Intellectual Property Trade Secrets: Misappropriation

1
Intellectual PropertyTrade Secrets
Misappropriation

• Fall 2005
• Professor Loren

2
Essential Elements of Trade Secret Claim

• Subject matter must qualify for trade secret
  protection
• type of knowledge or information that trade
  secret law was meant to protect
• not generally known
• derives commercial value in its secrecy
• Reasonable precautions under the circumstances to
  prevent disclosure
• Defendant acquired the information wrongfully
• Obtained through improper means
• Breach of duty

3
Trade Secret USTA 1(4)

• Attributes
• derives independent economic value (actual or
  potential) from
• not being generally known to, and
• not being readily ascertainable by proper means
  by
• other persons who can obtain economic value from
  its disclosure or use, and
• is the subject of efforts that are reasonable
  under the circumstances to maintain its secrecy

4
Measuring Reasonableness

• Emphasis 1 Deterring wrongful taking
• Trade secret holder must prove wrong-doing
• As investment in precaution rises, probability of
  rightful acquisition falls
• probability of wrongful acquisition rises
• Emphasis 2 Encouraging innovation
• Trade secret holder must prove the info has value
• As investment in precaution rises, probability
  that info is valueless falls

5
Optimum Security

• At P, (Prob of Secrecy) x (Value of Secrecy)
• At 0 precaution, (0.05) x (100) 5
• At 10 precn, (0.40) x (100) 40 up 30
• At 20 precn, (0.45) x (100) 45 up 25
• At 30 precn, (0.48) x (100) 48 up 18
• At 60 precn, (0.59) x (100) 59 down 1

6
Problem 2-5 (p.50)Mobile Mud

• Reasonable efforts to maintain secrecy?

Are Sales inconsistent with secrecy?
7
Methods of disclosure

• By T.S. owner through commercial sales of product
• Is the T.S. apparent (or readily ascertainable)
  from product? If so, protection is lost
• By T.S. owner, intentionally
• Protection is lost
• By T.S. owner accidentally
• How widespread?
• By third-party independent creator
• Protection is lost
• By third-party misappropriator
• Protection is lost

8
Essential Elements of Trade Secret Claim

• Subject matter must qualify for trade secret
  protection
• type of knowledge or information that trade
  secret law was meant to protect
• not generally known
• derives commercial value in its secrecy
• Reasonable precautions under the circumstances to
  prevent disclosure
• Defendant acquired the information wrongfully
• Obtained through improper means
• Breach of duty

9
Misappropriation -- UTSA

• Acquisition of a TS by a person who knows or has
  reason to know that the TS was acquired by
  improper means, OR
• Disclosure or use of a TS without consent by a
  person who
• Used improper means to acquire knowledge of the
  TS
• At the time of disclosure or use, knew or had
  reason to know that his knowledge of the TS was
• Derived from or through a person who had utilized
  improper means to acquire it
• Acquired under circumstances giving rise to a
  duty to maintain its secrecy or limit its use, or
• Derived from or through a person who owed a duty
  to the person seeking relief to maintain its
  secrecy or limit its use, or
• before 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

10
(No Transcript)
11
Improper Means?

• E.I. duPont deNemours v. Rolfe (5th Cir. 1970)
• Violating commercial morality
• What level of security would have been optimal?

Security Protection
12
Improper Means

• UTSA 1(1)improper means include theft, bribery,
  misrepresentation, breach or inducement of a
  breach of a duty to maintain secrecy, or
  espionage through electronic or other means

13
Problem 2-7

• Unsolicited unilateral disclosure of an idea does
  not create a confidential relationship giving
  rise to trade secret protection
• such disclosure may destroy the secrecy required
  for protection!
• Need evidence of confidential relationship
• Express
• Implied
• Circumstances of disclosure
• Company practices
• Industry practices

14
Smith v. Dravo

• Trade Secrets?
• Pending patent application
• Blueprints
• Customer information and correspondence with
  customers
• Was there a duty?
• Look to the purpose that motivated the TS owner
  to make the disclosure and what the Def. must
  have know about that motivation

15
(No Transcript)
16
Implied Duty of Confidence

• Rest. (3rd) Unfair Competition, 41(b)
• the relationship between the parties to the
  disclosure or the other facts surrounding the
  disclosure justify the conclusion that, at the
  time of the disclosure,
• (1) the recipient knew or had reason to know
  that the disclosure was intended to be in
  confidence, and
• (2) the owner was reasonable in inferring
  that the person consented to an obligation of
  confidentiality

17
Confidential Relationships

• Is there a duty of confidentiality?

18
Proper Means(valid defenses)

• Independent invention
• Reliance on publicly available documents
• Distinguish from knowable from public sources
• Deduction from publicly available items
• Reverse Engineering from lawfully acquired
  embodiment of the TS

19
Proper MeansReverse Engineering

• Chicago Lock v. Fanberg
• Pre-UTSA in California
• Duties?
• Locksmith to lock owner
• Lock owner to Chicago Lock
• Locksmith to Chicago Lock

Yes
No
No

• Transitive property does not work here

20
Reverse Engineering

• Why allow it?
• Takes time and money, letting owner recoup costs
• We benefit from competition, which is the norm
• Reverse-engineers learn new info, ways to improve
• Contract prohibiting reverse engineering
• Courts split on enforceability
• Firms make products less readily
  reverse-engineerable (false parts, breaks if
  opened, etc.)