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Intellectual Property
University of Illinois School of Law
Kesan, Jay P.

Introduction to Intellectual Property (Fall 2011)                                                 
Professor Kesan
 
Introduction                                                                                                                                                          
·         Characteristics that distinguish IP from real property
o   Nonrivalrous consumption: can use IP good without having to compete for the same thing
o   Inexhaustible: can keep using it, and it is not gone  (makes it particularly susceptible to free-riding)
o   Excludable
o   Created by knowledge
·         Economic Justifications:
o   Artificial restriction of the supply of good
o   Can get supracompetitive pricing but the value is uncertain (what the market decides)
§  IP system gives a property right but does not guarantee its value
§  Noninfringing alternatives may exist
o   High cost of creation, low cost of replication (ex. Windows 2000)
·         Philosophical Justifications:
o   Lockean Theory (“just desserts”): if someone takes common-resources and mixes labor with it, then should have a reward/right
o   Hegel Personhood Theory: should reward and vindicate things that are tied up with a person’s sense of self; self-esteem and self-worth tied in with work
 
Trade secrets                                                                                                                                                         
 
1) is there a trade secret? 2) if so, was it misappropriated in a manner the law deems proper? 3) what are the defenses?
 
I – What is a Trade Secret?
 
Uniform Trade Secrets Act – Trade secret means information, including a formula, pattern, compilation, method, technique, or process, that:
1)      derives independent economic value, actual or potential, from [BECAUSE] not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, AND
2)      is the subject of efforts that are reasonable under the circumstances to maintain its secrecy
 
Economic Espionage Act – Trade secret means all forms and types of financial, business, scientific, technical, economic, or engineering info, including patterns, plans, compilations, program devices, etc, whether tangible or intangible, and whether or how stored, compiled, or memorialized IF
A)    The owner thereof has taken reasonable measures to keep such information secret, AND
B)     The information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public
 
Restatement of Torts – 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 or use it.  It may be a formula for a chemical compound, a process of manufacturing, treating or preserving material, a pattern for a machine, or customer list
 
Misappropriation – One who acquires, discloses, or uses another’s trade secret, without a privilege to do so, is liable to the other if (a) he acquired the secret by improper means (trespass or industrial espionage), or b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him
** Can sue for Misappropriation (trespass, breach of confidentiality, Christopher case)
*Why not just sue under contract or property law?  Because trade secret law gives injunctions and punitive damages (cannot get in contract law), and also economic damages/lost profits (cannot get in property law)
 
II – Civil Protection of Trade Secrets
 
** Largely a matter of state law; 44 states plus D.C. have adopted some version of the UTSA
** At Will Doctrine – Generally, things you learn on the job are not protected
A: UNIFORM TRADE SECRETS ACT
 
Learning Curve Toys v. Playwood Toys (Thomas the Tank Engine Track)
6 CL FACTORS from ILLINOIS COURTS (instructive guidelines from Restatement)
1) The extent to which the information is known outside of Plaintiff’s business
Others have tried and failed – so not generally known (patent is proof of novelty)
2) The extent to which the information is known by employees and others involved in the Plaintiff’s business
More it’s known (all employees), less it can be said to be a “trade secret”
3) The extent of measures taken by the plaintiff to guard the secrecy of the information
Confidential agreement before speaking between both
Could go either way:
Reasonable measures were not taken because they gave their only prototype of the track to P without first obtaining written confidentiality agreement
Small company so oral agreement was enough – they just wanted a deal with a big company
4) The value of the information to the plaintiff’s business and to its competitors
The fact that the prototype wasn’t perfect didn’t matter (idea was important)
Sales soared, and it was a product that would have commanded a premium royalty
UTSA does not require that the trade secret owner capitalize on the trade secret
Owner may not have capabilities to manufacture, market, etc.
5) Amount of time, effort and money expended by the Plaintiff in developing the info
Insignificant investment is insufficient to establish trade secret status
Actual investment does not really matter because material knowledge development (i.e. education) may have taken a lot of money
6) Ease or difficulty with which the information could be properly acquired or duplicated by others
Couldn’t have been easily acquired
Learning Curve had spent months trying to differentiate their track, but couldn’t
 
Mangren Research and Development Corp v. National Chemical Co.
PTFE had never been used as the primary component of a mold release agent
P made a list of companies that produced molded rubber and plastic products and contacted them 1 by 1 to market it (not all manufacturers would have equipment necessary)
Developed a list of potential customers, but only after devoting a considerable amount of time and effort to the project
Took a numbers of steps to ensure that its formula remained secret
All employees signed confidentiality agreements and non-employees weren’t permitted in the company’s laboratory
Once chemical ingredients were delivered to the company’s premises, the labels identifying those ingredients were removed and replaced with coded labels
Financial statements and records referred to ingredients only by coded names
Held:  User of another’s trade secret is liable even if he used it with modifications or improvements so long as the substance of the process is derived from the other’s secret
 
1 – Elements of Trade Secrets (Common to almost all Trade Secret laws)
1)      Information (any kind of information can be protected)
2)      Which is valuable through not being generally known to others
3)      Which the holder has tried to keep secret
** Common to all the definitions of trade secrets
 
A – Information
DeGiorgio v. Megabyte International
Customer list contained the identities of actual customers and vendors of D and specific information concerning them.  Information was not readily ascertainable from any source other than D’s business records
Trade secret information does not have to be technical knowledge
 
B – Value Through Secrecy
Buffets v. Klinke
P represents OCB.  D stole a bunch of OCB recipes and “employee positions”
Held:  Recipes were not trade secrets.  P didn’t show any benefit from the recipes being kept secret.
Recipes easily discovered by others because fairly basic
Recipes were readily ascertainable in the public domain
Recipes had no independent economic value because

ecy or limit its use
c.       OR before a material change of his 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
 
2 – Reverse Engineering
UTSA – The acquisition of a known product must also be by a fair and honest means
Policy: people should be able to take apart and make improvements on preexisting technologies – if want more protection (i.e. absolute rights), should get a patent.
 
Chicago Lock Co. v. Fanberg
D advertised in a locksmith journal requesting that individual locksmiths transmit to him serial number key-code correlations in their possession in exchange for a copy of a complete compilation when finished.  A number of locksmiths compiled and D sold these lock codes. 
Books allow a person equipped with a tubular key grinding machine to make duplicate keys for any listed Ace lock if the serial number of the lock was known
Company’s high security policy was a valuable business or trade secret-type asset
Restatement of Torts
One who discloses or uses another’s trade secret, without a privilege to do so, is liable to the other if:
He discovered the secret by improper means, or
He learned the secret from a 3rd party with notice of the facts that it was a secret and that the 3rd person discovered it by improper means
Note: if without notice, then could use innocent wrongful user defense
Analysis:  D bought and examined a number of locks on their own so it’s reverse engineering
P would be held liable if they intentionally procured the locksmiths to disclose the trade secrets in breach of the locksmiths’ duty to the Company of nondisclosure
Held:  Individual locksmiths didn’t owe a implied duty to Company not to make disclosures
Held:  Locksmiths are in a fiduciary relationship with their customers to not disclose their customers’ key codes without permission, not in turn to maintain a duty to the Company
No breach of duty since selectively handing out codes to other locksmiths
Only injured lockowners have a cause of action against the locksmiths
 
3 – The Innocent Wrongful User
The discoverer of a new process or trade secret has no exclusive right to it against one who in good faith acquires knowledge of it w/o breach of contract or of a confidential relationship with discoverer
** A competitor who innocently hires an employee of a trade secret owner cannot be liable for trade secret misappropriation (departing employee can be liable however)
Original Restatement of Torts – One who learns another’s trade secret from a 3rd person without notice that it is secret and that the 3rd 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:
a)      is not liable to the other for a disclosure or use of the secret prior to receipt of such notice, AND
b)      is liable to the other for a disclosure or use of the secret after the receipt of such notice, unless prior thereto he has in good faith paid value for the secret or has so changed his position that to subject him to liability would be inequitable