ his or her entire right, title and interest in the Inventions worldwide and the associated intellectual property rights.

(b) Contractor agrees to assist XYZ in any reasonable manner to obtain and enforce for XYZ's benefit patents, copyrights, and other property rights covering the Inventions in any and all countries, and Contractor agrees to execute, when requested, patent, copyright or similar applications and assignments to XYZ and any other lawful documents deemed necessary by XYZ to carry out the purpose of this Agreement. Contractor further agrees that the obligations and undertaking stated in *465 this Section 4.4(b) will continue beyond the termination of Contractor's service to XYZ. If called upon to render assistance under this Section 4.4(b), Contractor will be entitled to a fair and reasonable fee in addition to reimbursement of authorized expenses incurred at the prior written request of XYZ.

(c) In the event that XYZ is unable for any reason whatsoever to secure Contractor's signature to any lawful and necessary document required to apply for or execute any patent, copyright or other applications with respect to any Inventions (including improvements, renewals, extensions, continuations, divisions or continuations in part thereof), Contractor hereby irrevocably designates and appoints XYZ and its duly authorized officers and agents as his agents and attorneys-in-fact to act for and in his behalf and instead of Contractor, to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights or other rights thereon with the same legal force and effect as if executed by Contractor.

4.5 Return of XYZ's Property. Contractor acknowledges that XYZ's sole and exclusive property includes all documents, such as drawings, manuals, notebooks, reports, sketches, records, computer programs, employee lists, customer lists and the like in his custody or possession, whether delivered to Contractor by XYZ or made by Contractor in the performance of *466 services under this Agreement, relating to the business activities of XYZ or its customers or suppliers and containing any information or data whatsoever, whether or not Confidential Information. Contractor agrees to deliver promptly to XYZ at any time upon XYZ's request all of XYZ's property and all copies of XYZ's property in Contractor's possession.

5. Termination - Noninterference with Business.

5.1 Termination by XYZ. XYZ may terminate this Agreement at any time for any reason or for no reason upon seven (7) days prior written notice to Contractor.

5.2 Termination by Contractor. Contractor may terminate this Agreement for material breach by XYZ at any time upon fifteen (15) days prior written notice to XYZ.

*467 5.3 Noninterference with Business. During and for a period of two (2) years immediately following termination of this Agreement by either party, Contractor agrees not to solicit or induce any employee or independent contractor to terminate or breach an employment, contractual or other relationship with XYZ.

6. General Provisions.

6.1 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the United States and the State of California as applied to agreements entered into and to be performed entirely within California between California residents.

6.2 Entire Agreement. This Agreement, including all Exhibits to this Agreement, constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral.

6.3 Waiver. No term or provision hereof will be considered waived by either party, and no breach excused by either party, unless such waiver or consent is in writing signed on behalf of the party against whom the waiver is asserted. No consent by either party to, or waiver of, a breach by either party, whether express or implied, will constitute a consent to, *468 waiver of, or excuse of any other, different, or subsequent breach by either party.

6.4 Successors and Assigns. Contractor may not assign its rights or obligations arising under this Agreement without XYZ's prior written consent. XYZ may assign its rights and obligations under this Agreement. This Agreement will be for the benefit of XYZ's successors and assigns, and will be binding on Contractor's heirs, legal representatives and permitted assignees.

6.5 Legal Fees. If any dispute arises between the parties with respect to the matters covered by this Agreement which leads to a proceeding to resolve such dispute, the prevailing party in such proceeding shall be entitled to receive its reasonable attorneys' fees, expert witness fees and out-of-pocket costs incurred in connection with such proceeding, in addition to any other relief to which it may be entitled.

6.6 Notices. All notices, requests and other communications required to be given under this Agreement must be in writing, and must be mailed by registered or certified mail, postage prepaid and return receipt requested, or delivered by hand to the party to whom such notice is required or permitted to be given. Any such notice will be considered to have been given when received, or if mailed, five (5) business days after it was mailed, as evidenced by the postmark. The mailing address for notice to either party will *469 be the address shown on the signature page of this Agreement. Either party may change its mailing address by notice as provided by this Section 6.6.

6.7 Survival. The following provisions shall survive termination of this Agreement: Article 4 and Section 5.3.

6.8 Term. This Agreement is effective as of the date hereof and will terminate on __________, unless terminated earlier in accordance with Section 5 herein.

XYZ:
CONTRACTOR:
XYZ CORPORATION
By______________________________
____________________
Title:____________________
Name_______________
Address:__________________
Address____________
________________________________
*470 EXHIBIT A

PRIOR INVENTIONS DISCLOSURE

*471 Appendix C

Mutual Confidentiality Agreement

This mutual confidentiality agreement (the "Agreement") is made as of the ______ day of __________, 199__, between __________ ("Company"), a ________ corporation, having a principal place of business at __________ __________ __________ __________, and XYZ CORPORATION ("XYZ"), a ______ corporation, having a principal place of business at __________ __________.

RECITALS

WHEREAS, Company and XYZ are engaged in discussions in contemplation of a business relationship or in furtherance of a business relationship;

WHEREAS, in the course of dealings between the Company and XYZ, each party may have access to or have disclosed to it information which is of a confidential nature as that term is later defined in this Agreement; and

WHEREAS, Company and XYZ each desire to establish and set forth their individual obligations with respect to the other's Confidential Information.

*472 AGREEMENT

In consideration of the foregoing, Company and XYZ mutually agree as follows:

1. Disclosure of Confidential Information. Either party ("Disclosing Party") may disclose to the other party ("Receiving Party"), either orally or in writing, certain information relating to the following subject:

__________ __________ __________ __________ __________ __________, which they believe is confidential ("Confidential Information"). Confidential Information as used in this Agreement shall mean the information of either Disclosing Party which is disclosed to the Receiving Party pursuant to this Agreement in written form and marked "Confidential" or, if disclosed orally, the Disclosing Party shall send a written summary of such information to the Receiving Party within forty (40) days of disclosure and mark such summary "Confidential." Confidential Information shall include, but not be limited to, trade secrets, know-how, inventions, techniques, processes, algorithms, software programs, source code, semiconductor designs, schematics, designs, contracts, customer lists, financial information, sales and marketing plans and business information.

*473 2. Confidentiality. The Receiving Party will use the Disclosing Party's Confidential Information solely to evaluate the commercial potential of, or in furtherance of, a business relationship with the Disclosing Party. The Receiving Party will not disclose the Confidential Information of the Disclosing Party to any person except to its employees or consultants to whom it is necessary to disclose the Disclosing Party's Confidential Information for such purposes. The Receiving Party agrees that the Disclosing Party's Confidential Information will be disclosed or made available only to those of its employees or consultants who have agreed in writing to receive it under terms at least as restrictive as those specified in this Agreement. The Receiving Party will take reasonable measures to maintain the confidentiality of the Disclosing Party's Confidential Information, but not less than the measures it uses for its confidential information of similar type. The Receiving Party will immediately give notice to the Disclosing Party of any unauthorized use or disclosure of the Disclosing Party's Confidential Information. The Receiving Party agrees to assist the Disclosing Party in remedying such unauthorized use or disclosure of the Disclosing Party's Confidential Information. This confidentiality obligation will not apply to the extent that the Receiving Party can demonstrate that:

(a) the Confidential Information of the Disclosing Party is, *474 at the time of disclosure, part of the public domain;

(b) the Confidential Information of the Disclosing Party became part of the public domain, by publication or otherwise, except by breach of the provisions of this Agreement;

(c) the Confidential Information of the Disclosing Party can be established by written evidence to have been in the possession of the Receiving Party at the time of disclosure;

(d) the Confidential Information of the Disclosing Party is received by the Receiving Party from a third party without similar restrictions and without breach of this Agreement;

(e) the Confidential Information of the Disclosing Party was developed by employees or agents of the Receiving Party independently of and without reference to any Confidential Information of the Disclosing Party (the Receiving Party shall bear the burden of proving such independent development); or

(f) the Confidential Information of the Disclosing Party is required to be disclosed by a government agency to further the objectives of this Agreement, or by a proper court of competent jurisdiction; provided, however, that the Receiving Party will use its best efforts to minimize the disclosure of such information and will *475 consult with and assist the Disclosing Party in obtaining a protective order prior to such disclosure.

3. Materials. All materials including, without limitation, documents, drawings, models, apparatus, sketches, designs and lists furnished to the Receiving Party by the Disclosing Party and any tangible embodiments of the Disclosing Party's Confidential Information created by the Receiving Party shall remain the property of the Disclosing Party. The Receiving Party shall return to the Disclosing Party or destroy such materials and all copies thereof upon the termination of this Agreement or upon the written request of the Disclosing Party.

4. No License. This Agreement does not grant the Receiving Party any license to use the Disclosing Party's Confidential Information except as provided in Article 2.

5. Term.

(a) This Agreement shall terminate ______ (____) year(s) after the Effective Date unless terminated earlier by either party. Either party may terminate this Agreement, with or without cause, by giving notice of termination to the other party. The Agreement shall terminate immediately upon receipt of such notice.

(b) Upon termination of this Agreement, the Receiving Party shall cease to use the Disclosing Party's Confidential Information and *476 shall comply with Article 3 within twenty (20) days of the date of termination. Upon the request of the Disclosing Party, an officer of the Receiving Party shall certify that the Receiving Party has complied with its obligations in this Section.

(c) Notwithstanding the termination of this Agreement, the Receiving Party's obligations in Article 2 shall survive such termination.

6. Export Controls. The Receiving Party assures the Disclosing Party that it will not knowingly export or reexport (as defined in Section 779.1(b) - (c) of the U.S. Export Administration Regulations - "Regulations" - and any amendments thereto) the Disclosing Party's Confidential Information or direct products of the Disclosing Party's Confidential Information unless it is specifically authorized under the current Regulations.

7. General Provisions.

(a) This Agreement shall be governed by and construed in accordance with the laws of the United States and of the State of California as applied to transactions entered into and to be performed wholly within California between California residents. Except as provided in Section 7(b), any dispute arising out of or relating to this Agreement, or the breach, termination or validity thereof, will be submitted by the parties to arbitration, to take *477 place in San Francisco, California, by the American Arbitration Association under the commercial rules then in effect for that Association except as provided in this Section. All proceedings will be held in English and a transcribed record prepared in English. Depositions may be taken and discovery obtained in any such arbitration proceedings in accordance with California Code of Civil Procedure Sections 1283.05 and 1283.1, which is incorporated herein by this reference. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

(b) Notwithstanding Section 7(a), the Disclosing Party shall have the right to obtain preliminary relief on any equitable claim in any court of competent jurisdiction, where such judgment is necessary to preserve its property and/or proprietary rights under this Agreement.

(c) Any notice provided for or permitted under this Agreement will be treated as having been given when (a) delivered personally, (b) sent by confirmed telecopy, (c) sent by commercial overnight courier with written verification of receipt, or (d) mailed postage prepaid by certified or registered mail, return receipt requested, to the party to be notified, at the address set forth below, or at such other place of which the other party has been notified in accordance with the provisions of this Section. Such notice will be treated as having *478 been received upon the earlier of actual receipt or five (5) days after posting.

(d) The Receiving Party agrees that the breach of the provisions of this Agreement by the Receiving Party will cause the Disclosing Party irreparable damage for which recovery of money damages would be inadequate. The Disclosing Party will, therefore, be entitled to obtain timely injunctive relief to protect the Disclosing Party's rights under this Agreement in addition to any and all remedies available at law.

(e) Neither party may assign its rights under this Agreement.

(f) This Agreement may be amended or supplemented only by a writing that is signed by duly authorized representatives of both parties.

(g) No term or provision hereof will be considered waived by either party, and no breach excused by either party, unless such waiver or consent is in writing signed on behalf of the party against whom the waiver is asserted. No consent by either party to, or waiver of, a breach by either party, whether express or implied, will constitute a consent to, waiver of, or excuse of any other, different, or subsequent breach by either party.

(h) If any part of this Agreement is found invalid or unenforceable, that part will be amended to achieve as nearly as possible the *479 same economic effect as the original provision and the remainder of this Agreement will remain in full force.

(i) This Agreement constitutes the entire agreement between the parties relating to this subject matter and supersede all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.

COMPANY:
By______________________________
Typed Name:____________________
Title:_________________________
XYZ:
XYZ CORPORATION
By____________________________
Typed Name: ____________________
Title:_________________________
*480 Appendix D: Reminder Memorandum to Employees re Confidential Company Information
To: ______________________________
From: General Counsel
Subject: Proprietary nature of __________ ____________________,
This memo is to keep you currently informed regarding your particular projects which [Company] considers highly proprietary. In view of the importance and uniqueness of the subject technology to [Company], all aspects not previously published or generally known in the industry are to be treated as [Company] proprietary information until they do become publicly avialable. The above technology areas are included in the confidential obligations contained in the Agreement you signed when you came to work. Discussions of the subject technology outside of [Company] should be avoided entirely. This in no way prevents you form using any of the subject information at a later time to the extent that it has become generally known in the industry outside [Company] by legitimate means (e.g., from commercially available [Company] products or from the public literature).

All publications and talks dealing directly or indirectly with the subject technology (as well as any other proposed publications) must be cleared *481 by my office before the publications are released or the talks are given (see Company Procedure Manual, § ____).

Documents containing the subject technology should be stamped "[Company] Proprietary Information" or "Company Confidential" and distributed only to those who have a need in their work at [Company] for the information. These documents should not be reproduced unnecessarily and should be disposed of in specially provided waste containers (see Company Procedure Manual, § ____). Included in this class of documents are all process, device and circuit specifications, product planning information, cost figures (current and projected) and marketing plans.

Please sign one copy of this memorandum and return it to the [Company] Legal Department to indicate your understanding and agreement. Your cooperation in the above will be appreciated.

I have read and understood the above.

____________________
__________
Signature
Date