1 SSHHHH! It’s a Trade Secret Slides 1-19 Adapted from Steve Baron

2 A Trade Secret is Information:  that has economic value  that is not generally known  over which reasonable efforts to maintain secrecy have taken place.

3 Types of Trade Secret Information  Technical or non- technical data  Formula  Pattern  Compilation  Program  Device  Method  Technique  Drawing  Process  Financial data  List of actual or potential customers

4 Economic Value  Actual (could be development/implementation costs; lost profits, etc.)  Potential (value that would have been gained had the secret not been misappropriated).

5 Availability of Information  Not generally known by competitors

6 “Reasonable” Efforts to Maintain Secrecy  Absolute secrecy not required  Reasonable under the circumstances  Comprehensive program

7 Examples of Methods to Maintain Secrecy  Lock & Key  Passwords  Restricted access  Sign-in sheets  Confidential stamps  Non-Disclosure Agreements

“Beware” of  Agreements you are bound by under terms of employment.  Employer expectations and behavior that may be inappropriate (turning you into a spy)  Questions you ask your new employees about their former employment. 8

9 The sum may be a trade secret, even if each part is not.

10 Advantages/Disadvantages of Trade Secrets  No time limit  No public disclosure  No governmental filing process  Depends on employee-employer relationships, and those can change.  Pandora’s box  May distract from your knitting

11 What Law Governs  Historically – Common Law  Uniform Trade Secrets Act  Illinois Trade Secrets Act  Economic Espionage Act  [the American Law Institutue’s Restatement of Torts, 1939 – and subsequent updates—have/has played an important interpretative role.

12 Historically – Common Law – Six Factor Test 1. Extent known outside company 2. Extent known by employees 3. Measures taken to guard secrecy 4. Value to company and competitors 5. Time, effort and money to develop 6. Difficulty of proper acquisition

13 Uniform Trade Secrets Act 1. Adopted by nearly 40 states

14 Illinois Trade Secrets Act 1. Effective since Adjunct to common law 3. Gives “teeth” to infringement claims

15 Illinois Trade Secrets Act Remedies  Injunction  Compensatory damages  Punitive damages  Attorney’s fees

16 Economic Espionage Act  Gives U.S. Attorney sweeping powers to prosecute any person or company involved in trade secret misappropriation  Punishes intentional stealing, copying or receiving of trade secrets  For product produced or placed in interstate commerce

17 Economic Espionage Act  Penalities  Individual fines up to $500,000  Company fines up to $5 million  Prison – up to 10 years for individuals and 15 years if theft performed for foreign government

18 Proper Methods to Obtain Trade Secrets  Legitimate Observation  Reverse Engineering  Independent Invention

DVD Copy Control Assn., Inc. v. Bunner, 31 Cal. 4th 864, 889 (2003) DVD-CCA v. Bunner, Court of Appeals of the State of California, 6th Appellate District, HO21153 Santa Clara County Super. CT. No. CV786804, (Feb. 27, 2004) Trial court issued injunction, CA court reversed, CA SC remanded [perhaps compromising the free speech claim], DVD-CCA withdrew. Lessons? Free speech may not protect hacking; the internet is the ultimate Pandora’s box 19

 McRoberts Software Inc. v. Media 100 Inc., 329 F.3d 557 (7th Cir. 2003)  The 7th Circuit noted that it is possible to recover damages based on more than one legal theory in the same suit, provided the plaintiff provides sufficient evidence of his injuries. [Copyright infringement and trade secret misappropriation].  7th Circuit held that it was an error for the District Court to vacate the jury’s award of $300,000 to MSI for trade secret damages as duplicative of the copyright infringement damages 20

IDX Systems Corp. v. Epic Systems, Corp., 285 F.3d 581 (7th Cir. 2002)  It’s not good enough to just show that valuable information has been transferred.  One has to be able to specify which part(s) were protected, how they were protected, and specifically that the alleged violation involved those parts. 21

EF Cultural Travel BV v. Explorica, Inc., 274 F.3d 577 (1st Cir. 2001)  In many instances, you can’t take what you know with you and apply it in direct competition against your former employer.  Note here, though, that without the contractual agreement, it’s possible this case could have gone the other way. 22