Trade Secrets BasicsTrade Secrets BasicsVictor H. Bouganim

WCL, American University

Trade Secrets IssuesTrade Secrets Issues The circumstances in which an

employee may continue her business after departing her employer

The circumstances in which a competitor may copy another’s publicly sold product

Whether courts will enforce a contract requiring that business information be kept confidential

Trade Secrets and Know-how Trade Secrets and Know-how Often a business will develop valuable “know-how” that gives it

a competitive advantage. The know-how often takes the form of a manufacturing process,

a customer list, or a business method. Much of the value of this know-how is that competitors do not

have access to it. If the know-how is a trade secret, employees may be prohibited

from divulging it and competitors from using it. Trade secret protection may be available regardless of the

availability of other forms of IP protection.

Trade Secret - DefinitionTrade Secret - Definition

Any 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.

Restatement of Torts, section 757

Defining Trade SecretsDefining Trade SecretsFactors to Consider: Extent to which information is known outside

claimant’s business Extent to which it is known by employees and

others in the business Extent of measures taken by claimant to guard

secrecy of information Value of information to the business and its

competitors Amount of effort or money expended in

developing information Ease or difficulty of acquisition or duplication

of information by others

Overview of Trade Secret ProtectionOverview of Trade Secret Protection Every state in the U.S.

protects trade secrets in some form or another.

Improper use or disclosure of a trade secret is generally a common law tort.

The principal document setting forth the “law” of trade secrets was the Restatement of Torts, sections 757 and 758 (1939).

The Restatement (Second) of Torts (1979) does not include sections 757 and 758, although they have been adopted by many courts.

The Uniform Trade Secrets Act

Specific Laws– Economic Espionage Act

of 1996 [Criminal sanctions]

Trade Secret Claim: ElementsTrade Secret Claim: Elements The subject matter involved must qualify for

trade secret protection - – it must be the type of knowledge or information that

trade secret law was meant to protect, and it must not be generally known to all.

A trade secret plaintiff must also prove that the defendant acquired the information wrongfully.

The plaintiff, holder of the trade secret, took reasonable precautions under the circumstances to prevent its disclosure.

Reasonable Efforts to Maintain SecrecyReasonable Efforts to Maintain Secrecy

Plaintiffs must show that they have taken reasonable measures to protect the secrecy of their trade secrets.

A plaintiff cannot publicly disclose a secret and expect to protect it.

Generally, reasonable measures must include certain efforts to prevent misappropriation or use of the trade secrets by former employees.

Disclosure of Trade SecretsDisclosure of Trade Secrets Public disclosure of a

trade secret ends protection forever.

Trade secrets do not last for a specific term of years but continue indefinitely until the public disclosure of the secret.

As long as a trade secret remains secret, it is protectable.

Disclosure Scenarios A holder may publish the secret A holder may sell a commercial

product embodying the secret A trade secret may be publicly

disclosed by someone other than the holder

A trade secret may be disclosed inadvertently

Government agencies may require disclosure

MisappropriationMisappropriation Not all uses of another’s trade

secrets constitute misappropriation

Illegal in two scenarios:

– where it is done through improper means

– where it involves a breach of confidence

Improper MeansImproper Means Improper means includes

illegal conduct and conduct below generally accepted standards of commercial morality.

Substantial overlap with basic common law protections, such as torts.

E.I. DuPont de Nemours v. Rolfe ChristopherE.I. DuPont de Nemours v. Rolfe Christopher5th Circuit (1970)5th Circuit (1970)

Defendants were hired to take aerial photographs of one of DuPont’s facilities by an unknown third party.

DuPont alleged that the Christophers had wrongfully obtained photographs revealing DuPont’s trade secrets which they then sold to a third party.

Defendants argued that for a wrongful appropriation of trade secrets, there must be a trespass, other illegal conduct, or a breach of confidence.

The court found that misappropriation was not limited to these three elements.

The court concluded that aerial photography was an improper means of obtaining another’s trade secret.

Confidential RelationshipConfidential Relationship Secrets that have been properly

obtained may still be misappropriated if they are improperly used or disclosed.

This often occurs when secrets are used or disclosed in violation of a confidential relationship.

Confidential relationships may be express or implied.

Confidentiality agreements are generally enforceable.

Reverse EngineeringReverse Engineering Starting with the known product

and working backward to find the method by which it was developed.

If the acquisition of the known product was lawful, reverse engineering may be classified as a proper means of obtaining a trade secret.

This defense is not raised to deny existence of a trade secret, but to establish a proper use.

Chicago Lock Co. v. FanbergChicago Lock Co. v. Fanberg9th Circuit (1982)9th Circuit (1982)

Chicago Lock brought suit against the Fanbergs to enjoin the unauthorized dissemination of key codes for their “Ace” line of tubular locks.

The court stated that it is the employment of improper means to procure a trade secret, rather than mere copying or use, which is the basis of liability.

Issue: whether the Fanbergs procurement of these individual locksmiths’ reverse engineering data is an “improper means.”

As they owed no duty, the locksmiths did not breach a duty of nondisclosure to Chicago Lock, and therefore there was no use of “improper means” on the part of the Fanbergs.

Departing EmployeesDeparting Employees

IssuesCan employees “raid”

their company?The right to competeCan employees take

their own invention?