Intellectual Property Trade Secret lesson two

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Intellectual PropertyTrade Secret lesson two

• Fall 2009
• Prof. Loren
• Reminder grading election forms due in one
  week Tuesday, September 8

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Last week - Review

• What is protected by trade secret law?
• Information
• Valuable in its secrecy
• Not generally known
• (and not readily ascertainable)
• Subject to reasonable efforts to keep secret

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Why reasonable efforts help guard against errors

• Emphasis 1 Deterring wrongful taking (while
  avoiding the false positive)
• Trade secret holder must prove wrong-doing
• As investment in precaution rises, probability of
  rightful acquisition falls
• probability of wrongful acquisition rises
  (unlikely to hold a rightful acquirer, wrongly
  liable)
• Emphasis 2 Encouraging innovation
• Trade secret holder must prove the info has value
• As investment in precaution rises, probability
  that info is valueless falls

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What rights does a trade secret owner have?
Owner
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What rights does a trade secret owner have?

• What kinds of activity constitute a
  misappropriation?
• Basic hypotheticals (bottom of first page of
  reading for today)
• Employee sells formula to competitor
  Misappropriation?
• Is the competing company a misappropriator?
• Does the company need to use the information to
  be liable?
• Break-in and photograph -- Misappropriation?
• What if he could take the photos without
  breaking in?

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UTSA

• (2) "Misappropriation " means
• (i) acquisition of a trade secret of another by a
  person who knows or has reason to know that the
  trade secret was acquired by improper means or
• (ii) disclosure or use of a trade secret of
  another without express or implied consent by a
  person who
• (A) used improper means to acquire knowledge of
  the trade secret or
• (B) at the time of disclosure or use knew or had
  reason to know that his knowledge of the trade
  secret was
• (I) derived from or through a person who has
  utilized improper means to acquire it
• (II) acquired under circumstances giving rise to
  a duty to maintain its secrecy or limit its use
  or
• (III) derived from or through a person who owed a
  duty to the person seeking relief to maintain its
  secrecy or limit its use or
• (C) before a material change of his position,
  knew or had reason to know that it was a trade
  secret and that knowledge of it had been acquired
  by accident or mistake.

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duPont v. Christopher(5th Cir. 1970)

• Alleged Trade Secret?
• Methanol production process
• Parties
• duPont Makes methanol
• Christophers Take aerial photographs for 3rd
  party
• D. Ct. denied Christophers motion to dismiss
• Christophers appeal Argument?
• No independent legal wrong thus proper means
• So, its like reverse engg or independent
  research
• Texas law Rest. Torts 757 (1939)

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Restatement 757

• One who discloses or uses anothers trade secret,
  without privilege to do so, is liable to the
  other if
• (a) he discovered the secret by improper means,
  or
• (b) his disclosure or use constitutes a breach of
  confidence reposed in him by the other in
  disclosing the secret to him
• Must there be an independent legal wrong?
• Cases restatement comment f

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duPont contd

• Standard for improper means ?
• Brown case obtaining information without
  paying the price expended by the trade secret
  discoverer
• To obtain knowledge of a process without
  spending time and money to discover it
  independently is improper .
• R.E. (reverse engineering) and I.C. (independent
  creation) are proper
• But, how do we tell when a particular means is
  improper?

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Reasonable efforts to keep secret

• Why is it relevant in this case?
• To obtain knowledge of a process without
  spending the time and money to discover it
  independently is improper unless the holder
  voluntarily discloses it or fails to take
  reasonable precautions to ensure its secrecy.
  --p.3
• Is that merely a statement of requirements for
  protection or does it help us know what is
  improper means?
• Did duPont reasonably guard the secret ?
• Protect from espionage which could not have been
  reasonably anticipated or prevented.
• an impenetrable fortress is an unreasonable
  requirement
• Any cost-justified measures? Tarps? Better
  planning?
• we need not require the discoverer of a trade
  secret to guard against he unanticipated, the
  undectable, or the unpreventable methods of
  espionage
• Popular sport?
• School boys trick?

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Improper Means?

• What level of security would have been optimal?

Legal Protection
Our tolerance of the espionage game must cease
when the protections required to
prevent anothers spying cost so much that the
spirit of inventiveness is dampened. explicit
articulation of what is being balanced
Security Protection
Security Protection
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Under UTSA

• What type of misappropriation would duPonts
  claim have been?
• UTSA 1(2) Misappropriation means
• (i) Acquisition of a trade secret of another by a
  person who knows or has reason to know that the
  trade secret was acquired by improper means or
• (ii) Disclosure or use of a trade secret of
  another without express or implied consent by a
  person who
• (A) used improper means to acquire knowledge of
  the trade secret
• UTSA 1(1)
• Improper means includes theft, bribery,
  misrepresentation, breach or inducement of a
  breach of a duty to maintain secrecy, or
  espionage through electronic or other means

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Omega Optical v. Chroma

• Governing law?
• Common law
• Guidance from both restatement and UTSA
• Under UTSA, claim type
• UTSA 1(2)(ii)(B)(II)
• To the extent claims are against Chroma, also
  UTSA 1(2)(ii)(B)(III)
• Problem with Omegas claim?
• Ex-employees need to have a duty

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Ex-employees duties to ex-employer

• Employees whether current or former, have a duty
  not to use or disclose confidential information
  imparted to them by their employer.
• Duty of confidence attaches to any information
  the employee knows or has reason to know is
  confidential.
• Can be implied from the totality of the
  circumstances
• No explicit notice is required
• But Something more than mere employee-employer
  relationship
• Fact-specific inquiry
• Evaluated at the time of acquisition of the
  information by the employee
• Third relevance of efforts to keep secret?
• establishes employee duty!

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Duty of loyalty revisited

• At-will employees may plan to compete with their
  employer even while still employed there and may
  freely compete with the employer once they are no
  longer employed there.

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Other ways for duties to arise?

• Employee in context where its clear information
  should be kept secret
• Contractual obligations to keep information
  secret (e.g. NDA)
• Arrows disclosure paradox
• What if the information covered by the agreement
  is generally known?
• No T.S. claim
• May have breach claim
• NDA drafting tip limit the obligation to keep
  secret to last only while information is not
  generally known or not readily ascertainable,
  i.e. trade secret protection
• So then what would be the point of the NDA?
• Create the duty under T.S. law!!

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Last type of misappropriation

• Inadvertent disclosure through a misdirected
  email?
• (ii) Disclosure or use of a trade secret of
  another without express or implied consent by a
  person who . . .
• (C) before a material change of his or her
  position, knew or had reason to know that it was
  a trade secret and that knowledge of it had been
  acquired by accident or mistake

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Remedies

• Goals of remedies for TS Misappropriation?
• Prevent (further) disclosure and use of TS
• Compensate for harm, prevent ill-gotten gains
• Deter future misappropriation

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Misappropriation Remedies
Plaintiffs Loss
Defendants Gain
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UTSA 2 Injunctions

• (a) Actual or threatened misappropriation may be
  enjoined. Upon application to the court, an
  injunction shall be terminated when the trade
  secret has ceased to exist, but the injunction
  may be continued for an additional reasonable
  period of time in order to eliminate commercial
  advantage that otherwise would be derived from
  the misappropriation.
• (b) In exceptional circumstances, an injunction
  may condition future use upon payment of a
  reasonable royalty for no longer than the period
  of time for which use could have been prohibited.
  Exceptional circumstances include, but are not
  limited to, a material and prejudicial change of
  position prior to acquiring knowledge or reason
  to know of misappropriation that renders a
  prohibitive injunction inequitable.
• (c) In appropriate circumstances, affirmative
  acts to protect a trade secret may be compelled
  by court order.

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Stampede Tool Warehouse

• Whats different in this case v. Omega?
• Signed confidentiality agreements, clearly
  identified the information that was confidential
• Treated that information as confidential
  passwords, control of hard copies, locked
  offices, checked garbage
• information was in their heads no physical
  taking
• Doesnt matter memorizing a trade secret is a
  way to take the trade secret
• General knowledge may be used, not specific trade
  secret information

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Stampede Tool Warehouse

• What is the problem with the remedy granted by
  the trial court?
• Ill. App. Court permanent injunctions are
  overbroad in their duration, but not their scope
  -- why?
• Balancing
• Protecting the legitimate interests of the TS
  owner
• No unduly burdening the defendant (it is a
  fundamental right of an individual to pursue the
  particular occupation for which he or she is best
  trained.)
• Result here 4 year injunction
• Note TRO was entered July 21 1991, this decision
  is issued June 13, 1995

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• UTSA 2
• (a) Actual or threatened misappropriation may be
  enjoined. Upon application to the court, an
  injunction shall be terminated when the trade
  secret has ceased to exist, but the injunction
  may be continued for an additional reasonable
  period of time in order to eliminate commercial
  advantage that otherwise would be derived from
  the misappropriation.

• Ill. T.S.A. (a)
• Actual or threatened misappropriation may be
  enjoined. Upon application to the court, an
  injunction may be terminated when the trade
  secret has ceased to exist, provided that the
  injunction may be continued for an additional
  reasonable period of time in appropriate
  circumstances for reasons including, but not
  limited to an elimination of the commercial
  advantage that otherwise would be derived from
  the misappropriation, deterrence of willful and
  malicious misappropriation, or where the trade
  secret ceases to exist due to the fault of the
  enjoined party or others by improper means.

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we did not discuss The remaining slides
Exploring the different subsections of the UTSAs
def. of misappropriation. they are for your
reference.
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UTSA Misappropriation 1

• UTSA 1(2)(i)
• acquisition of a trade secret of another by a
  person who knows or has reason to know that the
  secret was acquired by improper means
• What does this cover?
• X acquires the secret of Y, and X knows that
  Ys secret was acquired by improper means.

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UTSA Misappropriation 2

• UTSA 1(2)(ii)(A)
• disclosure or use of a trade secret of another
  without express or implied consent by a person
  who (A) used improper means to acquire knowledge
  of the trade secret
• What does this cover?
• X discloses or uses the secret of Y, and X itself
  used improper means to acquire the secret.

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UTSA Misappropriation 3

• UTSA 1(2)(ii)(B)(I)
• disclosure or use of a trade secret of another
  without express or implied consent by a person
  who (B) at the time of disclosure or use, knew or
  had reason to know that his knowledge of the
  trade secret was (I) derived from or through a
  person who had utilized improper means to acquire
  it
• What does this cover?
• X discloses or uses Ys secret received from Z,
  at a time when X knows that its awareness of
  the secret derives from Zs use of improper means
  to acquire it.

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UTSA Misappropriation 4

• UTSA 1(2)(ii)(B)(II)
• disclosure or use of a trade secret of another
  without express or implied consent by a person
  who (B) at the time of disclosure or use, knew or
  had reason to know that his knowledge of the
  trade secret was (II) acquired under
  circumstances giving rise to a duty to maintain
  its secrecy or limit its use
• What does this cover?
• X discloses or uses Ys secret, at a time when X
  knows that X learned the secret in a context
  where X has a duty to Y to keep the secret or
  limit its use.

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UTSA Misappropriation 5

• UTSA 1(2)(ii)(B)(III)
• disclosure or use of a trade secret of another
  without express or implied consent by a person
  who (B) at the time of disclosure or use, knew or
  had reason to know that his knowledge of the
  trade secret was (III) derived from or through a
  person who owed a duty to the person seeking
  relief to maintain its secrecy or limit its use
• What does this cover?
• X discloses or uses Ys secret, at a time when X
  knows that its awareness of the secret derives
  from Z and that Z has a duty to Y to keep the
  secret or limit its use.

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UTSA Misappropriation 6

• UTSA 1(2)(ii)(C)
• disclosure or use of a trade secret of another
  without express or implied consent by a person
  who (C) before a material change of his position,
  knew or had reason to know that it was a trade
  secret and that knowledge of it had been acquired
  by accident or mistake.
• What does this cover?
• X discloses or uses Ys secret, at a time when X
  has not yet materially changed its own position
  and knows that the information was secret and
  made known to X through an accident or a mistake.