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Trade Secrets
University of Florida School of Law
Rowe, Elizabeth A.

Spring 2010
Professor Elizabeth Rowe
Introduction
Background

Dangers from the Inside (TWEN)
– Employees have a duty of loyalty to their employers to not misappropriate trade secrets
– The duty is not insufficient to protect trade secrets
– Computers make protection more difficult

What is a trade secret?
– Virtually anything useful in a business as long as it is kept secret
– Negative information
o Information on things that did not work

Not protectable under trade secret law
– That which is generally known
– That which is readily ascertainable from proper sources
– That which constitutes and individual’s personal or professional skills

Competing interests
– Freedom to take new jobs
– Protection for research against breaches of trust
– Vigorous competition
o Innovative products
o Better prices
– Rockwell Graphics (not in book) quote
o “The future of the nation depends . . . on the protection of intellectual property.

Policies underlying trade secret law
– Commercial morality
o Trade secret law regulates business ethics
o We don’t like unfair competition
– Protection for innovation
o Protect and encourage useful discoveries
– Sharing of knowledge
– Protecting commercial privacy
o A fundamental right
– Mobility of labor
– Free competition

Briefing.com v. Jones (p. 1)
– Trade secret laws have their genesis in society’s need to encourage innovation and to foster standards of trust in the marketplace
– Three manifestations of trade secret law
o Restatement of Torts
o Restatement of Unfair Competition
o Uniform Trade Secrets Act
Restatement of Torts

Restatement of Torts § 757
– Liability for Disclosure or Use of Another’s Trade Secret—General Principles
One who discloses or uses another’s trade secret, without a privilege to do so, is liable to the other if
a. he discovered the secret by improper means, or
b. his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him, or
c. he learned the secret from a third person with notice of the facts that it was a 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 his duty to the other, or
d. he learned the secret with notice of the facts it was a secret and that its disclosure was made to him by mistake
– Definition of trade secret
o A trade secret may consist of 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 of use it . . . . A trade secret is a process or device for continuous use in the operation of the business.
o Some factors to be considered in determining whether given information is one’s trade secret are:
1. The extent to which the information is known outside of his business
2. The extent to which it is known by employees and others involved in his business
3. The extent to measures taken by him to guard the secrecy of the information
4. The value of the information to him and his competitors
5. The amount of effort of money expended by him in developing the information
6. The ease or difficulty with which the information could be properly acquired or duplicated by others
o More limited than the UTSA definition
§ Has to be used continuously
§ UTSA does not require continuous use and recognizes potential value

Restatement of Torts § 759
– Procuring Information by Improper Means
One who, for the purpose 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
– Kind of information
The rule stated in this Section applies to information about one’s business whether or not it constitutes a trade secret (confidential information)
Restatement of Unfair Competition

Restatement of Unfair Competition § 39
– Definition of Trade Secret
A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.
– More broad than the Restatement of Torts

Restatement of Unfair Competition § 40
– Appropriation of Trade Secrets
One is subject to liability for the appropriation of another’s trade secret if:
a. The actor acquires by means that are improper under the rule stated in § 43 information that the actor knows or has reason to know is the other’s trade secret; or
b. The actor uses or discloses the other’s trade secret without the other’s consent and, at the time of use or disclosure,
1. The actor knows or has reason to know that the information is a trade secret that the actor acquired under circumstances creating a duty of confidence owed by the actor to the other under the rule stated in § 41; or
2. The actor knows or has reason to know that the information is a trade secret that the actor acquired by means that are improper under the rule stated in § 43; or
3. The actor knows or has reason to know that the information is a trade secret that the actor acquired from or through a person who acquired it by means that are improper under the rule stated in § 43 or whose disclosure of the trade secret constituted a breach of a duty of confidence owed to the other under the ruled stated in § 41; or
4. The actor knows or has reason to know that the information is a trade secret that the actor acquired through an accident or mistake, unless the acquisition was the result of the other’s failure to take reasonable precautions to maintain the secrecy of information
– Use or disclosure is not required (different than the Restatement of Torts)

Restatement of Unfair Competition § 41
– Duty of Confidence
A person to whom a trade secret has been disclosed owes a duty of confidence to the owner of the trade secret for purposes of the rule stated in § 40 if:
(a) the person made an express promise of confidentiality prior to the disclosure of the trade secret; or
(b) the trade secret was disclosed to the person under circumstances in which the relationship between the parties to the disclosure or the other facts surrounding the disclosure justify the conclusions that, at the time of the disclosure,
(1) the person knew or had reason to know that the disclosure was intended to be in confidence, and
(2) the other party to the disclosure was reasonable in inferring that the person consented to an obligation of confidentiality.

Restatement of Unfair Competition § 42
– Breach of Confidence by Employees
An employee or former employee who uses or discloses a trade secret owned by the employer or former employer in breach of a duty of confidence is subject to liability for appropriation of the trade secret under the rule stated in § 40.

Restatement of Unfair Competition § 43
– Improper Acquisition of Trade Secrets
“Improper” means of acquiring another’s trade secret under the rule stated in § 40 include theft, fraud, unauthorized interception of communications, inducement of or knowing participation in a breach of confidence, and other means either wrongful in themselves or wrongful under the circumstances of the case. Independent discovery and analysis of publicly available products or information are not improper means of acquisition.

Restatement of Unfair Competition § 44
– Injunctions: Appropriation of Trade Secrets
(1) If appropriate under the rule stated in Subsection (2), injunctive relief may be awarded to prevent a continuing or threatened appropriation of another’s trade secret by one who is subject to liability under the rule stated in § 40.
(2) The appropriateness and scope of injunctive relief depend upon a comparative appraisal

pt to the extent that a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation renders a monetary recovery inequitable, a complainant is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret.
(b) If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under subsection (a).

UTSA § 6
– Statute of Limitations
An action for misappropriation must be brought within 3 years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. For the purposes of this section, a continuing misappropriation constitutes a single claim.

UTSA is not adopted by
1. Texas
2. New York
3. New Jersey
4. Massachusetts
5. District of Columbia

Florida UTSA (F.S. §§ 688.002 – 688.009)
– Adopted in 1988
– Addition to definition of “Misappropriation”
o Disclosure or use of a trade secret of another without express or implied consent by a person who before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
– Runs concurrently with other civil remedies
What is Protectable?

Qualifying Information

Secrecy

Value

Trade Secret

Fundamental Concepts

Reasonable Efforts

Broad Categories
– Technical information
o Generally patent eligible information
– Business information
o Customer lists, etc.

Del Monte (p. 71) (UTSA)
– Alleging misappropriation of pineapple plant material
– Plant material can constitute a trade secret
– Plaintiff didn’t specify with specificity the trade secret
o So 12(b)(6)

RTC v. Netcom (p. 75) (UTSA)
– There is no information that is excluded from trade secret protection because of its inherent qualities (i.e. religious nature)
– Disclosures under confidentiality do not lose trade secret status
– The religious texts had value because there was a potential economic value
– No likelihood of success on the merits
o Did not adequately define the alleged trade secrets
o Internet publication destroys secrecy
Relationship to Other