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SSHHHH! It’s a Trade SecretSSHHHH! It’s a Trade Secret

Steve BaronSteve Baron

April 6, 2006April 6, 2006

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What Is A Trade Secret?What Is A Trade Secret?

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InformationInformation

Economic valueEconomic value Not generally knownNot generally known Reasonable efforts to maintain Reasonable efforts to maintain

secrecysecrecy

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Types of Trade Secret Types of Trade Secret InformationInformation

Technical or non-Technical or non-technical datatechnical data

FormulaFormula PatternPattern CompilationCompilation ProgramProgram DeviceDevice

MethodMethod TechniqueTechnique DrawingDrawing ProcessProcess Financial dataFinancial data List of actual or List of actual or

potential customerspotential customers

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Economic ValueEconomic Value

Actual Actual PotentialPotential

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Availability of InformationAvailability of Information

Not generally known by competitorsNot generally known by competitors

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““Reasonable” Efforts to Maintain Reasonable” Efforts to Maintain SecrecySecrecy

Absolute secrecy Absolute secrecy notnot required required Reasonable under the circumstancesReasonable under the circumstances Comprehensive programComprehensive program

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Examples of Methods to Examples of Methods to Maintain SecrecyMaintain Secrecy

Lock & KeyLock & Key PasswordsPasswords Restricted accessRestricted access Sign-in sheetsSign-in sheets Confidential stampsConfidential stamps Non-Disclosure AgreementsNon-Disclosure Agreements

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The sum may be a trade secret, even if each part is not.

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Famous Trade SecretsFamous Trade Secrets

Formula for Coca-ColaFormula for Coca-Cola Recipe for Kentucky Fried ChickenRecipe for Kentucky Fried Chicken Formula for Smith’s Cough DropsFormula for Smith’s Cough Drops Specifications for a product with the code Specifications for a product with the code

name “Asteroid”name “Asteroid”

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Advantages of a Trade SecretAdvantages of a Trade Secret

No time limitNo time limit No public disclosureNo public disclosure No governmental filing processNo governmental filing process

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What Law GovernsWhat Law Governs

HistoricallyHistorically Uniform Trade Secrets ActUniform Trade Secrets Act Illinois Trade Secrets ActIllinois Trade Secrets Act Economic Espionage ActEconomic Espionage Act

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Historically – Common Law – Historically – Common Law – Six Factor TestSix Factor Test

1.1. Extent known outside companyExtent known outside company

2.2. Extent known by employeesExtent known by employees

3.3. Measures taken to guard secrecyMeasures taken to guard secrecy

4.4. Value to company and competitorsValue to company and competitors

5.5. Time, effort and money to developTime, effort and money to develop

6.6. Difficulty of proper acquisitionDifficulty of proper acquisition

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Uniform Trade Secrets ActUniform Trade Secrets Act

1.1. Adopted by nearly 40 statesAdopted by nearly 40 states

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Illinois Trade Secrets ActIllinois Trade Secrets Act

1.1. Effective since 1988Effective since 1988

2.2. Adjunct to common lawAdjunct to common law

3.3. Gives “teeth” to infringement claimsGives “teeth” to infringement claims

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Illinois Trade Secrets ActIllinois Trade Secrets Act

RemediesRemedies InjunctionInjunction Compensatory damagesCompensatory damages Punitive damagesPunitive damages Attorney’s feesAttorney’s fees

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Economic Espionage ActEconomic Espionage Act

Gives U.S. Attorney sweeping powers to Gives U.S. Attorney sweeping powers to prosecute any person or company prosecute any person or company involved in trade secret misappropriationinvolved in trade secret misappropriation

Punishes intentional stealing, copying or Punishes intentional stealing, copying or receiving of trade secretsreceiving of trade secrets

For product produced or placed in For product produced or placed in interstate commerceinterstate commerce

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Economic Espionage ActEconomic Espionage Act

PenalitiesPenalities Individual fines up to $500,000Individual fines up to $500,000 Company fines up to $5 millionCompany fines up to $5 million Prison – up to 10 years for individuals and 15 Prison – up to 10 years for individuals and 15

years if theft performed for foreign years if theft performed for foreign governmentgovernment

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Proper Methods to Obtain Trade Proper Methods to Obtain Trade SecretsSecrets

Legitimate ObservationLegitimate Observation Reverse EngineeringReverse Engineering Independent InventionIndependent Invention

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Inevitable Disclosure DoctrineInevitable Disclosure Doctrine

Pepsi v. RedmondPepsi v. Redmond

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Pespsi v. RedmondPespsi v. Redmond

Who’s the plaintiff?Who’s the plaintiff? Who’re the defendants?Who’re the defendants? Why does the plaintiff sue defendants?Why does the plaintiff sue defendants? Under what legal theory?Under what legal theory? What happens in the trial court?What happens in the trial court? What happens on appeal?What happens on appeal?

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Inevitable Disclosure DoctrineInevitable Disclosure Doctrine

Even in the absence of actual or Even in the absence of actual or threatened misappropriation of a trade threatened misappropriation of a trade secret, where a person who has acquired secret, where a person who has acquired trade secrets from one employer, will trade secrets from one employer, will inevitably disclose those secrets to a inevitably disclose those secrets to a competing employer, the court may issue competing employer, the court may issue an injunction.an injunction.

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Learning Curve v. PlaywoodLearning Curve v. Playwood

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Learning Curve v. PlaywoodLearning Curve v. Playwood

Plaintiff/Counterdefendant = Learning CurvePlaintiff/Counterdefendant = Learning Curve Defendant/Counterplaintiff = PlaywoodDefendant/Counterplaintiff = Playwood Learning Curve = Licensee of Thomas productsLearning Curve = Licensee of Thomas products Playwood = Canadian toy makerPlaywood = Canadian toy maker Learning Curve and Playwood meetLearning Curve and Playwood meet Playwood discloses idea for trackPlaywood discloses idea for track Parties do not form relationshipParties do not form relationship Learning Curve exploits “Clickety-Clack Track”Learning Curve exploits “Clickety-Clack Track”

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Learning Curve v. PlaywoodLearning Curve v. Playwood

Learning Curve suesLearning Curve sues Playwood countersues – alleges Playwood countersues – alleges

misappropriation of trade secretsmisappropriation of trade secrets Playwood obtains jury verdictPlaywood obtains jury verdict Trial judge reversesTrial judge reverses Playwood appeals to Seventh CircuitPlaywood appeals to Seventh Circuit

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Learning Curve v. PlaywoodLearning Curve v. Playwood

Seventh Circuit reversesSeventh Circuit reverses Playwood had legitimate trade secretPlaywood had legitimate trade secret Learning Curve learned of secret in Learning Curve learned of secret in

confidenceconfidence Ease of reverse engineering does not Ease of reverse engineering does not

matter matter

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Gonzales v. GoogleGonzales v. Google

Who is Gonzales and what does he want?Who is Gonzales and what does he want? Who is Google and what does it want to Who is Google and what does it want to

keep from Gonzales?keep from Gonzales?

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Gonzales v. GoogleGonzales v. Google

Gov’t wants to evaluate the effectiveness Gov’t wants to evaluate the effectiveness of on-line filters for purpose of COPA.of on-line filters for purpose of COPA. ACLU v. Gonzales – Challenge to COPAACLU v. Gonzales – Challenge to COPA

Google wants to protect its “crawling, Google wants to protect its “crawling, collecting, and sorting techniques” as collecting, and sorting techniques” as trade secrets.trade secrets.

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Gonzales v. GoogleGonzales v. Google

Trial Court Splits the Baby:Trial Court Splits the Baby: Google must turn over 50,000 URL’s from its Google must turn over 50,000 URL’s from its

search indexsearch index Google need not turn over sample queries Google need not turn over sample queries

from its search logsfrom its search logs Court makes the data subject to a protective Court makes the data subject to a protective

orderorder

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