Introduction to Intellectual Property TRADE SECRETS I

1. Introduction to Intellectual PropertyTRADE SECRETS I Class 3 Sept. 3 2003 Prof. Fischer

2. Goal of Today’s Class • To learn about 1 element (of 3) that a Plaintiff must prove to establish a trade secret claim under state trade secrets laws: • 1. Subject matter qualifies as trade secret – this is what we are focusing on today • 2. Plaintiff took reasonable precautions to maintain secrecy of the trade secret • 3. Defendant misappropriated the trade secret • We will consider these in light of the underlying rationales for legal protection of trade secrets.

3. Subject Matter Qualifies:Metallurgical Industries v. Fourtek, Inc. (5th Circ. 1986) • Underlying rationale for protection • Texas trade secret laws

4. What is a Trade Secret (under state law?) • Restatement of Torts s. 757 and 758 • UTSA – 42 states plus DC – not AL, MS, NJ, NJ, TN, TX • Restatement (Third) of Unfair Competition s. 39

5. Restatement of Torts (1939) • “[A trade secret is] [a]ny formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.” - if information is in fact a secret. Restatement § 757, Comment b.

6. Restatement of Tort factors • 1. Extent to which information is known outside the claimant’s business • 2. Extent to which it is known by ees and others involved in the business • 3. Extent of measures taken by the claimant to guard secrecy of the information • 4. Value of information to business and competitors • 5. Amount of money or effort expended by business in developing information • 6. Ease or difficulty with which information could be properly acquired or duplicated by others

7. UTSA (1979, amended in 1985) • § 1(4) “Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from 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: • (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

8. Restatement (Third) of Unfair Competition (1995) • § 39: “A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.” This is supposed to be consistent with UTSA – is it? • Notes “[w]hen information is no longer sufficiently secret to qualify for protection as a trade secret, its use should not serve as a basis for the imposition of liability. Id at 433, Comment, f

9. Issues • Novelty • Sweat of the brow/investment of time and effort • Can secret combinations of publicly items be protected as trade secret? • What if information is available in obscure public source – can it be protected as a t.s. if actually stolen? • How many people can know about the information for it to still be protected?

10. Problem 2-1 CB p. 41 • Company X possesses a valuable piece of information about the process for making its product. That information is not known at all outside the company X. Suppose X discloses the information to 2 companies, A and B. A receives the information in confidence and subject to a written agreement that it won’t use or disclose the information outside the bounds of the relationship. B receives the information without any restrictions whatever on its use. Does X have a protectable t.s. that it can assert against A? Against B? Against C, who steals the information from X’s computer network. Does your answer change if A, B and C are the only companies in the industry?

11. Problem 2-1 • A trade secrets claim is a tort law claim and operates between private parties. There is no central government authority “issuing” trade secrets. This raises the possibility that a particular piece of information may be a trade secret as to some competitors but not others. This is certainly a realistic possibility as a practical matter.

12. Important Lessons from Problem 2-1 • 1. Existence of a trade secret is a necessary prerequisite to recovery for misappropriation. • 2. Trade secret protection can be said to be rather weak because public disclosure by one person can destroy the trade secret owner’s protection with regard to ALL users of the information.

13. Problem 2-2 CB p. 41 • StartUp sues Thaddeus for misappropriation of trade secrets. What result?

14. Important Lesson from Problem 2-2 • This problem introduces the tension between the rights of an employee and those of a corporation, which is at the heart of much of trade secrets law.

15. Problem 2-3 CB p. 42 • • Research sues Conglomerate, alleging misappropriation of trade secrets. Does Research have a case?

16. Important Lesson from Problem 2-3 • This problem introduces the issue of the value of a trade secret. The value of “negative information” like the blind alley in the problem, as well as the value of much positive information – is often measured by the “lead time” gained by the defendant in the market.

17. Problem 2-4 (CB p. 42) • Can the scriptures qualify as a trade secret? Does your answer depend on whether the governing law is the UTSA, The Restatement of Torts, or the Restatement (Third) of Unfair Competition?

18. Lesson from Problem 2-4 • This problem introduces the important issue of the economic value that is required to constitute a trade secret.