============================================================= Trade Secrets William Fisher (2013.9.23) ============================================================= ------------------------------------------------------------- 1 Remedies ------------------------------------------------------------- 1.1 Injunctions 1.1.1 debate over length and breadth 1.1.1.1 majority rule: mimic likely duration of the TS 1.1.1.2 minority rule: permanent 1.1.2 not available after plaintiff obtains a patent 1.2 Damages 1.2.1 actual damages 1.2.1.1 plaintiff’s lost profits, or 1.2.1.2 defendant’s gains 1.2.2 consequential damages 1.2.3 punitive damages 1.2.4 attorneys’ fees 1.3 Criminal penalties 1.3.1 state regimes 1.3.2 Economic Espionage Act 1.3.2.1 requirements 1.3.2.1.1 trade secret 1.3.2.1.1.1 related to a product that will be placed in interstate commerce 1.3.2.1.2 misappropriation 1.3.2.1.3 state of mind 1.3.2.1.3.1 knowledge that the information is proprietary 1.3.2.1.3.2 intent to benefit non-owner 1.3.2.1.3.3 intent to injure owner 1.3.2.2 penalties 1.3.2.2.1 forfeiture 1.3.2.2.1.1 mandatory for gains 1.3.2.2.1.2 optional for property used to commit the offense 1.3.2.2.2 fines 1.3.2.2.2.1 up to $500K for individual 1.3.2.2.2.2 up to $5M for organization 1.3.2.2.3 imprisonment 1.3.2.2.3.1 up to 10 years ------------------------------------------------------------- 2 Applications ------------------------------------------------------------- 2.1 Chocolate 2.1.1 see Fromer 2.2 Coca-cola 2.2.1 Coke website 2.2.2 "The Vault" video 2.3 Software 2.3.1 Companies sell copies of object code, keep source code secret 2.3.2 Courts rule that public distribution of object code does not forfeit TS protection, so long as source code is hard to reverse engineer 2.3.2.1 Data General v. DCI (Del. 1971) 2.3.2.2 Telex v. IBM (CA10 1975) 2.3.2.3 Q-Co Industries (SDNY 1985) 2.3.3 Appropriate to an era in which software is custom-made by vertically integrated hardware suppliers for large commercial customers 2.3.4 Limitations of this Approach 2.3.4.1 Gradual improvement of decompilers makes possible reverse engineering 2.3.4.2 No protection against “piracy” of object code 2.3.4.3 Limited protection against “downstream” consumers 2.3.4.4 Consumers’ demand for access to source code 2.4 Sailmaking? 2.4.1 see North Sails case study ------------------------------------------------------------- 3 Policy ------------------------------------------------------------- 3.1 Justification #1: Welfare 3.1.1 (a) TS law stimulates innovation 3.1.1.1 Criticism: patent law seems better for this purpose (Bone) 3.1.1.1.1 ▪ term limit ▪ duty to disclose ▪ protects only significant advances ▪ doesn't impede mobility 
of skilled labor 3.1.1.2 Possible residual role for: 3.1.1.2.1 intermediate results of 
ongoing research; 3.1.1.2.2 nontechnological commercial information; 3.1.1.2.3 unpatentable but not easily 
reverse engineered innovations 3.1.2 (b) Avoid socially wasteful investments in: 3.1.2.1 (i) security precautions (Lemley) 3.1.2.1.1 Criticism: current rules seem poorly aligned with this objective 3.1.2.1.2 Rebuttal: Channeling function of the precautions (Lemley) 3.1.2.2 (ii) rent seeking 3.1.3 Undermined by comparative studies of US states 3.2 Justification #2: Fairness 3.2.1 (a) respect natural property rights acquired through labor 3.2.2 (b) respect customary standards of commercial morality 3.2.3 Criticism: Holmes & Brandeis in INS v. AP 3.3 Justification #3: Personhood 3.3.1 (a) Protect persons' right to control dissemination of their ideas 3.3.1.1 “Just as a person’s sense of herself is intimately connected with the stream of ideas that constitutes consciousness, her public persona is determined in part by the ideas she expresses and the ways she expresses them.  To require public disclosure of one’s ideas and thoughts -- whether “personal” or other matters -- would distort one’s personality and, no doubt, alter the nature of one’s thoughts.  It would seriously interfere with the liberty to live according to one’s chosen life plans.  This sort of thought control would be an invasion of privacy and personality of the most intrusive sort.  If anything is private, one’s undisclosed thoughts surely are.” Paine 3.3.2 (b) Foster relationships of trust, confidence and teamwork 3.3.2.1 “Shared knowledge and information of varying types are central to work relationships and communities -- academic departments 
and disciplines, firms, teams -- as well as other organizations.   The possession of common ideas and information , to the exclusion of those outside the relationship or group, contributes to the group’s self-definition and to the individual’s sense of 
belonging.  By permitting and protecting the sharing of confidences, trade secret principles, among other institutions, permit “special communities of knowledge” which nurture the social bonds and cooperative efforts through which we express 
our individuality and pursue common purposes.” 3.3.3 Limitations of the argument 3.3.3.1 only applies to individuals 3.3.3.2 impediments to mobility of skilled labor ------------------------------------------------------------- 4 Requirements for Liability ------------------------------------------------------------- 4.1 Impermissible Activities 4.1.1 Breach of Confidence 4.1.1.1 confidential relationship 4.1.1.2 implied confidentiality obligations 4.1.1.2.1 reliance on commercial custom and tacit understandings 4.1.2 Illegal Conduct 4.1.2.1 e.g., fraudulent misrepresentations; phone taps 4.1.3 Secret was discovered through “improper means” 4.1.3.1 Legal but immoral means (e.g., overflights) 4.2 Permissible Activities 4.2.1 Independent research 4.2.2 Reverse Engineering 4.3 Liability of 3rd parties 4.3.1 knew or had reason to know of the secrecy and that improper means were used to gain access to it ------------------------------------------------------------- 5 Requirements for protection ------------------------------------------------------------- 5.1 (1) Information must have been “secret” initially 5.1.1 limited disclosures to partners permitted 5.1.2 unclear whether obscurity is sufficient 5.1.3 combination secrets 5.2 (2) Plaintiff must have made reasonable efforts to keep it secret 5.3 (3) The information must be commercially valuable ------------------------------------------------------------- 6 Subject matter ------------------------------------------------------------- 6.1 Restatement Definition: a process or device for continuous use in the operation of a business 6.1.1 information pertaining to contents of or manufacture of a product 6.1.2 process of treating or preserving materials 6.1.3 information relating to business operations 6.1.4 customer lists 6.1.5 computer programs 6.2 Uniform Trade Secrets Act expands subject matter to include 6.2.1 single or ephemeral events 6.2.2 negative information ------------------------------------------------------------- 7 History ------------------------------------------------------------- 7.1 Largely created by English and American common-law courts in early 19th century 7.2 Common-law roots 7.2.1 breach of confidence 7.2.2 misappropriation 7.2.3 unfair competition 7.2.4 unjust enrichment 7.2.5 trespass 7.3 Stages in the USA 7.3.1 Late 19th century: "property theory" 7.3.1.1 Bone 7.3.2 1939-1980: First Restatement of Torts dominates the field 7.3.2.1 Sections 757-758 7.3.2.2 Multifactor test, demotes security precautions to a "factor" 7.3.3 1980-present: UTSA dominates the field 7.3.3.1 text of UTSA 7.3.3.2 Massachusetts is one of the few holdouts 7.4 International Coverage 7.4.1 TRIPS art. 39 requires recognition 7.4.2 but implementation outside common-law countries remains thin