Introduction to Intellectual
Property
TRADE SECRETS
I
Class 3
Sept. 3 2003
Prof. Fischer
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.
Subject Matter Qualifies:
Metallurgical Industries v. Fourtek,
Inc. (5th Circ. 1986)
• Underlying rationale for protection
• Texas trade secret laws
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
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.
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
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.
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
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?
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?
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.
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.
Problem 2-2 CB p. 41
• StartUp sues Thaddeus for misappropriation
of trade secrets. What result?
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.
Problem 2-3 CB p. 42
• • Research sues Conglomerate, alleging
misappropriation of trade secrets. Does
Research have a case?
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.
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?
Lesson from Problem 2-4
• This problem introduces the important issue
of the economic value that is required to
constitute a trade secret.