Intellectual Property Survey Outline
Professor Dana Robinson Fall 2010
TRADE SECRET PROTECTION
GENERAL ANALYSIS
· Establishment of Trade Secret: Does P have a protectable trade secret?
o Relevant Law (sources of trade secret law)
§ State Statutes: Many modeled on Uniform Trade Secrets Act (1979) – “UTSA”
· Ex. Cal. Civil Code § 3426 et al.
· May adopt law similar to Restatement of Torts (ROT), Restatement (Third) or Unfair Competition (RUC), or UTSA
o Requirements for Protection
§ Secret
§ Economic value to business
§ Reasonable efforts to maintain secrecy (see Restatement, RUC, UTSA for details)
o Duration of Protection
§ Forever or until secret is made public (until no longer secret)
· Enforcement of Trade Secret Rights: Is D liable for misappropriation? (see ROT, RUT, UTSA)
o Elements
§ 1) Protectable trade secret (secret, valuable, reasonable efforts to maintain) AND
§ 2) Misappropriation
· Acquisition/discovery by improper means
· Breach of confidence / confidential relationship / duty to maintain secrecy
o Know or reason to know
o Privileges / Exceptions / Defenses
§ Reverse engineering, license or other contract, independent discovery, etc.
o Remedies
§ Injunctions, royalties, damages, attorney’s fees, etc.
DEFINING TRADE SECRETS: SUBJECT MATTER
· Restatement of Torts §757, Comment b (1939)
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 or use it. It may be a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device or a list of customers.”
o Factors to be weighed (in determining whether info is trade secret – Restatement)
§ Extent to which info known outside claimant’s business?
§ Extent to which info known to employees and others involved in business?
§ Extent to which measures taken by claimant to guard secrecy of info?
§ Value of info to business and its competitors?
§ Amount of effort or $$ expended in developing info?
§ Ease or difficulty of duplication (or properly acquired) by others? (On internet, talking w/ others)
o Metallurgical Industries v. Fourtek
§ Modifications to improve efficiency of zinc recovery furnace found to be trade secret (Restatement of Torts) because:
· Info was known outside claimant’s business but was shared for economic reasons/confidential relationship
o But there was no agreement
· Info was known to authorized employees only
· Info was kept restricted and hidden, protected
· “Time, effort, $$” expended into changes (utilitarian theory)
o Hypo: P runs plant health service. P treats plants with secret methods (sticking vitamin E next to roots) and makes them grow. No one knows his method. Trade secret?
§ NO: P isn’t creating anything
§ YES: P is performing in a way that is not common knowledge, adding his own labor and creativity
Restatement (Third) of Unfair Competition §39
Trade secret is
Any information
That can be used in the operation of a business or enterprise
That is sufficiently valuable (defined broadly)
And secret
To affords an actual or potential economic advantage over others.
o [sufficiently valuable & sufficiently secret]
· Uniform Trade Secrets Act §1
o ‘Trade secret’ means information that qualifies for protection (formula, pattern, etc…)
§ economic value, actual or potential
· not generally known
· not readily ascertainable by proper means
§ reasonable efforts to maintain secrecy (under the circumstances)
o CA adopts UTSA except for “not readily ascertainable” [Cal Civil Code § 3426.1(d)(1)]
· Problems:
o Problem 2-1 (CB 48): X discloses info about secret process for making products to A (under confidentiality contract) & B (no agreement). C steals info from X’s computer. Does X have protectable trade secret it can assert against:
§ May not have a cause of action against any because you no longer own a trade secret.
§ A has a contract, but C has done something wrong, and what he has stolen may no longer qualify as property. Even though C’s conduct qualifies as misappropriating, he has misappropriated something of no value. There is no longer a cause of action because there is no longer a “secret.”
§ This would be a factor in the trade secret analysis
· Misappropriation can be punished
o Problem 2-2 (CB 48): Startup has nonexclusive license for product, made market for product, and developed extensive customer list. E leaves Startup, gets a license for product & becomes a competitor. Cannot sue for infringing patent because it is a nonexclusive license, so we go after him for stealing the customer list. What result?
§ We created a market and it now exists, so it is a market for which everyone who buys the products are knowable.
§ If this was prelaunch and the customer list was unknown because customers had not yet bought the products, we would have a trade secret.
§ BUT because we created an exclusive market that is now known, these customers are also known, and it is no longer a protectable trade secret.
o Problem 2-3 (CB 48): Derek is a molecular biologist working for research pharmaceutical company. Derek leaves for Conglomerate. Steers Conglomerate away from unproductive research. By telling them not to waste time going down certain paths, is he violating a trade secret?
§ No, because he can’t un-know what he knows.
§ Yes, from a utilitarian standpoint bc don’t want to take away incentives for companies to try to accomplish these cures, etc. They may just wait until other companies do the work and then years later, steal their employees, therefore their progress.
REASONABLE EFFORTS TO MAINTAIN SECRECY
Restatement of Torts – considers efforts to keep info. secret. [factor 3 from above list] Restatement (Third) of Unfair Competition – Precautions to maintain secrecy are relevant, but not required if the information is sufficiently valuable and secret [Comment G to RUC §39] UTSA – requires something be ‘not generally known’ & ‘subject of reasonable efforts to maintain secrecy’
o Rockwell Graphic Systems v. DEV
§ P makes replacement parts, drawings circulated by engineers (vendors) and provided to customers. Taken by former employees. Trade secrets?
§ P sharing TS with a “limited number of outsiders for a particular purpose” is not definitive evidence that reasonable efforts to maintain secrecy were not made.
§ P kept drawings in vault, restricted access to them, had protective procedures in place, required confidentiality agreements with vendors/employees
§ Court pointed out thatat some point it becomes too impractical and expensive to provide complete security for a secret
o How can firms protect their trade secrets?
§ Confidentiality agreements
§ Confidential relationships
· 9th Cir. split on whether employees have an implied duty to keep employer’s secrets confidential
§ Physical security measures
§ Design products to protect against reverse engineering
§ “Confidential” stamp on documents
§ No public disclosure
DISCLOSURE OF TRADE SECRETS
· A trade secret is protectable as long as it remains secret.
· Public disclosure destroys a trade secret.
· Methods of public disclosure:
o Publication of secret by holder of trade secret
§ Ex. in a patent, article, on internet
o Sale of commercial product where secret is apparent from the product
§ Selling commercial patent that embodies secret
§ If the secret not apparent from product itself, may still be secret (Coke formula)
o Disclosure during manufacturing and no restrictions on further disclosure
o Public disclosure by others – may have independently developed or discovered secret
§ Independent development: A has secret and B invents same thing; if B publishes secret, A loses protection as well
o Inadvertent disclosure (especially if widespread)
§ Ex. being left somewhere in public view
§ (RUC and UTSA say it is misappropriation to disclose secret you have reason to know was acquired by accident or mistake)
o Disclosure compelled by government agencies
§ Order to disclose secrets for social purpose; ex: disclosure of ingredients for food labels, disclosure of pesticides & other toxins
MISAPPROPRIATION
· Misappropriation
o Restatement of Torts §757
§ “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,
e engineered, and P has no proof to indicate otherwise, no mis.
Chicago Lock v. Fanberg – compilation of lock combinations not misappropriation of combinations b/c locksmiths picked locks to determine some of the codes = reverse engineering.
Observation in a public setting, obtained from public (internet, library, 3rd party)
Obtaining secrets from published literature (patent, etc.)
Other Equitable defenses – statue of limitations, estoppel, etc.
· Departing Employees
o Policy – employee’s rights to use knowledge to pursue livelihood/employers rights to protect processes and products. Often, employee’s rights win out b/c do not want to stagnate workforce and keep people from using the full extent of their knowledge.
Employment agreements
Confidentiality agreements: employee expected to keep confidential info secret and use it only for the employer.
Invention agreements: give employer rights to IP created by employee while employed
Non-competition agreements: limit when former employees can compete for customers w/ their former employers
California Only: where there is an overreaching employment contract, argue “overreaching according to public policy” under Cal. Labor Code §2870. OR, if the time limit on an employment contract is too long, CA prohibits any contract restricting employment after you leave a job.
SI Handling Systems v. Heisley
Know How vs. Trade Secrets
Competing public policies:
Freedom for employees to pursue a chosen profession
Accumulated skills, knowledge, and experience
Right of company to its intellectual property
“impose the minimum restraint upon the free utilization of employee skill consistent with denying unfaithful employees an advantage from misappropriate of information”
Edwards v. Arthur Anderson LLP
CPA worked for co that went under and sold its business to D, who required potential employees to sign agreements. P signed one but refused the other and offer for employment was revoked. P sues D for intentional interference with prospective economic advantage. [can’t work for client of firm-18 months]
To what extent Business and Professions Code section 16600 prohibits employee noncompetition agreements
D argued restraints are valid so long as they are reasonably imposed and do not fall within a statutory exception.
CA Rule: “noncompetition agreements are invalid under section 16600 in California even if narrowly drawn, unless they fall within the applicable statutory exceptions…” [CA statute broad in invalidating non-competes]
Court holds the noncompetition agreement was invalid because it restrained his ability to practice his profession.
Most states: apply an overarching requirement of “reasonableness” in duration and scope to covenants not to compete
CTI v. Software Artisans (VA’s 3 part test)
Often impossible to prove that a competing employee has misappropriated trade secrets
Is this sound trade secret law?
