Intellectual Property - Trade Secret

Two Conceptions of Trade Secret

- Property - Tort

Property Theories

- Utilitarian - protecting this secret is for the overall betterment of society - Locke - you put in work to develop this secret - Personhood - you are attached to this secret

What qualifies as misappropriation?

1. Acquiring information by improper means 2. Breaching confidence of trade secret owner

Proper means of discovering a trade secret

1. Independent Discovery 2. Reverse Engineering 3. License of Trade Secret Owner 4. Observing item on public display 5. Discovery through reading published material

Rockwell Graphic Systems, Inc. v. DEV Industries (piece-part drawings)

A trade secret owner must make reasonable efforts to maintain secrecy, but owners can provide info to outside vendors.

Defend Trade Secrets Act (DTSA) (2016)

DTSA Key Features: • Signed 2016 • EU also enacts TS law • Doesn't preempt state laws • Automatic federal court jurisdiction - most of cases wld have juris. anyway • Applies only to interstate commerce • Same definitions, standards, remedies • CA anti-non-compete untouched • New ex parte seizure • New whistleblower immunity

Warner-Lambert Pharmaceutical Co. v. John J. Reynolds, Inc. (Listerine royalty payments)

In agreements involving royalty payments in exchange for exclusive disclosure of a trade secret, a court will not imply a limitation on the terms of the payments based on the elimination of the trade secret.

Disclosure of Trade Secrets

Public disclosure destroys the trade "secret": 1. Voluntary Disclosure 2. Product that "embodies" trade secret 3. Public disclosure by 3rd party - See Religious Technology Center v. Lerma (Merely downloading information made available on internet does not constitute misappropriation) - See Silicon Image Inc. v. Analogix Semiconductor Inc. (Presence of information on the Internet does not destroy secrecy absent evidence that competitors knew about it). - See DVD Copy Control Ass'n v. Bunner (Court found disclosure of a secret on the Internet only because it was "quickly and widely republished to an eager audience," and cautioned that it did not assume that the secrets were lost merely because they were put on the Internet. - Because of the risk of loss of trade secrecy through Internet posting, companies have been more aggressive in suing individuals who post information they consider confidential (O'Grady v. Superior Court x Ford v. Lane). 4. Inadvertent disclosure 5. Governmental disclosure

Kadant, Inc. v. Seeley Machine, Inc. (cleaning product designs)

Reverse engineering a product to determine its design specifications is permissible so long as the means used to get the information necessary to reverse engineer the product is in the public domain.

E.I. Du Pont De Nemours & Co. v. Christopher (Aerial Photographs)

The court held that the requirement of reasonable protective efforts did not mean that Dupont was required to build a dome over the construction site. The defendant were found to have misappropriated DuPont's trade secret. One need not breach a confidence to misappropriate a trade secret if it was acquired by improper means. Secrets that are not Misappropriation: Independent Development Reverse Engineering Someone Lawfully Acquires the product and reverse engineers it.

Smith v. Dravo Corp. (Freight container design)

The mark of a confidential relationship is a promise of trust, and that promise can be implied from the relationship of the parties. An agreement was breached, because a reasonable observer would have understood that there was an implied agreement to retaining the secrecy of the trade secrets.

Metallurgical Industries v. Fourtek, Inc. (Zinc recovery furnace)

Trade Secrets must be: 1. Secret 2. Discovered at some cost to plaintiff 3. Of some value to plaintiff

Elements of a Trade Secret

a) The subject matter involved must qualify for trade secret protection: it must be the type of knowledge or information that trade secret law was meant to protect (info capable of adding economic value to owner), and it must not be generally known to all. Value b) The holder of trade secret must have taken reasonable precautions under the circumstances to prevent its disclosure. Secret c) Trade secret plaintiff must prove that the defendant acquired the information wrongfully - in a word, that the defendant misappropriated the trade secret. Misappropriated

Theoretical Justifications of Trade Secret Law

i. Property Rights a) Secrets qualify as a form of property - Ruckelshaus v. Monsanto Co. (1984) b) Injunctive relief granted to prevent disclosure c) Whether the secret is proper for patent or not, the owner still has a right to property against those who gain or dispel the information wrongfully ii. Tort Law a) Duty-based theory aka maintenance of commercial morality b) Many trade secret cases arise out of a duty explicitly stated in a contract c) Failure to maintain commercial morality harms legitimate competition iii. A third way a) The promotion of innovation principle b) Protecting against the theft of information encourages investment in such information while the commercial morality concern aims to deter wrongful acts and is sometimes described as a tort theory. However, one consequence of deterring wrongful behavior would be to encourage investment in trade secrets. Hence, despite their conceptual differences, the tort and property/incentive approaches to trade secrets may well push in the same direction. c) Trade secret law will encourage invention in areas where patent law does not reach. Even though a discovery may not be patentable, that does not destroy the value of the discovery to the one who makes or the advantage of the competitor who steals it.