Intellectual Property – Trade Secrets

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Trade Secret

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Any valuable business information that, if known by a competitor, would afford the competitor some benefit or competitive advantage
To qualify for trade secret protection, the information must be –
Valuable
Not publicly known
Be the subject of reasonable efforts to maintain its secrecy

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Examples of Trade Secrets

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Trade secrets can include –
Business plans
Customer lists
Manufacturing plans
Financial projections
Formulations
Recipes
Computer programs
Negative information

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6 Factors for Trade Secret Determination

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Extent to which the information is known outside the company
Extent to which the information is known within the company
Extent of the measures taken by the company to maintain the secrecy of the information
Extent of the value of the information to the company and its competitors
Extent of the expenditure of time, effort and money by the company in developing the information
Extent of the ease or difficulty with which the information could be acquired or duplicated by others
Restatement of Torts § 757

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Law Governing Trade Secrets

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In contrast to patents, there is no federal law for trade secrets; instead, most trade secret law arises from common law
Restatement (Third) of Unfair Competition is a source used for guiding trade secrets law

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Patent or Trade Secret?

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Patents -
Can exclude others for 20 years
Presumed valid; infringer must prove it is not

Trade secrets -
Can be held forever or lost tomorrow
Presumed non-existent; owner must prove existence, protection, and misappropriation

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Patent or Trade Secret? continued

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Patents -
Substantial costs for filing and maintaining
Patent law tends to be more “uniform” around the world
Preferred if best mode and enablement can be met with minimal disclosures

Trade secrets -
No fees; costs for keeping secure
Trade secret law tends to vary more
Preferred if much non-patentable secret technology would have to be disclosed in a patent application

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Patent or Trade Secret ? continued 2

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Licensing
Patent: Scope of rights are known and enforceable
Trade secret: Requires advance disclosure of trade secret to licensee and possible argument that trade secret is not proprietary

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Misappropriation of Trade Secrets

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Occurs when –

One acquires by improper means information that the person knows or has reason to know is the other’s trade secret; or

One uses or discloses the other’s trade secret without consent and, at the time of the use or disclosure

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Misappropriation of Trade Secrets - continued

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Knows or has reason to know that the information is a trade secret that was acquired under circumstances creating a duty of confidence;
Knows or has reason to know that the information is a trade secret that was acquired by improper means;
Knows or has reason to know that the information is a trade secret that was acquired from or through a person who acquired it by improper means or whose disclosure of the trade secret constituted a breach of confidence owed to the other; or
Knows or has reason to know that the information is a trade secret that was acquired by accident or mistake, unless the acquisition was the result of the other’s failure to take reasonable precautions to maintain the secrecy of the information

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Defenses to Trade Secret Misappropriation

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Lack of secrecy – owner failed to take appropriate measures to maintain secrecy
Independent creation – includes reverse engineering
Privilege – disclosure required by court order or administrative proceeding (e.g., regulatory requirements)
Unclean hands or laches – owner’s conduct is reprehensible, or owner long delayed bringing action

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Remedies for Misappropriation

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Injunctive relief
Money damages
Attorney’s fees and costs

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Employer-Employee Relationships

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No Written Agreement
Trade secret owned by employer
Employee has duty not to breach confidentiality
Written Agreement in Place
Employers are generally free to require employees to sign confidentiality agreements. These agreements typically address –
Invention ownership
Nondisclosure provisions
Nonsolicitation provisions
Noncompete provisions

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Methods for protecting Trade Secrets

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“Physically” – examples include-
Locking up information
Limiting access
Forbidding removal
Marking “CONFIDENTIAL”
Monitoring e-mails
Exit interviews
Contractually – confidentiality, non-compete and license agreements
Obtaining IP protection – registering trademarks and copyrights, and obtaining patents

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Unfair Competition

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Refers to deceptive practices in the marketplace. Includes –
Passing off – attempt by one party to pass off its goods under the pretense that they are the goods of another (e.g., counterfeiting)
Misappropriation – unauthorized taking of another’s property
Right of publicity – gives individuals the right to control commercial use of their identities

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Unfair Competition continued

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False advertising – false or misleading statement of fact in advertising that actually deceives or has the capacity to deceive a substantial segment of the audience. The deception must be material (likely to influence the purchasing decision). Defendant must have caused its goods to enter interstate commerce. The plaintiff must have been or is likely to be injured as a result.

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Unfair Competition continued

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Product disparagement – action brought when one company makes intentional and untrue statements about another company or its products or services that cause monetary harm to the company
Dilution – occurs when a famous trademark loses its distinctive quality due to tarnishment or blurring
Trade dress infringement – adopting the overall concept of another’s distinctive packaging or product image so as to deceive consumers

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IP Audits and Due Diligence

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IP Audit – audit that identifies the intellectual capital owned by a business. Includes strategy for maintaining/protecting the intellectual capital identified.
Due Diligence – investigation by a company of the status of the intellectual property of a business that it is seeking to purchase