Authors:
Kent Avery
Karen Bedingfield
ElaineConnolly Cheung
Nicole Cobb
Tatiana Connolly
"[T]rade Secret protection is an important part of intellectual property, a form of property that is of growing importance to the competitiveness of American industry... The future of the nation depends in no small part on the efficiency of industry, and the efficiency of industry depends in no small part on the protection of intellectual property." - Rockwell Graphics.
Trade Secret Law [considerations]
- Standards of Common Law Protection
- Statutory Readings
- Employment Relation and Contract Considerations
- UCITA and the Economic Espionage Act
In general, a trade secret can be defined as any commercially valuable information or compilation of information that is not generally known to others who can profit from its disclosure or use.
Unlike trademarks, patents and copyrights, however, trade secrets are not
regulated by federal statute.
* Instead, common law exists to protect trade secrets as well as the Uniform
Trade Secrets Act which has been adopted by many states.
Trade secrets['] State Law Protection [is usually through a] Uniform Trade Secrets Act[.] Unlike patents, copyrights and trademarks, trade secrets are protected under state law[. The Uniform Trade Secrets Act - Model Act [was] Amended in 1985[.] 41 states have enacted statutes modeled after [the] UTSA[.] 2 states (AL and MA) have separate state statutes protecting trade secrets[,] 7 states protect trade secrets under the common law.
The Regulation of Intellectual Property[:]
* Federal Regulation: Article 1, Section 8, Clause 8 of the U.S. Constitution
provides that Congress shal lhave power "To promote the Progress of Science and
the useful Arts, by securing for a limited Times to Authors and inventors the
exclusive Right to their respective Writings and Discoveries."
* State Regulation: The Tenth Amendment provides that "Powers not delegated
to the United States by the constitution, nor prohibited by it to the States,
are reserved to the States respectively."
* The Constitution specifically grants the power of regulating patents and
copyrights to Congress. What about other regimes of Intellectual
Property?
The Supremacy Clause: Federal law v. State law
* Article VI,Section 1, Clause 2 provides that "This Constitution shall be the
supreme Law of the Land;and the Judges in every State shall be bound thereby,
and any Thing in the Constitution or Laws of any State of the Contrary
notwithstanding."
* The inquiry of whether federal law (i.e. patent or copyright protection)
preempts stae law (i.e. trade secret protection) focuses on whether state law
"stands as a obstacle to the accomplishment and execution of the full purposes
and objectives of Congress." Hines v. Davidowitz, 312 U.s. 52, 67 (1941).
* To address the above consideration the goal and objectives of the trade
secret law must be compared to those of patent and copyright law. The question
must then be asked[, "]are they in conflict?["] Does trade secret law hinder
the objectives of patent or copyright law?
The Objectives of the Laws
* Trade Secret Law promotes an incentive to create and use methods by
providing protection against unauthorized disclosure or use of protected ideas.
Byrce & Associates, Inc. v. Gladstone, 319 N.W.2d 907, 915 (1982).
* Patent Law protection creates an incentive to invent, it promotes public
disclosure and it ensures that information already in the public domain remains
in the public domain. In exchange, the inventor has exclusive use for a period
of seventeen years. Kewanee Oil Company v. Bicron Corporation, 416 U.S. 470.
* Copyright Law promotes the creation and diffusion of knowledge in exchange of
a limited commercial monopoly. Byrce & Associates, Inc. v. Gladstone,
319 N.W.2d 907, 914 (1982).
Courts have consistently been presented with the question of whether a state law cause of action is preempted by federal law[.]
Part A
Standards of Common Law Protection
Statutory Readings
- Restatement of Torts
- Uniform Trade Secrets Act
- Restatemet of Unfair Competition
Basics of [the] Uniform Trade Secrets Act[:]
In those states which have enacted UTSA statutes, the statutes displace conflicting tort, restitutionary, and other law of the State providing civil remedies for misappropriation of trade secrets[.]
HOWEVER: The statutes do not affect:
- Contractual remedies, whether or not based upon misappropriation of a trade
secret[.]
- Other civil remedies that are not based upon misappropriation of a trade
secret[.]
- Criminal remedies, whether or not based upon misappropriation of a trade
secret[.]
"Trade secret" [is] defined as: information, including a formula, pattern,
compilation,program, device, method, technique, or process, that:
- derives independent economic value from not being generally known or readily
ascertainable by proper means by other persons and;
- is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
[The] Uniform Trade Secrets Act
* Provides cause of action for "misappropriation" of trade secrets
* 3 year statue of limitations - action must be brought within 3 years after
misappropriation is discovered or should have been discovered[.]
* "Misappropriation" [is] defined as"
(i) acquisition of a trade secret of another person who knows or has
reason to know that the trade secret was acquired by improper means or;
(ii) disclosure or use of a trade secret of another without implied
consent by a person who:
- Improperly acquired [the] trade secret[.]
- At the time of disclosure or use, knew or had reason to know that his
knowledge of the trade secret was:
- Derived from improper means[;]
- Acquired under a duty to maintain secrecy[.]
- Acquired by accident or mistake[.]"
[The] Uniform Trade Secrets Act [provides that],
In an action under the act, a court is authorized to preserve the secrecy of an
alleged trade secret by:
- granting protective orders in connection with discovery proceedings[;]
- holding in-camera hearings[;]
- sealing the records of the action[;]
- and ordering any person involved in the litigation not to disclose an alleged
trade secret without prior court approval.
TRADE SECRETS/VALUES:
Restatement of Unfair Competition
-Relevant Provisions
* Restatement of the Law, Third, Unfair Competition,
published by The American Law Institute Commentary on trade secrets and
rights of publicity[.]
* The rules are applicable to both statutory and common law trade secret cases[.]
* The rules closely mirror the Uniform Trade Secrets Act[.]]
* [A] "Trade secret" [is] defined as:
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[.]
* Liability for appropriation occurs when:
- [A] Trade secret is acquired by improper means[;]
- At the time of disclosure or use, the actor knew or had reason to know that
his knowledge of the trade secret was:
- Derived from improper means[,]
- Acquired under a duty of confidence[,]
- Acquired by accident or mistake[,]
- [A] Duty of confidence arises from both express and implied duty and
includes employees[.]
REMEDIES
* Injunctive relief may be awarded to prevent a continuing or threatened appropriation of another's trade secret under appropriate circumstances[.]
* Monetary relief may be awarded in an amount equal to the pecuniary loss to the other caused by the appropriation or for the actor's own pecuniary gain resulting from the appropriation, whichever is greater[.]
* Right of Publicity[:]
- Protects against misappropriation of the commercial value of a person's identity[.]
- Provides liability for misuse of person's name, likeness, or other indicia of identity for purposes of trade[.]
- Use for purposes of trade includes:
- use for advertising,
- placement on merchandise, or
- use in connection with services rendered.
- Does not include:
- news reporting, commentary,
- entertainment or
- use in advertising that is incidental to such uses.
Case Law
Trade Secrets [case law] is Half Tort Law & Half Property Law[.]
Tort Law: One can be held liable for breaching a duty not to disclose the trade secret[.]
Property Law: One has valuable information one wants to protect[.]
[A: The] Tort Side of Trade Secrets[:]
* A duty must exist
[B: The] Property Side of Trade Secrets[:]
* A trade secret must be a secret.
* A trade secret must have value.
How do we know if it is a secret?
* The court looks into:
- The measures the company took to keep the information secret[.]
- The cost to the company of keeping the information secret[.]
- The number of people who know the secret[.]
- The subjective belief that the trade secret is in fact a secret
How do we know if the secret has value?
* The court may consider:
- Expert witness testimony[.]
- Whether the information is common knowledge[.]
"Secrecy" in a Trade Secret[:]
* Secrecy must be "substantially secret," it does not have to be absolute.
Metallurgic.
* One must take "reasonable means" to protect one's secret
Dupont & Rockwell.
Liability for Using or Disclosing Another's Trade Secret[:]
* One is liable for using or disclosing another's trade secret if:
- One uses improper means to discover the trade secret[.]
- The disclosure or use constitutes a breach of confidential relationship[.]
* One is not liable if:
- One discovers the trade secret by reverse engineering[.]
- One discovers the trade secret independently[.]
Case Law[:] Employment Relation and Contract Considerations
The Case of: Kewanee Oil v. Bicron Corporation 416 U.S. 470
Facts: Kewanee Oil had developed processes and techniques related to the production of synthetic crystals. Former employees of Kewanee Oil appropriated 20 trade secrets to a competitor, Bicron Corporation. Ohio law enjoined the employees from disclosure or use of the trade secrets until they had been released to the public. The process and techniques were appropriate subject matter for patent protection, but was not longer available for protection because it had been in commercial use for a year.
Issue: Does federal patent law preempt state trade secret protection?
Holding: The Court held that the trade secret protection would not be preempted by the
federal patent law because:
- Trade secret protection provided more incentive for businesses to create and benefit
from this such things a individualized plans of operation and business methods[.]
By definition a trade secret is a secret and not in the public domain. Thus, Congress' object to keep information in the public domain would not be disrupted.
The availability of an alternative plan would not deter individuals from applying for patent protection because trade secret is a weaker form of protection.
In short, the Court found that trade secret law did not create and obstacle to the
objectives of patent law.
The Case of: Bryce Associates Inc. v. Gladstone 319 N.W.2d 907
Facts: Bryce Associates contends that Harley-Davidson took and used for their own benefit Bryce's trade secret contained in a methodology for design of management information systems-PRIDE. Bryce held an information session and provided manuals including a copyright notice that described the capabilities and advantages of PRIDE to the Harley-Davidson business.
Issue: Does Bryce's voluntary use of the federal copyright notice on PRIDE'S manuals and forms prevents the state of Wisconsin from applying its trade secret law to bar use by other of the information contain in the work?
Holding: The Court explained "trade secret law prohibits unauthorized disclosure or use of protected ideas while copyright prohibits unauthorized copying by anyone of the form of expression in which the ideas are fixed by the author."
The Court concluded that there is clear demarcation between trade secret protection and copyright protection and thus no preemption.
Conclusion of the Law:
Federal does not prevail over state law as long as the state law does not stand as
an obstacle to the accomplishment and execution of the full purposes and objectives
of Congress.
Part B[:]
* Economic Espionage Act of 1996
* Uniform Computer Information Transactions Act (UCITA)
What is UCITA? [--] Uniform Computer Information Transactions Act
[This is a] Proposed state contract law designed to standardize the law of software and all forms of digital info[rmation.]
A "computer information transaction" is one in which computer info is sold, leased or licensed.[.]
[This] Enables shrink-wrap/click-on licenses[.]
[The] Economic Espionage Act of 1996 [-- ] 18 U.S.C.A. secs 1831-1839 (West Supp. 1999)
signed October 11, 1996
* Protects trade secrets Only if owner has taken steps to ensure that the inf
remains secret[.]
Why Care?
* Use it offensively to protect your secrets[.]
* Bring your company into compliance with the act and avoid becoming a defendant[.]
EEA, sec.1831, makes it illegal for a foreign entity to knowingly steal, copy, [or] receive secrets[.]
Punishment is up to 15 years in prison and a substantial fine
- Individuals: $500,000.
- Organizations: $10 million!
EEA, sec.1832, makes it illegal
for anyone to convert a T[rade]S[ecret] "that is related to or included in a product
...in interstate or foreign commerce...'"
- Individuals: $500,000.
- Organizations: $5 million!
- [Plus they] Forfeit of all proceeds derived from such a violation (sec. 1834).
How to Protect Your Secrets
* Be aware of company insiders, former employees, and competitors milling your hallways[.]
* Keep your employees informed of the value of discretion[.]
- Have them sign and agree to a Policy Statement[.]
* Create key management teams who oversee the compliance with security
* Train employees via orientation
* Maintain an auditing and reporting system
* Limit Discretion of key secrets
* Enforce and Discipline Violations
How to Avoid becoming a Defendant
* Avoid patterns of hiring away your competitor's employees!
* Inform new employees that your company respects the proprietary info of its
competitors, and will not seek to exploit that info[.]
Thus far, cases have involved the most EGREGIOUS attempts to steal.
Enforcement Examples
First published opinion directly addressing Congress' intent of the EEA: U.S. v. Hsu, 155 F.3d 189 (3rd Cir. 1998) Mr. Hsu, an employee of a paper company, met with an undercover FBI agent in LA. Mr. Hsu allegedly asked the agent to find a Bristol-Myers Squibb employee willing to sell secrets related to their cancer drug, Taxol.
A meeting was arranged, where Mr. Hsu met with undercover FBI agents where he was arrested.
At trial, Mr. Hsu wanted to see whether the info was in fact a trade secret.
The court rejected his argument, noting that the EEA makes it illegal to
attempt or conspire to steal T[radeS[ecrets]. In this respect, the actual info he was
attempting to buy was irrelevant.
Other Case Law
U.S. v. Yang 1999 U.S. Dist. Lexis 7130 (N.D. Ohio 1999)
President, Mr. Yang, of Four Pillars Company attempted to buy the trade secrets related to new adhesive technology developed by Avery-Dennison.
FBI used undercover operation using an A-D assistant who had been selling the company's TS for 8 years. The assistant agreed to cooperate, and the FBI caught Mr. Yang's attempt on videotape.
Court noted that the loss of TS status during the investigation does not preclude an EEA violation.
Mr. Yang was sentenced to 6 months of home confinement, 18 months probation, and $250,000. Avery-Dennison filed civil suit, receiving judgment of $10 million for theft and $30 million for punitive damages.
Case Law, (continued)
In U.S. v. Martin, 228 F.3d 1 (1st Cir. 2000),
the court rejected Mr. Martin's defense that he had not
actually received the trade secrets.
Court noted here that even if true, that is irrelevant.
What to Do
When you think there may be a Violation:
* Determine facts of your situation and whether they fall into each element of the crime
* "Intent" is a critical element[.]
NOTE that Competitive Intelligence is information gathering on competition which can be done legally and ethically.
Trade Secret Law has been progressively expanding,
has it reached its outer boundaries?