ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT — PREPARED IN ANTICIPATION OF LITIGATION AND FOR PURPOSES OF LEGAL ADVICE
TRADE SECRET PROTECTION ASSESSMENT
Marlowe Asset Management Photonics Inc.
November 28, 2023
Document Type: Privileged & Confidential Memorandum / Attorney Work Product
Prepared by:
Omar Siddiqui, Lead Associate, intellectual Property Calderwood & Harkness LLP 1750 K Street NW, Suite 800 Washington, DC 20006
With the assistance of: Christy Bauer, Working Associate, intellectual Property Calderwood & Harkness LLP
Reviewed by:
Margaret "Peggy" Ashworth, Of Counsel, National Security & CFIUS Lt. Col. (Ret.) David Caruso, Senior Counsel, Government Contracts & Export Controls
Supervising Partner:
Beatrice Holloway, Responsible Partner, Mergers & Acquisitions Calderwood & Harkness LLP 399 Park Avenue, 31st Floor New York, NY 10022
Client: Halcyon Semiconductor Aktiengesellschaft ("HSAG")
Matter: Acquisition of Marlowe Asset Management Photonics Inc. ("VPI") — CFIUS Filing & Mitigation; CFIUS Case No. CFIUS-023-07-3841
Matter No.: 1032-00004
This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation and for the purpose of providing legal advice. This memorandum is intended solely for the use of the client and authorized representatives of the client identified herein. Any disclosure, copying, distribution, or use of the contents of this memorandum by any person other than the client is strictly prohibited without the prior written consent of Calderwood & Harkness LLP. The privileged and confidential nature of this memorandum is not waived by its transmission to authorized client representatives or by its use in connection with the CFIUS review process.
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I. EXECUTIVE SUMMARY
The purpose of this memorandum is to assess the existing trade secret management program of Marlowe Asset Management Photonics Inc. ("VPI") and to recommend enhanced protections in connection with the pending acquisition of VPI by Halcyon Semiconductor Aktiengesellschaft ("HSAG"), the negotiation of the National Security Agreement (NSA-2024-0019) with the Committee on Foreign Investment in the United States ("CFIUS"), and the implementation of the Technology Control Plan ("TCP") required as an annex to that agreement. This assessment has been prepared at the direction of Beatrice Holloway, Responsible Partner, in connection with the broader CFIUS mitigation workstream for the HSAG/VPI transaction.
VPI currently maintains a registry of 31 internally registered trade secrets. These trade secrets primarily cover proprietary gallium-nitride ("GaN") epitaxial growth recipes and die-level reliability screening processes, both of which are central to VPI's competitive position in the defense and commercial GaN power amplifier markets. Additionally, the registry encompasses proprietary High Electron Mobility Transistor ("HEMT") device design parameters and manufacturing process know-how specific to VPI's 45,000-square-foot fabrication facility located at 9200 Innovation Boulevard, Albuquerque, New Mexico 87113 (the "Albuquerque Fab").
Based on our review, VPI's trade secret management program is generally well-structured for a company of its size and maturity. The existence of a maintained trade secret registry, coupled with employee invention assignment and non-disclosure agreements, facility security controls, and coordination with a qualified Facility Security Officer, reflects a level of institutional attention to trade secret protection that exceeds the practices of many similarly situated defense-sector semiconductor companies. However, the program requires material enhancements in several areas to satisfy the requirements of the NSA and TCP being negotiated with CFIUS and to mitigate the heightened risks that will arise from foreign ownership of VPI by HSAG, a German parent company.
Our key recommendations, which are detailed in Section VI of this memorandum, include:
• Enhanced physical access controls at the Albuquerque Fab, particularly for unclassified areas containing trade secret process recipes and engineering workstations that are not currently subject to the same granular need-to-know restrictions applied to classified areas;
• Tightened need-to-know restrictions that move beyond department-level access to trade-secret-specific access controls for each of the 31 registered trade secrets;
• Robust employee exit protocols including mandatory trade-secret-focused exit interviews, written certifications of return or destruction of materials, IT forensic review for employees in sensitive roles, and post-departure monitoring for employees with access to top-tier trade secrets;
• IT system segregation aligned with the cybersecurity requirements set forth in NSA Annex D, including deployment of Data Loss Prevention ("DLP") tools on unclassified systems, granular role-based access controls enforced at the file and folder level, comprehensive audit logging, and encryption of all trade secret materials at rest and in transit using FIPS 140-2 validated cryptographic modules;
• Integration of trade secret protections into the TCP framework through a dedicated trade secret protection schedule to the TCP (NSA Annex B), with Government Security Committee ("GSC") oversight of trade secret access decisions and alignment with ITAR/EAR compliance procedures; and
• Contractual enhancements to employee agreements, vendor and supplier NDAs, and agreements governing any HSAG personnel access to VPI facilities or information.
These recommendations are driven by the reality that VPI's trade secrets represent a significant and in many respects irreplaceable component of VPI's $1.42 billion enterprise value in this transaction. The proprietary GaN epitaxial recipes, in particular, are not fully captured in VPI's 47 granted U.S. patents. The patents disclose the broad inventive concepts, but the specific process parameters — temperature profiles, gas flow ratios, buffer layer compositions, and doping concentrations — that enable VPI to achieve industry-leading performance and reliability metrics for its GaN power amplifiers are maintained exclusively as trade secrets. Loss or unauthorized disclosure of these trade secrets would materially impair both VPI's competitive position and the value of the acquisition for HSAG. Equally important, unauthorized disclosure of certain of these trade secrets to non-U.S. persons could constitute violations of the ITAR and EAR, exposing both VPI and HSAG to criminal and civil penalties, and would almost certainly constitute a violation of the NSA, carrying penalty exposure of up to $250,000 per violation per day, injunctive relief, or mandated divestiture.
II. SCOPE AND METHODOLOGY
A. Scope
This assessment encompasses a comprehensive review of VPI's trade secret management program, including written policies and procedures, access controls (both physical and electronic), contractual protections afforded by employee agreements and third-party NDAs, physical and information technology security measures, employee training and awareness programs, and exit procedures for departing employees. The assessment evaluates these protections against the requirements of applicable federal and state trade secret law, export control regulations, the draft NSA and TCP provisions, and industry best practices for defense-sector semiconductor companies.
This assessment does not address VPI's patent portfolio strategy, VPI's classified program security (which is addressed separately in the Facility Security Plan and the NISPOM compliance review being conducted by Lt. Col. (Ret.) Caruso), or the IP Transfer Restriction Analysis (which is being prepared separately by the intellectual Property group and will address the restrictions on transfer of VPI intellectual property to HSAG under the NSA, ITAR, and EAR). Those matters are addressed in companion memoranda.
B. Materials Reviewed
In preparing this assessment, we reviewed the following materials:
1. VPI Trade Secret Management Policy (Revision 4, dated March 15, 2022), including all appendices and referenced procedures;
2. VPI Trade Secret Registry (31 entries as of October 31, 2023), maintained by the VP Engineering, including classification levels, custodian designations, authorized personnel lists, and creation dates;
3. VPI Employee Invention Assignment and Non-Disclosure Agreement ("IANDA"), current form version (last revised January 2021), together with a sample of 14 executed IANDAs provided by VPI Human Resources;
4. VPI Facility Security Plan for the Albuquerque Fab, as coordinated with Col. (Ret.) Bryce Hendrickson, VPI's Facility Security Officer ("FSO"), who holds a Top Secret/Sensitive Compartmented Information ("TS/SCI") security clearance;
5. VPI Information Security Program documentation, including the VPI System Security Plan, network architecture diagrams, access control matrices, and incident response procedures;
6. Draft National Security Agreement (NSA-2024-0019), as circulated by CFIUS on November 3, 2023, together with Calderwood & Harkness's annotations and proposed revisions dated November 15, 2023;
7. Draft Technology Control Plan provisions (NSA Annex B), working draft dated November 12, 2023;
8. NIST Special Publication 800-171 compliance self-assessment prepared by VPI's IT Director, reflecting VPI's current implementation status against the 110 security requirements for protecting Controlled Unclassified Information ("CUI") in nonfederal systems (the framework referenced in NSA Annex D);
9. VPI's existing ITAR/EAR compliance procedures, including VPI's DDTC Registration (Registration No. M-24817), export classification determinations for VPI products and technology (relevant Export Control Classification Numbers: ECCN 3A001, ECCN 3A991, and ECCN 3E001), and VPI's internal Technology Control Procedures Manual;
10. Eight sample Non-Disclosure Agreements executed between VPI and suppliers, subcontractors, and commercial customers;
11. Government contract documentation for VPI's 14 active Department of Defense contracts, including FAR/DFARS data rights clauses and relevant contract data requirements lists, provided in summary form by VPI's contracts department; and
12. VPI organizational charts, facility layout diagrams, and employee headcount data.
C. Interviews Conducted
We conducted in-person and secure videoconference interviews with the following VPI personnel:
• Dr. Nathan Trevorrow, Chief Executive Officer of VPI, who holds a TS/SCI security clearance. Dr. Trevorrow provided an overview of VPI's strategic approach to trade secret protection, the relationship between the patent portfolio and trade secret portfolio, and VPI's concerns regarding preservation of trade secret value through the acquisition process.
• Marissa Sung-Avila, President and Chief Operating Officer of VPI, who holds a SECRET security clearance. Ms. Sung-Avila addressed operational aspects of trade secret management, including the IT security infrastructure, physical access controls at both VPI facilities, and workforce management considerations.
• Col. (Ret.) Bryce Hendrickson, Facility Security Officer of VPI, who holds a TS/SCI security clearance. Col. Hendrickson provided detailed information regarding facility security measures, the classified/unclassified environment boundary, NISPOM compliance status, and the interaction between security clearance programs and trade secret access controls.
• VPI's Vice President of Engineering (name withheld at VPI's request for security reasons), who is the designated custodian of the Trade Secret Registry. This individual provided detailed information regarding the technical content and categorization of VPI's registered trade secrets, the number and identity of personnel with access to each trade secret category, and the practical mechanisms by which trade secret information is accessed and used in daily operations at the Albuquerque Fab.
All interviews were conducted under the understanding that communications were privileged attorney-client communications. Interview notes are maintained in Calderwood & Harkness's privileged files for this matter.
D. Coordination with Other Workstreams
This assessment has been conducted in parallel with the ongoing NSA negotiation with CFIUS, which commenced with the first negotiation session on November 9, 2023, and has continued through multiple sessions to the present date. The recommendations in this memorandum have been developed in coordination with Peggy Ashworth and David Caruso, who are leading the NSA negotiation and export controls workstreams, respectively, to ensure alignment between our trade secret protection recommendations and the evolving terms of the NSA and TCP. We have also coordinated with the broader M&A deal team led by Beatrice Holloway to ensure that trade secret protection measures can be implemented within the transaction timeline.
The IP Transfer Restriction Analysis, which addresses broader restrictions on the transfer and licensing of VPI intellectual property (including patents, copyrights, and technical data) to HSAG under the NSA, ITAR, and EAR, is being prepared separately and will cross-reference this assessment where applicable.
III. OVERVIEW OF VPI'S TRADE SECRET PORTFOLIO
A. Trade Secret Registry — Summary
VPI maintains an internal Trade Secret Registry (the "Registry") that catalogues 31 trade secrets that have been identified, documented, and formally registered by VPI's internal processes. The Registry is maintained by VPI's Vice President of Engineering, who serves as the de facto trade secret custodian, with annual review and legal guidance provided by VPI's outside intellectual property counsel at Wethersfield & Gale LLP (specifically, partners Harrison Whitfield and Tobias Kwan). The Registry was most recently reviewed and updated in March 2023.
Each registered trade secret in the Registry is assigned a unique internal identifier (using the format "VPI-TS-[Category Code]-[Sequential Number]"), along with the following information:
• Internal classification level (VPI uses two internal designations: "Company Confidential" and "Company Restricted," the latter being the more restrictive);
• Date of creation or initial registration;
• Responsible custodian (typically the lead process engineer, design engineer, or reliability engineer for the relevant technology area);
• A summary description of the trade secret sufficient to identify the nature and scope of the protected information without disclosing the trade secret itself; and
• A list of authorized personnel — that is, the specific individuals who have been granted access to the trade secret on a need-to-know basis.
We note that the Registry is a commendable practice that places VPI ahead of many peer companies in the defense semiconductor sector. The existence of a formal registry is a significant factor in demonstrating "reasonable measures" to protect trade secret status under both the Defend Trade Secrets Act ("DTSA") and applicable state trade secret statutes. However, as discussed further in Section VI.G below, we recommend several enhancements to the Registry to align it with NSA/TCP requirements and to strengthen the evidentiary foundation for trade secret protection.
B. Categories of Trade Secrets
The 31 registered trade secrets in the Registry fall into four principal categories, which we summarize below. For purposes of this memorandum, we have used anonymized identifiers and generalized descriptions to avoid unnecessary disclosure of specific trade secret content. The full Registry, with detailed technical descriptions, is maintained by VPI's VP Engineering in secure storage at the Albuquerque Fab.
Category 1: GaN Epitaxial Growth Recipes (12 Trade Secrets)
Category 1 comprises 12 registered trade secrets covering VPI's proprietary recipes for gallium-nitride-on-silicon-carbide ("GaN-on-SiC") epitaxial growth processes used at the Albuquerque Fab. These recipes represent the core technical differentiator underlying VPI's GaN power amplifier products and are, by consensus among VPI's leadership and our assessment, the most commercially and strategically valuable trade secrets in VPI's portfolio.
The Category 1 trade secrets include specific information regarding:
• Temperature profiles for multi-step epitaxial growth processes, including ramp rates, dwell times, and temperature uniformity specifications;
• Gas flow ratios for precursor gases (including trimethylgallium, ammonia, and various dopant gases) at each stage of the epitaxial growth process;
• Buffer layer compositions and transition layer architectures that are critical to achieving low defect density and high electron mobility in the GaN HEMT structures;
• Doping concentrations and profiles for both intentional doping (to achieve desired electrical characteristics) and compensation doping (to manage parasitic effects); and
• Process control parameters and in-situ monitoring specifications that enable consistent, high-yield epitaxial growth across production runs.
These recipes are the principal reason that VPI's GaN power amplifiers consistently achieve power-added efficiency and linearity metrics that exceed competing products in both defense and commercial 5G applications. Importantly, the recipes are not fully disclosed in VPI's eight granted patents in the GaN-on-SiC epitaxial growth patent family (U.S. Patent Nos. 9,XXX,001 through 9,XXX,008, with earliest priority dates in 2012). The patents disclose the inventive concepts at a level of generality sufficient to obtain patent protection, but the specific process parameters that constitute the "secret sauce" for VPI's manufacturing capability have been deliberately retained as trade secrets. This reflects VPI's adoption of a hybrid intellectual property strategy, discussed further in Section III.C below.
The Category 1 trade secrets have significant export control implications. Several of the epitaxial recipes overlap with ITAR Category XI(a)(3) defense articles, and the technology embodied in these recipes falls within the scope of Export Administration Regulations ECCN 3E001 (technology for the "production" of items classified under ECCN 3A001, which covers certain monolithic microwave integrated circuits and discrete microwave transistors). Accordingly, any disclosure of Category 1 trade secrets to non-U.S. persons — including HSAG personnel who are German nationals — would constitute a deemed export requiring prior authorization under either the ITAR (via a Technical Assistance Agreement approved by the Directorate of Defense Trade Controls) or the EAR (via a license from the Bureau of Industry and Security), as applicable. This export control overlay adds an additional layer of regulatory risk to any failure of trade secret protections.
It is also important to note the intersection between the Category 1 trade secrets and VPI's government-funded research. Several of the epitaxial growth recipes were developed, in whole or in part, under contracts funded by the Department of Defense. However, the specific process parameters that constitute the trade secrets were developed by VPI using its own proprietary background intellectual property and know-how. While the government holds license rights to 23 of VPI's 47 granted patents under the Bayh-Dole Act (35 U.S.C. §§ 200–212) and DFARS 252.227-7038 (Patent Rights — Ownership by the Contractor), the trade secrets in the recipes are distinct from the patented inventions. The recipes were not delivered as technical data under any of the relevant contracts. Nevertheless, the government's license rights to the underlying patents, including potential march-in rights under 35 U.S.C. § 203, create a complex intellectual property landscape that must be carefully navigated in connection with any post-acquisition technology sharing or licensing arrangements. This topic is addressed in greater detail in the companion IP Transfer Restriction Analysis.
Category 2: Die-Level Reliability Screening Processes (9 Trade Secrets)
Category 2 encompasses nine registered trade secrets covering VPI's proprietary screening and burn-in test methodologies for identifying latent defects in GaN HEMT devices before they are shipped to customers. These trade secrets are critical to VPI's ability to deliver devices that meet the stringent reliability requirements imposed by military specifications, including MIL-STD-883 (Test Methods and Procedures for Microelectronics) and various DoD-specific reliability standards that apply to VPI's defense contracts.
The Category 2 trade secrets include:
• Acceptance and rejection algorithms that VPI has developed through years of empirical testing, which define the specific parametric criteria used to screen individual die during wafer-level and package-level testing;
• Accelerated life test protocols that compress years of expected field operation into hours or days of controlled stress testing, enabling VPI to predict long-term device reliability based on short-duration test results;
• Statistical models that correlate screening test results to actual field reliability performance, developed from VPI's extensive reliability database accumulated over more than a decade of GaN HEMT production; and
• Custom test fixture designs and measurement techniques that enable the screening processes to be performed with the precision and throughput necessary for production-scale operations.
The Category 2 trade secrets are deployed across all 14 of VPI's active DoD contracts, which carry an aggregate backlog of approximately $193 million. The ability to meet defense reliability requirements is a prerequisite for participation in defense GaN programs, and VPI's proprietary screening processes provide a competitive advantage that is not easily replicated by competitors. Loss of these trade secrets could enable a competitor to achieve comparable reliability screening performance without the years of empirical development that VPI has invested.
Category 3: HEMT Device Design Parameters (6 Trade Secrets)
Category 3 includes six registered trade secrets covering specific design parameters for VPI's GaN HEMT devices that have not been disclosed in VPI's patent filings. VPI holds 19 granted patents directed to HEMT gate structure optimizations (U.S. Patent Nos. 10,XXX,101 through 10,XXX,119, with earliest priority dates in 2015). However, the Category 3 trade secrets encompass design details that go beyond the scope of the patent disclosures:
• Specific gate geometry optimizations, including gate length, gate recess depth, and gate-to-drain spacing parameters that have been empirically optimized for different product platforms and are not disclosed in the patent specifications;
• Field plate designs, including multi-step field plate geometries and dielectric stack compositions, that VPI has developed through iterative design-of-experiments campaigns;
• Passivation layer compositions and deposition process parameters that are critical to device reliability and performance stability; and
• Empirical performance data and design rules derived from VPI's proprietary testing, which constitute a body of accumulated engineering knowledge that enables VPI's design engineers to rapidly develop new device designs with predictable performance characteristics.
Category 4: Manufacturing Process Know-How (4 Trade Secrets)
Category 4 comprises four registered trade secrets covering manufacturing process integration knowledge, equipment calibration procedures, and yield optimization techniques that are specific to the Albuquerque Fab. This category captures the practical know-how — often described in the semiconductor industry as "tribal knowledge" — that enables VPI to operate its fabrication facility at the performance and yield levels necessary to meet customer requirements and maintain profitability.
The Category 4 trade secrets are not captured in any of VPI's patent filings. The knowledge resides primarily within VPI's process engineering team, which consists of approximately 18 individuals who have direct access to and operational familiarity with these trade secrets. This concentration of knowledge in a relatively small group of individuals creates both an operational efficiency (knowledge is tightly held) and a vulnerability (departure of key personnel could result in loss of institutional knowledge). The employee exit protocol enhancements recommended in Section VI.E are particularly important for addressing this vulnerability.
C. Relationship to Patent Portfolio and Government-Funded IP
As noted above, VPI holds 47 granted U.S. patents and 12 pending patent applications across three key patent families:
1. GaN-on-SiC Epitaxial Growth (8 granted patents, 4 pending applications) — corresponds to Category 1 trade secrets;
2. HEMT Gate Structure Optimization (19 granted patents, 5 pending applications) — corresponds to Category 3 trade secrets; and
3. GaN Power Amplifier Module Design (20 granted patents, 3 pending applications) — not directly associated with registered trade secrets, as these patents primarily cover module-level integration and packaging innovations.
VPI has adopted a deliberate hybrid intellectual property strategy in which broad inventive concepts are patented to establish a defensive portfolio and a public claim of priority, while the detailed process parameters, empirical data, and know-how necessary to practice the inventions at commercially competitive performance levels are retained as trade secrets. This strategy is common in the semiconductor industry, where the value of a process technology often lies not in the general concept (which may be disclosed in a patent) but in the specific implementation details (which can remain secret even if the patent is published). VPI's management and outside patent counsel at Wethersfield & Gale have been deliberate and thoughtful in drawing the line between what is disclosed in patent applications and what is retained as trade secret information.
Of VPI's 47 granted patents, 23 were developed in whole or in part under government-funded contracts and are subject to the government's rights under the Bayh-Dole Act and DFARS 252.227-7038. The government holds a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced these patented inventions for or on behalf of the United States. The government also retains march-in rights under 35 U.S.C. § 203, which could be exercised under certain limited circumstances. However, the underlying trade secret know-how — the process parameters, empirical data, and design rules that constitute the Categories 1 through 4 trade secrets — is separately tracked in the Registry and is not automatically subject to government rights. The government's license extends to the patented inventions as disclosed in the patent specifications, not to the undisclosed trade secret information that enables VPI to practice those inventions at optimized performance levels.
We also note that certain of the Category 1 and Category 4 trade secrets may constitute "technology" controlled under EAR ECCN 3E001, which covers technology for the production of items classified under ECCN 3A001. To the extent that trade secrets fall within this classification, their disclosure to non-U.S. persons — including HSAG employees — would require export authorization under the EAR, independent of any restrictions imposed by the NSA or TCP. VPI's Trade Secret Registry should be updated to include cross-references to applicable ITAR and EAR classifications for each registered trade secret, as recommended in Section VI.G.
IV. ASSESSMENT OF EXISTING TRADE SECRET PROTECTIONS
This section evaluates the adequacy of VPI's existing trade secret protections across five dimensions: contractual protections, physical security measures, information technology security, employee awareness and training, and exit procedures. For each dimension, we identify specific gaps that must be addressed, particularly in light of the heightened risks arising from foreign ownership and the requirements of the NSA and TCP.
A. Contractual Protections
Employee Agreements. VPI requires all employees to execute an Invention Assignment and Non-Disclosure Agreement ("IANDA") upon hire. The current form IANDA was last revised in January 2021 and has been in substantially similar form since VPI's founding. We reviewed the current form IANDA as well as a sample of 14 executed IANDAs spanning various departments and employment dates, provided by VPI's Human Resources department.
The IANDA includes the following relevant provisions:
• Assignment of inventions clause: The IANDA contains both a work-for-hire provision (assigning ownership of works created within the scope of employment) and an express assignment provision (assigning all rights in inventions, discoveries, improvements, and developments made by the employee during the term of employment that relate to VPI's business or are developed using VPI resources). The assignment clause is broadly drafted and is generally consistent with industry practice.
• Confidentiality obligations: The IANDA imposes confidentiality obligations on the employee with respect to "Confidential Information," which is defined broadly to include trade secrets, proprietary information, technical data, business information, and other information not generally available to the public. The confidentiality obligations survive termination of employment, with trade secrets protected for an indefinite duration (i.e., for as long as the information retains trade secret status) and other confidential information protected for a period of five years following termination.
• Non-solicitation provisions: The IANDA includes a 12-month post-termination non-solicitation provision prohibiting the departing employee from soliciting VPI employees or customers. This provision is generally enforceable, though enforcement may be fact-specific depending on the departing employee's role and the nature of the solicitation.
• Non-competition provisions: The IANDA includes a 12-month post-termination non-competition provision prohibiting the departing employee from engaging in competing activities within a defined geographic area. However, enforceability of this provision varies significantly by jurisdiction. VPI's employees are located primarily in New Mexico (Albuquerque Fab, approximately 165 employees) and Colorado (Colorado Springs headquarters, approximately 85 employees). Colorado enacted the Restrictive Employment Agreement Act (C.R.S. § 8-2-113, as amended in 2022), which imposes significant limitations on the enforceability of non-competition agreements, including a requirement that the employee earn at least the threshold amount set by the Colorado Department of Labor and Employment (currently $112,500 in annualized compensation) and that the agreement be provided to the employee prior to or contemporaneous with an offer of employment. New Mexico does not have a statute specifically addressing non-competition agreements but generally follows common law principles of reasonableness.
Gaps identified in employee agreements:
• The IANDAs do not specifically reference VPI's Trade Secret Registry or identify the categories of trade secrets to which the employee may have access. This is a missed opportunity to put employees on notice of the specific nature and scope of their trade secret protection obligations and to create a documentary record linking individual employees to specific trade secrets.
• The IANDAs do not include a specific obligation requiring the departing employee to return or certify the destruction of all trade secret materials (physical and electronic) upon termination. While the confidentiality obligations survive termination, the absence of an affirmative return-or-destroy obligation creates an evidentiary gap in the event of a subsequent misappropriation claim.
• The enforceability of the non-competition provision for Colorado-based employees is uncertain under the 2022 amendments to Colorado's Restrictive Employment Agreement Act. VPI has not updated its form IANDA to address the 2022 amendments, including the requirements for adequate consideration, income thresholds, and notice provisions. This gap should be addressed in the updated IANDA recommended in Section VI.D.
• The IANDAs do not contain a provision requiring the employee to cooperate with trade secret audits or investigations, which would be valuable both for routine compliance purposes and in the event of a suspected misappropriation.
Contractor and Vendor Agreements
VPI uses non-disclosure agreements with suppliers and subcontractors who receive access to VPI proprietary information. We reviewed a sample of eight NDAs across various vendor relationships, including SiC substrate suppliers, epitaxial materials providers, and packaging subcontractors. The NDAs are generally adequate in scope and duration, with mutual confidentiality obligations, standard exceptions for publicly available information and independently developed information, and survival periods of three to five years following termination of the business relationship.
Gaps identified in vendor agreements:
• The vendor NDAs do not include specific provisions addressing the distinction between ITAR-controlled technical data and EAR-controlled technology, on the one hand, and trade secret information that may not be export-controlled, on the other. Given the significant overlap between VPI's trade secrets and ITAR/EAR-controlled information, vendor NDAs should include specific provisions obligating the vendor to comply with applicable export control restrictions and to limit access to VPI trade secrets to U.S. persons (or persons of permitted nationalities, as applicable).
• The vendor NDAs do not address the implications of VPI's change of ownership. Post-acquisition, VPI's vendors should be notified of the change of ownership and asked to confirm that their NDAs remain in effect. Additionally, vendor NDAs should be reviewed to ensure that no provision permits disclosure to or access by HSAG-affiliated entities without VPI's prior written consent.
Customer Agreements. VPI's government contracts incorporate standard FAR and DFARS data rights clauses, which establish the allocation of rights in technical data and computer software between the government and VPI. VPI's commercial customer agreements include mutual non-disclosure provisions. We did not identify material gaps in the customer agreement framework for trade secret protection purposes, though the government data rights provisions should be reviewed in the context of the IP Transfer Restriction Analysis to ensure that post-acquisition technology sharing with HSAG does not inadvertently impair VPI's data rights positions under existing contracts.
B. Physical Security Measures
Albuquerque Fab Facility
The Albuquerque Fab, located at 9200 Innovation Boulevard, Albuquerque, New Mexico 87113, is VPI's primary manufacturing facility and the location where the vast majority of VPI's trade secrets are created, used, and stored. The facility holds a Facility Security Clearance at the SECRET level (CAGE Code 7VK92) and is subject to the requirements of the National Industrial Security Program Operating Manual ("NISPOM"). Col. (Ret.) Bryce Hendrickson serves as the Facility Security Officer.
The facility's physical security measures include:
• Perimeter security: The facility is enclosed by a perimeter fence with controlled vehicle and pedestrian access points. The main entrance is staffed by security personnel 24 hours a day, 7 days a week.
• Badge reader access control: All facility entry points are equipped with electronic badge reader systems that require employees to present valid identification badges for access. Badge access records are maintained electronically and are available for review by the FSO.
• Classified areas: Clean room Sections C-7 through C-12 are designated as classified areas and are subject to enhanced access restrictions that include SCIF-equivalent controls for TS/SCI work. Access to these sections requires specific authorization based on security clearance level and program-specific need-to-know. These areas are protected by additional physical barriers, dedicated badge readers, closed-circuit television monitoring, and intrusion detection systems.
• Security guard station: A manned security guard station is located at the main facility entrance, providing visual verification of badge access and monitoring of visitor ingress and egress.
Gap identified in Albuquerque Fab physical security:
While the classified areas (Sections C-7 through C-12) have robust access controls that are adequate for protecting classified information and the subset of trade secrets stored in those areas, the unclassified areas of the Albuquerque Fab present a significant gap in trade secret protection. Trade secret materials — including GaN epitaxial process recipes used for commercial 5G products that are not classified but are nonetheless proprietary and, in many cases, export-controlled — are stored and accessed in unclassified areas of the fab, including process recipe storage systems, fab tool controllers, and engineering workstations located outside Sections C-7 through C-12.
Badge access to unclassified fab areas is granted broadly to all fab employees, which includes approximately 85 individuals. This means that any fab employee with a valid badge can access areas where trade secret process recipes are stored and used, regardless of whether that employee has a specific need-to-know for the particular trade secret in question. For example, a packaging technician could potentially access the area where epitaxial growth recipes are stored, even though the packaging technician has no operational reason to access epitaxial process parameters.
This broad access posture was understandable when VPI was a domestically owned company with a relatively small and stable workforce. However, in the post-acquisition environment — where the heightened risks of foreign ownership, CFIUS scrutiny, and NSA compliance obligations are present — this level of access is insufficient. We recommend the implementation of tiered access controls for unclassified trade secret areas, as described in Section VI.B.
Colorado Springs Headquarters
VPI's headquarters is located at 7400 Ridgeline Parkway, Colorado Springs, Colorado 80919. The headquarters facility houses VPI's executive offices, business development and marketing functions, portions of the engineering design team, and certain administrative functions. The facility is a standard commercial office building with badge-controlled access and a manned reception desk during business hours. No classified work is performed at the headquarters location.
Trade secret design documents and reliability data (primarily associated with Category 2 and Category 3 trade secrets) are stored on VPI's internal network servers that are physically located at the Colorado Springs facility. Access to these servers is controlled by network login credentials and role-based access controls, as discussed further in Section IV.C below. The physical security measures at the Colorado Springs facility are adequate for a commercial office environment but do not include the enhanced controls found at the Albuquerque Fab.
C. Information Technology Security
VPI maintains an Information Security Program overseen by its IT Director, who reports to Marissa Sung-Avila, President and COO. The Information Security Program encompasses both the classified and unclassified computing environments across VPI's two facilities.
The key features of VPI's IT security posture relevant to trade secret protection include:
• Network segmentation: VPI maintains separate classified and unclassified network environments, with an air gap between the classified network (which handles classified defense program data) and the unclassified network (which handles CUI, trade secret information, and general business data). This segmentation is appropriate and consistent with NISPOM requirements for classified information processing.
• NIST SP 800-171 compliance: VPI is working toward full compliance with NIST Special Publication 800-171, which establishes security requirements for protecting CUI in nonfederal information systems. Compliance with NIST SP 800-171 is required by DFARS 252.204-7012 for defense contractors handling CUI. VPI's current self-assessment indicates that 94 out of 110 security controls specified in NIST SP 800-171 have been implemented. The remaining 16 controls are in various stages of implementation, with a Plan of Action and Milestones ("POA&M") maintained by VPI's IT Director. NSA Annex D will require full NIST SP 800-171 compliance as a condition of the acquisition, making remediation of the remaining 16 controls a priority.
• Role-based access controls: Trade secret documents stored on file servers are subject to role-based access controls. However, as our review revealed, access roles are currently defined at the department level rather than at the individual trade secret level. This means that any employee within a given department (e.g., process engineering) has access to all trade secret files associated with that department, regardless of whether the employee has a specific need-to-know for each individual trade secret. For example, all 18 members of the process engineering team have access to all 12 Category 1 trade secrets, even though individual engineers may work on only a subset of the epitaxial growth processes.
• Data Loss Prevention: VPI has deployed DLP tools on its classified network to monitor and prevent unauthorized data transfers. However, DLP tools have not been deployed on the unclassified network, where a significant volume of trade secret information (particularly Category 1 recipes used for commercial products and Category 2 through 4 trade secrets) resides.
• Email and removable media controls: Email filtering and USB port controls are in place for classified systems, preventing unauthorized transmission of classified information via email or removable storage media. However, these controls are not uniformly enforced on unclassified systems. Employees using unclassified systems have the technical ability to transmit trade secret files via email or copy them to USB storage devices, subject only to policy-based (rather than technically enforced) restrictions.
Gap identified in IT security:
The overarching gap is that IT controls for trade secret information on unclassified systems do not match the rigor applied to classified information on classified systems. This disparity is common in defense-sector companies, which tend to invest heavily in classified system security (driven by NISPOM requirements and the risk of security violations) while giving less attention to the protection of proprietary but unclassified information. In VPI's case, however, the unclassified trade secrets — particularly the Category 1 GaN epitaxial recipes used for commercial 5G products — are among the most commercially valuable assets of the company and, in many cases, are subject to ITAR/EAR export controls even though they are not classified national security information.
Post-acquisition, NSA Annex D will require VPI's IT systems to be physically and logically separated from HSAG's global network, with no shared cloud infrastructure, no shared email systems, and no network interconnections. The current gaps in unclassified system controls — particularly the absence of DLP tools, the department-level (rather than trade-secret-specific) access roles, and the lack of comprehensive audit logging — must be remediated to comply with the NSA and to provide adequate protection for VPI's trade secrets in the foreign ownership environment. The specific IT enhancements recommended are detailed in Section VI.C.
D. Employee Awareness and Training
VPI conducts annual security awareness training for all employees, as required by the NISPOM for personnel holding security clearances. This training covers topics such as safeguarding classified information, recognizing and reporting insider threats, cybersecurity awareness, and the employee's obligations under the NISPOM. The training is administered by the FSO's office and is documented in training records maintained by the security department.
Trade secret awareness is addressed during the onboarding process for new employees, when the IANDA is executed and the employee receives a general orientation on VPI's confidentiality expectations. However, trade secret protection is not a component of the annual security awareness refresher training. There is no dedicated training module on trade secret identification, handling, and protection obligations. Employees may not be fully aware of which information constitutes a registered trade secret in VPI's Registry versus general confidential business information that is protected by the IANDA but not formally registered as a trade secret.
Gap identified:
The absence of ongoing trade secret awareness training means that VPI is relying almost entirely on the onboarding-stage IANDA execution and general orientation to maintain employee awareness of trade secret protection obligations throughout the employee's tenure. Given that the average tenure of VPI's technical employees is approximately seven years, and that trade secret assignments, access permissions, and the Registry itself evolve over time, reliance on onboarding-stage training alone is insufficient. Furthermore, the NSA and TCP will impose new obligations related to trade secret access, foreign ownership restrictions, and reporting requirements that all relevant employees must understand. A dedicated, recurring training program is recommended in Section VI.F.
E. Exit Procedures
VPI's current exit process for departing employees includes the following steps:
1. An HR department interview in which the departing employee is reminded of their continuing NDA obligations under the IANDA;
2. Return of company-issued property, including the employee's company laptop, facility access badge, parking credentials, and any other company-owned devices or materials;
3. Deactivation of the employee's network login credentials within 24 hours of the employee's last day of employment; and
4. For employees holding security clearances, a debriefing conducted by the FSO in accordance with DCSA requirements, followed by initiation of clearance transfer or termination as appropriate.
Gaps identified in exit procedures:
• No trade-secret-focused exit interview: The current exit process relies on a general HR interview that addresses NDA obligations at a high level but does not specifically identify the trade secrets to which the departing employee had access. The departing employee is not asked to enumerate the trade secret materials they accessed during employment, and no systematic effort is made to assess the risk of misappropriation based on the departing employee's specific access history.
• No return/destruction certification: Departing employees are not required to sign a written certification confirming that they have returned or destroyed all trade secret materials in their possession, custody, or control, including materials on personal devices. The absence of such a certification creates an evidentiary gap in the event of a subsequent trade secret misappropriation claim, as VPI would be unable to demonstrate that the departing employee acknowledged their obligation to return or destroy materials and represented that they had done so.
• No post-departure monitoring: VPI does not engage in any systematic post-departure monitoring of former employees' activities to detect potential trade secret misappropriation. While aggressive monitoring could raise employee relations concerns, a measured protocol — such as monitoring for publications, patent filings by the former employee at a competitor, and publicly available employment announcements — is a reasonable and increasingly common practice for employees who had access to high-value trade secrets.
• No BYOD review: VPI has permitted limited Bring Your Own Device ("BYOD") access for unclassified work, meaning that some employees may have accessed trade secret materials from personal smartphones, tablets, or home computers. The current exit process does not include a trade-secret-specific review of personal devices, creating a risk that trade secret materials may leave VPI with the departing employee.
These gaps represent a meaningful vulnerability in VPI's trade secret protection program, particularly given the competitive dynamics of the GaN semiconductor industry, where a small number of companies possess the technical capabilities for GaN-on-SiC epitaxial growth and HEMT device fabrication, and where the departure of even a single experienced process engineer to a competitor could facilitate the transfer of trade secret know-how. Our recommendations for enhanced exit protocols are set forth in Section VI.E.
V. HEIGHTENED RISKS FROM FOREIGN OWNERSHIP
A. CFIUS-Identified Concerns Relevant to Trade Secrets
CFIUS's preliminary national security concerns, communicated to the parties on October 20, 2023 through the CFIUS Staff Chairperson, identified two principal areas of concern with respect to the proposed acquisition: (1) the risk of foreign access to classified defense programs in which VPI participates, and (2) the potential for transfer of ITAR/EAR-controlled technology to non-U.S. persons as a result of the acquisition.
Both of these concerns have direct relevance to VPI's trade secrets. With respect to the first concern, trade secrets that reside within classified program environments (i.e., the subset of Category 1, 2, and 3 trade secrets used in classified defense programs) are protected by the classified information security framework, including NISPOM requirements, SCIF-level controls, and clearance-based access restrictions. The NSA will impose additional requirements — including the appointment of Security Board Members, the establishment of a Government Security Committee, and restrictions on HSAG's access to classified information — that will further safeguard these trade secrets.
The second concern, however, extends beyond classified information to encompass the broader universe of ITAR/EAR-controlled technology. VPI's trade secrets constitute a subset of the broader category of "controlled technical data" as defined in the draft NSA and TCP. Unauthorized disclosure of trade secret information to HSAG's non-U.S. personnel — whether through formal technology transfer, informal information sharing during integration activities, or inadvertent access through shared IT systems — would implicate both the NSA restrictions and the independent export control requirements of the ITAR and EAR. The risk of such unauthorized disclosure is inherent in any acquisition by a foreign acquirer and is the primary driver of the enhanced trade secret protections recommended in this memorandum.
B. FOCI Considerations
As analyzed in the FOCI Analysis Memo prepared by Peggy Ashworth and her team, HSAG's acquisition of VPI will create a condition of foreign ownership, control, or influence ("FOCI") over VPI within the meaning of the NISPOM. The NSA being negotiated with CFIUS is intended to function as the equivalent of a Special Security Agreement ("SSA") for FOCI mitigation purposes, imposing governance, operational, and compliance requirements designed to insulate VPI's national security-sensitive activities from foreign influence while permitting HSAG to exercise the legitimate business prerogatives of an owner.
Trade secret protections must be integrated into the FOCI mitigation framework established by the NSA. The risk of technology transfer is not limited to the formal channels that would require an export license or CFIUS approval. In practice, the most significant risk of inadvertent trade secret disclosure arises through the routine business information sharing that accompanies any acquisition integration:
• Technical reports to the HSAG board: Post-acquisition, HSAG will appoint two members to VPI's board of directors. Board members typically receive detailed reports on the company's operations, technology development, and competitive position. Without appropriate safeguards, such reports could contain or effectively disclose trade secret information. The NSA will restrict the content of board materials to prevent disclosure of classified and controlled information, but trade secret information that is not classified or export-controlled could still be disclosed unless specifically addressed by the TCP and VPI's internal policies.
• Integration planning documents: The integration planning process typically involves sharing of organizational structures, personnel information, technology roadmaps, and operational data between the acquirer and target. Absent specific restrictions, trade secret information could be embedded in or inferable from integration planning documents.
• R&D roadmaps and collaboration: Post-acquisition, HSAG may seek to leverage VPI's GaN technology for its own commercial product lines or for joint development programs. Any R&D collaboration involving trade secret information would require prior authorization under the TCP and potentially ITAR/EAR licenses.
The FOCI mitigation framework must account for all of these channels of potential disclosure and establish clear protocols and approval requirements for any sharing of trade secret information beyond VPI's organizational boundary.
C. Supply Chain and Collaboration Risks
Post-acquisition, HSAG is expected to seek opportunities to leverage VPI's GaN technology platform for commercial applications in the 5G infrastructure, automotive radar, and industrial power electronics markets. Any cross-entity R&D collaboration involving trade secret information would require prior authorization under the TCP and, where the trade secrets constitute ITAR- or EAR-controlled technology, prior export authorization from the relevant U.S. government agency.
Additionally, VPI's existing supply chain involves relationships with both U.S. and allied-nation suppliers, including providers of SiC substrates, epitaxial precursor materials, and device packaging services based in Japan, the United Kingdom, and Germany. These supplier relationships involve the sharing of certain process specifications with the suppliers to enable them to deliver materials and services that meet VPI's requirements. Post-acquisition, these supplier relationships must be reviewed to ensure that:
• No supplier is an HSAG-affiliated entity to which trade secret information could be inadvertently disclosed through the existing supplier relationship;
• Supplier NDAs are updated to reflect the change in VPI's ownership and to include any additional restrictions required by the NSA or TCP; and
• Any new supplier relationships proposed by HSAG (for example, transitioning to HSAG-affiliated or HSAG-preferred suppliers) are evaluated for trade secret protection and export control implications before implementation.
VI. RECOMMENDATIONS FOR ENHANCED TRADE SECRET PROTECTIONS
Based on the assessment set forth in Sections III through V above, we recommend the following enhancements to VPI's trade secret management program. These recommendations are designed to address the identified gaps, satisfy the requirements of the NSA and TCP, and establish a defensible compliance record for the ongoing CFIUS monitoring framework.
A. Integration with NSA and Technology Control Plan
Recommendation 1: TCP Trade Secret Annex. We recommend the addition of a specific trade secret protection schedule (the "Trade Secret Annex") to the TCP (NSA Annex B). The Trade Secret Annex should identify the categories of VPI trade secrets that are subject to access restrictions under the TCP, establish protocols for any proposed sharing of trade secret information with HSAG personnel, and define the approval process for such sharing.
Specifically, the Trade Secret Annex should:
(a) Identify and categorize VPI's registered trade secrets by reference to the four categories described in Section III.B of this memorandum, without disclosing the substantive content of the trade secrets themselves;
(b) Establish a default rule that no VPI trade secret information may be shared with HSAG or any HSAG-affiliated entity or personnel without the prior written approval of the Government Security Committee ("GSC");
(c) For trade secrets that overlap with ITAR/EAR-controlled technology (primarily Category 1 and portions of Categories 2, 3, and 4), require that any proposed sharing also obtain prior approval from the Defense Counterintelligence and Security Agency ("DCSA") and comply with all applicable export control requirements;
(d) Establish procedures for documenting any approved sharing, including the scope of information shared, the identity of the receiving individuals, the purpose of the sharing, and any conditions or limitations imposed; and
(e) Require that any trade secret information shared with HSAG personnel be subject to specific additional NDA protections, as described in Recommendation 14 below.
Recommendation 2: Government Security Committee Oversight. The three Security Board Members designated under the NSA — Col. (Ret.) Hendrickson (who will transition from his current FSO role to a Security Board Member role), Adrienne Delacroix (an independent security professional to be appointed), and the independent Security Director (to be recruited) — should have explicit oversight authority over trade secret access decisions, particularly for trade secrets that overlap with ITAR/EAR-controlled technology or government-funded programs. This oversight should include:
(a) Authority to approve or deny any request for access to VPI trade secrets by HSAG personnel or HSAG-affiliated entities;
(b) Authority to review and modify the authorized personnel lists for each registered trade secret;
(c) Receipt of quarterly reports from the Trade Secret Custodian on trade secret access activity, personnel changes, and any actual or suspected trade secret incidents; and