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Intellectual Property
University of Iowa School of Law
Hovenkamp, Herbert J.

TRADE SECRETS

I. The Purpose, Nature, and Source of Trade Secret Law
· Generally
o Businesses often develop valuable ideas or information such as manufacturing processes, specialized customer lists, computer programs, or business methods, which give them a competitive advantage. Most of the value comes because the competitors don’t have access to the information.
o If a business’s know-how is found to be a “trade secret” the business may prohibit its employees and business associates from divulging it to others, and prohibit competitors from using improper means to learn it (or from disclosing or using the information once learned).
o Trade secret protection may be available regardless of whether other forms of IP are available. In addition to providing an incentive to create and use valuable know-how, TS protection discourages improper conduct on the part of biz competitors and maintains minimums standards of “commercial morality.”
· The Restatement and the Uniform Trade Secrets Act
o Protection for TS arose under state common law which was greatly influenced by the Restatement of Torts §757, 758. Most states have adopted the Uniform Trade Secrets Act. The Uniform Act mainly codified the existing common-law rules, which generally reflect the provisions of the Restatement of Torts. Accordingly, the Uniform Act and the Restatement of Torts §757,758 are similar in most respects, and courts continue to look to the Restatement in interpreting and applying the Uniform Trade Secrets Act.
· The elements of a trade secret misappropriation cause of action
o Most trade secret cases focus on two elements:
1) Whether P’s information qualifies as a TS
2) If so, whether D’s acquisition, use, or disclosure of the information is an actionable misappropriation.
II. Status of Ideas or Information as Trade Secret
A. General Definition
The Uniform Trade Secrets Act (UTSA) defines a TS as “information including a formula, pattern, compilation, program, device, method, technique or process” that:
(1) derives actual or potential economic value from the fact that it is not known or readily ascertainable by others, and
(2) is subject to reasonable efforts to maintain its secrecy
1. Continuous Use – RST §757 (b) specifies that to be a TS, the information or idea at issue must be used “continuously” in the claimant’s business. This is different than the UTSA, which does not impose the continuous use requirement.
B. Six Factors considered in determining trade secret status
Courts have adopted a six factor test to determine whether information or an idea is a TS. The factors focus on 2 main ideas:
(1) is the information or idea “secret”; and
(2) does the information or idea have competitive value?
1. How widely is the idea or information known outside claimant’s business?
This first factor considers how well the information is known to public or others in the same business as claimant. The claimant doesn’t have to demonstrate that no outsiders know the secret, others may know as long as their numbers are low and they take measures to keep the information secret. The info must be “substantially secret”
2. Who within the claimant’s company knows the idea or information?
The claimant is allowed to disclose info to employees and others connected with its business so long as it takes reasonable precautions. The disclosure should be on a need-to-know basis. The claimant may be required to show that it tried to keep those who knew the secret from sharing. The extent of these required measures will differ from case to case, depending on what is reasonable under the circumstances. A cost/benefit analysis may be performed to determine whether a certain precaution should have been implemented.
3. What measures has the claimant taken to ensure that the idea or information remains secret?
The claimant should anticipate ways in which others might be expected to obtain the info and take reasonable measures to prevent access. However, the claimant will not be required to make unreasonable expenditures to protect secrecy. (Ex. on p. 8)
4. How difficult would it be for others properly to acquire or duplicate the idea or information?
If something has been published in a library or on the internet it is not likely to be protected.
ú Reverse engineering – a related issue is whether the info could be easily ascertainable by reverse engineering (through examination, analysis, or decompliation of the product on the market). If it would be easy, it may not qualify as a TS. However, just becuz it could be determined through complex reverse engineering, that will not destroy the owner’s ability to enforce rights against persons who obtained the info through means other than reverse engineering.
§ 5. How valuable is the idea or information to the claimant and its competitors?
§ The idea or information must be valuable to the claimant and give it an advantage over competitors who do not have it. The value to the claimant must be commercial.
§ 6. How much effort or money has the claimant expended in developing or acquiring the idea or info?
§ The greater the claimant’s investment in developing the know-how, the more likely the know-how has real value to the claimant and to the public generally. The greater the know-how’s value, the greater the justification for providing protection as an incentive for its development.
C. III. When Acquisition, Use, or Disclosure of a Trade Secret Constitutes and Actionable Misappropriation
a. Disclosure or use of a trade secret in breach of confidence
If the D’s disclosure or use of a trade secret was in breach of a duty of confidentiality that he owed to the P, the disclosure or use is actionable. A duty of confidentiality- which requires the D to refrain from disclosing or using the claimant’s trade secret without permission- will arise under several scenarios discussed below:
i. Special relationships – parties are in a confidential relationship if they are in agent-principal relationship (including employer-employee), if they are partners or joint venturers, or if they are in some other fiduciary relationship such as attorney-client or doctor-patient.
ii. Express contracts to retain confidentiality – parties may expressly K to maintain a TS in confidence. Disclosure or use of the TS in breach of the K will be actionable.
1. Shrink-wrap licenses for software- many software distributors have attempted to impose a contractual confidentiality obligation on mass-market software purchasers through use of “shrink-wrap licenses.” The distributor packages the software in a manner that notifies the purchaser that his use of the software will be restricted. One of the most common restrictions prohibits the purchaser from reverse engineering, decompiling, or disassembling the program’s object code.
2. The validity of shrink-wrap licenses- the value and enforceability of these is open to some question. They may be deemed unenforceable under established rules of K law- for example, they might be unenforceable for lack of consent, lack of consideration (becuz restrictive terms imposed after the sale), becuz they create adhesion K’s, or for other public policy reasons. State enforcement of shrink-wrap licenses may also be deemed pre-empted by federal law. Currently, there is some differing of opinion among the US Circuit Courts of Appeals over the extent to which these are enforceable.
3. Click-wrap licenses- click-wraps serve the same purpose as shrink-wrap licenses, but may be more easily enforced. The user, when presented with one of these licenses, must click to accept the terms before he

itself, may constitute misappropriation if the acquisition was achieved through improper means and the acquirer had reason to know that it was. Moreover, both the Restatement and the UTSA prohibit disclosure or use of a TS acquired through improper means. “Improper means” includes illegal conduct and conduct that is below generally accepted standards of commercial morality.
1. Illegal conduct – a D’s conduct will be deemed “improper” if it is illegal. If, in acquiring A’s TS, B engaged in fraud, or trespassed and broke and entered A’s biz, then this will be “improper”
2. Conduct below generally accepted standards of commercial morality – even if B’s means of acquisition is not technically illegal, it may still fall under improper for TS liability if they fall below reasonably accepted standards of commercial morality.
EI Dupont provides examples for the following (p12)
a. The meaning of “free ride” – as long as P has taken reasonable measures to keep his info secret, the D should be required to make the same investment to acquire the info as the P did. This is when D acquires the information without reverse engineering or performing research.
b. Taking advantage of P’s vulnerability – when P isn’t required to take exceptional measures to prevent D from obtaining info. The example illustrated a situation where D flew over P’s half constructed plant.
h. Disclosure or use of a trade secret with notice that the provider acquired it through improper means
i. If B acquires A’s TS through improper means and turns it over to C, C has a duty not to disclose or use it if he has notice that it is a TS and was obtained through improper means.
1. Notice – C will be deemed to have notice if a reasonable person under similar circumstances would know or would be led to inquire further, and a reasonable inquiry would uncover these facts.
i. Defendant’s modification of plaintiff’s trade secret
The fat that D modified or improved the P’s TS before using or disclosing it will not relieve the D from liability, as long as the P can demonstrate that the information the D used or disclosed was substantially derived from the P’s trade secret. (Ex on p. 13)

PATENTS

A. THE ELEMENTS OF PATENTABILITY

There are five primary requirements of patentability:
1) Patentable subject matter 2) Novelty 3) Utility 4) Non-obviousness 5) Enablement
1. Patentable Subject Matter

Patents Act §101
Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title

Diamond v. Chakrabarty
I: May a live, man-made microorganism be patented?
R: A live, man-made microorganism is a non-naturally occurring composition and thus may be patented

Two-part analysis for eligibility
1) Construe §101 broadly according to legislative intent- “anything under the sun made by man”
2) Laws of nature/physical phenomena/abstract ideas are not patentable