Intellectual Property - Trade Secrets

Restatement definition

any secret information “used in one’s business” that gives its owner “ an opportunity to obtain an advantage over competitors who do not know or use it

UTSA

Uniform State Trade Secrets Act, adopted in every state except NY

Defend Trade Secrets Act

Uniformity of federal law, not much different from rules developed in state law

Theoretical Justifications for Trade Secrets

Property rights and unfair competition

SC held that Trade Secrets a form of property because

has many characteristics of more tangible forms of property

Ex: trade secret is assignable.

trade secret can form the res of a trust

passes to a trustee in bankruptcy

Limitations of Property Rights for Trade Secrets

whether the trade secret a proper subject for a patent or not, no exclusive right to it as against the public, or against those who in good faith acquire knowledge of it

When trade secret can be enforced as property

in violation of contract and breach of confidence, applies it to his own use, or to discloses it to third persons.”

“Intellectual Property" irony view

without a legal mechanism to protect secrets, companies will either forgo investment in new innovation or go to unnecessary efforts to hide those innovations—building fences, hiring less-qualified but trusted friends and family members instead of strangers, refusing to share the secret with business partners, and so on. Trade secret law, on this view, encourages both more innovation and more disclosure than we would get without it.

Kewanee Oil Co v. Bicron

recognized an IP-related goal of trade secret protection: encouragement of research and development in areas where patent law does not reach

• held that federal patent law does not preempt state trade secret protection,

Duty-Based Theory

“the maintenance of commercial morality.”

sometimes described as tort theory

Duty-Based concerns

deter wrongful acts,

punish and prevent illicit behavior and even

to uphold reasonable standards of commercial behavior.

Similarities between tort theory and property view

deterring wrongful behavior would be to encourage investment in trade secrets.

Difference between tort theory and property view

tort view focuses first and foremost on the question of infringement – did the defendant do something wrong?

property and IP views, by contrast, first ask whether there is a property right at all to be protected.

Where do trade secret cases arise?

arise out of a “duty” explicitly stated in a contract

theft of a secret by third parties

Most cases arise from breach of an obligation to the trade secret holder not to disclose or appropriate the trade secret.

“Arrow’s Information Paradox.”

People won’t pay money for ideas unless they know what those ideas are, so they can decide if the idea is valuable. But without legal protection, disclosing the idea to a potential buyer would destroy its value.

How is the paradox remedied?

“nondisclosure agreements” promising not to use information disclosed so it can be evaluated.

Trade secret law can establish a right to protect that information against misuse once it is disclosed even in the absence of an express contract.

UTSA: Improper Means

includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means;

UTSA: Misappropriation

1. found trade secret of another by a person who knows or has reason to know that the trade secret was found by improper means; or

2. disclosure or use of a trade secret of another without express or implied consent by a person who

   • used improper means

   • knew or had reason to know at disclosure that his knowledge

     • derived from person who used improper means

     • under circumstances that gave rise to duty to maintain secrecy or limit its use; or

     • derived from person who owed duty seeking relief to maintain secrecy or limit use

3. Before material change of position, knew or had reason to know it was trade secret and knowledge acquired by mistake or accident

UTSA: Trade Secret

means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

1. derives independent economic value from not being generally known to, and not being readily available by proper means by other persons who can obtain economic value from its disclosure or use, and

2. subject of efforts that are reasonable under the circumstances to maintain its secrecy.

DTSA: Improper means

(A) includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; and

(B) does not include reverse engineering, independent derivation, or any other lawful means of acquisition.

Federal Definition of Trade Secret

Similar to UTSA, except narrower types of information with constraints

Trade Secret Claim 3 Essential Elements

1. subject matter involved must qualify for trade secret protection (meant to protect, not generally known to all)

2. holder of the trade secret took reasonable precautions under the circumstances to prevent its disclosure.

3. defendant misappropriated the trade secret.

What subject matter applies?

Current Trend is to protect as a trade secret any valuable information so long as the information is capable of adding economic value to the owner.

What are reasonable precautions?

Courts vary in rationale: but to establish right, one must be diligent in protecting information

When can obligation to not disclose or appropriate trade secret arise?

express contract or an implied duty.

most employees are held to have a duty to protect their employers’ interests in their secret practices and information.

DTSA Important limitation

express immunity from suit for whistleblowers, employees and contractors who disclose suspected illegal activity to the government and their attorney confidentially.

Mallet & Co., Inc. v. Lacayo (defining trade secrets)

Rule of Law: A court may not grant injunctive relief for trade secret misappropriation unless the plaintiff clearly identifies the alleged trade secrets, distinguishing them from public information and general employee know-how.

Facts: P, a long-established baking release agent manufacturer, sued a new competitor, Bundy/Synova, after former Mallet employees copied thousands of files and used Mallet information to develop competing products.

Not Protectable under Trade Secrets

General know-how
Industry Knowledge
Public Patents

Potentially Protectable

Specific confidential processes
Non-public combinations

Proprietary Refinements (Improvements or adjustments based on experience not in patents)

Identification of Trade Secrets

Courts increasingly require early, specific identification of trade secrets due to overbroad or shifting trade secret claims creating notice and fairness problem

Specificity vs Disclosure

Greater specificity might sustain injunction, but doing so risk public disclosure of secrets and undermining secrecy.

What boundaries are set regarding secrecy?

key inquiry is whether the holder took reasonable efforts to maintain secrecy under the circumstances, need not be absolute

Do parties need to use NDAs?

Failure to use NDAs may weigh against secrecy but context matters, especially where disclosure furthers economic interests

What is a compilation of unprotectable information?

unique combination of publicly known elements that together provide competitive value, must be specifically described not merely asserted. Can’t be basic or obvious ideas

Ex: closely guarded business compilations like pricing strategies or launch plans

How novel does a trade secret have to be?

do not require patent-style novelty; they must only be not generally known or readily ascertainable.

Modest originality beyond common knowledge…

can be seen as novel

Publication and patents are…

readily ascertainable and not protectable

Does the value of the trade secret matter?

No, even accidentally discovered or low-cost secrets may deserve protection if they have economic value and are kept secret.

Why Secrecy is required?

Secrecy limits trade secret law so it does not become a general misappropriation tort covering public information, a boundary mechanism

Without secrecy, liability could chill legitimate competitive intelligence gathering.

How do jurisdictions define known vs knowable?

differ on if information is technically public, but the defendant didn’t actually get it from the public source—still a trade secret?

UTSA/DTSA focus on ready ascertainability (so no)
Restatement focuses on breach of trust, (if actually stolen, liability exists)

Why evidence of theft is important

Mallet shows that even strong evidence of theft may fail without clear identification of secrets

Courts’ concern for free competition can justify denying relief

Rockwell Graphic Systems Inc. v. DEV Industries (Reasonable Efforts to Maintain Secrecy)

Rockwell sued trusted insider and company for misappropriating confidential “piece part drawings” but district court said Rockwell failed to adequately protect secrecy. Reversed, holding took sufficient precautions that a jury should decide whether its efforts were reasonable.

Key Takeaway: Trade secret protection requires reasonable—not perfect—efforts to maintain secrecy, and whether those efforts are reasonable is usually a fact question.

How “reasonable” must the efforts be?

Mere intent to keep information secret is insufficient; the plaintiff must manifest that intent through concrete actions

Where employees commonly move between competitors…

employers have a heightened duty to clearly inform employees what is secret, especially when the secrecy is non-obvious.

Relationship Between Secrecy and Reasonable Precautions

information cannot become a trade secret merely because it is treated as secret if it is publicly available, UTSA explicitly requires both secrecy and reasonable efforts

Confidential Relationships with Subcontractors

assumption of confidential relationship may be reasonable in traditional manufacturing contexts, but modern courts increasingly demand clear, consistent, and express confidentiality assurances

How Much Effort Should Be Required?

Reasonable efforts may include NDAs, physical security, restricted access, and product design choices that resist reverse engineering

Some courts require affirmative steps, not just ordinary discretion

Rationale for the Reasonable Precautions Requirement

serve as evidence that information is valuable and worth protecting

provide notice to potential infringers

Must Precautions Be Secret-Specific?

General or vague confidentiality measures may be insufficient if they do not clearly identify the specific secrets at issue

Courts increasingly require precautions that are tailored to the particular information claimed as secret

Can disclosures defeat trade secret protection?

Some disclosures (e.g., publication or unrestricted sharing) are so inconsistent with secrecy that they may categorically defeat protection