1. June 29, 2009
TRADE SECRET LAW

2. TRADE SECRETS
“(T)rade secret protection is an important part of intellectual property, a form of property that is of growing importance to the competitiveness of American industry…The future of the nation depends in no small part on the efficiency of industry, and the efficiency of industry depends in no small part on the protection of intellectual property.” Rockwell Graphics

3. Examples of Trade Secrets
formula for a sports drink
survey methods used by professional pollsters
recipes
a new invention for which a patent application has not yet been filed
marketing strategies
manufacturing techniques
computer algorithms
Examples of Trade Secrets That Should Be Protected

4. Practical Importance of Trade Secrets
Protect valuable information that cannot be sheltered under other forms of IP law, such as formula for Coke
protect ideas that offer a business a competitive advantage, thereby enabling a company or individual to get a head start on the competition -- for example, an idea for a new type of product or a new website
keep competitors from learning that a product or service is under development and from discovering its functional or technical attributes -- for example, how a new software program works

5. Practical Importance (cont.)
protect valuable business information such as marketing plans, cost and price information and customer lists -- for example, a company's plans to launch a new product line
protect "negative know-how" -- that is, information you've learned during the course of research and development on what not to do or what does not work optimally -- for example, research revealing that a new type of drug is ineffective, or
protect any other information that has some value and is not generally known by your competitors -- for example, a list of customers ranked by how profitable their business is.

6. What do courts consider in determining if a trade secret exists?
Courts usually consider the following three factors in determining whether you have a trade secret:

7. Is the information deemed to be a "trade secret" valuable to the business?
What steps have been taken to keep the information secret?
To what extent do employees and others involved in the business know about the information? What about people outside the business?

8. Trade Secret Law Sources of law
Misappropriation of Trade Secrets (Uniform Trade Secrets Act) and
Contract Law – confidentiality or nondisclosure agreement

9. TRADE SECRETS State Law Protection Uniform Trade Secrets Act
Unlike patents, copyrights and trademarks, trade secrets are protected under state law
Uniform Trade Secrets Act - Model Act Amended in 1985
41 states have enacted statutes modeled after UTSA
2 states (AL and MA) have separate state statutes protecting trade secrets
7 states protect trade secrets under the common law

10. Basics of Uniform Trade Secrets Act
In those states which have enacted UTSA statutes, the statutes displace conflicting tort, restitutionary, and other law of the State providing civil remedies for misappropriation of trade secrets
HOWEVER:
The statutes do not affect:
Contractual remedies, whether or not based upon misappropriation of a trade secret
Other civil remedies that are not based upon misappropriation of a trade secret
Criminal remedies, whether or not based upon misappropriation of a trade secret

11. Basics of the Uniform Trade Secrets Act
“Trade secret” defined as:
information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
derives independent economic value from not being generally known or readily ascertainable by proper means by other persons and;
is the subject of efforts that are reasonable under the circumstances to maintain its secrecy

12. Basics of Uniform Trade Secrets Act
Provides cause of action for “misappropriation” of trade secrets
3 year statute of limitations - action must be brought within 3 years after misappropriation is discovered or should have been discovered
Elements of Misappropriation Claim
(1) Info must be trade secret; (2) reasonable steps to keep secret; (3) Misappropriation

13. Improperly acquired trade secret
(continued)
Misappropriation:
disclosure or use of a trade secret of another without express or implied consent by a person who:
Improperly acquired trade secret
At the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was:
Obtained from improper means
Acquired under a duty to maintain secrecy

14. Examples: Improper Means
Observing neighbor’s laptop on airplane
Overhearing conversation at restaurant
Eavesdropping on biochemists as they walk
Impersonation of puzzled undergraduate
Going through a company’s trash

15. Basics of Uniform Trade Secrets Act
In an action under the act, a court is authorized to preserve the secrecy of an alleged trade secret by:
granting protective orders in connection with discovery proceedings
holding in-camera hearings
sealing the records of the action
and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.

16. TRADE SECRETS Ways of Losing Trade Secret Protection
Disclosing it to persons not bound by an agreement to maintain confidentiality
Reverse engineering
Failure to maintain reasonable security precautions in workplace

17. Property Side of Trade Secrets
A trade secret must be a secret
A trade secret must have value

18. How do we know if it is a secret?
The court looks into:
The measures the company took to keep the information secret
The cost to the company of keeping the information secret
The number of people who know the secret
The subjective belief that the trade secret is in fact a secret

19. How do we know if the secret has value?
The court may consider:
Expert witness testimony
Whether the information is common knowledge

20. “Secrecy” in a Trade Secret
Secrecy must be “substantially secret,” it does not have to be absolute. Metallurgic.
One must take “reasonable means” to protect one’s secret. Dupont & Rockwell.

21. Liability for Using or Disclosing Another’s Trade Secret
One is liable for using or disclosing another’s trade secret if:
One uses improper means to discover the trade secret
The disclosure or use constitutes a breach of confidential relationship
One is not liable if:
One discovers the trade secret by reverse engineering
One discovers the trade secret independently

22. Economic Espionage Act of 1996
EEA, sec.1831, makes it illegal for a foreign entity to knowingly steal, copy, receive secrets
Punishment is up to 15 years in prison and a substantial fine
Individuals: $500,000. Organizations: $10 million!
EEA, sec.1832, makes it illegal for anyone to convert a TS “that is related to or included in a product…in interstate or foreign commerce…”
Individuals: $500,000. Organizations: $5 million!
Forfeit of all proceeds derived from such a violation (sec. 1834).

23. Enforcement Example Thus far has been used in the most egregious cases
First published opinion directly addressing Congress’ intent of the EEA: U.S. v. Hsu, 155 F.3d 189 (3rd Cir. 1998)
Mr. Hsu, an employee of a paper company, met with an undercover FBI agent in LA. Mr. Hsu allegedly asked the agent to find a Bristol-Myers Squibb employee willing to sell secrets related to their cancer drug, Taxol.
A meeting was arranged, where Mr. Hsu met with undercover FBI agents, where he was arrested.
At trial, Mr. Hsu wanted to see whether the info was in fact a trade secret. The court rejected his argument, noting that the EEA makes it illegal to attempt or conspire to steal TS. In this respect, the actual info he was attempting to buy was irrelevant.

24. Employment Relation and Contract Considerations

25. Employee Confidentiality, or non-disclosure, Agreements
“I agree that I shall not during, or at any time after the termination of my employment with the Company, disclose or divulge to others including future employers, any trade secrets, confidential information, or any other proprietary data of the Company in violation of this agreement.”

26. Non-compete agreements
An agreement that prevents an employee from competing (by taking a job with a competitor or opening up competing business)
Limited by time, geography, and profession
Does not affect whether a company can prohibit an employee by competing by using trade secrets improperly obtained from previous employer

27. Non-Compete Agreements
In Louisiana, these are enforceable
“The agreement may limit competition only in a business similar to that of the employer (1) in a specified geographic area and (2) for a term not to exceed two years.”

28. Customer lists
Is it just list of names and addresses or information compiled over time by company?
How much effort went into list?
Is information easily ascertainable?
Did departing employee create list?

29. Evaluation, or submission, Agreement
“The Developer has created certain Materials as described in Paragraph 1 and is submitting the Materials, together with this Agreement, to Company.”
Idea must be solicited
Expectation of compensation

30. For next time
Read Chapter 8 and as much as 9 as possible.

31. What do courts consider in determining if a trade secret exists?
Answer: Courts usually consider the following three factors in determining whether you have a trade secret:
(2) What steps have been taken to keep the information secret? Trade secret laws require that you have taken some action to keep your information a secret. The security procedure taken to protect the information is often the most important evidence that the information constitutes a trade secret. For example, courts have often found that restricting access (on a "need to know" basis) to any sensitive information is a factor that helps to meet this requirement. Courts have also found that physical security, such as keeping written trade secret information in a locked drawer and granting very limited access to it, can meet this requirement. Generally, holders of trade secrets develop a formal system for safeguarding their trade secret information. Such a system can include, for example, reviewing information to be sure that the secret information is not included in documents sent to customers and competitors. In addition, proprietary notices can be placed on all documents containing information related to trade secrets and strict confidentiality provisions can be written into all consulting, manufacturing, employment, and/or non-disclosure agreements.
(3) To what extent do employees and others involved in the business know about the information? What about people outside the business? The extent that those in your business and those outside the business have access to the information can affect a court's decision as to whether you have a legal trade secret. Generally, courts have found the information to be public knowledge and not a trade secret if people who do not have a need to know the information have access to it. This is especially true if many people outside the company are familiar with the information.