LEGL 4200 EXAM 1

Four Basic Areas of IP

1. trade secret (protects information)

2. patent (protects inventions and processes

3. copyright (protects creative endeavors in fixed forms)

4. trademark (protects names and symbols that identify sources of goods or services)

Four Fundamental IP Questions

1. what is the subject matter that you are trying to protect?

2. what steps do you need to take to obtain protection (and what time constraints are you under)?

3. how broad is the scope of the protection you will receive?

4. what remedies can you receive if someone infringes your rights?

Shift to Knowledge-Intensive Economies

industrial v. information age

• Q: what is the primary output?

  • Carnegie & Rockefeller v. Dell & Jobs

• growth - patent example

  • 1980 (~2 million US patents)

  • 2025 (~10 million US patents since 1980)

Similarities with Real or Personal Property

why real property?

• establishing boundaries of ownership

• establishing bundles of interests that are separable from the physical embodiment of the property

• efficiency — tragedy of commons

• natural law (Locke) — reward for labor incentive for productive work

Differences from Real Property

real property - can more than one person/entity control or enjoy it at one time?

• rights: possession (use and occupy), mortgage, lease, sell, subdivide, etc

• it is “rivalrous” there is value in exclusivity

Rivalrous v. Non-Rivalrous

personal property - only one person can consume it

• it is rivalrous

Differences from Personal Property

• imagine a world without IP laws - are ideas rivalrous?

  • one party’s use of an idea doenst prevent another’s ability to control or enjoy it

  • value as a function of scarcity

• Q: if i make a digital copy of a song, does that make it any harder for you to make a copy?

  • there is no ability to control an idea, since it cannot be used up (i.e., isnt rivalrous)

• IP - creates the ability to “control” and profit from an intangible

Definition of a Trade Secret

a trade secret is information that:

1. has economic value, actual or potential, due to its secrecy

• includes: processes, software, customer lists, strategy documents, etc

• ask: could another replicate this information easily? if so is there any value due to secrecy?

• do we need absolute secrecy or can information have value even if a few other people know it (relative secrecy)?

2. is subject to “reasonable” steps to maintain secrecy

Trade Secret Law

• DTSA - defend trade secrets act (2016) - federal civil

  • damages and/or injunctions

• EEA - economic espionage act (1996) - mostly criminal

  • misappropriate for a foreign entity - 15 yrs and/or $5M

  • misappropriate a trade secret - 10 yrs and/or fine

  • exception for whistleblowing

• UTSA - uniform trade secrets act - civil in 49 states

  • damages and/or injunctions

  • largely preempted common law

Learning Curve v. PLayWood Toys (7th Cir. 2003)

• learning curve obtained a patent, naming one of its employees who attended the meeting as the inventor

• learning curve had $20M in track sales by 2000

• trial court found no trade secrets because:

  • 1. playwood did not demonstrate that its concept was unknown in the industry

  • 2. playwood’s concept could have been easily acquired or duplicated through proper means

  • 5. playwood expended no time, effort or money to develop the concept

Sasqua Group, Inc. v. Courtney (E.D.N.Y. 2010)

• Lori Courtney was a recruiter at Sasqua Group, an executive search, it maintains a database of all information collected on all clients

• Courtney had never signed an NDA or non-compete

  • NDA: non disclosure agreement

• when Courtney quit, Sasqua Group sought an injuction to stop her from misappropriating its client database

• rule: “a customer list developed by a business through substantial effort and kept in confidence may be trated and protected at the owner’s instance agasint disclosure to a competitor, provided the information it contains is not otherwise readily ascertainable”

• Courtney argues: all the facts came from public sources

  • she shows that she can replicate the database easily

  • Q: does this matter?

  • Q: could this have been a TS at one time and then become not a TS because of the modern internet?

United States v. Noasel (9th Cir. 2016)

• Nosal worked at an executive search firm, KFI and he decided to launch a competitor firm

• prior to leaving KFI, Nosal downloaded “confidential” information from a KFI database to use at the new enterprise, in violation of KFI’s confidentiality policies

• this information consisted of candidate source lists that were derived from a proprietary program’s review of policy available resumes

• Nosal argued that the alleged trade secret was composed mostly, if not entirely, of public information

• the court disagreed with Nosal:

  • rule:”the fact that some… of the trade secret is well known does not preclude protection for a secret combination…”

• application: the “database contained a massive confidential compliation of public data, the product of years of effort and expense, each source list was the result of a query run through a propriety algorithm…”

  • note: the value is in the sorting of public data

Religious Tech v. Netcom (N.D. Cal. 1995)

• Church of Scientology sued ex-member and critic (Ehrlich) who posted Church’s works on internet for misappropriation

• the church contested that the advanced technology works consist of “processes and the theory behind those processes… that are to be used precisely as set forth by L. Ron Hubbard to assist the parishioner in achieving a greater spiritual awareness and freedom”

• Ehrlich - this information is of no value to me, so no TS

  • court - the info must have value (actual or potential) to someone, not necessarily the defendant

• ehlich - there are no competitors to scientology thus you cant create a competitive advantage via these secrets thus no TS

  • court - this could have “potential value” in future

  • rule - potential value is enough to create a TS

  • note - the church has previously licensed out these works, so there is actual value too

• note: the court ruled against the church on the TS issue, but it did find that there was value in the secret texts

Steps Towards Secrecy:

• physical measures (e.g., vaults, building security, access limitations)

• confidentiality agreements (NDAs)

• covenants not to compete

• digital security (e.g., password protections)

• labelling of confidential information

• employee notification policies regarding trade secret policy

• “need to know” limitations

Reasonableness Considerations

• value of info - does the standard of “reasonableness” go up for more valuable information?

• resources available to company to protect its secret - were there easy protections not taken?

Allied Supply v. Brown (Ala. 1991)

• allied sued three former mangers who had resigned and formed their own competing firm, allied argued that the managers misappropriated customer and vendor lists

• evidence showed “at least 10 allied employees had free access to the lists, the lists were not marked ‘confidential’; the lists were taken home by employees; multiple copies of each list existed; and the information on the lists was contained in the receptionist’s Rolodex

• rule: the law “requires that he purported ‘trade secret’ be the ‘subject of efforts that are reasonable under the circumstances to maintain its secrecy’”

• court: given Allied’s failure to protect its data, “we agree with the trial court’s… holding that Allied did not meet its burden of showing that it had taken reasonable steps to ensure that the lists remained a trade secret”

Scope of Trade Secrets

DTSA defines a trade secret as:

• broad subject matter - all forms and types of financial, business, scientific, technical, economic, or engineering information

  • including patters, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes…

• whether tangible or intangible, and whether or how stored, complied, or memorialized physically, electronically, graphically, or in writing if:

  • A: the owner thereof has taken reasonable measures to keep such information secret; and

  • B: the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by another person who can obtain economic value from the disclosure or use of the information

    • note: must show all of the above (note the “and”)

    • the value definition is consistent with our past cases

Mason v. Jack Daniel’s (Ala. App. 1987)

• Mason owned a bar in Alabama he developed a new drink - “Lynchburg Lemonade” the recipe was simple:

  • 1 part Jack Daniel’s; 1 part triple sec; 1 part sour mix; 4 parts lemon lime soda

• a sales representative from Jack Daniel’s, Randall, visited the bar and asked about the drink, someone told him the recipe, though he knew it was a “secret”

  • the drink was mixed away from the public and bartenders were told not to share the recipe

• within a year, Jack Daniel’s sold the drink

• court: masons ability to combine these common elements into a successful beverage, like the creation of a recipe from common cooking ingredients may be a trade secret entitled to protection

• rule: novel combinations of common ingredients can be a trade secret

Art & Cook v. Haber (E.D.N.Y. 2017)

• Art & Cook, Inc. (A&C) is a cookware & kitchenware company that sells to major retailers

• A&C fired Haber, who had been employed there for nearly five years, after a routine audit of Haber’s work computer indicated Haber had transferred valuable proprietary information to his personal email account

  • this info included logos, branding/marketing strategies, and sales projections for two product lines about to launch, as well as contact info for 72 retailers to whom the company hoped to sell

• shortly thereafter, a supplier reported to A&C’s president that Haber was requesting that it supply the same products it supplied to A&C to him

• the following facts were established in court:

  • A&C password-protected its server and folders

  • A&C contracted a third-party security company to protect its server from outside hacking

  • the A&C President testified he spoke to Haber on numerous occasions about confidentiality

  • A&C did not require Haber to sign a non-compete

  • A&C first presented an NDA to Haber three years after he was hired; when he refused to sign it, A&C continued to employ him and did not limit his access to sensitive information

    • all of the employees to whom the NDA was presented refused to sign it

• conclusion: A&C took some steps to protect the privacy of its information (e.g., passwords, security, etc)

  • this is however insufficient to overcome the fact that Haber refused to sign a confidentiality agreement and A&C continued to grant him access to its information

• rule: confidentiality can be impliedly waived by the TS owner

• held: no trade secret (actually, no temporary injunction issued against Haber)

Fail-Safe v. A.O. Smith Corp. (7th Cir. 2012)

• FS makes anti-pool entrapment equipment, AOS makes motors for such devices, FS’s founder (Cohen) started talks with AOS about AOS making pumps for its devices confidentiality wasnt discussed

• the below happened before confidentiality was raised:

  • letter from cohen to AOS proposing discussions

  • months of continued discussions

  • letter describing the project and discussing FS’s past failed attempts

• Cohen visits AOS in Milwaukee Cohen signs a one-way AOS-specific confidentiality agreement no reciprocal agreement was signed

• Cohen proposed a formal arrangement (recognizing there wasnt one at that point) nothing cam eof it

• Cohen sent a letter to other parties trying to bring in a pool pump team he referenced his work w AOS and they responded that they werent working together and told them not to disclose their trade secrets

• AOS produced its won motor/ product FS Cohen says it used their technology

• FS sues for trade secret misappropriation

• Q: did FS take reasonable precations to maintain the confidentiality of its trade secrets?

• rule: an implied obligation of confidentiality may possibly exist, but the scope of the obligation depends on the facts

• courts might find an implied duty of confidentiality if:

  • they were small/unsophisticated firms and/or

  • they agreed to work together before sharing information

• held: this wasn’t the case here no implied obligations

License v. Assignment

• assignment (A → All)

  • what obligations does an assignee have to the assignor?

• license (L → Limited)

  • what risk does a licensor undertake?

  • when would a licensor want to license out its TSs?

  • what benefits does a licensee have to the licensor?

  • can the licensor impose additional restrictions? how?

Union Pacific v. Mower (9th Cir. 2000)

• Mower resigned from Union Pacific until 1992 however Mower would stay for 3 years as a sonsultant

• they agreed that until Dec 31, 1995 “Mower would not… reveal UP’s confidential and privileged information

• in 1997 Mower was called on to testify about his work at Union Pacific, they objectified , arguing that Mower had an obligation not to disclose confidential information

• is there an implied confidentiality agreement between the parties?

  • oregon law imposes on every employee a legal duty to protect an employers trade secrets and other confidential information, this obligation continues beyond the term of employment

  • rule: some states may recognize an implied duty of confidence for employees

• rule:any implied duty of confidentiality is superseded by a written confidentiality agreement

Ownership of TSs Created by Employees

• if employee independently creates a TS unrelated to work and using own resources, employee owns it

• if created at work, related to job, or used job resources:

  • belongs to employer if:

    • express employment/invention contract or

    • employee was “hired to invent” (i.e., employee hired to research this area or to solve that problem)

  • otherwise belongs to employee but employer may have shop rights

Yourself v. Halcrow (S.D.N.Y. 2011)

• Youssef worked as Director of structural Systems at Tishman Corp - the construction manager for the Veer Towers, Halcrow was the structural engineer

• Tishman worried about Halcrow’s design, Tishman asked Youssef to review it, he created a unique structural design, which was adopted

• the building won awards, youssef was upset that he had not received recognition for his designs

• Youssef sued Halcrow for misappropriation

• court: “under new york law the work product of an agent ‘within the scope of his assigned duties as an employee’ is ‘owned by the employers’”

• what might have given Youssef rights?

  • there is no allegation that the plaintiff performed this work on his personal time using his own resources”

McClain v. Texas (Tex. App. 2008)

• DiDrickson admitted that McClain came up with and created the flowcharts

• that an invention was conceived or developed while the inventor was employed by another does not alone give the employer any right in the invention

• Q: was McClain employed to invent?

• an employer has a shop right when “the invention was developed by his employee during the employer’s time or with the assistance of the employer’s property or labor, a shop right is a nonexclusive non transferable right to use the invention

Contracts to Protect IP

• the “hired to invent” rule applies where the parties dont have a relevant contract

• wouldnt it be more efficient to just create a contract (instead of suing each other)?

• but how broad can these contracts be?

Daugherty v. Highland Cap. (Tex. App. 2016)

• dougherty was an executive at highland capital until he quit, he took many documents with him

• the information did not meet the definition of trade secret (e.g., didnt have economic value), but did constitute “confidential information” as defined in his employment agreement (e.g., identity of investors)

• highland sued for breach of contract

• rule: contractual agreements can protect information beyond trade secrets

  • however agreements must be valid discussed later

Three Types of Agreements

1. covenants not to compete (non-competes)

2. non-disclosure agreements (NDAs)

3. invention assignment agreements

Covenants Not to Compete

• can be used to restrict a former employee from working for a competitor or from using the former employees confidential business info

  • also used in sales of businesses, etc

  • state law covers enforceability

• must protect a “legitimate business interest” to be valid

Sample Language of a Non-Compete

during the term of employee’s employment with the company and for _ months from the termination of their employment:

• employee will not directly or indirectly [work for or help] any business that performs services similar to those provided by the company

• geographically limitation - in any market area where the company has provided services while employee was employed

Enforceability of Non-Competes

• restraint can be no greater than necessary to protect employers’ legitimate business interests consider:

  • duration of restriction;

  • geographic scope of restriction; and scope of activity restricted

• if the employer’s market has no meaningful geographic boundary, should courts care less about geographic scope and more about whom the employee can contact?

• restraint cannot by overly harsh in limiting the employee’s right to earn a livelihood

• restraint cannot be contrary to public policy

  • do states have different “public policies”?

  • california v. texas?

  • express time limits per state statutes (e.g., cant exceed one year)

Non-Disclosure Agreements (NDAs)

• also called proprietary information agreement

• can be used to protect TSs and confidential info that does not rise to the level of s TS

• even states that dont allow non-competes generally enforce NDAs

Sample Non-Disclosure Agreement

• clause - employee shall not disclose - during or after their employment - XYZ’s proprietary information without obtaining written consent…

• definition - employee understands that the term “proprietary information” means any information not generally known which gives an advantage over its competitors who do not have the information

  • is this broader than a trade secret?

Invention Assignment Agreements

• invention assignment agreement: employee agrees to assign to employer ownership of inventions conceived or developed during employment

  • employee must tell employer about inventions

• generally enforceable when connected to employment

• what if employee invents something at home on her own time using her own own time using her own equipment and unrelated to employer’s business

Other Approaches to Invalid Agreements

• red pencil rule: throw out the entire contract

• blue pencil rule: strike any invalid language, leaving rest of valid languages on the page (no re-writing)

  • GA applies this rule (though more recently its also added language)

• equitable reformation doctrine: rewrite the language to be consistent with the parties’ intent as modified by the law

Prohibited Misappropriations

UTSA - “misappropriation” includes:

• improper means to acquire the trade secret - e.g., obtaining by theft, fraud, bribery, breach of confidence, or inducing others to breach that duty

• disclosing or using misappropriated trade secrets

  • this includes using info from a third party if you know, or should know, that info was obtained via improper means or is subject to confidentiality

Legit Ways to Obtain Trade Secrets

• information is public

• reverse engineering

• independent creation

• competitive intelligence

Improper Means

• note: courts hold in certain circumstances, despite the lack of a violation of any applicable law, a party engages in misappropriation by undertaking “improper means” of securing information

• example: company is constructing a new plant, competitor files plane overhead and takes photos they identify TSs

• held: competitor engaged in misappropriation

• “we introduce here so no new or radical ethic since our ethos has never given moral sanction to piracy, the marketplace must not deviate for from our mores, we should not require a person or corporation to take unreasonable precautions to prevent another from doing that which he ought not do in the first place “

Civil Remedies - UTSA

• injunction - preliminary and/or permanent

  • equatable remedies consider all facts and do what is fair

• monetary (legal) damages

  • actual loss plus additional unjust enrichment

  • or reasonable royalty

  • when would this be different? manufacturing capacity?

• willful & malicious? - enhanced damages up to 2x

• attorney fees if bad faith lawsuit or if willful & malicious

Potential Criminal Sanctions - EEA

• discretionary prosecution - considerations include:

  • the scope of the criminal activity, including evidence of involvement by a foreign government, foreign agent or foreign instrumentality;

  • the degree of economic injury to the trade secret owner;

  • the type of trade secret misappropriated;

  • the effectiveness of available civil remedies; and

  • the potential deterrent value of the prosecution

Shapiro v. Hasbro (C.D. Cal. 2015)

• Shapiro - professional toy inventor

• Hasbro - makes toys (see, e.g., GI joe, Transformers)

• in 2013, Hasbro asked Shapiro for submissions, they signed an NDA, and Shapiro shared her idea for “Wishables” - a toy with including glitter liquid like a snow globe

• Wishables did not generate interest in Hasbro and were rejected

• Shapiro found My Little Pony and Littlest Pet Shop toys with the glitter snow globe feature

• Q: is this a potential trade secret?

• hasbro argued that the accused toys were independently created

• in early 2011 Andrea Ehret a hasbro employee began developing a toy concept that consisted of glitter globe toys

• when ehret moved to the MLP line later in 2011 she brought the idea with her

• on july 18th, 2012 Ehret had models built

• hasbro argues that it independently created the accused feature in july or august of 2012, which was well before the April 25, 2013 date when plaintiff alleges defendant first had access to shapiro designs

• rule: independent creation is a defense to trade secret misappropriation

• applied here: defendant could not have misappropriated what it created itself before it had access to plaintiffs wishables line

• held: no trade secret misappropriation

International Aspects of Trade Secrets

• U.S. trade secret law is “territorial,” meaning that it only applies to actions that occur within the U.S.

  • thus US companies whose trade secrets are misappropriated abroad have limited resource under US law

  • some states have applied their UTSA to foreign companies whose trade secrets create a harm in the state (e.g., cali)

  • DTSA can be applied abroad if the offender is a US citizen/resident or if “an act in furtherance of the offense was committed in the United States”

  • can always consider foreign trade secret laws

ITC: Section 337 Investigations

• intl trade comm’n is a federal agency - advises congress and president on trade issues

  • can adjudicate disputes involving imports that allegedly infringe IPRs (including “unfair methods of competition and unfair acts in the importation of articles” (TS misappropriation))

  • advantages to ITC proceeding (administrative) over a court proceeding (judicial):

    • ITC decision usually issues faster

    • “in rem” jurisdiction, not “in personal”

• 3 parties to the action: the complainant, the respondent, and the office of unfair import investigations (OUII)

• remedies: no $$ damages; instead have:

  • exclusion orders:

    • limited: products of the named respondent

    • general: includes finished products that include the infringing item

    • enforced by customs and border patrol (CPB)

  • cease and desist orders: prohibit violating company from selling, distributing, or otherwise using the infringing or misappropriated imported products in the US

Certain Crawler Cranes (ITC 2015)

• lansing a former employee & VP of Manitowoc Cranes left MOnitowoc after 24yrs to work for Sany Heavy Industry, a chinese company

  • ITC found that Sany knew that Lanning was using Manitowoc’s info in its business and did nothing to stop him

• Manitowoc filed a Section 337 action, claiming both patent infringement and TS misappropriation

  • ITC found trade secret misappropriation

• ITC issued a 10 year limited exclusion order

  • seizure is possible for repeat offenders

Reverse Engineering

• rule: where a company examines a public product and figures out underlying trade secrets they cannot be held liable for trade secret misappropriation

Atari Games v. Nintendo (Fed. Cir. 1992)

• nintendo designed a program to prevent the NES system from accepting unauthorized game cartridges, both the NES console and authorized game cartridges contain chips programmed with the software

• the console contains a “lock chip” authorized game cartridges contain a or “key chip” when a user inserts an authorized cartridge into a console the key chip in effect unlocks the console

• Atari obtained a copy of the NES lock/key source code that per agreement, could only be used with regard to another lawsuit

• Atari used this to reverse engineer the software and used it to make slave chips to put in games it made

• rule: reverse engineering occurs where a party started with a legitimately obtained product and worked backward to figure out the process

• held: this is not reverse engineering

• note: this is a variation of the actual case