Select Page

Trade Secrets
South Texas College of Law Houston
Page, Phillip E.

Trade Secret Outline
Page – Spring 2013
Chapter 1: Introduction
A.      The Emergence of the Common Law of Trade Secrecy (1800 to 1939)
a.       Encourages innovation, invention, and creativity
b.       Facilitates the sharing of information
c.        Any bit of information that is “secret” and of potential “independent economic value” can be protected by trade secret law so long as it is subject to “reasonable efforts to maintain its secrecy”
d.       Three overriding approaches
                                                               i.      Unfair competition (tort)
                                                              ii.      Property (tort)
1.       Strict liability offense
2.       May want to be careful labeling TS as property b/c would have to show D acted improperly, otherwise no strict liability
3.       Intent overlay makes TS as property difficult to prove
                                                            iii.      Contract
1.       NDAs, non-competes
a.       Reasonable, sometimes legal, way of protecting interests
2.       Confidentiality agreements
e.        Difference between legal and equitable relief
                                                               i.      TS don’t expire, unlike copyright/trademark
                                                              ii.      TS wither away
1.       Is it secret enough? Does amount of secrecy affect remedy?
                                                            iii.      Actual or threatened misappropriation may be enjoined
f.        General proof requirement for P
                                                               i.      There was a secret;
                                                              ii.      D improperly acquired, disclosed, or used P’s TS in violative manner; AND
1.       Can misappropriate TS if acquire TS in circumstances where D had a duty to maintain confidentiality
                                                            iii.      D’s action damaged P
g.        TS originally for protection and/or maintenance of business ethics and prevention of unfair competition
h.       Originally all common law
                                                               i.      Could only use tort of K theories
1.       Relief difficult through K
a.       Argue implied-in-fact K
b.       Remedies would not provide injunction
c.        Third parties not in privity not included
2.       Tort
a.       Courts default theory
b.       Unfairness appreciated, but not falling under K
3.       Property
a.       Can sell a TS, so property-like
b.       Intellectual property
c.        Power to use TS to exclusion of world
d.       Inventor has a property interest, equities should be available
i.         Difference between TS and Patent
                                                               i.      Patent is a monopoly against all the world
                                                              ii.      TS has no right “except against those who have contracted, expressly or by implication, not to disclose the secret.”
B.      The Restatement (First) of Torts
a.       Section 757
                                                               i.      One who discloses or uses another’s TS, without privilege to do so, is liable to the other if:
1.       He discovered the secret by improper means, or
2.       His disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him, or
3.       He learned the secret from a third person with notice of the facts that it was secret and that the third person discovered it by improper means or that the third person’s disclosure of it was otherwise a breach of duty to the other, or
4.       He learned the secret with notice of the facts that it was secret and that its disclosure was made by mistake
b.       Section 758
                                                               i.      One who learns another’s TS from a third person without notice that it is secret and that the third person’s disclosure is a breach of his duty to the other, or who learns the secret through a mistake without notice of the secrecy and the mistake,
1.       Is not liable to the other for a disclosure or use of the secret prior to receipt of such notice, and
2.       Is liable to the other for a disclosure or use of the secret after the receipt of such notice, unless prior thereto has in good faith paid value for the secret or has so changed his position that to subject him to liability would be inequitable.
c.        Section 759
                                                               i.      One who, for purposes of advancing a rival business interest, procures by improper means information about another’s business is liable to the other for the harm caused by his possession, disclosure or use of the information
d.       First Restatement never really defined what a TS is, so UTSA entered to help the issue
C.      The Uniform Trade Secrets Act
a.       Formed as a result of concern over Restatement not fully addressing issue.
b.       Issues of concern:
                                                               i.      Definition of TS
                                                              ii.      Meaning of misappropriation
                                                            iii.      Availability and scope of injunctive relief
                                                            iv.      Nature and extent of monetary relief, including punitive damages and attorney’s fees
                                                             v.      Treatment of TS during litigation
                                                            vi.      Effect of UTSA on other principals of law
c.        Most states (46) enacted
d.       Mass, NY, NC, TX haven’t adopted and follow common law principles
e.        Does not stop K claim
f.        P has burden on all elements in K claim, but limited to K remedies
g.        Ks cannot be used to create a TS…TS must exist independent of the K
D.      Special Issue: Are Trade Secrets Property and Why Does It Matter?
a.       Theory that has revealed is that protection is afforded only by a general duty of good faith and that liability rests upon breach of this duty (Rest. cmt.)
b.       Property right exists if TS is an interest capable of a precise definition, capable of exclusive control, and the owner must have established a legitimate claim to exclusivity
c.        Why does classification matter?
                                                               i.      Legal consequences – SOL, evidentiary concerns, remedies, etc.
                                                              ii.      If K law, wrong is breach of K
1.       But doesn’t always work because there may not be a binding K between parties
                                                            iii.      If unfair competition, wrong is engaging in some act deemed contrary to business ethics
1.       But too much information could thereby be protected
2.       Focus on bad acts of D than on secrecy of information sought to be protected
                                                            iv.      If property, wrong is interfering with, or destroying someone’s property
1.       But may deemphasize importance of free competition and employee mobility
Chapter 2: What Can Be a “Trade Secret”?
A.      Introduction
a.       Almost anything can be a TS, but proper application of TS definition filters out TS from other confidential information
                                                               i.      TS can be high-tech, low-tech, no-tech so long as satisfies other things
                                                              ii.      Courts have a lot of discretion and approach on case-by-case basis
b.       TS are recognized to promote:
                                                               i.      Commercial morality;
                                                              ii.      Inspire innovation;
                                                            iii.      Share knowledge;
1.       Avoid self-help because can’t share with effective partners if can’t control
                                                            iv.      Commercial privacy
1.       I.e., treatment of employees
2.       Wouldn’t be proper to video how employees treated
                                                             v.      Free labor and mobility
                                                            vi.      Free enterprise
B.      Definitions of a Trade Secret
a.       Restatement First didn’t really give an exact definition of TS
                                                               i.      May include any formula, pattern, devic

ing readily copied as soon as it is available on the market
                                                iv.      Information is available to the members of the public but may not have been seen by them so it is not yet part of their “knowledge”
c.        The generally known and readily ascertainable are technically disjunctive, but usually treated conjunctively
C.      Protection of Technical Versus Business Information
a.       Technical information
                                                   i.      Info traditionally thought of for patent protection
                                                  ii.      How things are manufactured, designed, or operated
                                                iii.      Formulas, devices, processes; all protectable under TS
b.       Business information
                                                   i.      Non-technical information that is commercially useful in a business
                                                  ii.      Financial information, pricing information, marketing information, strategic plans
                                                iii.      Customer information
c.        Courts seem to like technical information more, even though both categories are protected as TS
                                                   i.      Conduct of D usually plays a large part in determining liability
D.      The Internet and Public Availability
a.       Many courts assume that TS on the internet is generally known and therefore no longer a TS
b.       Even if person who put on internet did not intend to cause harm, TS protection is lost
c.        Difficult to determine Ds when TS placed on internet
E.       Special Issue: Where Is the Dividing Line Between a Trade Secret and One’s General Skill & Knowledge
a.       General rule is that a former employee may use the general knowledge, skills, and experience acquired during his employment, even in competition with former employer
b.       Public interest in labor mobility
c.        Promotes employee’s freedom to practice a profession
d.       Freedom of competition
e.        Former employee not allowed to use confidential or TS information of former employer
Chapter 4: The Economic Value Requirement of Trade Secrecy
A.      Introduction
a.       Separate element of UTSA
b.       In some cases, it is assumed the asserted TS must have value because otherwise P would not bring suit
c.        Often subsumed into the meaning of secrecy; courts do not give this element much treatment
d.       Texas has no authority as to what this concept requires
e.        Under UTSA, must have independent economic value
                                                               i.      The “independent” language is unclear
                                                              ii.      Value is not necessarily of independent economic type
f.        Maine five-factor test:
                                                               i.      The value of the information to P
                                                              ii.      Amount of effort or money spent developing the information
                                                            iii.      Measures utilized to protect the information from discovery
                                                            iv.      Relative ease or difficulty faced trying to develop the information
                                                             v.      Degree to which third parties placed information in public domain