Transcript Trade Secret Law - Louisiana State University

June 29, 2009
TRADE SECRET
LAW
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
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
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
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.
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:
(1) Is the information deemed to be a
"trade secret" valuable to the
business?
(2) What steps have been taken to keep
the information secret?
(3) To what extent do employees and
others involved in the business know
about the information? What about
people outside the business?
Trade Secret Law
Sources of law
(1) Misappropriation of Trade
Secrets (Uniform Trade
Secrets Act) and
(2) Contract Law – confidentiality
or nondisclosure agreement
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
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
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
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
(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
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
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.
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
Property Side of Trade
Secrets
A trade secret must be a secret
A trade secret must have value
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

How do we know if the
secret has value?
The court may consider:
Expert witness testimony
 Whether the information is common
knowledge

“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.
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
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).
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.
Employment Relation
and Contract
Considerations
Employee
Confidentiality, or nondisclosure, 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.”
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
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.”
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?
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
For next time
Read Chapter 8 and as much as 9 as
possible.
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.