Chapter 7 Trade Secrets

Restatement of Torts

-1939 American Law Institute summarized the prevailing common law doctrines of the various states in a treatise called the Restatement of Torts which has no binding legal effect, but influences judges and over time brings about uniformity among states -To steal a trade secret is an intentional tort

The UTSA represents a model for state legislatures to follow in passing legislative statutes that explicitly codify trade secret policies

-41 states had passed the UTSA -Other states have trade secret laws, just not UTSA

Other Plaintiff Theories

-Breach of Contract -Inevitable Disclosure --If employee goes to work for competitor, he is bound to reveal the secret

Trade Secret Laws Found

-Common law origin - Restatement of Torts -Economic Espionage Act (EEA) -Uniform Trade Secrets Act (UTSA).

Reasonably Knowing It Is Secret

-Express agreement to keep secret or -Implication from one's relationship with the trade secret holder --Employees have a fiduciary duty of confidentiality to not disclose trade secrets -Whether there was sufficient awareness about the violation of trade secret rights

Plaintiff's Case:

-Had a trade secret -Misappropriation -Breach of contract -Inevitable disclosure -Had a trade secret -Misappropriation --Usually prove by circumstantial evidence ---it spent large sums of money and spent considerable time developing the secret info ---the alleged misappropriator had access to that information ---that the alleged misappropriator developed its functionally similar product in substantially less time and with fewer resources.

Elements of a Trade Secret

-Information, including a formula, pattern, compilation, program, device, method, technique or process, that: --Derives independent economic value (affords competitive advantage) 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 form its disclosure or use. (known only to business or person) --Is the subject of efforts that are reasonable under the circumstances to maintain its secret (keep confidential) --In essence, is confidential information owned or develooped, usually by a business.

Remedies for Trade Secret Misappropriation

-Injunctions preventing use or disclosure of the secrets --if secret becomes public, misappropriator can apply to the court to dissolve the injunction Damages Imprisonment

Defendant's Case

-No trade secret -No access -Public disclosure (trade secret is no longer secret)

Trade Secret Law Has Common Law Origin

-Not secured by registration -Secured by developing a competitively valuable secret and continually maintaining the secret. -Injunctions and monetary damage awards -Can't interfere with federal patent policies -Reverse engineering is OK and if it fits within patent laws -Misappropriation is not OK: stealing info or using it in violation of a fiduciary responsibility or breach of contract of confidentiality

Trade Secrets

-Part of Intellectual --Property Law --Patents --Trademark --Copyright --Trade secret laws is an alternative

Global Recognition of Trade Secret Laws

-Significant international recognition and protection for some time -Paris Convention --Prohibits unfair trade practices -TRIPS Article 39(2) --protects undisclosed commercial information -North American Free Trade Agreement (NAFTA) --U.S., Canada, Mexico - article 1711 (1) - like TRIPS Also includes potential commercial value, no limit on duration of trade secret protection

Rationale for Trade Secrets

-State trade secret policies are concerned primarily with enforcing minimum standards of commercial ethics in the competitive marketplace --Based on breach of fiduciary duty or contract confidentiality obligations

Economic Espionage Act (EEA)

-Trade secret is know only to the business -If affords the business a competitive advantage over others in the industry -Is kept secret continuously by reasonable steps

Preliminary Injunction

-irreparable harm -will probably win at the trial

Improper means

-theft, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy or espionage through electronic or other means --Reverse engineering and independent creation are never improper with trade secrets

Enforcing Foreign Trade Secret Judgments in the U.S.

A number of states have adopted Uniform Foreign Money-Judgments Recognition Act

Examples of Trade Secrets

Engineering information, formulas, customer information and lists, sources for raw materials, manufacturing processes, design manuals, operating and pricing policies, market research studies, equipment and machinery, computer software and flow charts, drawings and blueprints = much wider than patent which covers useful processes, machinery, and compositions

Non competition agreements

Prohibit competition for a period of time in a specific geographic area

Injunctions

TRO Preliminary Injunction Permanent Injunction

If a third party doesn't know he/she has received secret information and uses it

UTSA gives judge wide array of remedies; may even allow the user to continue and pay a royalty to the owner of the secret

Misappropriation

When one acquires a trade secret by improper means or acquires it from another person reasonably knowing that the person used improper means to get it When one discloses or uses a trade secret reasonably knowing that such conduct violates a duty to maintain silence When one who reasonably knows of the impropriety discloses or uses a trade secret that was received from another person who used improper means

Injunctions are used

by large companies strategically to keep small upstart competition down -if frivolous suit in bad faith = attorney's fees

TRIPS requires members to establish

national enforcement systems that resolve intellectual property violations; TRIPS council check up on this system

Confidentiality agreements

problem when employees develop valuable trade secret information and then want to leave with it.

Information is strictly controlled in a guarded environment

released only on a need-to-know basis

1979, the Commissioners of Uniform State Laws devised

the Uniform Trade Secrets Act (UTSA).

For the third party to be bound in a contract,

there has to be an agreement for them to give you something in return before you give them the idea

Need formal process of periodic review

trade secret audit

Audit team

trusted personnel: identify trade secrets and match appropriate measures to secure them

Employee's agreement should say that he/she

will tell employer of anyone else's interest in hiring the employee, so the first employer can warn the second employer about any trade secrets the employee might be carrying with him/her to the new job.

Dealings outside the firm need to have

written confidentially agreements, procedures and safeguards before the secret is divulged