Would You Even Know A Trade Secret If It Jumped Up and Bit You Somewhere?

By Steve McDaniel, PhD, JD, Contributing Editor | February 15, 2012

OK. We all know what trade secrets are, right? The formula for Coca Cola is supposedly in a heavily guarded vault in Atlanta (yeah, right). We can all probably agree that if someone swipes the Coke formula, they are guilty of trade secret theft (among numerous other things, including Darwinian Award stupidity). But, what about a hacker getting through your firewall to the raw data files in your formulations lab, who then publishes these data on an anonymous website, and these illegally-obtained data fall into the hands of your competitor through no illegal act on their part? Hhhhhmmmm. Dicey.

Our industry lives and breathes on its highly valuable trade secrets. So, here’s a little quiz to test your ability to identify information that has, or has not, been held to constitute a legally protectable trade secret. To see the right answer, turn the coatings world on its head – the magazine you’re holding called Coatings World.  

Scoring: 5 correct, You-Should-Litigate-This-Stuff; 3-4 correct, In-Vegas-The-House-Would-Own-You; 0-3 correct, Lock-Your-Front-Gate-Immediately-Seek-Professional-Help.

Hypo One: You are building a new plant, the layout of which you have spent much time and research on designing for maximum efficiency, and which layout will be covered from view in your final construction. You take reasonable steps to prevent access like high fences blocking the view, rent-a-cops, badge-access only, etc. Using a hovering toy helicopter fitted with a high-resolution camera, but operating in public airspace, some wannabe black-ops boys take several hundred pictures of your layout that capture its technical essence, contact some lower level employees of various competitors, and arrange to sell the pictures to the highest bidder. Are the pictures legally protectable trade secrets in whose use you can prevent your competitor from engaging?

ANSWER: Yes. E.I. DuPont deNemours & Co., Inc. v. Christopher, 431 F.2d 1012 (5th Cir. 1970). – Aerial photos of DuPont plant by Christopher brothers sold to foreign competitor. One need only take reasonable steps to protect one’s trade secrets, and if you do, the stealing of them is actionable.

Hypo Two: Despite years of false starts and failed experiments, your resin lab gets the new resins to not only meet but to exceed automotive industry specifications for interior soft touch coatings. You are set to enter the market in a big way only to find that your arch rival has an identical offering. Smelling a rotten fish, you investigate and find that one of your chief scientists working on the project became disgruntled with the repeated failures on the project and left to go to work for the same competitor in a similar research capacity. But, there’s a problem. He left prior to the breakthrough, even before the solution was recognized. If it can be shown that the departed employee provided nothing to his new employer but the “negative show-how” (i.e., “we tried that where I used to work, and it bombed”), and never provided the rival paint company any other roadmap to success, can you stop the competitor from using its own “breakthrough?”
ANSWER:Yes. Integrated Cash v. Digital Management, 732 F.Supp. 370 (SDNY 1989). Significant amounts of time and money spent investigating alternatives that in the end are not fruitful (negative information) is a protectable trade secret.
Hypo Three: Your vice president of research and development has left to become VP R&D at your chief competitor. Because he had access to literally ever technical trade secret and piece of confidential information about your formulations that you have, you are very worried that he will breach that agreement no matter how hard he tries not to do so (inevitably). Trouble is, although he signed a nondisclosure agreement with you at the start of his employment, he did not sign a noncompetition agreement. And, let’s be fair, the guy ain’t your slave - he deserves to seek employment and use the skills he used for you, right? Still, can you file a trade secret misappropriation case seeking a preliminary injunction to prevent this guy from working for your arch nemesis on the theory that he knows so much of your trade secret and proprietary information that he cannot help but use that information in his new virtually identical position, and that your company will suffer irreparable harm if he does?

ANSWER: Yes. PepsiCo v. Redmond, 54 F.3d 1262 (Fed.Cir. 1995). It’s fact intensive, and not without a great deal of legal gnashing of teeth, but when Redmond left PepsiCo where he knew all about making a sport drink called All-Sport to work for Quaker’s Gatorade division, he was eventually enjoined from immediately taking the position to directly compete with his former employer since it was held he could not help disclosing PepsiCo’s trade secrets in breach of his non-disclosure agreement.
Hypo Four: Your method for making a coating for glass display screens on electronic devices is held by your company as a trade secret. At least a part of the reason you chose to take the trade secret approach (rightly or wrongly) was that every element in the process (the chemical reactions, the raw materials, all the individual steps of the process, etc.) are well known in the art of making such clear coats. The arduous task of compiling these disparate, albeit entirely publicly available, elements of your manufacturing process cost you money and took you significant amounts of time. An employee conversant with all of this information leaves her job with your company, heads off to a foreign country, and sets up the same process in a plant owned by a US parent company competitor of yours. You sue the US parent company for trade secret misappropriation. The chief defense to your claims of theft is that everything you claim to be a trade secret is well known as to every aspect, even if they have never actually been put together in such a fashion, i.e., your trade secret information would never be protectable as a patented invention. Will you prevail?
ANSWER:Yes. Syntex Opthalmics v. Novicky, 591 F.Supp. 28 (N.D. Ill. 1983). Syntex had a trade secret in its overall process, even if the literature disclosed every step and reagent specification.
Hypo Five: In alternative years, your director of marketing/sales visits the American or European Coatings Shows. A part of his assigned duties is to identify potential new customers, you know, the standard sales guy stuff. The way he actually does this is to take the show exhibitors list handed out to all attendees (and which is also published online for anyone to see) and simply circles those potential new customers he met and intends to follow-up with, and where he can adds a comment about how it is he thinks your product would specifically address concerns raised by the new customer about its current supplier’s product. It’s a very disorganized and sloppy way to do it, but it seems to work. He uses this information to guide “cold” sales calls he makes after the show. One of his buddies who works for one of your competitors visits your plant, signs in at the front where you badge everyone, and has coffee in your employee’s office. They talk shop, and during a bathroom break when your employee is momentarily out of his office, the competitor decides he will take a few quick iPhone photos of the annotated exhibitor list. The very next day, this clown uses this list to make some preemptory calls to each of the circled customers and invite them to lunch. Upon investigation, you find out this happened and bring suit against your competitor. But, your only evidence is the annotated, publicly available exhibitor list, and the circumstantial fact that every company circled on your employees list was called within 24 hours of his visit to your plant. The competitor’s defense of the case rests chiefly on the argument that a mere annotated publicly available list of customers that everyone-and-their-uncle is free to call upon is not a protectable trade secret. What do you think?
ANSWER:Yes. Elmer Miller v. Landis. 625 NE2d 338 (Ill.App. 1993). If the customer list contains information not generally known in the trade and not generally used by good faith competitors, and if the trade secret owner took reasonable security steps to preserve the secrecy, such list are protectable regardless of its apparent publicly available nature.
Don’t feel badly if you didn’t score so well. Even lawyers who do this stuff for a living have to convene from time to time to remind themselves of the answers. Here’s how they do it.

First, the trade secret cases that have been or are currently being litigated give them suggestions of how to determine what is or isn’t a trade secret, and these collectively form the common law. The lawyers will occasionally look at the common law cases and summarize or “restate” the case law – generating what is called the Restatement of Torts, or Restatement of Unfair Competition. 

Sometimes, they will suggest statutes to govern what is and isn’t a protectable trade secret—for instance in what’s called the Uniform Trade Secrets Act. Sometimes states adopt these suggestions from one or the other of these bodies of law into their own state laws—that’s called statutory state law. The Feds do the same thing, ergo, federal statutory trade secret laws like the Economic Espionage Act. It gets really mind-numbing when you cross back and forth over national borders to protect your company’s crown jewels.

All in all, since our industry is one that thrives on its ability to maintain trade secret information, we all need to be good stewards of these assets. Being good managers of such assets means we need to be able to identify them and to understand the steps we must take to protect them. Embedding processes in the operation of your business to identify, list, valuate and routinely update your trade secret assets is advisable. The more international business you do, the more critical are these processes. Give yourself extra credit on the quiz above if you spend a few minutes thinking about something you would like to protect as a trade secret in your business that you never thought was possible to protect and you’ll have started a potentially very valuable process.
Technology Litigators (McDaniel & Assoc. P.C.) was founded in 1999 by Steve McDaniel, Ph.D., J.D. in Austin, Texas. The firm is a full-service intellectual property law firm with a particular focus on trade secret protection. For more information visit them online at www.technologylitigators.com.

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