by Steve McDaniel and Jon Hurt , Technology Litigators02.23.15
Civil court is a double-edged sword that can cut you pretty badly when trying to keep your trade secrets actually Secret. You can go to court specifically to stop use or disclosure of your proprietary information, or even for some reason not related to trade secret misappropriation. But, if you are not very careful, the generally noble-minded tendency of courts to be open forums can lead to the destructive release of your trade secrets into the public domain.
There are several legal maneuvers generally available to help protect you from unintentionally disemboweling yourself on the blade of justice.
The overall goal of your efforts is to establish that you took reasonable measures to maintain the secrecy of your trade secrets. This includes reasonable efforts to do so during court proceedings. It allows you the best chance of persuasively arguing that the court records should be sealed after trial is complete. And, subsequently, to show that you have not lost your trade secrets property rights during a court proceeding. Failure to do so may (assume will) result in the loss of your trade secrets.
The first thing you should seek is a protective order where any proprietary information is filed with the court under seal. Typically, you negotiate a confidentiality agreement with your adversary as early as possible during discovery stating that certain information should remain confidential, and then you ask the court to issue a protective order modeled on the agreement.
A protective order may stipulate, for instance, that only the counsel (and possibly the parties and/or experts) may have access to proprietary information in the discovery process, what documents are filed under seal, and how the documents are to be handled after trial to maintain confidentiality. This path avoids asking the court for protection to keep under seal each separate filing having proprietary information. But, it may be hard to implement a protective order if both parties and the court can’t achieve agreement regarding the bounds of the order.
One party may want information to be fully available to witnesses during trial, or may just not want to make life easy for the other guy by acknowledging information to be confidential (“Do you really want to pursue this court case and possibly exposure your trade secrets, pal?”). And some courts may be less than enthused by the extra work in segregating unsealed and sealed records, in addition to undermining the tradition of transparent court proceedings. Be prepared to demonstrate the necessity of these actions, including arguing that alternatives such as redacting documents would not be effective in maintaining the necessary level of secrecy. And, of course, follow all the guidelines we have discussed concerning reasonable efforts to maintain your trade secrets OUTSIDE the courtroom (http://www.coatingsworld.com/issues/2012-09/view_ipaint/the-wall-of-your-trade-secret-vault-is-made-of-paper/).
Even with a protective order in place regarding public access to documents, what about members of the public (i.e., competitors seeking the trade secrets) simply attending the trial and paying close attention? A lot can be said during live oral testimony, and key information can be displayed using giant flash cards or other audio visual memory aids called “exhibits.” What is heard cannot be unheard, what is seen cannot be unseen. And your less than friendly opposition will likely be keenly aware of this issue. For example, in The Gates Rubber Co. v. Bando Chemical Industries Ltd. (9 F.3d 823, 28 USPQ2d 1503), the defendant argued that a permanent injunction was inappropriate to protect the plaintiff’s trade secrets as they were no longer trade secrets after disclosure during the permanent injunction hearing. Wow, talk about a damned if you do damned if you don’t argument! Fortunately, as the attorney for the plaintiff monitored the presence of observers in the courtroom during the hearing, and sought that the record of the hearing was subsequently placed under seal, it was deemed to be “reasonable efforts” to maintain the trade secrets’ secrecy. Do not forget that anywhere sworn testimony is given (i.e., a deposition of your CEO at your own lawyers’ fancy Ming-vase bedecked conference room), there is substantial risk of inadvertent disclosure of your trade secrets.
But to really cover this issue, you may consider getting a court order to close the proceedings to the public before words start to fly. Good luck with that. You will need to convince the court something along the lines that “no reasonable alternative” exists to protect the trade secret holder from the harm that would occur due to disclosure in a public court setting. It is not unheard of to get a closed court proceeding, but the existence of trade secrets in the case does not get an automatic grant to close the court. It may be wise to sharpen your arguments as to the existence and value of your trade secrets far in advance of any potential legal action to convince the court to do what is needed to protect your property. And, if you have paid attention to our admonishments in iPaint (http://www.coatingsworld.com/issues/2013-01/view_ipaint/how-much-is-that-trade-secret-worth/), you will have a ready list and valuation that you have frequently updated (of course you have!).
If you are slow to parry your opponent’s slight of legal hand in keeping court proceedings tightly under wraps, then the bleeding out of your trade secrets starts. In Littlejohn v. Bic Corp. (697 F.Supp. 192 (1988)), a product liability case about Littlejohn accidentally getting burned by a Bic lighter, a protective order was in place to protect Bic Corp’s trade secrets. Unfortunately, Bic Corp’s counsel did not object to exhibits introduced at trial that disclosed trade secrets covered by the order. A post-trial attempt by Bic to get the Court to seal the trial record was not granted, and it was found that failure to raise the issue of confidentiality regarding the exhibits and seeking an order sealing the record during the trial constituted a waiver of rights granted by the protective order. Oops!
You can learn a lot on what you should do based on the reasoning courts’ use to deny a request for sealing the case record. In Carnegie Mellon University v. Marvell Technology Group, Civ. Action No. 09-290 (W.D. Pa. Mar. 29, 2013), the court found that a party’s confidentiality interest in its trade secrets were waived by failing to take the following actions during trial: seek a protective order, request a closed proceeding after the court’s warning, make submissions regarding confidential information in the judge’s chambers before introduction into the public record, and moving to seal the records. The court also noted that evidence of harm by public disclosure at trial was not presented. The point being, if you wind up in court, be prepared for the eventuality that despite your good but not perfect efforts, you still may wind up having your trade secrets exposed.
Even if you succeed in having the court records sealed, that does not mean they can’t be unsealed during appeal. Apple Inc. found this out as public sources were cited as disclosing the trade secrets subject to seal, leading the U.S. Court of Appeals in San Francisco (9th Cir.) to state that Apple “cannot have this court seal information merely to avoid confirming that the publicly available sources got it right.” So, if there was a question in the minds of your competitors as to whether your trade secret was even partly reversed engineered, you can put that issue to rest to their advantage by disclosing the trade secret in court, even when you thought you were protected.
Well, what recourse do you have after loss of your trade secrets due to litigation? Can you recover financial losses from the state or Federal government? Probably not, but the idea is something to keep an eye on as case law progresses over time. The federal Takings Clause states that “nor shall private property be taken for public use, without just compensation,” and as trade secrets have been held to qualify for this protection by the Supreme Court in Ruckelshaus v. Monsanto Co. The Court’s position was that a government agency’s disclosure of a trade secret that interferes with “reasonable investment-backed expectations” could qualify as a “taking,” and thus make governmental compensation possible. And it has been speculated in legal circles that a court’s refusal to order protective measures could amount to a “taking” when trade secrets are lost by disclosures at trial.
But given various courts’ view from the decisions discussed above that the burden is on you to take reasonable measures to protect your trade secrets, trying to switch that attitude 180° while blazing new legal trails will likely be an uphill battle.
Is there an alternative to the court process that is any better? Well, there is state-run arbitration, which was supposed to be a more confidential way to resolve business disputes, but the Supreme Court recently let stand a ruling that Delaware’s arbitration system must be open to the public like civil trials. Ok, what about private arbitration? The Supreme Court has described private arbitration as able to be designed by the parties so “that proceedings be kept confidential to protect trade secrets.” So, if you are on good enough terms with the opposition to reach a mutual agreement to a confidential arbitration proceeding, it is an avenue to be considered.
Ok, let’s face it: this whole situation is rife with peril! But, sometimes you gotta do what you gotta do. Failure to aggressively protect against theft of your trade secrets is a death knell for their continued existence. Failure to keep up the hard work of protecting them in a court proceeding is just as much a requirement. Hard spots and rocks.
There are several legal maneuvers generally available to help protect you from unintentionally disemboweling yourself on the blade of justice.
The overall goal of your efforts is to establish that you took reasonable measures to maintain the secrecy of your trade secrets. This includes reasonable efforts to do so during court proceedings. It allows you the best chance of persuasively arguing that the court records should be sealed after trial is complete. And, subsequently, to show that you have not lost your trade secrets property rights during a court proceeding. Failure to do so may (assume will) result in the loss of your trade secrets.
The first thing you should seek is a protective order where any proprietary information is filed with the court under seal. Typically, you negotiate a confidentiality agreement with your adversary as early as possible during discovery stating that certain information should remain confidential, and then you ask the court to issue a protective order modeled on the agreement.
A protective order may stipulate, for instance, that only the counsel (and possibly the parties and/or experts) may have access to proprietary information in the discovery process, what documents are filed under seal, and how the documents are to be handled after trial to maintain confidentiality. This path avoids asking the court for protection to keep under seal each separate filing having proprietary information. But, it may be hard to implement a protective order if both parties and the court can’t achieve agreement regarding the bounds of the order.
One party may want information to be fully available to witnesses during trial, or may just not want to make life easy for the other guy by acknowledging information to be confidential (“Do you really want to pursue this court case and possibly exposure your trade secrets, pal?”). And some courts may be less than enthused by the extra work in segregating unsealed and sealed records, in addition to undermining the tradition of transparent court proceedings. Be prepared to demonstrate the necessity of these actions, including arguing that alternatives such as redacting documents would not be effective in maintaining the necessary level of secrecy. And, of course, follow all the guidelines we have discussed concerning reasonable efforts to maintain your trade secrets OUTSIDE the courtroom (http://www.coatingsworld.com/issues/2012-09/view_ipaint/the-wall-of-your-trade-secret-vault-is-made-of-paper/).
Even with a protective order in place regarding public access to documents, what about members of the public (i.e., competitors seeking the trade secrets) simply attending the trial and paying close attention? A lot can be said during live oral testimony, and key information can be displayed using giant flash cards or other audio visual memory aids called “exhibits.” What is heard cannot be unheard, what is seen cannot be unseen. And your less than friendly opposition will likely be keenly aware of this issue. For example, in The Gates Rubber Co. v. Bando Chemical Industries Ltd. (9 F.3d 823, 28 USPQ2d 1503), the defendant argued that a permanent injunction was inappropriate to protect the plaintiff’s trade secrets as they were no longer trade secrets after disclosure during the permanent injunction hearing. Wow, talk about a damned if you do damned if you don’t argument! Fortunately, as the attorney for the plaintiff monitored the presence of observers in the courtroom during the hearing, and sought that the record of the hearing was subsequently placed under seal, it was deemed to be “reasonable efforts” to maintain the trade secrets’ secrecy. Do not forget that anywhere sworn testimony is given (i.e., a deposition of your CEO at your own lawyers’ fancy Ming-vase bedecked conference room), there is substantial risk of inadvertent disclosure of your trade secrets.
But to really cover this issue, you may consider getting a court order to close the proceedings to the public before words start to fly. Good luck with that. You will need to convince the court something along the lines that “no reasonable alternative” exists to protect the trade secret holder from the harm that would occur due to disclosure in a public court setting. It is not unheard of to get a closed court proceeding, but the existence of trade secrets in the case does not get an automatic grant to close the court. It may be wise to sharpen your arguments as to the existence and value of your trade secrets far in advance of any potential legal action to convince the court to do what is needed to protect your property. And, if you have paid attention to our admonishments in iPaint (http://www.coatingsworld.com/issues/2013-01/view_ipaint/how-much-is-that-trade-secret-worth/), you will have a ready list and valuation that you have frequently updated (of course you have!).
If you are slow to parry your opponent’s slight of legal hand in keeping court proceedings tightly under wraps, then the bleeding out of your trade secrets starts. In Littlejohn v. Bic Corp. (697 F.Supp. 192 (1988)), a product liability case about Littlejohn accidentally getting burned by a Bic lighter, a protective order was in place to protect Bic Corp’s trade secrets. Unfortunately, Bic Corp’s counsel did not object to exhibits introduced at trial that disclosed trade secrets covered by the order. A post-trial attempt by Bic to get the Court to seal the trial record was not granted, and it was found that failure to raise the issue of confidentiality regarding the exhibits and seeking an order sealing the record during the trial constituted a waiver of rights granted by the protective order. Oops!
You can learn a lot on what you should do based on the reasoning courts’ use to deny a request for sealing the case record. In Carnegie Mellon University v. Marvell Technology Group, Civ. Action No. 09-290 (W.D. Pa. Mar. 29, 2013), the court found that a party’s confidentiality interest in its trade secrets were waived by failing to take the following actions during trial: seek a protective order, request a closed proceeding after the court’s warning, make submissions regarding confidential information in the judge’s chambers before introduction into the public record, and moving to seal the records. The court also noted that evidence of harm by public disclosure at trial was not presented. The point being, if you wind up in court, be prepared for the eventuality that despite your good but not perfect efforts, you still may wind up having your trade secrets exposed.
Even if you succeed in having the court records sealed, that does not mean they can’t be unsealed during appeal. Apple Inc. found this out as public sources were cited as disclosing the trade secrets subject to seal, leading the U.S. Court of Appeals in San Francisco (9th Cir.) to state that Apple “cannot have this court seal information merely to avoid confirming that the publicly available sources got it right.” So, if there was a question in the minds of your competitors as to whether your trade secret was even partly reversed engineered, you can put that issue to rest to their advantage by disclosing the trade secret in court, even when you thought you were protected.
Well, what recourse do you have after loss of your trade secrets due to litigation? Can you recover financial losses from the state or Federal government? Probably not, but the idea is something to keep an eye on as case law progresses over time. The federal Takings Clause states that “nor shall private property be taken for public use, without just compensation,” and as trade secrets have been held to qualify for this protection by the Supreme Court in Ruckelshaus v. Monsanto Co. The Court’s position was that a government agency’s disclosure of a trade secret that interferes with “reasonable investment-backed expectations” could qualify as a “taking,” and thus make governmental compensation possible. And it has been speculated in legal circles that a court’s refusal to order protective measures could amount to a “taking” when trade secrets are lost by disclosures at trial.
But given various courts’ view from the decisions discussed above that the burden is on you to take reasonable measures to protect your trade secrets, trying to switch that attitude 180° while blazing new legal trails will likely be an uphill battle.
Is there an alternative to the court process that is any better? Well, there is state-run arbitration, which was supposed to be a more confidential way to resolve business disputes, but the Supreme Court recently let stand a ruling that Delaware’s arbitration system must be open to the public like civil trials. Ok, what about private arbitration? The Supreme Court has described private arbitration as able to be designed by the parties so “that proceedings be kept confidential to protect trade secrets.” So, if you are on good enough terms with the opposition to reach a mutual agreement to a confidential arbitration proceeding, it is an avenue to be considered.
Ok, let’s face it: this whole situation is rife with peril! But, sometimes you gotta do what you gotta do. Failure to aggressively protect against theft of your trade secrets is a death knell for their continued existence. Failure to keep up the hard work of protecting them in a court proceeding is just as much a requirement. Hard spots and rocks.
