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

Introduction to Intellectual Property

Kesan

Fall 2015

Trade Secrets

1) Is there a trade secret? 2) If so, was it misappropriated? 3) What are the defenses?

I. What is a Trade Secret?

A. Uniform Trade Secrets Act (UTSA) – “Trade secret” means information, including a formula, pattern, compilation, phonogram device, method, technique, or process, that:

1. derives independent economic value, actual or potential, from 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

B. Economic Espionage Act (EEA) – “Trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing IF:

1. the owner thereof has taken reasonable measures to keep such information secret; AND

2. 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

C. 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.

D. 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/industrial espionage), OR (b) his disclosure or use constitutes a breach of confidence reposed to him by the other in disclosing the secret to him

II. Civil Protection of Trade Secrets

**Largely a matter of state law à 44 states plus D.C. have adopted some version of the UTSA

A. Application of the Uniform Trade Secrets Act

1. Learning Curve Toys, Inc. v. Playwood Toys, Inc.

i. Misappropriation of a trade secret in a realistic looking and sounding toy railroad track, where the court held that the copying of a simple toy design disclosed under confidentiality agreement may support liability for misappropriation

ii. Six common law factors from Illinois courts to determine whether a trade secret exists (instructive guidelines):

· 1) The extent to which the information is known outside of P’s business

o Others have tried and failed to create a similar concept for a track

· 2) The extent to which the information is known by employees and others involved in P’s business

o The more it’s known (all employees), the less it can be said to be a “trade secret”

· 3) The extent of measures taken by P to guard the secrecy of the information

o Playwood reasonably relied on the oral confidentiality between two parties

o It could be argued that Playwood should have gotten a written confidentiality agreement (small company, so oral was enough)

· 4) The value of the information to P’s business and to its competitors

o Actual use is not that important, just that the trade secret is “of value” to the company à UTSA does not require that the owner capitalize on the trade secret

o The fact that the prototype wasn’t perfect didn’t matter (idea was important)

· 5) The amount of time, effort, and money expended by P in developing the information

o Actual investment does not really matter because material knowledge development may have taken a lot of time and money

· 6) The ease or difficulty with which the information could be properly acquired or duplicated by others

o Concept could not have been easily acquired or duplicated through proper means

o Learning Curve spent months trying to differentiate their track, but failed

2. Mangren Research and Development Corp. v. National Chemical Co.

i. Mangren contended that D misappropriated its trade secrets in the course of developing and marketing a competing mold release agent à PTFE had never been used as a primary component of a mold release agent

ii. Took a number of steps to ensure that its formula remained a secret

· All employees signed confidentiality agreements and non-employees weren’t permitted in the company’s laboratory

· Once the chemical ingredients were delivered to the company’s premises, the labels were removed and replaced with coded labels (financial statements used coded names only)

iii. 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

B. Common Elements of Trade Secrets: (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

1. Information – DeGiorgio v. Megabyte International, Inc.

i. Customer list contained the identities of actual customers and vendors of D and specific information concerning them. Information was not readily ascertainable from any other source other than D’s business records

ii. Megabyte had made a reasonable effort to maintain its secrecy

iii. Trade secret information does not have to be technical knowledge

2. Value through secrecy – Buffets, Inc. v. Klinke

i. P filed a complaint against Klinke for misappropriation of OCB’s recipes and training manual

ii. Held: the recipes are not trade secrets

· The recipes were basic and easily discovered by others

· Recipes were readily ascertainable to the public

· Recipes had no independent economic value because no proof that the food was of superior quality to its rivals (i.e. there was no relationship between the lack of success of OCB’s competitors and the unavailability of the recipes)

· “Trade secrets law protects the author’s very ideas if they possess some novelty and are undisclosed or disclosed only on the basis of confidentiality”

3. Reasonable efforts of protection – Buffets Inc. v. Klinke

i. Reasonable efforts to maintain secrecy have included advising employees of the existence of a trade secret, li

nt (4) public interest

2. Damages

i. Unless monetary recovery is inequitable, a complainant is entitled to recover damages

ii. Damages can include actual lost profits and unjust enrichment of the perpetrators

iii. If willful and malicious misappropriation exists, court may award punitive damages

3. Attorney’s Fees

i. If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney fees

4. Winston Research Corp. v. Minnesota Mining and Manufacturing Co.

i. When D had substantially completed the research phase of its program and was beginning development of a prototype, Johnson, who was in charge of D’s program left for P. Once there, he hired many technicians that he had worked with. Within 14 months, Winston completed a machine having the same low time-displacement error as D.

ii. D argues that it took them 4 years to develop, while it took P 14 months

iii. Held: 2-year injunction is appropriate

· The appropriate injunctive period is that which competitors would require after public disclosure to develop a competitive machine

· No money damages because P didn’t sell any machines

Copyrights

(1) Ownership of copyrighted work? (2) Copying of original elements? (3) Direct infringement (actual copying)? (4) Indirect infringement (access to copyrighted work + substantial similarity)

I. Copyright: Public and Private Rights

A. Background on Copyrights

1. Copyright rewards originality, NOT the labor or effect of authors. It’s about promoting progress.

2. Copyrightable subject matter – broad range of literary and artistic expression. Ideas themselves are not copyrightable, but the author’s particular expression of an idea is protectable

3. Threshold for protection – work must exhibit a modicum of originality and be fixed in a “tangible medium of expression”

4. Formalities – registration not required for validity, but required prior to filing an infringement suit

5. Authorship/ownership – work must have been created by the party bringing suit or rights transferred to them. For works made “for hire,” employer is considered the author and owner

6. Duration – lasts for life of author plus 90 years

7. A valid copyright confers the following rights:

i. Owner has exclusive right to make copies of her work

ii. Owner has righto control the sale and distribution of work

iii. Owner has right to control the public performance and display of work