TRADE SECRET SEGMENT
PROF. JANICKE
2011
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IP Survey – Trade Secrets
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SOURCES OF LAW
• 45 STATES: UNIFORM TRADE
SECRETS ACT – CIVIL
• TEXAS: CASELAW DOCTRINES
BASED ON 1st REST. OF TORTS
(1939); ALSO CRIMINAL STATUTE TEX.
PENAL CODE § 32.05
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IP Survey – Trade Secrets
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• FEDERAL:
– GOVERNMENT CIVIL ACTIONS AND
CRIM. PROCEEDINGS – ECONOMIC
ESPIONAGE ACT (1997)
– NO PRIVATE CIVIL ACTION
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IP Survey – Trade Secrets
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WHAT IS A
“TRADE SECRET”
• (1) ANY COMPETITIVELY VALUABLE
INFORMATION
• (2) THAT’S NOT WIDELY KNOWN OR EASILY
FOUND OUT
• (3) THAT THE POSSESSOR HAS TAKEN
REASONABLE STEPS TO KEEP FROM
DISCLOSURE
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IP Survey – Trade Secrets
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EXAMPLES
• MFG. METHODS
• MFG. MATERIALS
• BUSINESS PLANS
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IP Survey – Trade Secrets
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• USE, OR EVEN PLANNED USE, IN
POSSESSOR’S BUSINESS IS NOT
NEEDED
• SECRECY OF INDIVIDUAL
COMPONENTS OR STEPS IS NOT
NEEDED
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IP Survey – Trade Secrets
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THE PROBLEM OF
CUSTOMER LISTS
• HAS CAUSED A CASE LAW QUAGMIRE
• OFTEN ARE EASILY LEARNED BY RIGHTFUL
MEANS; HENCE NOT A “TRADE SECRET”
• CAN BECOME A SECRET BY ADDING
PURCHASE HISTORY, PLANS, CONTACTS,
ETC.
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IP Survey – Trade Secrets
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HARD-TO-GET
REQUIREMENT
• LIBERALLY CONSTRUED TO HELP
TRADE SECRET OWNER
• EXAMPLE: OBSCURE PUBLICATION
OR SUPPLIER NAME
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IP Survey – Trade Secrets
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REASONABLE-MEASURES-FORSECRECY
REQUIREMENT
TYPICAL:
• EMPLOYEE AGREEMENTS
• MARKING DOCUMENTS AND
DRAWINGS “CONFIDENTIAL”
• CIRCULATING WRITTEN POLICY
• POSTING WRITTEN POLICY
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IP Survey – Trade Secrets
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TYPICAL MEASURES (CONT’D):
• LIMIT TYPES OF EMPLOYEES WHO
HAVE ACCESS
• LIMIT ACCESS TO PROJECT
MEMBERS
• EXIT INTERVIEWS
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IP Survey – Trade Secrets
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• PROTECTIVE MEASURES CAN BE
BY IMPLICATION RATHER THAN
EXPRESS, BUT RISKY TO LITIGATE
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IP Survey – Trade Secrets
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OWNERSHIP OF ON-THE-JOB
DEVELOPMENTS
• CONTRACT PROVISION CONTROLS, IF
THERE IS ONE
• IF THERE IS NO CONTRACT PROVISION,
RESULT GOES BY THE EQUITIES
• GENERAL SKILLS OF A CALLING ARE
ALWAYS OK FOR EMPLOYEE TO TAKE WITH
HIM
– DEFINING THESE IS DIFFICULT
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IP Survey – Trade Secrets
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WHAT IS
“MISAPPROPRIATION”
• USING UNDER WRONGFUL
CONDITIONS:
– OBTAIN RIGHTFULLY, BUT USE IN
BREACH OF AGREEMENT [MANY CASES]
– OBTAIN BY FRAUD OR INDUCING A
BREACH OF CONFIDENCE [A FEW CASES]
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IP Survey – Trade Secrets
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WHAT IS NOT
• COPYING AN OPENLY AVAILABLE PRODUCT
• REVERSE ENGINEERING OF AN OPENLY
AVAILABLE PRODUCT
• WHOLLY INDEPENDENT DESIGN
• ADOPTING THE DESIGN, AFTER
DISCLOSURE UNDER CONTRACT OF NONCONFIDENCE
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IP Survey – Trade Secrets
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MOST CASES INVOLVE RIGHTFUL
LEARNING, AND THEN
MISAPPROPRIATING
TYPICAL PATTERNS:
• EMPLOYEES LEARN, THEN JUMP
• JOINT VENTURE PARTNER LEARNS,
THEN VENTURE TERMINATES
• POTENTIAL BUYER OF BUSINESS
LEARNS, AND SALE FALLS THROUGH
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IP Survey – Trade Secrets
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TYPICAL PATTERNS (CONT’D):
• HARDER TO DECIDE: EXECUTIVE
DRIVES THE DEVELOPMENT, THEN
JUMPS
• HARDER TO DECIDE: VENDOR,
AGENT, ADVISOR CONTRIBUTES
THE SECRET – THEN USES FOR
OTHER CLIENTS
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IP Survey – Trade Secrets
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HARDEST CASES:
• FLY-OVERS ONE DECIDED CASE
• TRAILING SHOULD BE OK
• TRASH COLLECTING MAY BE OK ON THE TRADE
SECRET FRONT; PERILOUS ON CRIMINAL FRONT; AND BAD
PRESS
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IP Survey – Trade Secrets
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REMEDIES
• INJUNCTION
• PREVAILING U.S. VIEW: IF INFO HAS
BEEN MADE PUBLIC BY OWNER,
INJUNCTION SHOULD:
– BE LIMITED TO LEAD-TIME, NOT
PERPETUAL
– TIME IT TOOK P minus TIME IT TOOK D IS
A ROUGH RULE OF THUMB
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IP Survey – Trade Secrets
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TEXAS VIEW WHERE OWNER
PUBLISHES THE SECRET
• HYDE v. HUFFINES TEX. S. CT. 1958 IS
AMBIGUOUS
• WHERE OWNER OF SECRET PUBLISHES:
– MODERN INTERPRETATION OF HYDE (PER
RESTATEMENT OF UNFAIR COMPETITION) IS
THAT LEAD-TIME INJUNCTION IS THE TEXAS
RULE AS WELL AS THE NATIONAL RULE
– HYDE WAS ENJOINED LONGER ONLY BECAUSE
HE SUBMITTED NO EVIDENCE OF LEAD-TIME
– PLAINTIFFS STILL ARGUE FOR A BROADER
READING
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IP Survey – Trade Secrets
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WHERE WRONGDOER
PUBLISHES THE SECRET
• CASES SEEM TO INDICATE LONGERTERM INJUNCTION IS POSSIBLE,
MAYBE EVEN PERPETUAL
• SITUATION IS UNCLEAR
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IP Survey – Trade Secrets
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DAMAGES
• ARE AVAILABLE
– COMPENS. AND PUNITIVE [UTSA: TREBLING]
• CAN BE UNJUST ENRICHMENT OR P’S
LOSS OF BUSINESS
• HIGH SETTLEMENT RATE
• TR. SEC. CASES SOMETIMES INVOLVE
PRELIM. INJUNC. HEARING
– SELDOM GO TO TRIAL
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IP Survey – Trade Secrets
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INJUNCTION AGAINST WORKING
FOR A PARTICULAR COMPETITOR
• CAN BE HANDLED PER CONTRACT
• WHERE NO CONTRACT, THIS TYPE OF
INJUNCTION IS COMMONLY SOUGHT TO
PROTECT THE SECRET
– ARGUMENT: WORKING FOR “THEM” WILL
INHERENTLY DIVULGE
– COUNTER-ARGUMENT: NEED TO EARN A LIVING
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IP Survey – Trade Secrets
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NON-COMPETE INJUNCTION
WHERE NO CONTRACT PROVISION
• POSSIBLE SOLUTIONS:
– INJUNCTION REQUIRES KEEPING
PERSON ON PAYROLL AND WORKING
– INJUNCTION REQUIRES PROVIDING
MINIMUM CONSULTING FEES AND
POSSIBLE WORK
– INJUNCTION LIMITED TO COMPETITOR
DIVISION MOST LIKELY TO CAUSE
BREACH
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IP Survey – Trade Secrets
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SPECIAL PROBLEM: CONTINUING
TO ENJOIN WRONGDOER WHEN
OWNER HAS PUBLISHED
• COMMONLY UNDERSTOOD: NONWRONGDOERS ARE RELIEVED OF
COVENANTS WHEN OWNER PUBLISHES
• WHEN A WRONGDOER MOVES TO
DISSOLVE:
– SHOULD PREVIOUS WRONGDOER NOW BE
THE ONLY ONE PRECLUDED FROM USE?
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IP Survey – Trade Secrets
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SPECIAL PROBLEM:
STATUTE OF LIMITATIONS
• ONE VIEW: MISAPPROPRIATION IS AN
ONGOING TORT, NEW VIOLATION
EVERY DAY
• HENCE, ONLY OLD MISUSES ARE CUT
OFF; DAMAGES AND INJUNCTION ARE
AVAILABLE FOR RECENT/FUTURE
VIOLATIONS
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IP Survey – Trade Secrets
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SPECIAL PROBLEM:
STATUTE OF LIMITATIONS
• ANOTHER VIEW: ORIGINAL
MISAPPROPRIATION STARTS THE
ONLY CLOCK; WHEN IT RUNS, ALL
ACTION IS BARRED
• TEXAS SOLUTION: SINGLE WRONG,
SINGLE RUNNING -- BUT FROM
DISCOVERY DATE (KNEW OR SHOULD HAVE
KNOWN)
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IP Survey – Trade Secrets
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