PROVING (AND DISPROVING)
TRADE SECRETS
Dennis Murrell
Robert Theuerkauf
THE GREAT CASE
•
•
•
•
HIRED BY COCA COLA
MOST FAMOUS TRADE SECRET
CEO LEFT FOR NEW COMPETITOR
WHO NOW HAS A COMPETING PRODUCT
THE CLIENT INTERVIEW
UTSA
"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 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(ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
• UTSA adopted by all states exception New York, North Carolina and
Massachusetts
PEMBERTON’S RECIPE
•
•
•
•
CIVIL WAR VETERAN
ADDICTED TO MORPHINE
ORIGINAL: KOLA NUT AND COCA WINE
CHANGED IN 1886
COCA-COLA COMPANY
BUYS RECIPE
• BOUGHT IN 1887
• ASA CANDLER INSISTED IT NOT BE
WRITTEN DOWN
• REMOVED ALL LABELS
• SHREDDED INVOICES
MODERN EFFORTS AT
SECURITY
HAS VALUE
•
•
•
•
HUNDREDS OF COMPETING PRODUCTS
46 BILLION IN SALES IN 2013
SOLD IN OVER 200 COUNTRIES
40% OF MARKET SHARE
DAMAGES AVAILABLE
•
•
•
•
LOST PROFITS
UNJUST ENRICHMENT
PUNITIVE DAMAGES
ATTORNEYS FEES
WHAT VENUE?
• UTSA – CREATURE OF STATE LAW
• CAN BE OUTCOME DETERMINATIVE
• CALIFORNIA: CIVIL PROCEDURE
SECTION 2019.210 REQUIRES PLAINTIFF
TO “IDENTIFY THE TRADE SECRET WITH
REASONABLE PARTICULARITY” PRIOR TO
ANY DISCOVERY
STRATEGIC ISSUES FOR
DEFENSE
• NARROWING DEFINITION OF TRADE
SECRET PRIOR TO DISCOVERY
• REQUEST IMMEDIATE IDENTIFICATION
• POSSIBLY SEEK PROTECTIVE ORDER
• ESTABLISH PUBLIC DOMAIN
• INDEPENDENT DEVELOPMENT
• ELIMINATE OTHER CLAIMS
SEEK A PROTECTIVE
ORDER
• MANY COURTS BELIEVE “THAT IT IS
APPROPRIATE TO REQUIRE A TRADE SECRET
OWNER TO STATE ITS CLAIMED TRADE
SECRETS BEFORE IT ENGAGES IN
DISCOVERY FROM THE DEFENDANT ABOUT
THE DEFENDANT’S USE OF THE TRADE
SECRETS.”
Brent J. Gurney, Joshua T. Ferrentino, and Alexander B. White, Benefits of Early Discovery in
Defending Trade Secret Misappropriation Claims, New York Law Journal, Vol. 249, No. 113
(2013)
FOUR PRINCIPAL
REASONS
• WEEDS OUT MERITLESS, SPECULATIVE CLAIMS.
OTHERWISE PLAINTIFFS WILL MOLD CLAIMS AROUND
DISCOVERY. COURT SHOULD “FREEZE” PLAINTIFF’S
CLAIMS.
• EARLY DISCLOSURE OF TRADE SECRETS PROVIDES
BASIS FOR DETERMINING RELEVANCY OF PLAINTIFF’S
DISCOVERY
• DEFENDANTS CAN ARTICULATE DEFENSES WHEN
CLAIMS ARE SPECIFIC, NOT GENERAL
• PREVENTS ABUSE OF DISCOVERY PROCESS FOR
COMPETITIVE ADVANTAGE
COURTS REQUIRING
SPECIFIC DISCLOSURE
• ADDITION TO CALIFORNIA CODE
• XEROX CORP. V. IBM, 64 FRD 367 (SDNY)
• LOCTITE CORP V. FEL-PRO, INC., 28 FED. R. SERV 2ND
99 (N.D. ILL)
• POROUS MEDIA CORP. MIDLAND BRAKE, INC., 187 FRD
598 (D. MINN)
• DEL MONTE FRESH PRODUCE CO. V. DOLE FOOD CO.,
148 F. SUPP 2D 1322 (S.D. FLA)
WHAT CONSTITUTES
SPECIFIC DISCLOSURE?
• MUST BE SPECIFICALLY IDENTIFIED
• “IT IS NOT ENOUGH TO POINT TO BROAD
AREAS OF TECHNOLOGY AND ASSERT THAT
SOMETHING THERE MUST HAVE BEEN
SECRETY AND MISAPPROPRIATED. THE
PLAINTIFF MUST SHOW CONCRETE SECRETS.”
COMPOSITE MARINE PROPELLERS, INC. V. VAN DER WOUDE, 962 f.2D 1263 (7TH CIR. 1992)
COMPOSITE MARINE
PROPELLERS
• DEFENDANT HAD SPECIFIC TRADE
SECRETS IDENTIFIED
• JURY FOUND FOR PLAINTIFF
• TRIAL COURT OVERTURNED
• 7TH CIRCUIT AFFIRMED
THE SPECIFIC “SECRETS”
•
•
•
•
•
•
•
•
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
propeller blade flex
marketing plans and strategies
gas counter backpressure in molding
water line configuration in the molds
hub cooling methods in molding
secondary sprue trimming
material characteristics
test data.
ESTABLISH INDEPENDENT
DEVELOPMENT
•
•
•
•
AFFIRMATIVE DEFENSE?
ELEMENT OF PLANTIFF’S PROOF?
WHY THAT MATTERS
EXAMPLE: THIRD CIRCUIT HELD THAT
PLAINTIFF STILL HAS BURDEN OF PROOF
IN INDEPENDENT DEVELOPMENT CASES
MOORE V. KULICKE & SOFFA INDUSTRIES, INC., 318 F. 3D 561 (3RD Cir. 2003)
ELIMINATE OTHER CLAIMS
• TYPICAL COMMON LAW CLAIMS ARE
ALSO ASSERTED
• IF CLAIMS ARE BASED ON SAME
PROPERTY OR SECRET, MAY BE
PREEMPTED
• REMOVE PLAINITFF’S SAFETY NET
Christopher Ruhland, Strategies for Defending Against Trade Secret Suits,
Law360 (2011)
IN OUR CASE
• WHAT WOULD BE ENOUGH?
• WHAT COMBINATION OF INGREDIENTS
MAKES IT A TRADE SECRET
• WHAT WOULDN’T BE KNOWN BY CHEMICAL
ANALYSIS
• WHAT WOULDN’T BE COMMON
• WHAT HASN’T BEEN DISCLOSED
IS THE FORMULA REALLY
A SECRET?
•
•
•
•
THIS AMERICAN LIFE
FEBRUARY 11, 2011
PEMBERTON’S RECIPE
EVERETT BEAL’S RECIPE BOOK
THE RECIPE
IS IT REALLY A SECRET?
PRACTICE POINTER
• 02 MICRO INTERNATIONAL LTD. v.
MONOLITHIC POWER SYSTEMS, INC.
• JURY ISSUE ON 11 TRADE SECRETS
• JURY ONLY FOUND 5
• DAMAGE EXPERTS DIDN’T APPLY TO VALUES
TO EACH SECRET
• JUDGMENT AS A MATTER OF LAW FOR
DEFENDANT
CONCLUSION
MAYBE NOT EVERY LAWSUIT SHOULD BE
BROUGHT!