Trade Secrets: Contracts and Remedies Intro to IP – Prof Merges

Agenda TS protection via contracts TS remedies Criminal enforcement

TS Contracts Extensions beyond public disclosure: Warner- Lambert Common provisions in nondisclosure agreements

Very common clause 2. Exclusions from Confidential Information. Receiving Party’s obligations under this Agreement do not extend to information that is: (a) publicly known at the time of disclosure or subsequently becomes publicly known through no fault of the Receiving Party; (b) discovered or created by the Receiving Party before disclosure by Disclosing Party; (c) learned by the Receiving Party through legitimate means other than from the Disclosing Party or Disclosing Party’s representatives; or (d) is disclosed by Receiving Party with Disclosing Party’s prior written approval.

In the absence of this clause... Can a TS license continue in effect even after the underlying TS has become publicly known? If so, why?

“[T]he acquisition of the Lawrence formula was the base on which plaintiff's predecessors built up a very large and successful business in the antiseptic or germicide field. Even now, twenty-five or more years after it is claimed that the trade secret was disclosed to the public, plaintiff retains more than 50% of the national market in these products.”

Headstart notion “At the very least plaintiff's predecessors, through the acquisition of the Lawrence formula under this contract, obtained a head start in the field of liquid antiseptics which as proved of incalculable value through the years.” F.Supp. 655, 666 (S.D.N.Y. 1959).

Comparison to patent and copyright licenses Can you extend these licenses beyond the statutory term? No; so why a different rule for TS licenses? – TS not based on careful policy balancing; weaker right, more freedom of K here

Remedies Disgorgement (defendant's actual profits): defined by sales derived from the use of the trade secrets, such as a customer list. Or, actual damages suffered by virtue of profits on the sales actually diverted from the plaintiff's business by the defendant. In the trial before a jury, the defendant's net profits are considered to be a convenient measure of plaintiff's potential loss.

But... Contrary cases cited: IPNTA 5 th Page 110, note 2 Licensee may still challenge existence of TS, notwithstanding Warner-Lambert holding...

Analogy to patent damages The cost to the defendant of using the trade secret is compared to the cost of "accomplishing the same result" by other means open to the defendant at the time of the misappropriation. -- International Industries, Inc. v. Warren Petroleum Corp., 248 F.2d 696, 699 (3d Cir. 1957)

Notable TS damages awards $46,700,000 was affirmed by the Eighth Circuit in Pioneer Hi-Bred International, Inc. v. Holden Foundation Seeds, Inc., 35 F.3d 1226 (8 th Cir. 1994) $25,000,000 reward for compensatory damages, plus $2,400,000 for unjust enrichment, was affirmed by a Florida Appeals court in Purdue Farms, Inc. v. Hook, 777 So.2d 1047 (Fla. Dist. Ct. App. 2d Dist., 2001).

Winston Research v. 3M Good review case – Existence of TS: combination of elements in public domain – Reasonable precautions, apparently Injunction issue specifically

Why an injunction at all? Property rule vs liability rule – Who sets the “price” of an infringement? Discourage “take now, pay later” approach

Why not a permanent injunction? In effect, would impose a Warner-Lambert agreement on the parties – Would that be fair? What they intended? Note: may not be many people skilled enough to compete with Winston in tape recorder business...

Invention assignment Pending patent applications transferred from 3M to Winston Under “trailer clauses” in employee agreements

Assignment of future inventions Littlefield v. Perry, 88 U.S. 205, 226 (1874). However, if the invention does not exist, the employee can only assign equitable title to the employer. This equitable title will become a valid legal title to the invention once the invention exists. – Need to have employee assign after invention is made also

“New Jersey courts previously have not specifically addressed the enforceability of a ‘holdover’ clause. We have, however, addressed the enforceability of analogous employee noncompetition contracts. We find that our determination on the enforceability of those post-contracts is applicable to our determination in this case of the enforceability of ‘holdover’ clauses.” -- Ingersoll-Rand Co. v. Ciavatta, 542 A.2d 879, 888 (N.J. 1988).

“The agreements in question are for an indefinite period of time. … It is now ten years later and Interface seeks to enforce termination agreements against these former employees which would require them to turn over all inventions for an indefinite period of time covering subjects both within the Company's field of activity or “contemplated field of activity.” It is hard to imagine a more restrictive or overbroad agreement. It would be reasonable to restrict these ex-employees from using information gathered at Interface. It is not reasonable to confiscate all new inventions made by the employees for which Interface might have an interest. … It is well settled that invalid agreements are unenforceable.” Fed. Screw Works v. Interface Sys., Inc., 569 F. Supp. 1562, 1564 (E.D. Mich. 1983).