Trade Secrets
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Trade Secrets Law and Practice David W. Quinto Stuart H. Singer
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1 Oxford University Press, Inc., publishes works that further Oxford University’s objective of excellence in research, scholarship, and education. Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Mexico City Nairobi New Delhi Shanghai Taipei Toronto
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Copyright © 2009 by Oxford University Press, Inc. Published by Oxford University Press, Inc. 198 Madison Avenue, New York, New York 10016 Oxford is a registered trademark of Oxford University Press Oxford University Press is a registered trademark of Oxford University Press, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press, Inc. _____________________________________________ Library of Congress Cataloging-in-Publication Data Quinto, David W., 1955Trade secrets : law and practice / David W. Quinto, Stuart H. Singer. p. cm. Includes bibliographical references and index. Summary: “This work focuses on what is protectable as a trade secret, litigating trade secret actions, plaintiff ’s and defendant’s perspectives, corporate trade secret protection plans and practices, hiring and terminating employees, criminal prosecution of trade secret misappropriation”—Provided by publisher. ISBN 978-0-19-533783-9 ((pbk. ) : alk. paper) 1. Trade secrets—United States. I. Singer, Stuart H. II. Title. KF3197.Q56 2009 346.7304'8—dc22 2008029798 _____________________________________________ 1 2 3 4 5 6 7 8 9 Printed in the United States of America on acid-free paper Note to Readers This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is based upon sources believed to be accurate and reliable and is intended to be current as of the time it was written. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Also, to confirm that the information has not been affected or changed by recent developments, traditional legal research techniques should be used, including checking primary sources where appropriate. (Based on the Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.)
You may order this or any other Oxford University Press publication by visiting the Oxford University Press website at www.oup.com
The authors dedicate this book to Gillian Ann Quinto, Taylor Juann Quinto, Matthew Adam Singer, and Mark Byron Singer, who always make their parents proud.
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Contents
ACKNOWLEDGMENTS AUTHORS’ NOTE ABOUT THE AUTHORS
CHAPTER I
What Is Protectable as a Trade Secret? A. The Majority Rule: “Trade Secret” as Defined by the UTSA 1. Meaning of “Information” 2. Meaning of “Independent Economic Value” 3. Meaning of “Not Generally Known” 4. Meaning of “Reasonable Efforts to Maintain Secrecy” B. The Restatement (Third) of Unfair Competition View of Trade Secrets C. New York, New Jersey, and Texas: The Restatement (First) of Torts Definition D. The Massachusetts Definition
CHAPTER II
xi xiii xv
1 3 3 10 14 15 23
E. The North Carolina Definition
29 36 38
Litigating Trade Secret Actions—Plaintiff ’s Perspective
41
A. Alleging Trade Secret Misappropriation 1. Misappropriation 2. Improper Means 3. Acquisition, Use, or Disclosure 4. Imputed and Joint Liability B. Elements of Misappropriation Claim C. Alleging Alternative Claims 1. State Law Claims 2. Federal Claims 3. U.S. International Trade Commission Investigation D. Requirement to Identify Trade Secrets with “Reasonable Particularity” E. Preliminary Injunctive Relief 1. Bases for Relief 2. Seeking a Temporary Restraining Order
43 43 44 46 48 48 50 54 71 77 83 87 88 101
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Contents 3. Obtaining a Preliminary Injunction 4. Bond Requirement F. Choosing an Expert G. Discovery Tactics H. Remedies I. Settlement J. Procedural Considerations 1. Strategic Venue Choices 2. Statute of Limitations K. Standing CHAPTER III
CHAPTER IV
104 108 110 119 122 126 129 129 133 138
Litigating Trade Secret Actions—Defendant’s Perspective
141
A. Defenses 1. Preemption 2. Statute of Limitations 3. Other Defenses B. Effect of Arbitration Provision C. Challenges to the Plaintiff’s Trade Secret Identification D. Discovery Considerations 1. Potentially Patentable Trade Secrets 2. Trade Secrets Potentially Disclosed to the Government 3. Other Trade Secret Disclosures by the Plaintiff 4. Trade Secrets Incorporating Antecedent Works 5. Plaintiff’s Plan to Maintain Secrecy 6. Damages 7. Equitable Relief 8. Attorneys’ Fees E. Finding Experts
143 143 160 163 180 185 186 187 188 189 189 190 191 191 192 192
Corporate Trade Secret Protection Plans and Practices
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A. Legal Requirements and Policy Considerations B. Trade Secret Audits C. Trade Secret Protection Plans 1. Overview 2. Employee Education and Work Practices 3. Facilities Protection 4. Visitor Precautions 5. Document Security 6. Electronic Security 7. Manufacturing Security 8. Unsolicited Inventions and Ideas 9. Sample Forms D. Protecting Information Disclosed to the Government 1. Rules of Thumb 2. Protecting Trade Secrets While Contracting with the Federal Government
196 198 202 202 204 206 207 207 209 212 213 214 216 216 221
Contents 3. Preventing the Federal Government from Disclosing Trade Secret Information CHAPTER V
CHAPTER VI
231
Hiring and Terminating Employees
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A. Hiring Employees 1. Hiring Concerns 2. Document Collection 3. Employment Interview 4. Post-Interview Precautions 5. Sample Employee Confidentiality and Invention Assignment Agreement 6. Restrictive Covenants B. Terminating Employees 1. Conducting Exit Interviews 2. Conducting a Post-Termination Investigation 3. Post-Departure Precautions 4. Sample New Employee Proprietary Information Protection Letter 5. Sample Termination Certificate 6. Sample Reminder Letter to Former Employee 7. Sample Compliance Request Letter to New Employer 8. Sample Employer “Compliance Request Letter” Response
240 240 241 242 244
Criminal Prosecution of Trade Secret Misappropriation
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A. Whether to Seek Criminal Prosecution 1. Benefits 2. Drawbacks B. Persuading the Government to Prosecute C. Federal Economic Espionage Act of 1996 1. Overview 2. Protection of the Victim’s Trade Secrets 3. Elements of an EEA Violation 4. Remedies 5. Defenses D. Other Potentially Applicable Federal Criminal Statutes 1. Mail Fraud and Wire Fraud 2. Deprivation of Honest Services 3. National Stolen Property Act 4. Unlawfully Accessing or Attempting to Access a Protected Computer 5. Copyright Infringement 6. RICO 7. Disclosure by a Federal Employee E. State Criminal Statutes 1. California 2. New Jersey 3. New York
266 266 269 270 273 273 276 276 279 280 282 282 284 285
250 254 254 255 257 258 259 260 261 262 263
287 288 290 291 292 293 298 299
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Contents
APPENDIX
F. Creating a Compliance and Ethics Program to Reduce Criminal Exposure
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Overview of Trade Secrets Laws of Selected States
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A. B. C. D. E. F. G. H. I. J. K. L. M. N. O. P. Q. R. S. T. U. V.
306 307 317 321 325 328 335 338 340 345 349 353 357 360 366 369 373 376 378 383 387 390
Arizona California Delaware Florida Georgia Illinois Indiana Maryland Massachusetts Michigan Minnesota Missouri New Jersey New York North Carolina Ohio Pennsylvania Tennessee Texas Virginia Washington Wisconsin
TABLE OF CASES
395
INDEX
451
Acknowledgments
My interest in addressing the strategies and tactics peculiar to trade secret litigation grew out of the move-countermove strategizing my former partner, Warrington S. Parker, engaged me in during our defense of a major trade secret misappropriation lawsuit a few years ago. Our client had hired several research-and-development employees from a single competitor within a short period. All were subject to noncompete agreements but they hailed from different states and countries. They were hired to work in California, which holds almost all noncompete agreements unenforceable. The trade secrets they knew overlapped with patents the competitor had obtained. In many instances, they had supported the development of products our client did not manufacture. The information they knew could potentially be useful in manufacturing our clients’ products in areas where the two companies did compete, however. The suit thus provided abundant opportunities to raise “what if?” questions. And, after the competitor incurred $35 million in fees solely to establish only that one chemical formula was taken but never used, it provided cause to think about what could have been done to prevent an enormously wasteful expenditure of legal fees only to establish that there was no there, there. Three persons deserve enormous credit for all that may be good in this book. The first is my co-author, Stuart Singer, a former president of the Harvard Law Review, a former U.S. Supreme Court clerk, and a current member of the LawDragon 500 Best Lawyers in America. Stuart is an extraordinarily talented trial lawyer and, ever since we met during our first year of law school, has been an even more extraordinary friend. Stuart not only expressed immediate enthusiastic encouragement for the project upon hearing of it but allowed me to talk him into contributing his enormous intellect and courtroom experience to it. The chance to collaborate with Stuart was a wonderful thrill. My Quinn Emanuel partner, Harry Olivar—also a former editor of the Harvard Law Review—tirelessly edited drafts and, remarkably, almost persuaded me that there was nothing he more enjoyed doing. Maeda Riaz, a former Loyola of Los Angeles International and Comparative Law Review editor employed by Quinn Emanuel, tirelessly researched numerous questions Stuart and I raised and cheerfully performed cite-checking,
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proofreading, and editing duties as well. Stuart and I could not have completed the book without her contributions. In addition, I would be remiss if I failed to note that numerous Quinn Emanuel partners also contributed research, insights and suggestions. They included John Quinn, Jon Cederberg, Faith Gay, Robert Juman, Scott Lawson, Fred Lorig, Dale Oliver, Tom Pease, and Chris Tayback. Finally, I owe a big “Thank you!” to all the members of the Quinn Emanuel Los Angeles office word processing staff for typing and retyping the book through multiple drafts, edits, and revisions. David W. Quinto My initial involvement with the project occurred when Oxford University Press asked me to review a proposal for a book on litigating trade secret cases. I was enthusiastic, not just because I knew David would do a superb job, but because I had previously looked for a concise practical guide to the subject. Later, I was surprised, flattered, and tempted when David invited me to join him in co-authoring the work. There is no litigator of intellectual property matters in the country that I have greater respect for than David Quinto, who has been involved in some of the most meaningful trade secret disputes (think GM v. Volkswagen) and protected some of the most important intellectual properties (think “Oscar”). The fun of working with my good friend, and David’s willingness to undertake the lion’s share of the work, made the offer irresistible. David deserves the overwhelming share of credit for the conception and execution of what, hopefully, will be a helpful guide. David, thanks for the opportunity to work together. I would also like to thank my colleagues at Boies, Schiller & Flexner (especially Carlos Sires, Robert Silver, and Ted Normand) with whom I have worked on cases involving trade secrets and related matters and whose insights and talents I not only benefit from every day, but have drawn upon here. Stuart H. Singer
Authors’ Note
We wrote this book to benefit litigators who may only occasionally encounter a trade secret misappropriation claim, as well as in-house counsel who wish to take prophylactic measures to keep their clients out of trade secret disputes and challenge critically courses of action proposed by outside counsel if and when litigation does occur. We have identified the critical questions that arise in trade secret disputes. Many are unique to trade secret disputes. They include strategic concerns that relate to the desirability of seeking criminal prosecution before or during the pendency of a civil suit; bringing suit in a state that has adopted the Uniform Trade Secrets Act (UTSA) as opposed to one that still follows the Restatement (First) of Torts; bringing suit in a state that enforces noncompete agreements as opposed to one that does not; bringing suit in a state that recognizes the “inevitable disclosure” doctrine as opposed to one that rejects the doctrine; bringing suit in a state that requires the early identification of the plaintiff’s alleged trade secrets; or bringing suit in a state with a narrow view of the extent to which ancillary claims are preempted by the UTSA. Similarly, we address such tactical concerns as whether a plaintiff should allege trade secret misappropriation at the outset or seek to amend its complaint to allege misappropriation later; whether it should allege misappropriation of all, or only a subset, of the secrets it believes were misappropriated; what ancillary claims should be alleged and how they might affect the likelihood that the case will be heard in federal, as opposed to state, court; and whether the plaintiff can circumvent battles related to the enforceability of restrictive covenants and the adequacy of its trade secrets identification. We also change hats and approach the same issues from the defendant’s perspective, discussing the countermeasures it can take, the affirmative defenses unique to trade secret litigation it can assert, the type of discovery it can beneficially pursue, whether to seek to enforce an arbitration provision, and the places where it can find experts likely to puncture the plaintiff’s claim that its information is a trade secret. In addition, we provide practical suggestions for minimizing the possibility that departing employees will take trade secrets with them and improving the employer’s litigation posture in the event they do. Similarly, we provide
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practical advise intended to reduce the risk that litigation will ensue if a company hires its competitor’s employees. In doing the foregoing, we have above all attempted to identify questions and propose solutions in a practical manner. What we have not done is attempt to write a treatise that neutrally and thoroughly lays out the principles of trade secret law. That work has already been done. The most comprehensive treatise in the field is Roger M. Milgrim’s Milgrim on Trade Secrets (Matthew Bender 2007). A more accessible resource for the ordinary practitioner is James M. Pooley’s Trade Secrets (Law Journal Press) (updated biannually). It offers a concise and lucid exposition of all areas of trade secrets law. Also of great value to a practitioner is Melvin F. Jager’s Trade Secrets Law (Thomson/West 2002, with supp. 2008), which contains a wealth of statespecific statutes and case law discussions. As always, responsibility for any errors rest with the authors. We will be flattered if readers think highly enough of the book to let us know of any errors they find or suggestions for improvement they have. DWQ and SHS October, 2008
About the Authors
David W. Quinto helped found Quinn Emanuel Urquhart Oliver & Hedges, an international trial firm known for handling complex, high-profile cases. He has successfully represented numerous “Fortune 500” companies in intellectual property matters, is a World Intellectual Property Organization domain name dispute resolution panelist, and is principally responsible for protecting the intellectual property rights of the Academy of Motion Picture Arts and Sciences. He has previously authored a treatise analyzing the application of tort law to the Internet entitled Law of Internet Disputes (Aspen Law and Business, 2002) and a chapter in Trade Marks at the Limit (Edward Elgar Publishing, 2006). He is annually voted a Southern California Super Lawyer and has been included in LawDragon’s 500 Leading Lawyers in America. He attended Harvard Law School. Stuart H. Singer is a partner with Boies, Schiller & Flexner, LLP, a firm specializing in complex, high-stakes litigation. As a trial lawyer for over 25 years, Mr. Singer has successfully handled many significant and complex cases before judges, juries, arbitration panels, and appellate courts throughout the United States. He has won trials for major businesses in Florida, New York, California, Georgia, and Colorado. His practice has included intellectual property and trade secret matters, as well as antitrust, securities, RICO, and constitutional law cases. Mr. Singer has been included in LawDragon’s 500 Leading Lawyers in America, as well as in Best Lawyers in America and Chambers U.S.A. Guide to Leading Lawyers for Business. Mr. Singer is a member of the American Law Institute and has spoken widely before professional audiences on litigation topics. He attended Harvard Law School, where he was elected president of the Harvard Law Review, and from 1981 to 1983, served as a law clerk at the United States Supreme Court for Associate Justice Byron R. White.
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CHAP T ER
1 What Is Protectable as a Trade Secret?
A. The Majority Rule: “Trade Secret” as Defined by the UTSA 1. Meaning of “Information”
3 3
2. Meaning of “Independent Economic Value”
10
3. Meaning of “Not Generally Known”
14
4. Meaning of “Reasonable Efforts to Maintain Secrecy”
15
B. The Restatement (Third) of Unfair Competition View of Trade Secrets
23
C. New York, New Jersey, and Texas: The Restatement (First) of Torts Definition
29
D. The Massachusetts Definition
36
E. The North Carolina Definition
38
In the civil arena, trade secret protection in the United States is provided almost exclusively under state law.1 As of early 2008, 48 American jurisdictions (including Washington, D.C. and the U.S. Virgin Islands), had adopted either the Uniform Trade Secrets Act substantially as drafted in 1979 or the Uniform Trade Secrets Act substantially as amended in 1985. (The Act, as amended, will be referred to herein as the UTSA).2 Massachusetts has
1 The exception to the rule that the civil trade secret misappropriation actions are exclusively the creature of state law is the ability to bring proceedings before the International Trade Commission (ITC). The ITC has determined that misappropriation of trade secrets is an unfair trade practice pursuant to § 337 of the Trade Act of 1974, 19 U.S.C. § 1337. See Chapter 2(C)(3), infra. As discussed in Chapter 6, various federal (and state) criminal statutes potentially apply to the theft of trade secret information. 2 Alabama: Ala. Code §§ 8-27-l to 8-27-6 (2007); Alaska: Alaska Stat. §§ 45.50.910–45.50.945 (2007); Arizona: Ariz. Rev. Stat. §§ 44-401 to 44-407 (2007); Arkansas: Ark. Code §§ 4-75601 to 4-75-607 (2007); California: Cal. Civ. Code §§ 3426–3426.11 (2007); Colorado: Colo.
1
2 Chapter 1 What Is Protectable as a Trade Secret?
trade secret protection statutes that were not modeled after the UTSA;3 North Carolina’s statute is only loosely based on the 1979 version of the UTSA;4 and New York, New Jersey, and Texas have no statutes at all.5 That is not to say that trade secret misappropriation is permissible in those states; rather, it means only that trade secret misappropriation there is governed by common-law principles, as enunciated in the Restatement (First) of Torts (1939). The Restatement (Third) of Unfair Competition (1995) provides an important, more current, view of trade secret law, relevant both to states that have adopted the UTSA and those that provide common-law protection.6
3 4 5
6
Rev. Stat. §§ 7-74-101 to 7-74-110 (2007); Connecticut: Conn. Gen. Stat. §§ 35-50 to 35-58 (2007); Delaware: Del. Code Ann. tit. 6 §§ 2001–2009 (2007); District of Columbia: D.C. Code Ann. §§ 36-401 to 36-410 (2007); Florida: Fla. Stat. Ann. §§ 688.001–688.009 (2007); Georgia: Ga. Code Ann. §§ 10-1-760 to 10-1-767 (2007); Hawaii: Haw. Rev. Stat. Ann. §§ 482B-1 to 482B-9 (2007); Idaho: Idaho Code Ann. §§ 48-801 to 48-807 (2007); Illinois: 765 Ill. Comp. Stat. Ann. §§ 1065/1 to 1065/9 (2007); Indiana: Ind. Code Ann. §§ 24-2-3-1 to 24-2-3-8 (2007); Iowa: Iowa Code Ann. §§ 550.1–550.8 (2006); Kansas: Kan. Stat. Ann. §§ 60-3320 to 60-3330 (2006); Kentucky: Ky. Rev. Stat. Ann. §§ 365. 880–365.900 (2007); Louisiana: La. Rev. Stat. Ann. §§ 51:1431–51:1439 (2007); Maine: Me. Rev. Stat. tit. 10, §§ 1541–1548 (2007); Maryland: Md. Code Ann., Com. Law §§ 111201 to 11-1209 (2007); Michigan: Mich. Comp. Laws Ann. §§ 445.1901–445.1910 (2007); Minnesota: Minn. Stat. Ann. §§ 325C.01–325C.08 (2007); Mississippi: Miss. Code §§ 75-26-1 to 75-26-19 (2007); Missouri: Mo. Ann. Stat. §§ 417.450–417.467 (2007); Montana: Mont. Code Ann. §§ 30-14-401 to 30-14-409 (2007); Nebraska: Neb. Rev. Stat. §§ 87-501 to 87-507 (2007); Nevada: Nev. Rev. Stat. Ann. 600A.010–600A.100 (2007); New Hampshire: N.H. Rev. Stat. Ann. §§ 350-B:1 to 350-B:9 (2007); New Mexico: N.M. Stat. Ann. §§ 57-3A-1 to 57-3A-7 (2007); North Dakota: N.D. Cent. Code §§ 47-25.1-01 to 47-25.1-08 (2007); Ohio: Ohio Rev. Code §§ 1333.61–1333.69 (2007); Oregon: Or. Rev. Stat. §§ 646.461–646.475 (2005); Oklahoma: Okla. Stat. Ann. tit. 78, §§ 85–94 (2007); Pennsylvania: 12 Pa. Cons. Stat. Ann. §§ 5301–5308 (2007); Rhode Island: R.I. Gen. Laws §§ 6-41-1 to 6-41-11 (2007); South Carolina: S.C. Code Ann. §§ 39-8-10 to 39-8-130 (2006); South Dakota: S.D. Codified Laws §§ 37-29-1 to 37-29-11 (2007); Tennessee: Tenn. Code Ann. §§ 47-25-1701 to 47-25-1709 (2007); Utah: Utah Code Ann. §§ 13-24-1 to 13-24-9 (2007); Vermont: Vt. Stat. Ann. tit. 9, §§ 4601–4609 (2007); Virginia: Va. Code Ann. §§ 59.1-336 to 59.1-343 (2007); Washington: Wash. Rev. Code Ann. §§ 19.108.010–19.108.940 (2007); West Virginia: W. Va. Code Ann. §§ 47-22-1 to 47-22-10 (2007); Wisconsin: Wis. Stat. Ann. § 134.90 (2006); Wyoming: Wyo. Stat. Ann. §§ 40-24-101 to 40-24-110 (2007); U.S. Virgin Islands: 11 V.I. Code Ann. §§ 1001–1010 (2007). Massachusetts: Mass. Ann. Laws ch. 93, §§ 42–42A (1975). North Carolina: N.C. Gen. Stat. §§ 66-152 to 66-157 (1981). New York: See Softel, Inc. v. Dragon Med. Scientific Commc’ns, Inc., 118 F.3d 955, 968 (2d Cir. 1997); New Jersey: See Rohm & Haas Co. v. Adco Chem. Co., 689 F.2d 424, 429–31 (3d Cir. 1982); Texas: See Hurst v. Hughes Tool Co., 634 F.2d 895, 896 (5th Cir. 1981). See discussion of Restatement (Third) of Unfair Competition (1995) at Chapter 1(B), infra.
The Majority Rule: “Trade Secret” as Defi ned by the UTSA 3
A. The Majority Rule: “Trade Secret” as Defined by the UTSA The UTSA provides the following imprecise definition of the types of information that are subject to its protection: “Trade Secret” means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
The elements of the statutory definition are, for the most part, interpreted broadly.
1. Meaning of “Information” Virtually any type of information is potentially protectable under the UTSA.7 This is also true under the Restatement (Third) of Unfair Competition, which defines a “trade secret” simply and broadly: A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.8
7 The Founding Fathers envisioned that each state would be free to enact its own laws in any area not reserved by the U.S. Constitution for the federal government. The individual states were encouraged to act as social laboratories, experimenting to see which laws worked best. However, the demands of interstate and international commerce require that there be predictability and consistency in the law from state to state. To that end, the National Conference of Commissioners on Uniform State Laws—a nonprofit, unincorporated association of lawyers, legal scholars, and other professionals—has crafted a series of “universal” laws (partnering with the American Law Institute on the Uniform Commercial Code), anticipating their adoption by a large number of states. Because such laws, including the UTSA, are intended to be uniform in their application, it follows that cases from other jurisdictions interpreting the UTSA have substantial precedential value. That principle is reflected in Section 8 of the UTSA, which provides that “this [Act] shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this [Act] among states enacting it.” Regrettably, not all states that have adopted the UTSA have adopted Section 8. 8 Restatement (Third) of Unfair Competition § 39 (1995).
4 Chapter 1 What Is Protectable as a Trade Secret?
As explained by the Iowa Supreme Court: There is virtually no category of information that cannot, as long as the information is protected from disclosure to the public, constitute a trade secret. We believe that a broad range of business data and facts which, if kept secret, provide the holder with an economic advantage over competitors or others, qualify as trade secrets.9
Or, as Judge Richard A. Posner has explained: A trade secret is really just a piece of information (such as a customer list, or a method of production, or a secret formula for a soft drink) that the holder tries to keep secret . . . , so that the only way the secret can be unmasked is by [unlawful activity].10
Under the common law (and as specified in the Restatement (First) of Torts Section 757, comment b), information has to be in actual use, and usually in continuous use, to be protectable as a trade secret.11 Because the UTSA defines “trade secret” as information that derives independent economic value, “actual or potential,” from not being generally known, the UTSA does not require actual use of trade secret information by the plaintiff.12 The classic example of information that has value even though it is not in actual use is “negative know-how,” or knowledge of what does not work. Such information derives independent economic value because its disclosure to a competitor could potentially allow the competitor to avoid fruitless research approaches and shorten the competitor’s time to market with a
9 Economy Roofing & Insulating Co. v. Zumaris, 538 N.W.2d 641, 647 (Iowa 1995). 10 ConFold Pac., Inc. v. Polaris Indus., 433 F.3d 952, 959 (7th Cir. 2006) (citations omitted). 11 See Restatement (First) of Torts § 757 cmt. b (1939) (requiring actual use of the secret in a trade or business). 12 The “actual use” requirement survives in New York, at least with respect to cases involving the submission of ideas that are not in actual use. For example, in Hudson Hotels Corp. v. Choice Hotels Int’l, 995 F.2d 1173, 1176–77 (2d Cir. 1993), the Second Circuit overturned the denial of the defendant’s summary judgment motion directed to the concept for a small-sized upscale hotel room having an unusual design. Similarly, in Boyle v. Stephens, Inc., No. 97CIV.1351(SAS), 1997 WL 529006, at *4, 44 U.S.P.Q.2d (BNA) 1138, 1142 (S.D.N.Y. Aug. 26, 1997), aff ’d, 21 Fed. Appx. 76 (2d Cir. 2001), the court held that the submission of an idea to an investment banker for a new form of derivative security could not be recognized as a trade secret because New York does not recognize marketing concepts and new product ideas as trade secrets; moreover, a trade secret must be used both secretly and continuously in commerce to qualify for protection. In an unpublished opinion, the Fourth Circuit held that, under Massachusetts law, for information to qualify as a trade secret it must be in continuous use in the plaintiff ’s business. See Trimless-Flashless Design, Inc. v. Thomas & Betts Corp., 34 Fed. Appx. 913, 2002 WL 970428 (4th Cir. 2002).
The Majority Rule: “Trade Secret” as Defi ned by the UTSA 5
competing product.13 The Restatement (Third) of Unfair Competition, which attempts to add definition to the UTSA, explains: Some early cases elevated use by the trade secret owner to independent significance by establishing such use as an element of the cause of action for the appropriation of a trade secret. Such a “use” requirement, however, imposes unjustified limitations on the scope of trade secret protection. The requirement can deny protection during periods of research and development and is particularly burdensome for innovators who do not possess the capability to exploit their innovations. The requirement also places in doubt protection for so-called “negative” information that teaches conduct to be avoided, such as knowledge that a particular process or technique is unsuitable for commercial use. Cases in many jurisdictions expressly renounce any requirement of use by the trade secret owner. It is also rejected under the Uniform Trade Secrets Act.14
Comment h to the Restatement (Third) of Unfair Competition Section 39 further explains that imposing a “use” requirement could deny trade secret protection to ideas, thus leaving only claims for breach of an express or implied contract as potential remedies for an idea theft. Unlike the requirement for patentability, information need not be novel to be protectable. In this regard, “the scope of protectible [sic] trade secrets is far broader than the scope of patentable technology.”15 A trade secret may be a device or process that is anticipated in the prior art or that constitutes a mere mechanical improvement. A trade secret may also consist of information known to competitors, provided that it is not “generally known.”16 Although the language of the USTA is worded in terms of general public knowledge, it makes sense to focus upon the knowledge held by competitors in the field. If the principal entity that could obtain economic benefit from the information is aware of it, there is no trade secret.17 A trade secret may include elements that are in the public domain if the trade secret itself constitutes a unique, “effective, successful and valuable integration of the public domain elements.”18 Information may be protectable as
13 See Gillette Co. v. Williams, 360 F. Supp. 1171, 1173 (D. Conn. 1973); Courtesy Temporary Serv., Inc. v. Camacho, 222 Cal. App. 3d 1278, 1287–88, 272 Cal. Rptr. 352, 357–58 (1990) (extending protection to list of customers that had not purchased the plaintiff ’s services); see also Metallurgical Indus., Inc. v. Fourtek, Inc., 790 F.2d 1195, 1202–03 (5th Cir. 1986) (dictum). 14 Restatement (Third) of Unfair Competition § 39 cmt. e (1995) (citation omitted). 15 CVD, Inc. v. Raytheon Co., 769 F.2d 842, 850 (1st Cir. 1985). 16 UTSA § 1 (1985). 17 See UTSA § 1 (1985) (Commissioners’ cmt.). 18 Rivendell Forest Prods., Ltd. v. Ga.-Pac. Corp., 28 F.3d 1042, 1046 (10th Cir. 1994); See also Metallurgical Indus., Inc. v. Fourtek, Inc., 790 F.2d 1195, 1202 (5th Cir. 1986) (“[A] trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the
6 Chapter 1 What Is Protectable as a Trade Secret?
a trade secret even if it may be reverse engineered, provided that the reverse engineering cannot be accomplished easily, quickly, or inexpensively.19 If the information could be reverse engineered easily, it would be “readily ascertainable by proper means” by persons who could obtain economic value from its disclosure or use and, hence, would not qualify as a trade secret.20 Under some circumstances, information that has been disclosed to others by the owner may nevertheless remain protectable. For example, the information disclosed in a patent application will qualify as a trade secret, provided that the patent application itself has not yet been published by a patent office.21 Similarly, material deposited and registered with the U.S. Copyright Office may retain trade secret status provided that it is submitted under the special procedures to limit trade secret disclosure.22 Likewise, information that has been disclosed to licensees, vendors, or third parties for limited purposes subject to nondisclosure or confidentiality agreements may remain protectable as trade secrets.23 As the use of the term “including” in the definition of trade secret indicates, the types of information protectable under that rubric are not limited to “formulas, patterns, compilations, programs, devices, methods, techniques, or processes.” Examples of information types that have been held protectable,
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22
23
public domain, but the unified process, design and operation of which, in unique combination, affords a competitive advantage and is a protectable secret.”) (quoting Imperial Chem. Indus. v. National Distillers & Chem. Corp., 342 F.2d 737, 742 (2d Cir. 1965)). See United States v. Lange, 312 F.3d 263, 269 (7th Cir. 2002) (“Such measurements could not be called trade secrets if . . . the assemblies in question were easy to take apart and measure.”); Marshall v. Gipson Steel, Inc., 806 So. 2d 266, 271–72 (Miss. 2002) (company’s bid estimating system was readily ascertainable by using simple math applied to data on past bids and was thus not a trade secret); Weins v. Sporleder, 569 N.W.2d 16, 20–21 (S.D. 1997) (cattle feed product was not a trade secret because the ingredients could be determined inexpensively through chemical or microscopic analysis). Although it is always lawful to reverse engineer compounds, formulas, products, processes, or other information obtained lawfully, it does not follow that one is privileged improperly to obtain information that could easily have been reverse engineered but was not. The theft of information that could have been, but was not, obtained as the result of reverse engineering is frequently actionable as unfair competition or an unfair trade practice. See BondPro Corp. v. Siemens Power Generation, Inc., 463 F.3d 702, 706–07 (7th Cir. 2006); Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1045–47 (Fed. Cir. 2001); Campbell Soup Co. v. ConAgra, Inc., 977 F.2d 86, 92 (3d Cir. 1992); Scharmer v. Carrollton Mfg. Co., 525 F.2d 95, 99 (6th Cir. 1975). Of course, once the patent application is published or the patent is issued, the patented process or device will no longer qualify as a trade secret. See id. (citing A.O. Smith Corp. v. Petroleum Iron Works Co., 73 F.2d 531, 537 (6th Cir. 1934)). See Tedder Boat Ramp Sys., Inc. v. Hillsborough County, 54 F. Supp. 2d 1300, 1303–04 (M.D. Fla. 1999). In at least one instance, information submitted to the Copyright Office without redaction was protected as a trade secret because the owner had taken other steps to keep it secret and there was no evidence that it had become known outside the owner’s business. See Compuware Corp. v. Serena Software Int’l, Inc., 77 F. Supp. 2d 816 (E.D. Mich. 1999). See Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 177 (7th Cir. 1991).
The Majority Rule: “Trade Secret” as Defi ned by the UTSA 7
even though they do not fit easily into the foregoing list, include customer lists;24 religious information having economic value;25 the existence of licensing negotiations;26 marketing and financial plans;27 new uses for commonly available products or ingredients;28 new processes involving a sequence of commonly known methods or techniques;29 the ingredients in a recipe;30 a special proportion of well-known ingredients;31 know-how (defined as the practical application of specifics such as inventions, formulas, or processes, and distinguished from generalized knowledge, skill, and expertise);32 measurements, metallurgical specifications, and engineering drawings to produce an aircraft break assembly;33 information involving zinc recovery furnaces and tungsten reclamation;34 and even biological cultures and microorganisms.35 Within the computer field, software, specifications, and even
24 See Courtesy Temporary Serv., Inc. v. Camacho, 222 Cal. App. 3d 1278, 272 Cal. Rptr. 352 (1990). 25 See Religious Tech. Ctr. v. Scott, 10 U.S.P.Q.2d (BNA) 1379, 1380 (9th Cir. Mar. 10, 1989); Religious Tech. Ctr. v. Netcom On-Line Commc’ns Servs., Inc., 923 F. Supp. 1231, 1252 (N.D. Cal. 1995) (“[T]here is no authority for excluding religious materials from trade secret protection because of their nature.”). 26 See Competitive Techs. v. Fujitsu, Ltd., 286 F. Supp. 2d 1118 (N.D. Cal. 2003). 27 See PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995); Alexander & Alexander Benefits Servs. v. Benefit Brokers & Consultants, Inc., 756 F. Supp. 1408 (D. Or. 1991). 28 See Organic Chems., Inc. v. Carroll Prods., Inc., 211 U.S.P.Q. (BNA) 628, 630–31 (W.D. Mich. May 7, 1981). 29 See Q Co. Indus., Inc. v. Hoffman, 625 F. Supp. 608, 617 (S.D.N.Y. 1985) (“It is a well settled principle that a trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process and operation of which, in unique combination, affords a competitive advantage and is a protectable secret.”) (citations and internal quotations omitted). 30 See Coca-Cola Bottling Co. v. Coca-Cola Co., 107 F.R.D. 288, 289, 227 U.S.P.Q. (BNA) 18, 18 (D. Del. 1985) (“Although most of the ingredients are public knowledge, the ingredient that gives Coca-Cola its distinctive taste is a secret combination of flavoring oils and ingredients. . . . ”) (citation omitted); Magistro v. J. Lou, Inc., 703 N.W.2d 887, 890–91 (Neb. 2005) (pizza recipes); Mason v. Jack Daniel Distillery, 518 So. 2d 130, 132 (Ala. Civ. App. 1987) (whether the plaintiff ’s recipe for an alcoholic beverage mix qualified for trade secret protection was a jury question). 31 See Imperial Chem. Indus., Ltd. v. National Distillers & Chem. Corp., 342 F.2d 737, 742 (2d Cir. 1965). 32 See SI Handling Sys., Inc. v. Heisley, 753 F.2d 1244, 1261–62 (3d Cir. 1985) (recognizing that certain of the plaintiff ’s methods and techniques had achieved trade secret status). 33 See United States v. Lange, 312 F.3d 263, 265–66 (7th Cir. 2002). 34 See Metallurgical Indus., Inc. v. Fourtek, Inc., 790 F.2d 1195, 1202 (5th Cir. 1986). 35 See, e.g., New York Penal Law § 155.006) (2007) (protecting “secret scientific material,” defined to include, inter alia, “a sample, culture, micro-organism, [or] specimen”); Pioneer Hi-Bred Int’l v. Holden Found. Seeds, Inc., 35 F.3d 1226, 1228 (8th Cir. 1994) (misappropriation of corn seed line); Del Monte Fresh Produce Co. v. Dole Food Co., 136 F. Supp. 2d 1271, 1292–93 (S.D. Fla. 2001) (whether pineapple variety was a trade secret was a question of fact); see also United States v. Arora, 860 F. Supp. 1091, 1099 (D. Md. 1994) (holding that cell lines are capable of being converted), aff ’d, 56 F.3d 62 (4th Cir. 1995).
8 Chapter 1 What Is Protectable as a Trade Secret?
the manner by which nonsecret programs interact may constitute trade secrets.36 One boundary line between protectability and nonprotectability is drawn at general knowledge and skill. Even if an employee has competitively useful knowledge gained solely as a result of his or her employment, that knowledge is not protectable if it is qualitatively similar to that possessed by others skilled in the industry. An employee is thus free to take skills and general knowledge learned through his or her employment to a competitor. As the Seventh Circuit has explained: That is not to say that [a former employee] may not have derived some benefit from his access to the collective experience of [his employer] (experience to which [the employee] himself doubtless contributed significantly during the course of his employment). It is rather to say such information comprises general skills and knowledge acquired in the course of employment. Those are things an employee is free to take and to use in later pursuits, especially if they do not take the form of written records, compilations or analyses. Any other rule would force a departing employee to perform a prefrontal lobotomy on himself or herself. It would disserve the free market goal of maximizing available resources to foster competition. . . . It would not strike a proper balance between the purposes of trade secrets law and the strong policy in favor of fair and vigorous business competition.37
A trade secret can lose its protected status after it is posted on the Internet, even if the posting was unauthorized and unlawful.38 Because the loss of trade
36 See, e.g., Rivendell Forest Prods., Ltd. v. Ga.-Pac. Corp., 28 F.3d 1042, 1045 (10th Cir. 1994) (computer system considered trade secret); Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173–74 (2d Cir. 1990) (manner of interaction of nonsecret programs deemed trade secret); Aries Info. Sys., Inc., v. Pac. Mgmt. Sys. Corp., 366 N.W.2d 366, 367 (Minn. Ct. App. 1985) (software considered trade secret). 37 AMP, Inc. v. Fleischhacker, 823 F.2d 1199, 1205 (7th Cir. 1987) (quoting Fleming Sales Co. v. Bailey, 611 F. Supp. 507, 514 (N.D. Ill. 1985)) (citation omitted). 38 See DVD Copy Control Ass’n v. Bunner, 116 Cal. App. 4th 241, 255, 10 Cal. Rptr. 3d 185, 195 (2004) (“[T]hat which is in the public domain cannot be removed by action of the states under the guise of trade secret protection.”). Of course, the real issue is not whether the information was posted but, rather, whether it became generally known as a consequence of the posting. Thus, if a posting is ephemeral or obscure, it may be possible to argue that the posted information has not lost its trade secret status. Id.; see also United States v. Genovese, 409 F. Supp. 2d 253, 257 (S.D.N.Y. 2005) (“[A] trade secret does not lose its protection under the [Economic Espionage Act] if it is temporarily, accidentally or illicitly released to the public, provided it does not become ‘generally known’ or ‘readily ascertainable through proper means.’”). Nevada allows trade secret information to remain protectable following an illicit Internet posting if the owner acts quickly to enjoin the publication. See Nev. Rev. Stat. 600A.055 (2007).
The Majority Rule: “Trade Secret” as Defi ned by the UTSA 9
secret status occurs after the disclosure, one who misappropriates a trade secret cannot immunize him- or herself by disclosing it publicly.39 And because lawful public dissemination of information will end its status as a trade secret, competitors have difficult decisions to make in deciding whether to seek patent protection, copyright protection, or trade secret protection. Patent protection offers more certain protection of new ideas because no proof of copying by the defendant is required to obtain enforcement. On the other hand, patent protection will expire after a term of years,40 thereby placing the invention in the public domain. Patent protection also requires emerging with an intact patent after review by the U.S. Patent and Trademark Office. As Professors William M. Landes and Richard A. Posner explain: [R]ational investors choose trade secret protection when they think that patent protection is too costly in relation to the value of their invention or will yield them a profit substantially less than that value (as reflected, in part, by the length of time that it takes before anyone else duplicates the invention) either because it is not patentable or because the length and breadth of patent protection is insufficient.41
Copyright protection does not require such approval and lasts substantially longer than a patent.42 However, a copyright can protect only the manner in which ideas are expressed, not the ideas themselves, and enforcement requires proof of copying. Trade secret protection is not bounded to a particular term of years, does not require vetting by a government agency, and can protect a new idea or any related information that has value from not being generally known. It is therefore not surprising that businesses heavily rely on trade secret protection.43
39 See Underwater Storage, Inc. v. U.S. Rubber Co., 371 F.2d 950, 955 (D.C. Cir. 1966) (“We do not believe that a misappropriator or his privies can ‘baptize’ their wrongful actions by general publication of the secret.”); Religious Tech. Ctr. v. Netcom On-Line Commc’n Servs., Inc., 923 F. Supp. 1231, 1256 (N.D. Cal. 1995). 40 Under current law, a patent expires 20 years from the first filing date. 35 U.S.C.S. § 154(a)(2) (2008). 41 William M. Landes & Richard A. Posner, The Economic Structure of Intellectual Property Law 359 (2003). 42 Copyrights are enforceable for the life of the author plus 70 years. For works of corporate authorship, the term is currently 120 years from creation or 95 years from publication, whichever is earlier. 43 Surveys have suggested that businesses prefer using trade secret protection to patent protection as a means to protect inventions from duplication. See Wesley M. Cohen, Richard R. Nelson & John P. Walsh, Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not) (Nat’l Bureau of Econ. Research, Working Paper Group, Paper No. 7552, 2000), reported in Landes & Posner, supra note 41, at 359.
10 Chapter 1 What Is Protectable as a Trade Secret?
2. Meaning of “Independent Economic Value” For information to constitute a trade secret, it must have “independent economic value.” Further, the value may be “actual or potential.”44 And the information must derive its value from not being generally known to those who could obtain economic value from its disclosure or use. Although that formulation seems simple enough, the courts have not taken a uniform approach to determining when a secret has value. Courts in a number of states continue to be influenced by the Restatement (First) of Torts Section 757, comment b, which required both actual and continuous use of information before it could be protected as a trade secret. The Restatement also placed great weight on the cost to develop the information. Even in UTSA states, some courts continue to focus on that factor as well. They reason that the information would not have been developed at great cost unless it had great value. Similarly, other courts sometimes examine the zealousness with which a company guards its proprietary information, concluding that there would be no reason to protect the information energetically unless it were valuable. The latter propositions are illogical. The mere fact that a company may protect certain information zealously does not render that information a trade secret, even if the information was developed at great cost. A secret process that allowed a company to manufacture widgets for $11 would not be a trade secret if its competitors could all manufacture widgets for $10 for the simple reason that the competitors would have no interest in learning of a less efficient manufacturing process. And if, as the result of an epiphany, one realized that widgets could be manufactured for $9 through a slight change in the manufacturing process, that information would be valuable regardless of the absence of any cost to develop it. Nonetheless, some courts have cursorily concluded that the fact of secrecy implies economic value.45 Notwithstanding that the UTSA does not require that information must actually be used before it can qualify for trade secret protection, some courts in UTSA states continue to apply the Restatement definition of trade secrets as requiring actual use. That view appears most prevalent in idea submission cases where courts have historically demanded proof of specificity
44 See Allis-Chalmers Mfg. Corp. v. Cont’l Aviation & Eng’g Corp., 255 F. Supp. 645, 653 (E.D. Mich. 1966) (the “opportunity” to obtain a competitive advantage is all that is required). 45 See, e.g., MicroStrategy, Inc. v. Bus. Objects, S.A., 331 F. Supp. 2d 396, 416–17 (E.D. Va. 2004) (trade secret generally has economic value if “not readily ascertainable through legitimate means”); Liberty Am. Ins. Group, Inc. v. Westpoint Underwriters, L.L.C., 199 F. Supp. 2d 1271, 1286 (M.D. Fla. 2002) (finding that computer software had “independent economic value because it [was] not readily known or readily ascertainable”).
The Majority Rule: “Trade Secret” as Defi ned by the UTSA 11
and novelty.46 At a practical level, it is difficult for courts to determine whether an unused idea gives its discoverer a competitive advantage. Additionally, it may be difficult to establish the value of an unused idea because the plaintiff will not be able to show damages, loss of profits, or research and development expenditures as direct damages. Use by a competitor typically establishes the “independent economic value” of the information misappropriated. If a competitor uses a confidential computer program to offer the same services to customers that are offered by the trade secret owner, economic value will be found.47 Similarly, if a competitor uses a customer database to direct its sales effort at the database owner’s customers, value will also be found.48 Somewhat anomalously, however, the Washington Supreme Court has held that the effort and expense required to develop a customer list can suffice to establish its “independent” economic value.49 The notion that negative know-how, or knowledge of what does not work, derives value from not being known to competitors fits imperfectly with the statutory requirement. Some courts protect negative know-how under the theory that information that could help a competitor avoid making mistakes is intrinsically valuable,50 but other courts disagree.51 Nevertheless, if the disclosure of what does not work leads a competitor to what does work or shortens the owner’s “lead time” advantage in the marketplace, such information
46 See Hudson Hotels Corp. v. Choice Hotels Int’l, 995 F.2d 1173, 1176–78 (2d Cir. 1993) (overturning jury verdict and order denying summary judgment because the proposal submitted to the defendant was a mere concept that had never been used). 47 See Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 663 (4th Cir. 1993). 48 See MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 520 (9th Cir. 1993) (holding that to establish a violation under the UTSA, it must be shown that the defendant has been unjustly enriched). 49 See Ed Nowogroski Ins., Inc. v. Rucker, 50 U.S.P.Q.2d (BNA) 1268, 1273 (Wash. Feb. 25, 1999). 50 See, e.g., Gillette Co. v. Williams, 360 F. Supp. 1171, 1173 (D. Conn. 1973) (issuing preliminary injunction to protect information concerning which research avenues were not worth pursuing); Johns-Manville Corp. v. Guardian Indus. Corp., 586 F. Supp. 1034, 1074 (E.D. Mich. 1983) (protecting “the competitive edge a competitor gains by avoiding the developer’s blind alleys”), aff ’d as modified, 770 F.2d 178 (Fed. Cir. 1985); Courtesy Temporary Serv., Inc. v. Camacho, 222 Cal. App. 3d 1278, 1287–88, 272 Cal. Rptr. 352, 357–58 (1990) (knowledge that certain potential customers were not good leads was entitled to protection); Merck & Co. v. SmithKline Beecham Pharms. Co., No. 15443-NC, 1999 Del. Ch. LEXIS 242, at *66–67, 1999 WL 669354, at *19–21 (Del. Ch. Aug. 5, 1999) (holding that misappropriation can occur when one uses a plaintiff ’s information to avoid pitfalls), aff ’d per curiam, 746 A.2d 277, 2000 Del. LEXIS 45 (Del. 2000), aff ’d, 766 A.2d 442 (Del. 2000). 51 See, e.g., SI Handling Sys., Inc. v. Heisley, 753 F.2d 1244, 1262 (3d Cir. 1985) (equating negative know-how with unprotectable general knowledge and skills); Winston Research Corp. v. Minn. Mining & Mfg. Co., 350 F.2d 134, 143–44 (9th Cir. 1965) (holding that “‘knowledge of what not to do . . . and how not to make the same mistakes’” might not entitle the former employer to trade secret protection) (quoting the lower court); Materials Dev. Corp. v. Atl. Advanced Metals, Inc., 172 U.S.P.Q. (BNA) 595, 606 (Mass. Super. Ct. Nov. 11, 1971) (declining to enjoin use of negative know-how).
12 Chapter 1 What Is Protectable as a Trade Secret?
will usually be protected.52 By extension, therefore, many precommercial uses of an idea, such as during research and development or product testing stages, are entitled to protection. Although information must have economic value to be protectable, its value need not be wholly economic. The Ninth Circuit has noted that even religious scriptures can derive independent economic value from not being generally known if their disclosure could divert parishioners from the church, causing it economic injury and putting it at a competitive disadvantage.53 Placing greater emphasis on the “economic value” than the “secrecy” factors, a federal court subsequently found that the religious scriptures of the Church of Scientology were valuable because proceeds from the sales of the materials were used to support the Church’s operation. The material also had value to the defendant, a competitor of the Church who used the materials to teach paid courses.54 Another court found that the religious materials at issue satisfied the economic value factor because the materials significantly affected the Church’s donations and provided the majority of funds for its operating expenses. That court concluded the plaintiff did not need to show it had any competitors to maintain a trade secret misappropriation claim; the potential for future competition was sufficient.55 Religious materials that have solely noneconomic value such as spiritual, sentimental, or historical, do not, however, qualify for trade secret protection.56 The UTSA does not require that information have any particular amount of value to qualify for trade secret protection. Various tests have been employed to determine whether some quantum of independent economic value is present. In one case, the court held that the statutory requirement is met if the information to be protected bestows any competitive advantage on its owner.57
52 See, e.g., Allis-Chalmers Mfg. Co. v. Continental Aviation & Eng’g Corp., 255 F. Supp. 645, 652 (E.D. Mich. 1966); Sinclair v. Aquarius Elecs., Inc., 42 Cal. App. 3d 216, 221–22, 116 Cal. Rptr. 654, 658 (1974). 53 See Religious Tech. Ctr. v. Scott, 869 F.2d 1306, 1310 (9th Cir. 1989). 54 See Bridge Publ’ns, Inc. v. Vien, 827 F. Supp. 629, 633 (S.D. Cal. 1993). 55 See Religious Tech. Ctr. v. Netcom On-Line Commc’ns Servs., Inc., 923 F. Supp. 1231, 1253 (N.D. Cal. 1995). 56 See Religious Tech. Ctr. v. Wollersheim, 796 F.2d 1076, 1090–91 (9th Cir. 1986). 57 See Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 900, 220 U.S.P.Q. (BNA) 811, 819 (Minn. 1983); see also Sikes v. McGraw-Edison Co., 665 F.2d 731, 734 (5th Cir. 1982) (lightweight grass trimmer provided “at least a temporary competitive advantage” over competitors unfamiliar with product); Wyeth v. Natural Biologics, Inc., No. 98-2469, 2003 WL 22282371, at *19–20 (D. Minn. Oct. 2, 2003) (process of extracting estrogens from pregnant mare urine for use in hormone replacement drug Premarin valuable because “a prospective competitor could not develop a process comparable to [plaintiff ’s] without a substantial investment of time and money, and a prospective competitor would gain a valuable share of the market by acquiring [it]”), aff ’d, 395 F.3d 897 (8th Cir. 2005).
The Majority Rule: “Trade Secret” as Defi ned by the UTSA 13
The Maine Supreme Court held that the presence of independent economic value should be determined by reviewing five factors: (i) the value of the information to the plaintiff, (ii) the amount of money or effort expended to develop the information, (iii) the measures used to protect the information, (iv) the ease or difficulty with which one could lawfully acquire or duplicate the information, and (v) the degree to which third parties have placed the information in the public domain or rendered it readily accessible through patent applications or unrestricted product marketing.58 Using questionable logic, some courts have used the cost of development as a yardstick to determine whether information had “independent economic value.” This approach is flawed in two respects. First, a trade secret may result from a momentary burst of inspiration or from chance circumstances, such as new plastic resulting from an accidental combination of chemicals or the discovery of an antibiotic that blows in through an open laboratory window. Next, a substantial research and development outlay may result only in the ability to manufacture an $11 widget when the competition is making them for $10. Courts that emphasize the costs of development tend to apply the Restatement (First) of Torts Section 757, comment b definition of “trade secret” that emphasizes the cost of development, notwithstanding that the UTSA has, in theory, supplanted it in all but a few states.59 Some courts have taken an intermediate position, using the amount of development costs to tip the balance when confronted with a close question concerning whether information sought to be protected qualified as a trade secret.60 Specialized information that was developed at great expense and is unknown to others does not derive independent economic value if it lacks present or future usefulness. Thus, the identity of a customer and the die drawings used for that particular customer were held to lack any value after the customer filed for bankruptcy.61
58 See Bernier v. Merrill Air Eng’rs, Inc., 770 A.2d 97, 106 n.6 (Me. 2001). 59 See Basic Am., Inc. v. Shatila, 133 Idaho 726, 731, 736–37, 992 P.2d 175, 180, 185–86 (1999) (holding that it is appropriate to use the Restatement Section 757 elements in applying the Idaho UTSA); Filter Dynamics Int’l, Inc. v. Astron Battery, Inc., 19 Ill. App. 3d 299, 316–17, 311 N.E.2d 386, 400–01 (1974); Space Aero Prods. Co. v. R. E. Darling Co., 238 Md. 93, 110, 208 A.2d 74, 82, 145 U.S.P.Q. (BNA) 356, 360, modified, 238 Md. 93, 208 A.2d 699 (1965); Serv. Sys. Corp. v. Harris, 41 A.D.2d 20, 24, 341 N.Y.S.2d 702, 706 (App. Div. 1973); Mason v. Jack Daniel Distillery, 518 So. 2d 130, 133 (Ala. Ct. App. 1987) (absence of material expenditure to develop beverage recipe militated against finding of trade secret but evidence of efforts to keep recipe secret militated in favor of trade secret protection). 60 See Surgidev Corp. v. Eye Tech., Inc., 648 F. Supp. 661, 692 (D. Minn. 1986), aff ’d, 828 F.2d 452 (8th Cir. 1987); Arnold’s Ice Cream Co. v. Carlson, 171 U.S.P.Q. (BNA) 333, 335 (E.D.N.Y. June 16, 1971). 61 See Gemini Aluminum Corp. v. Cal. Custom Shapes, Inc., 95 Cal. App. 4th 1249, 116 Cal. Rptr. 2d 358 (2002) (under the facts of the case, the court found that the plaintiff ’s trade secret claim was objectively specious and affirmed an award of attorneys’ fees to the defendant).
14 Chapter 1 What Is Protectable as a Trade Secret?
An inexpensively derived algorithm that was merely a variation of wellknown technique, however, was held to have independent economic value when included with the software in a computer-aided design machine because it contributed to the machine’s commercial attractiveness. It therefore qualified as a trade secret even though competitors could have created their own version of the algorithm.62
3. Meaning of “Not Generally Known” The UTSA generally requires that a trade secret’s independent economic value derive “from not being generally known to, and not being readily ascertainable by proper means by” persons who could obtain economic value from its disclosure or use. This formulation places on the plaintiff the burden to prove that information is not “readily ascertainable.” For that reason, the California embodiment of the UTSA provides simply that the independent economic value must derive “from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use.”63 Similarly, Illinois requires that the independent economic value must derive “from not being generally known to other persons who can obtain economic value from its disclosure or use.”64 “The assertion that a matter is readily ascertainable by proper means remains available as a defense to a claim of misappropriation” in California65 but not in Illinois.66 As the Commissioners’ Comments to the UTSA explain: [t]he language ‘not being generally known to the public or to other persons’ does not require that information be generally known to the public for trade secret rights to be lost. If the principal person who can obtain economic benefit from information is aware of it, there is no trade secret. A method of casting
62 63 64 65
See Vermont Microsys., Inc. v. Autodesk, Inc., 88 F.3d 142, 149 (2d Cir. 1996). Cal. Civ. Code § 3426.1(d)(1) (2007). 765 Ill. Comp. Stat. 1065/2(d)(1) (1988). See also Cal. Civ. Code § 3426.1 (Legislative Committee Comment–Senate); Am. Paper & Packaging Prods., Inc. v. Kirgan, 183 Cal. App. 3d 1318, 1326, 228 Cal. Rptr. 713, 727 (1986). But see ABBA Rubber Co. v. Seaquist, 235 Cal. App. 3d 1, 21, 286 Cal. Rptr. 518, 529 (1991) (concluding that readily ascertainable information is protectable if it has not yet been ascertained by others in the industry). 66 Illinois allows injunctive and other relief even following the public disclosure of a trade secret if the secret was learned or used by improper means before the public disclosure occurred. See Shellmar Prods. Co. v. Allen-Qualley Co., 87 F.2d 104, 107–08 (7th Cir. 1936). However, in Hamer Holding Group, Inc. v. Elmore, 202 Ill. App. 3d 994, 148 Ill. Dec. 310, 560 N.E.2d 907 (1990), an Illinois appellate court rejected the argument that a defense that the plaintiff ’s information is “readily ascertainable by proper means,” is no longer available, explaining that such inquiry is relevant to the existence of secrecy. Id. at 1011, 148 Ill. Dec. at 321, 560 N.E.2d at 918.
The Majority Rule: “Trade Secret” as Defi ned by the UTSA 15 metal, for example, may be unknown to the general public but readily known within the foundry industry.67
In some circumstances, however, it might be possible for a company to gain trade secret protection in a competitor’s trade secret. If a company discovers a competitor’s trade secret through proper means, the secret will be known to the two companies but will not be “generally known.” For that reason, the Commissioners’ Comment explains that “if reverse engineering is lengthy and expensive, a person who discovers the trade secret through reverse engineering can have a trade secret in the information obtained from reverse engineering.”68 As suggested above, information is “not readily ascertainable” if it is not economically feasible to obtain. Information will be deemed not readily ascertainable if “the duplication or acquisition of alleged trade secret information requires a substantial investment of time, expense or effort.”69 Regardless of whether others have yet to think of it, information will be deemed “readily ascertainable” if it is “obvious.”70 Courts are sometimes less than rigorous in requiring that information not be “readily ascertainable” when a defendant misappropriates information that could have been obtained through proper means. For example, the Fifth Circuit found a misappropriation in the design of a boat hull that could have been reverse engineered from an existing hull. The court held that the law could protect a holder against disclosure by improper means.71
4. Meaning of “Reasonable Efforts to Maintain Secrecy” If the plaintiff’s information is in fact secret, often no more proof of specific precautions will be required.72 The defendant will find it challenging to
67 UTSA § 1 (1985) (Commissioners’ cmt.). 68 Id. 69 Amoco Prod. Co. v. Laird, 622 N.E.2d 912, 919, 30 U.S.P.Q.2d (BNA) 1515, 1520 (Ind. 1993) (holding that a combination of public information to achieve data not known in the marketplace created a trade secret); accord Computer Care v. Serv. Sys. Enters., Inc., 982 F.2d 1063, 1073–74 (7th Cir. 1992). 70 Computer Care, 982 F.2d at 1073–74. 71 See Reingold v. Swiftships, Inc., 126 F.3d 645, 652 (5th Cir. 1997). This holding can be criticized on several grounds, including that the acquisition of information by improper means might constitute an unfair competition. But if the information could have been readily ascertained, it could not be subject to trade secret misappropriation. Further, the particular fact pattern seems to conflict with the rule laid down by the Supreme Court in Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 109 S. Ct. 971, 103 L. Ed. 2d 118 (1989), that a state law cannot be used to confer protection on something placed in the public domain. The Fifth Circuit held that Bonito Boats did not apply because disclosure had been made to only a few persons. 72 See Restatement (Third) of Unfair Competition § 39 cmt. g (1995) (“[I]f the value and secrecy of the information are clear, evidence of specific precautions taken by the trade secret
16 Chapter 1 What Is Protectable as a Trade Secret?
persuade a trial judge that the plaintiff’s efforts to protect the secrecy of its information were unreasonable as a matter of law. What is “reasonable” is usually a fact determination reserved for the jury.73 There, the plaintiff has the advantage. If the defendant has improperly taken valuable information from the plaintiff, the jury will want to find a way to punish the defendant and may therefore find that the plaintiff’s efforts to protect secrecy were reasonable. Nevertheless, there are a substantial number of cases that have construed the secrecy requirement. As with other elements of the test to determine whether information is protectable as a trade secret, the courts take varying approaches to determining whether information has been the subject of “reasonable” efforts to maintain its secrecy. Some place great emphasis on evidence that, for whatever reason, the information has remained unknown to persons who could derive economic benefit from its disclosure or use. Other courts focus on the type of safeguards that were employed to protect the secrecy of the information, placing comparatively little emphasis on whether they were effective. The latter courts seem motivated by a belief that if the plaintiff has not extended itself to protect its business information, the courts should not be asked to make an effort to do so either.74 Some courts require that allegations of the steps taken be more than “bare bones” allegations tracking the language of the statute.75 There is no bright-line test to determine what amount or types of safeguards are reasonable to protect the secrecy of proprietary information. The Seventh Circuit has said that such a determination “requires an assessment of the size and nature of [the plaintiff’s] business, the cost to it of additional measures, and the degree to which such measures would decrease the risk of disclosure. What may be reasonable measures in one context may not necessarily be so in another.”76 For example, “expectations for ensuring secrecy are different for small companies than for large companies.”77
73
74 75 76 77
owner may be unnecessary.”). But cf. Morton v. Rank Am., Inc., 812 F. Supp. 1062, 1075 (C.D. Cal. 1993) (lack of secrecy may be presumed from failure to exercise reasonable efforts to keep information secret); U.S. Surgical Corp. v. Origin Medsys., Inc., 27 U.S.P.Q.2d (BNA) 1526, 1530 (N.D. Cal. Jan. 12, 1993) (same), aff ’d, 16 F.3d 420 (Fed. Cir. 1993). See Surgidev Corp. v. Eye Tech., Inc., 828 F.2d 452, 455 (8th Cir. 1987) (summary judgment may be granted on the basis of lack of reasonable efforts “only in an extreme case”); Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 179–80 (7th Cir. 1991). See, e.g., Sarkes Tarzian, Inc. v. Audio Devices, Inc., 166 F. Supp. 250, 283 (S.D. Cal. 1958), aff ’d, 283 F.2d 695 (9th Cir. 1960). See, e.g., Abbott Labs. v. Chiron Corp., No. 97 C 0519, 1997 WL 208369, at *3 (N.D. Ill. Apr. 23, 1997). In re Innovative Constr. Sys., Inc., 793 F.2d 875, 884 (7th Cir. 1986). Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 724 (7th Cir. 2003). See, e.g., AAA Blueprint & Digital Reprographics v. Ibarra, No. G037831, 2007 WL 3105887, at *4–5
The Majority Rule: “Trade Secret” as Defi ned by the UTSA 17
The Restatement (First) of Torts Section 757, comment b (which is still applied even in a number of UTSA states), enumerates six nonexclusive factors to consider in determining whether the plaintiff’s efforts to protect the secrecy of its information were reasonable: (1) the extent to which the information is known outside [the plaintiff ’s] business; (2) the extent to which it is known by employees and others involved in [the plaintiff ’s] business; (3) the extent of measures taken by [the plaintiff ] to guard the secrecy of the information; (4) the value of the information to [the plaintiff and its] competitors; (5) the amount of effort or money expended by [the plaintiff ] in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.
The “reasonable efforts” undertaken to maintain secrecy need not be perfect because courts recognize that some mistakes will be made.78 “[W]here . . . security lapses [a]re not the cause of . . . misappropriation, those lapses should not be the basis for denying protection.”79 “Heroic” measures need not be employed to protect secrecy.80 The trade secret owner should also obligate anyone with access to the information to protect its secrecy. Thus, employees should be required to enter into written confidentiality agreements, third parties should be required to sign nondisclosure agreements, and information should never be disclosed to the government absent a confidentiality obligation. Although the failure to employ either of the first two measures is not necessarily fatal, the use of these measures nearly always results in a finding that the owner’s efforts to protect secrecy were reasonable (provided, of course, that the information has remained reasonably secret). Likewise, an employer’s efforts to protect secrecy are usually found to have been reasonable when the employer has carefully marked confidential documents as such and limited the number of employees given access to them.
(Cal. Ct. App. Oct. 24, 2007) (small company employing fewer than ten individuals not expected to have an employee agreement or handbook). 78 See, e.g., E.I. duPont de Nemours & Co. v. Christopher, 431 F.2d 1012, 1017 (5th Cir. 1970) (a business need not turn itself into an “impenetrable fortress”); Syntex Ophthalmics, Inc. v. Novicky, 214 U.S.P.Q. (BNA) 272, 277 (N.D. Ill. May 6, 1982) (“Although it may be true that Syntex did not always adhere to certain recommended precautions for confidentiality, such as stamping sensitive documents ‘confidential,’ and such documents were occasionally left unlocked within the Research and Development area, the court believes that, on the whole, Syntex took extensive precautions to protect the integrity of its secrets.”), aff ’d sub nom. Syntex Ophthalmics, Inc. v. Tsuetaki, 701 F.2d 677 (7th Cir. 1983). 79 Pioneer Hi-Bred Int’l v. Holden Found. Seeds, Inc., 35 F.3d 1226, 1237 (8th Cir. 1994) (quoting Syntex Ophthalmics). 80 See USM Corp. v. Marson Fastener Corp., 393 N.E.2d 895, 902 (Mass. 1979) (“[H]eroic measures” are not required.).
18 Chapter 1 What Is Protectable as a Trade Secret?
It is also clear that a deliberate disclosure of proprietary information will result in the loss of trade secret protection even if those who are likely to derive benefit from the information are unlikely to discover it. Deliberate disclosures may occur in several contexts; for one, since the creation of the Federal Circuit (which has frequently upheld the validity of patents), companies have raced to obtain patents and have “mined” their portfolios to assert their patents against others. Companies that would once have protected manufacturing methods or processes as trade secrets without a second thought now seek to hedge against the possibility that their proprietary method or process could later be discovered and patented by a competitor. To create the hedge, they select an obscure and little-read journal in which to publish the trade secret. In the event a patent is ever asserted against them, they can point to the publication as “prior art” to invalidate the patent. But such disclosure likely eliminates any trade secret protection. Patent applications are another frequent source of intentional disclosures. Although they are confidential when submitted, if unaccompanied by a foreign patent application, they are published after 18 months (unless denied or withdrawn) and thereupon enter the public domain.81 Disclosures may also occur through unprotected disclosures to the government82 or to third parties without adequate confidentiality arrangements.83 Trade secret disclosures also often occur at trade shows when companies attempt to interest prospective customers in unannounced products and future features. When there has been a deliberate public disclosure of proprietary information, there should no longer be a factual question whether the information has remained “secret” or whether the efforts to protect it were “reasonable.” In light of the 1989 U.S. Supreme Court decision in Bonito Boats, Inc. v. Thundercraft Boats, Inc., the rule should be firmly established that state law may not prohibit the copying of items that, for whatever reason, happen to have entered into the public domain.84 This proposition is not limitless, however. E.I. duPont de Nemours & Co. v. Christopher, which is often cited for the proposition that a business need not
81 See BondPro Corp. v. Siemens Power Generation, Inc., 463 F.3d 702, 706–07 (7th Cir. 2006); Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1045–47 (Fed. Cir. 2001); Campbell Soup Co. v. ConAgra, Inc., 977 F.2d 86, 92 (3d Cir. 1992). 82 See Secure Servs. Tech., Inc. v. Time & Space Processing, Inc., 722 F. Supp. 1354, 1360–61 (E.D. Va. 1989) (unrestricted sale of a secure facsimile machine to the government held not to constitute reasonable efforts even though applicable government regulations would have permitted the government to restrict reverse engineering, and rejecting plaintiff ’s argument that the government had an “implied duty” of nondisclosure) (applying California UTSA). 83 See Sheets v. Yamaha Motors Corp., 849 F.2d 179, 183–84 (5th Cir. 1988), aff ’d in part and rev’d in part, 891 F.2d 533 (5th Cir. 1990). 84 See Bonito Boats, Inc. v. Thundercraft Boats, Inc., 489 U.S. 141, 156, 109 S. Ct. 971, 980, 103 L. Ed. 2d 118, 137–38 (1989).
The Majority Rule: “Trade Secret” as Defi ned by the UTSA 19
undertake extraordinary measures to protect its secrets, is still good law.85 In that case, the defendant divined secrets concerning DuPont’s technology through aerial photography of a plant under construction. Even though the plant was visible from public air space, there was no act or intent by DuPont to place it in the public domain.86 The aerial photography was, therefore, deemed a trade secret misappropriation. In other contexts, other courts have been less sympathetic to companies that have failed to shield their facilities from view.87 And, in the authors’ opinion, on the same facts E.I. duPont de Nemours would likely not be followed today because the free or inexpensive availability of high-quality aerial photographs on Google Earth and other Internet sites has destroyed any secrecy that a company might otherwise claim in an open-air plant design. Because what is reasonable to protect secrecy varies from secret to secret and company to company, there are no particular safeguards, or combinations of safeguards, that will always result in a finding of reasonableness. The UTSA is intentionally silent on this subject and the Commissioners’ Comment to UTSA Section 1 observes only that: [R]easonable efforts to maintain secrecy have been held to include advising employees of the existence of a trade secret, limiting access to a trade secret on a “need to know basis,” and controlling plant access. On the other hand, public disclosure of information through display, trade journal publications, advertising, or other carelessness can preclude protection.
Safeguards that have been sufficient to establish reasonableness under the circumstances of the case include having a written trade secret protection plan and following it;88 educating employees as to which documents contained
85 See E.I. duPont de Nemours & Co. v. Christopher, 431 F.2d 1012, 1016 (5th Cir. 1970) (“Perhaps ordinary fences and roofs must be built to shut out incursive eyes, but we need not require the discoverer of a trade secret to guard against the unanticipated, the undetectable, or the unpreventable methods of espionage now available. . . . To require DuPont to put a roof over the unfinished plant to guard its secret would impose an enormous expense to prevent nothing more than a school boy’s trick.”). 86 In Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 484 (1974), the Supreme Court held that “the policy that matter once in the public domain remain in the public domain is not incompatible with the existence of trade secret protection.” That holding was reaffirmed in Bonito Boats, 489 U.S. at 155, which also affirmed the continuing vitality of unfair competition laws. Id. at 166. 87 See Dow Chem. Co. v. United States, 749 F.2d 307, 312–13 (6th Cir. 1984) (upholding against a Fourth Amendment challenge an E.P.A. overflight of a Dow Chemical Co. facility because Dow did not shield “the critical spaces in between its buildings”), aff ’d, 476 U.S. 227 (1986); Interox Am. v. PPG Indus., Inc., 736 F.2d 194, 201–02 (5th Cir. 1984) (plant design easily visible from a highway was not protectable). 88 See Vacco Indus., Inc. v. Van Den Berg, 5 Cal. App. 4th 34, 42, 6 Cal. Rptr. 2d 602, 605 (1992) (following a document destruction policy).
20 Chapter 1 What Is Protectable as a Trade Secret?
trade secrets and keeping those documents in a locked room;89 closing to outsiders a clean room where the secret was practiced, educating employees as to the confidential nature of the information and requiring them to sign nondisclosure agreements;90 eliminating access to a computer tool containing trade secrets and restricting the distribution of software, including to the manufacturer of the computer used by the supplier of the computer tool;91 restricting employee access to computers, restricting other access to employees, and prominently mentioning in an employee handbook the competitive importance of the information;92 placing proprietary legends on all trade secret documents, restricting physical access to the facility, imposing visitor restrictions, and keeping drawings and copies of patent applications in locked files;93 requiring employees to sign confidentiality agreements, restricting access to computer system, placing proprietary notices on software, including nondisclosure provisions in licensing agreements, and shredding source code printouts;94 protecting software with confidentiality notices, requiring passwords to prevent unauthorized access, and placing information in restricted storage;95 restricting access to production processes and equipment area, requiring employees to sign nondisclosure agreements, issuing employees identification badges, and notifying suppliers of trade secrets;96 using code to identify chemical formulas in all written and oral communications, labeling raw materials in code, and using confidentiality agreements;97 keeping trade secret machine physically segregated within a facility, allowing it to be operated only by a small number of employees, and never using the machine in the presence of outsiders;98 removing business information from view during visits by third parties, keeping pricing in special books, using passwords for computer access, and keeping other information under lock and key;99
89 See A.H. Emery Co. v. Marcan Prods. Corp., 268 F. Supp. 289, 300 (S.D.N.Y. 1967), aff ’d, 389 F.2d 11 (2d Cir. 1968). 90 See Micro Lithography, Inc. v. Inko Indus. Inc., 20 U.S.P.Q.2d (BNA) 1347, 1349–51 (Cal. Ct. App. Apr. 9, 1991) (secrecy was reasonable even though a trusted supplier was permitted access). 91 See Otis Elevator Co. v. Intelligent Sys., Inc., 17 U.S.P.Q.2d (BNA) 1773, 1775–79 (Conn. Super. Ct. July 18, 1990). 92 See Infinity Prods., Inc. v. Quandt, 775 N.E.2d 1144, 1146–47 (Ind. Ct. App. 2002), vacated, 810 N.E.2d 1028 (Ind. 2004). 93 See Allis-Chalmers Mfg. Co. v. Cont’l Aviation & Eng’g Corp., 255 F. Supp. 645, 650 (E.D. Mich. 1966). 94 See CMAX/Cleveland, Inc. v. UCR, Inc., 804 F. Supp. 337, 357 (M.D. Ga. 1992). 95 See Com-Share, Inc., v. Computer Complex, Inc., 338 F. Supp. 1229, 1234–35 (E.D. Mich. 1971), aff ’d, 458 F.2d 1341 (6th Cir. 1972). 96 See CPG Prods. Corp. v. Mego Corp., 214 U.S.P.Q. (BNA) 206, 208–09 (S.D. Ohio Jan. 12, 1981). 97 See Kelite Corp. v. Khem Chems., Inc., 162 F. Supp. 332, 334–35 (N.D. Ill. 1958). 98 See Greenberg v. Croydon Plastics Co., 378 F. Supp. 806, 813–14 (E.D. Pa. 1974). 99 See Sunbelt Rentals, Inc. v. Head & Engquist, Equip., L.L.C., 620 S.E.2d 222, 227 (N.C. Ct. App. 2005).
The Majority Rule: “Trade Secret” as Defi ned by the UTSA 21
attaching electronic sensors to trade secret documents;100 maintaining internal secrecy by dividing the process into steps and separating the various departments working on the several steps;101 using unnamed or coded ingredients;102 destroying laboratory samples and documents on the premises;103 protecting against physical access through trade secrets, including through the use of security systems, and requiring personal escorts and visitor badges;104 monitoring the presence of observers in the courtroom during trial and placing the trial record under seal;105 and auditing the files of employees for the unauthorized possession of trade secret documents.106 A trade secret owner is always well-advised to require that anyone, including even its own employees, sign nondisclosure agreements before being given access to the owner’s information. The failure to obtain a written or even oral agreement to protect trade secrets, however, is not necessarily fatal. In a number of circumstances, courts are sometimes willing to imply a confidentiality obligation from the parties’ relationship. For example, an employee’s duty to preserve the employer’s trade secrets is sometimes implied from the nature of the employment relationship.107 Other relationships giving rise to an implied duty of confidentiality include joint ventures,108 business negotiations,109 license
100 See Religious Tech. Ctr. v. Netcom On-Line Commc’n Servs., Inc., 923 F. Supp. 1231, 1254 (N.D. Cal. 1995). 101 See People v. Pribich, 21 Cal. App. 4th 1844, 1846, 27 Cal. Rptr. 2d 113, 114 (1994). 102 See Basic Chems., Inc. v. Benson, 251 N.W.2d 220, 229–30 (Iowa 1977). 103 See Valco Cincinnati, Inc. v. N & D Machining Serv., Inc., 24 Ohio St. 3d 41, 24 Ohio B. 83, 492 N.E.2d 814, 819 (1986). 104 See Bayer Corp. v. Roche Molecular Sys., Inc., 72 F. Supp. 2d 1111, 1114 (N.D. Cal. 1999). 105 See Gates Rubber Co. v. Bando Chem. Indus., 9 F.3d 823, 849 (10th Cir. 1993). 106 See People v. Serrata, 62 Cal. App. 3d 9, 23, 133 Cal. Rptr. 144, 152 (1976). 107 See, e.g., E.I. Du Pont de Nemours Powder Co. v. Masland, 244 U.S. 100, 102, 37 S. Ct. 575, 576, 61 L. Ed. 1016, 1019 (1917); Zoecon Indus. v. Am. Stockman Tag Co., 713 F.2d 1174, 1178 (5th Cir. 1983); McKay v. Communispond, Inc., 581 F. Supp. 801, 806 (S.D.N.Y. 1983); Plant Indus. v. Coleman, 287 F. Supp. 636, 644 (C.D. Cal. 1968); Choisser Research Corp. v. Elec. Vision Corp., 173 U.S.P.Q. (BNA) 234, 236 (Cal. Super. Ct. Feb. 28, 1972). But see Union Pac. R.R. v. Mower, 219 F.3d 1069, 1073–74 (9th Cir. 2000) (implied duty of confidentiality limited by terms of resignation agreement). 108 See, e.g., Ewen v. Gerofsky, 382 N.Y.S.2d 651, 654–55 (Sup. Ct. 1976), aff ’d, 72 A.D.2d 976 (N.Y. App. Div. 1979). 109 See Phillips v. Frey, 20 F.3d 623, 631 (5th Cir. 1994); Tri-Tron Int’l v. Velto, 525 F.2d 432, 435 (9th Cir. 1975); Heyman v. A.R. Winarick, Inc., 325 F.2d 584, 586–87 (2d Cir. 1963); Neothermia Corp. v. Rubicor Med., Inc., 345 F. Supp. 2d 1042, 1043 (N.D. Cal. 2004). But see Smith v. Snap-On Tools Corp., 833 F.2d 578, 580 (5th Cir. 1987) (because plaintiff disclosed invention to corporation on his own initiative outside of any license agreement, no confidential relationship was created); Walton v. Morgan Stanley & Co., 623 F.2d 796, 799 (2d Cir. 1980) (no confidential relationship created when target corporation and advisor dealt at arm’s length).
22 Chapter 1 What Is Protectable as a Trade Secret?
negotiations,110 vendor relationships,111 independent contractor relationships,112 and product sales.113 There are also no hard and fast rules for determining what security measures are inadequate. Nevertheless, cases in which insufficient security measures have been found include: unilateral statements by the owner to third parties that the information is “confidential” without imposing a duty to preserve confidentiality;114 widespread disclosure to employees;115 disclosing trade secrets through marketing and sales efforts;116 failing to designate information as trade secret in governmental filings;117 failing to place confidentiality markings on materials containing and describing software;118 disclosing information to a supplier absent any need to know and failing to require the supplier to sign a nondisclosure agreement;119 failing to notify employees of confidentiality restrictions and providing a computer program to a third party following the expiration of a confidentiality agreement;120 conducting
110 See Speedry Chem. Prods. v. Carter’s Ink Co., 306 F.2d 328, 332 (2d Cir. 1962); Trandes Corp. v. Guy F. Atkinson Co., 798 F. Supp. 284, 288 (D. Md. 1992), aff ’d in part and rev’d in part, 996 F.2d 655 (4th Cir. 1993); Allis-Chalmers Mfg. Co. v. Cont’l Aviation & Eng’g Corp., 255 F. Supp. 645, 650, 653–54 (E.D. Mich. 1966). But see Daily Int’l Sales Corp. v. Eastman Whipstock, Inc., 662 S.W.2d 60, 63 (Tex. Ct. App. 1983) (“‘[T]he existence of a confidential relationship between a licensor and licensee is to be determined in each case’ and it does not follow that merely because the parties occupied a position of licensor and licensee a confidential relationship results as a matter of law.”) (quoting Hyde Corp. v. Huffines, 314 S.W.2d 763, 777 (Tex. 1958)). 111 See Riteoff, Inc. v. Contact Indus., 350 N.Y.S.2d 690, 691–92 (App. Div. 1973); Space Aero Prods. Co. v. R.E. Darling Co., 208 A.2d 74, 84–86 (Md. 1965). 112 See Crocan Corp. v. Sheller-Globe Corp., 385 F. Supp. 251, 253 (N.D. Ill. 1974); Hollywood Motion Picture Equip. Co. v. Furer, 16 Cal. 2d 184, 188–89, 105 P.2d 299, 301–02 (1940). But see VFD Consulting, Inc. v. 21st Servs., 425 F. Supp. 2d 1037, 1051 (N.D. Cal. 2006) (plaintiff ’s expectation of confidentiality based solely on parties’ participation in a collaborative process did not give rise to an implied duty of confidentiality), dismissed, No. C 04-2161SBA, 2006 WL 870995 (N.D. Cal. Apr. 3, 2006). 113 See Laurie Visual Etudes, Inc. v. Chesebrough-Pond’s, Inc., 432 N.Y.S.2d 457, 461 (Sup. Ct. 1980), rev’d on other grounds, 441 N.Y.S.2d 88 (App. Div. 1981). 114 See N.E. Coating Techs., Inc. v. Vacuum Metallurgical Co, 684 A.2d 1322, 1324, 41 U.S.P.Q.2d. (BNA) 1862, 1864 (Me. 1996) (distribution of information in a stock prospectus). 115 See Allied Supply Co. v. Brown, 585 So. 2d 33, 36 (Ala. 1991). 116 See VSL Corp. v. Gen. Techs., Inc., 44 U.S.P.Q.2d (BNA) 1301, 1303 (N.D. Cal. July 21, 1997) (marketing information included drawings, measurements and samples); Integral Sys., Inc. v. Peoplesoft, Inc., No. C-90-2598-DLJ, 1991 WL 498874, at *15–16 (N.D. Cal. July 19, 1991) (disclosure of trade secrets in bids and presentations to prospective clients). 117 See Masonite Corp. v. County of Mendocino Air Quality Mgmt. Dist., 42 Cal. App. 4th 436, 454, 49 Cal. Rptr. 2d 639, 651 (1996). 118 See Gemisys Corp. v. Phoenix Am., Inc., 186 F.R.D. 551, 558 (N.D. Cal. 1999); Motor City Bagels, L.L.C. v. Am. Bagel Co., 50 F. Supp. 2d 460, 480 (D. Md. 1999). 119 See Bayline Partners L.P. v. Weyerhaeuser Co., 31 U.S.P.Q.2d (BNA) 1051 (N.D. Cal. Feb. 17, 1994). 120 See Baystate Tech. v. Bentley Sys., 946 F. Supp. 1079 (D. Mass. 1996).
The Restatement (Third) of Unfair Competition View of Trade Secrets 23
public tours of plant operations without requiring secrecy agreements;121 failing to track and recover documents after they were no longer needed, failing to ask employees to sign nondisclosure agreements, and failing to give employees notice of trade secrets;122 failing to lock the plant entrance, restrict access to the plant, mark drawings as confidential, keep drawings in locked area, or conduct employee exit interviews;123 filing trade secret documents with a court without placing the documents under seal;124 employing hit-ormiss methods to protect secrecy, requiring some but not all key employees to sign confidentiality agreements, and failing to identify for employees the information regarded as trade secret;125 selling goods to the government under circumstances that allowed, but did not obligate, the government to restrict reverse engineering;126 allowing employees to take job manuals home and to keep them when they quit;127 and leaving documents disclosing a trade secret in garbage cans without first shredding them.128
B. The Restatement (Third) of Unfair Competition View of Trade Secrets The Restatement (Third) of Unfair Competition (1995) expresses a commonlaw view of trade secret misappropriation consistent with the UTSA. It aims to be “applicable both to common law actions and actions under the Uniform Trade Secrets Act or analogous civil legislation.”129 It thus seeks to supplement the Restatement (First) of Torts Section 757 while finding applicability in UTSA states. Although the Restatement (Third) of Unfair Competition does
121 See Arco Indus. Corp. v. Chemcast Corp., 633 F.2d 435 (6th Cir.1980); Shatterproof Glass Corp. v. Guardian Glass Co., 322 F. Supp. 854 (E.D. Mich.1970), aff ’d, 462 F.2d 1115 (6th Cir. 1972). 122 See Nat’l Rejectors, Inc. v. Trieman, 409 S.W.2d 1 (Mo. 1966). 123 See Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890 (Minn. 1983); Cadillac Gage Co. v. Verne Eng’g Corp., 203 U.S.P.Q. (BNA) 473 (Mich. Cir. Ct. Aug. 17, 1978); Capsonic Group, Inc. v. Plas-Met Corp., 361 N.E.2d 41 (Ill. App. Ct. 1977). 124 See Religious Tech. Ctr. v. Lerma, 897 F. Supp. 260, 266 (E.D. Va. 1995). But see Hoechst Diafoil Co. v. Nan Ya Plastics Corp., 174 F.3d 411, 418–19 (4th Cir. 1999) (late sealing order preserved secrecy where there were no significant third-party acts in the interim); Gates Rubber Co. v. Bando Chem. Indus., 9 F.3d 823, 849 (10th Cir. 1993) (same). 125 See MBL (USA) Corp. v. Diekman, 112 Ill. App. 3d 229, 445 N.E.2d 418, 67 Ill. Dec. 938, 221 U.S.P.Q. (BNA) 725 (1983). 126 See Secure Servs. Tech., Inc. v. Time & Space Processing, Inc., 722 F. Supp. 1354, 12 U.S.P.Q. 2d (BNA) 1617 (E.D. Va. 1989). 127 See Buffets, Inc. v. Klinke, 73 F.3d 965 (9th Cir. 1996). 128 See California v. Greenwood, 486 U.S. 35, 40 (1988); Ananda Church of Self-Realization v. Mass. Bay Ins. Co., 95 Cal. App. 4th 1273, 1282, 116 Cal. Rptr. 2d 370, 376 (2002). 129 Restatement (Third) of Unfair Competition § 39, at 438 (1995) (reporter’s notes).
24 Chapter 1 What Is Protectable as a Trade Secret?
not expressly recognize trade secrets as a form of “property,” Section 38 does recognize trade secrets as an “intangible trade value.” Section 38 provides in pertinent part: One who causes harm to the commercial relations of another by appropriating the other’s intangible trade values is subject to liability to the other for such harm only if: (a) the actor is subject to liability for an appropriation of the other’s trade secrets under the rules stated in Sections 39–45; ... (c) the appropriation is actionable by the other under federal or state statutes or international agreements, or is actionable as a breach of contract, or as an infringement of common law copyright as preserved under federal copyright law.130
Section 39 sets forth a definition of “trade secret” that differs from the Restatement (First) of Torts in eliminating the requirement that a trade secret be capable of “continuous use in the operation of a business.”131 As noted above, Section 39 broadly defines “trade secret” to include “any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.” The Restatement (Third) definition also extends protection to information that has “potential value” (including negative know-how). Finally, it extends protection to any valuable information, including that which relates to single or “ephemeral” events (such as bids). Comment d to Section 39 describes the “subject matter” that can comprise a trade secret in broad terms: A trade secret can consist of a formula, pattern, compilation of data, computer program, device, method, technique, process, or other form or embodiment of economically valuable information. A trade secret can relate to technical matters such as the composition or design of a product, a method of manufacture, or the know-how necessary to perform a particular operation or service. A trade secret can also relate to other aspects of business operations such as pricing and marketing techniques or the identity and requirements of customers. . . . Although rights in trade secrets are normally asserted by businesses and other
130 Section 38 rejects the tort of common-law misappropriation for information created by the plaintiff at great expense and appropriated by the defendant at little or no expense as announced by the Supreme Court in Int’l News Service v. Associated Press, 248 U.S. 215, 239–40, 39 S. Ct. 68, 72–73, 63 L. Ed. 211, 221 (1918), on the ground that the case has not been widely followed. See Restatement (Third) of Unfair Competition § 38 cmts. b–c (1995). 131 Restatement (Third) of Unfair Competition § 39 cmt. b (1995).
The Restatement (Third) of Unfair Competition View of Trade Secrets 25 commercial enterprises, nonprofit entities such as charitable, educational, governmental, fraternal, and religious organizations can also claim trade secret protection for economically valuable information such as lists of prospective members or donors.
Comment d to Section 39 does not rely only on the nonexclusive six-factor test used to establish the existence of a trade secret under the Restatement (First) of Torts. (Those factors are considered relevant but not dispositive for determining the existence of a trade secret.) The focus of a trade secret inquiry, instead, turns on an evaluation of all relevant factors, including the value of the information for which protection is sought, its secrecy, the definiteness of the information, and the nature of the defendant’s misconduct.132 The party claiming rights to a trade secret has the burden of defining the information with sufficient definiteness to allow a court to apply Section 39 and to frame the appropriate relief. There is no requirement that the information be embodied in tangible form if it is sufficiently definite. An agreement between the parties identifying the information as trade secret is important, but not conclusive, in determining whether the information is in fact a trade secret. By the same token, such an agreement does not preclude a defendant from contesting that the information is trade secret. The value of a trade secret can be established by direct or circumstantial evidence. Although there is no requirement that the owner have used the information, use may itself evidence the information’s value. Other indications of value include the resources invested in the creation of the information, the precautions taken to protect that secrecy, and the willingness of others to pay for the information.133 The Restatement expresses the value requirement in a manner compatible with the UTSA: A trade secret must be of sufficient value in the operation of a business or other enterprise to provide an actual or potential economic advantage over others who do not possess the information. The advantage, however, need not be great. It is sufficient if the secret provides an advantage that is more than trivial. Although a trade secret can consist of a patentable invention, there is no requirement that the trade secret meet the standard of inventiveness applicable under federal patent law.134
Although it makes no reference to “reasonable efforts to maintain secrecy,” comment g to Section 39 reflects that the reasonable efforts requirement to
132 See In re Bass, 113 S.W.3d 735, 739 (Tex. 2003). 133 See Restatement (Third) of Unfair Competition § 39 cmt. e (1995). 134 Id.
26 Chapter 1 What Is Protectable as a Trade Secret?
protect secrecy is important. Comment g states that “if the value and secrecy of the information are clear, evidence of specific precautions taken by the trade secret owner may be unnecessary.” The Restatement (Third) is in harmony with the UTSA in providing that information need not be an absolute secret to be protectable, provided that the degree of its secrecy has allowed it to retain economic value: To qualify as a trade secret, the information must be secret. The secrecy, however, need not be absolute. The rule stated in this Section requires only secrecy sufficient to confer an actual or potential economic advantage on one who possesses the information. Thus, the requirement of secrecy is satisfied if it would be difficult or costly for others who could exploit the information to acquire it without resort to the wrongful conduct proscribed under Section 40. Novelty in the patent law sense is not required. Although trade secret cases sometimes announce a “novelty” requirement, the requirement is synonymous with the concepts of secrecy and value as described in this Section and the correlative exclusion of self-evident variants of the known art.135
Under the Restatement (Third) of Unfair Competition, a limited nonconfidential disclosure might not terminate trade secret rights if the persons to whom the disclosure is made keep the information secret. Independent development by another who maintains the information in secret will not destroy trade secret rights.136 Section 39 further adopts the common-law concept that information that is generally known or readily ascertainable through proper means by others is not protectable as a trade secret.137 And, as under the UTSA, the existence of a theoretical possibility that others could obtain the information by proper means through a difficult, costly, or time-consuming process will not vitiate protection.138 Section 42 addresses customer lists by noting that customer identities and information concerning customers can be a company’s most valuable asset.139
135 136 137 138 139
Id. cmt. f. See id. See id. See id. See id. § 42 cmt. f. There is also a privacy dimension to consider when a customer list is transferred, such as by a departing employee, from one firm to another. Personal information typically included in customer lists is subject to privacy protection under the Financial Services Modernization Act of 1999 (15 U.S.C. §§ 6801–6809) and the Fair Credit Reporting Act (15 U.S.C. § 1681). For that reason, in the securities industry, broker-dealers must comply with SEC Regulation S-P (17 C.F.R. §§ 248.1–248.30), requiring the explicit consent of the client before information is offered to a third party, such as a new broker-dealer. That requirement has led a number of major broker-dealers to enter into a “Protocol for Broker Recruiting.” The Protocol governs the movement between many major investment banks and various other financial institutions of registered securities representatives. When moving
The Restatement (Third) of Unfair Competition View of Trade Secrets 27
It also protects an employee’s right to compete by providing that an employee who possessed customer information prior to employment is entitled to use that information after his or her employment is terminated.140 However, that protection will not overcome a contractual agreement providing otherwise.141 Sections 40 and 43 define what it means to “misappropriate” a trade secret. Pursuant to Section 40(a): One is subject to liability for the appropriation of another’s trade secret if: (a) the actor acquires by means that are improper under the rule stated in section 43 information that the actor knows or has reason to know is the other’s trade secret;
In turn, Section 43 provides: “Improper” means of acquiring another’s trade secret under the rule stated in section 40 include theft, fraud, unauthorized interception of communications, inducement of or knowing participation in a breach of confidence, and other means either wrongful in themselves or wrongful under the circumstances of the case. Independent discovery and analysis of publicly available products or information are not improper means of acquisition.
As under the UTSA, a claim for misappropriation pursuant to Sections 40 and 43 does not preempt contractual claims, nor is it barred by the existence of a contract to protect trade secrets. Under Section 40, the mere improper acquisition of a trade secret is actionable. (In contrast, under the Restatement (First) of Torts, a trade secret
from one firm to another, representatives are allowed to take with them client account information limited to client name, address, telephone number, e-mail address, and account title. Representatives may take such information only with respect to clients for whom they provided services while at their former firm and may solicit business from those clients only after they have commenced employment with their new firm. Even though Protocol signatories may not bring trade secret misappropriation actions based on the taking of the limited client account information described above, they are nonetheless permitted to pursue “employee raiding” claims. Signatories to the Protocol include Citigroup Global Markets, Inc. (“Smith Barney”); Merrill Lynch; UBS Financial Services and UBS International; Credit Suisse Securities (USA); Wachovia Securities; Morgan Stanley; Jefferies & Co.; Raymond, James; Stephens; Stanford Group; CAPTRUST Financial Advisors; Cutter and Co.; Commerce Capital Markets; Alexandra & James; Jefferies & Co.; A G Edwards; Cambridge Investment Research; Cypress Wealth Management; Signature Securities Group; Wheeler Financial; Constellation Wealth Advisors; Cary Street Partners; Credit Suisse Securities (USA); Biltmore Capital Advisors; Concert Wealth Management; and The Retirement Planning Group, among others. 140 See Restatement (Third) of Unfair Competition § 49 cmt. f. 141 See id.
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misappropriation occurred only when an improperly acquired trade secret was used or disclosed.) Section 40(b) states: One is subject to liability for the appropriation on another’s trade secret if: . . . (b) the actor uses or discloses the other’s trade secret without the other’s consent and, at the time of the use or disclosure, (1) the actor knows or has reason to know that the information is a trade secret that the actor acquired under circumstances creating a duty of confidence owed by the actor to the other under the rule stated in § 41; or (2) the actor knows or has reason to know that the information is a trade secret that the actor acquired by means that are improper under the rule stated in § 43; or (3) the actor knows or has reason to know that the information is a trade secret that the actor acquired from or through a person who acquired it by means that are improper under the rule stated in § 43 or whose disclosure of the trade secret constituted a breach of a duty of confidence owed to the other under the rule stated in § 41; or (4) the actor knows or has reason to know that the information is a trade secret that the actor acquired through an accident or mistake, unless the acquisition was the result of the other’s failure to take reasonable precautions to maintain the secrecy of the information.
There are no limitations on the nature of the conduct that will constitute a “use” under Section 40(b). A “use” occurs when any exploitation of the information may lead to the unjust enrichment of the actor or injury to the owner.142 Thus, marketing a product embodying the trade secret, using the information to produce a product or to solicit customers, or relying on the information to assist or accelerate research and development are all actionable “uses” under Section 40(b). Under this broad view of “use,” a distribution of a product manufactured by a third party that used a trade secret in doing so may also constitute a “use” of the trade secret.143 The Restatement (Third) of Unfair Competition also recognizes that an unauthorized disclosure of a trade secret may injure the owner.144 This is true even if the disclosure is made without any profit motive. There may, however, be defenses to disclosure based on public policy, such as disclosure in a judicial proceeding, to protect the public health, or to prevent the commission of a crime.145 One important limitation of Section 40(b) is that it protects the
142 143 144 145
See id. § 40 cmt. c. See Cognis Corp. v. Chemcentral Corp., 430 F. Supp. 2d 806, 811–12 (N.D. Ill. 2006). See Restatement (Third) of Unfair Competition § 40(b) cmt. c (1995). See id.
New York, New Jersey, and Texas: The Restatement (First) of Torts Definition 29
trade secret only when the misappropriator knew or should have known that the use or disclosure was wrongful.146
C. New York, New Jersey, and Texas: The Restatement (First) of Torts Definition The Restatement (First) of Torts (1939) continues to be the law of trade secret misappropriation in New York,147 New Jersey,148 and, to a great extent, Texas.149 In addition, courts in many UTSA states look to the definition of “trade secret” provided in Section 757, comment b, and sometimes to the definition of “secrecy,” to determine whether information is protectable under the UTSA. Interestingly, the Restatement (Second) of Torts (1997) does not address trade secret misappropriation at all. That omission, however, is solely attributable to the fact that the authors of the second Restatement believed that trade secret misappropriation was no longer properly classified as a species of tort law.150
146 See Restatement (Third) of Unfair Competition § 40 cmt. e (1995). 147 New York uses both the Restatement Section 757, comment b definition of “trade secret” and the nonexclusive six-factor test to determine whether information is sufficiently secret to be protectable. See Eagle Comtronics, Inc. v. Pico, Inc., 89 A.D.2d 803, 803–04, 453 N.Y.S.2d 470, 472 (1982); Ashland Mgmt., Inc. v. Janien, 82 N.Y.2d 395, 407, 624 N.E.2d 1007, 1012–13 (1993). 148 New Jersey has adopted the Restatement definition of “trade secret” in civil litigation. See Ahlert v. Hasbro, Inc., 325 F. Supp. 2d 509, 512 (D.N.J. 2004); Sun Dial Corp. v. Rideout, 16 N.J. 252, 257, 108 A.2d 442, 445 (1954). For purposes of criminal actions, New Jersey Stat. Ann. Section 2C:20-1(i) provides that “‘Trade secret’ means the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula or improvement which is secret and of value. A trade secret shall be presumed to be secret when the owner thereof takes measures to prevent it from becoming available to persons other than those selected by the owner to have access thereto for limited purposes.” 149 See In re Bass, 113 S.W.3d 735, 739–40 (Tex. 2003) (adopting the Restatement (Third) of Unfair Competition view that the nonexclusive, six-factor test set forth in the Restatement (First) of Torts is “relevant but not dispositive” in establishing the existence of a trade secret); Computer Assocs. Int’l v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996) (adopting the definition of “trade secret” set forth in Restatement (First) of Torts Section 757 CMT. B. The Texas criminal trade secret misappropriation statute is closely modeled on the New Jersey statute. Texas Penal Code Ann. Section 31.05A4 defines “trade secret” as “the whole or any part of any scientific or technical information, design, process, procedure, formula, or improvement that has value and that the owner has taken measures to prevent from becoming available to persons other than those selected by the owner to have access for limited purposes.” 150 For that reason, trade secret misappropriation was restated in 1995 as part of the Restatement (Third) of Unfair Competition Sections 39–45, as explained in Chapter 1(B), above.
30 Chapter 1 What Is Protectable as a Trade Secret?
Section 757 of the Restatement of Torts explains: One who discloses or uses another’s trade secret, without a privilege to do so, is liable to the other if (a) he discovered the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him, or (c) he learned the secret from a third person with notice of the facts that it was a secret and that the third person discovered it by improper means or that the third person’s disclosure of it was otherwise a breach of his duty to the other, or (d) he learned the secret with notice of the facts that it was a secret and that its disclosure was made to him by mistake.151
Comment a to Section 757 rejected the notion that a trade secret owner “has a right of property” in his or her idea. Instead, it relied upon the principle that “protection is afforded only by a general duty of good faith” and that “liability rests upon breach of this duty; that is, breach of contract, abuse of confidence or impropriety in the method of ascertaining the secret.” The UTSA, in contrast, is predicated on the notion, now almost universally accepted, that trade secrets are a form of intangible property. That philosophical difference notwithstanding, the UTSA definition of “trade secret” arises from the definition given in comment b to Section 757152: A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. It differs from other secret information in a business . . . in that it is not simply information as to single or ephemeral events in the conduct of the business, as, for example, the amount or other terms of a secret bid for a contract or the salary of certain employees, or the security investments made or contemplated, or the date fixed for the announcement of a new policy or for
151 Sections 758 and 759 address the acquisition of a secret by mistake and define liability for the acquisition of business information that does not qualify as a trade secret, respectively. 152 Notwithstanding that the UTSA definition of “trade secrets” finds its genesis in comment b, the UTSA definition is considerably broader. Because the Restatement definition excludes single or “ephemeral” events, it excludes types of information recognized as protectable by the UTSA, including bid proposals and the process for creating them. Further, the UTSA omits the “continuous use” requirement found in the Restatement, thus extending protection to a plaintiff who has not yet had an opportunity or acquired the means to put a trade secret to use. See UTSA § 1 (1985) (Commissioners’ cmt.).
New York, New Jersey, and Texas: The Restatement (First) of Torts Definition 31 bringing out a new model or the like. A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article. It may, however, relate to the sale of goods or to other operations in the business, such as a code for determining discounts, rebates or other concessions in a price list or catalogue, or a list of specialized customers, or a method of bookkeeping or other office management.
New York courts have, if anything, adopted a narrower definition of “trade secret” than is found in the Restatement. They not only adhere to the Restatement’s requirement that information be used continuously in commerce153 but also apply a rigorous novelty requirement in at least idea-submission cases for information to qualify as a protectable trade secret.154 Although secrecy is a question of fact, courts have held that there can be no trade secret protection, as a matter of law, if the secrecy is necessarily lost when the design is placed on the market through the sale of a product embodying it.155 To succeed on a claim for trade secret misappropriation under New York law, a plaintiff must establish (1) that it possessed a trade secret; and (2) the
153 See Hudson Hotels Corp. v. Choice Hotels Int’l, 995 F.2d 1173, 1177 (2d Cir. 1993) (under New York law, “a trade secret must be used secretly and continuously in commerce.”). 154 See id. (“[A] non-novel idea, which is not used secretly and continuously in commerce, is not a trade secret.”); Ring v. Estée Lauder, Inc., 702 F. Supp. 76, 77 (S.D.N.Y. 1988) (“New York law is abundantly clear that a plaintiff is not entitled to relief under any theory for theft of an idea, absent proof that the idea was novel or original.”), aff ’d, 874 F.2d 109 (2d Cir. 1989); Brandwynne v. Combe Int’l, Ltd., 74 F. Supp. 2d 364, 375 (S.D.N.Y. 1999) (“[T]o establish novelty, an idea ‘need not reflect the “flash of genius,” but it must show [] genuine novelty and invention, and not a merely clever or useful adaptation of existing knowledge.’”) (quoting Educational Sales Programs, Inc. v. Dreyfus Corp., 65 Misc. 2d 412, 416, 317 N.Y.S.2d 840, 844 (Sup. Ct. 1970)). Basing its analysis on Apfel v. Prudential-Bache Sec., Inc., 81 N.Y.2d 470, 616 N.E.2d 1095, 600 N.Y.S.2d 433 (1993), which suggests that the novelty requirement means that an idea must be novel to the person receiving it, the Second Circuit explained that “[u]nder the Restatement’s approach, novelty—at least as that term is used in patent law—is not required in a trade secret” except in idea theft cases. Softel, Inc. v. Dragon Med. & Scientific Commc’ns, Inc., 118 F.3d 955, 968 (2d Cir. 1997). 155 See Hudson Hotels Corp., 995 F.2d at 1177; Brandwynne, 74 F. Supp. 2d at 378. New York courts have long recognized, however, that computer software can be a trade secret. See Q-Co Indus., Inc. v. Hoffman, 625 F. Supp. 608, 617 (S.D.N.Y. 1985) (citations omitted); Bus. Intelligence Servs., Inc. v. Hudson, 580 F. Supp. 1068, 1072 (S.D.N.Y. 1984) (citations omitted) (holding that description of computer program and details of mathematical models, procedures, and statistical assumptions developed by an insurance company were trade secrets). Further, the way in which nonsecret utility programs are arranged to create a new software product can constitute a protectable trade secret. See Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173–75 (2d Cir. 1990). Source code may be protectable even though its object code is publicly available. See Q-Co Indus., 625 F. Supp. at 617–18.
32 Chapter 1 What Is Protectable as a Trade Secret?
defendant used the trade secret in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means.156 To determine whether information constitutes a trade secret, New York courts apply the six-factor test of secrecy found in comment b to Section 757: The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. Matters which are completely disclosed by the goods which one markets cannot be his secret. Substantially, a trade secret is known only in the particular business in which it is used. It is not requisite that only the proprietor of the business know it. He may, without losing his protection, communicate it to employees involved in its use. He may likewise communicate it to others pledged to secrecy. Others may also know of it independently, as, for example, when they have discovered the process or formula by independent invention and are keeping it secret. Nevertheless, a substantial element of secrecy must exist, so that, except by the use of improper means, there would be difficulty in acquiring the information. An exact definition of a trade secret is not possible. Some factors to be considered in determining whether given information is one’s trade secret are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; [and] (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.
The factors are not given equal weight in the analysis; the most important consideration is whether the information is secret.157 New York law requires that a trade secret plaintiff prove: (1) it possessed a trade secret; and (2) the defendant has used the trade secret in breach of an agreement or duty of confidence, or as a result of discovering the trade secret by improper means.158 The mere improper acquisition of a trade secret is not actionable; the complete absence of any use by the defendant will avoid liability for misappropriation.159 A mere promise to keep information secret or not to compete with the information lacks consideration and is not enforceable if the promise is made following the disclosure of the information.160 Significantly, employees have an absolute duty not to use or divulge trade secret information acquired during their employment.161
156 157 158 159 160 161
See LinkCo, Inc. v. Fujitsu, Ltd., 230 F. Supp. 2d 492, 497–98 (S.D.N.Y. 2002). See id. See N. Atl. Instruments, Inc. v. Haber, 188 F.3d 38, 43–44 (2d Cir. 1999). See Abraham Zion Corp. v. Lebow, 593 F. Supp. 551, 569 (S.D.N.Y. 1984). See Posen v. Genesco, 44 Misc. 2d 195, 197–98, 253 N.Y.S.2d 362, 365 (1962). See Roessel Cine Photo Tech Inc. v. Kapsalis, 43 U.S.P.Q.2d (BNA) 1134, 1138 (N.Y. Sup. Ct. May 7, 1997).
New York, New Jersey, and Texas: The Restatement (First) of Torts Definition 33
New Jersey departs slightly from the Section 757 definition by rejecting the requirement that trade secret information be “used in one’s business.”162 Also, New Jersey deemphasizes the novelty requirement.163 In New Jersey, a plaintiff must prove five elements to prove trade secret misappropriation: (1) a trade secret exists, (2) the trade secret was communicated in confidence by the plaintiff to an employee, (3) the employee disclosed the trade secret in breach of that confidence, (4) the trade secret was acquired by the competitor with knowledge of the breach of confidence, and (5) the trade secret was used by the competitor to the plaintiff’s detriment.164 The plaintiff need not prove that the secret was acquired by the defendant with knowledge that its revelation was wrongful provided the evidence supports an inference that the defendant must have known that.165 An additional required element of proof is that the plaintiff show that it took precautions to maintain the secrecy of the trade secret.166 New Jersey awards the trade secret owner its lost profits when the owner is also using the process appropriated by the defendant and permits an additional award to reflect the defendant’s unjust enrichment.167 Notwithstanding the mandate that subject matter of a trade secret “must be secret,” the Restatement has not been interpreted to require absolute secrecy. Thus, the Restatement itself provides that a “substantial element of secrecy” must exist.168 Both New Jersey and Texas have moved away from a strict requirement that the Restatement’s six-factor test of secrecy must be satisfied. New Jersey courts view the factors as “additional considerations” that are “useful,”169 and Texas courts view them as “relevant but not dispositive”
162 See Ferroline Corp. v. Gen. Aniline & Film Corp., 207 F.2d 912, 921 (7th Cir. 1953). 163 See Johnson v. Benjamin Moore & Co., 788 A.2d 906, 922 (N.J. Super. Ct. App. Div. 2002) (“New Jersey trade secret law does not require novelty.”); Rycoline Prods., Inc. v. Walsh, 756 A.2d 1047, 1055 (N.J. Super. Ct. App. Div. 2000) (“[O]nly a very minimal novelty requirement is imposed for a trade secret”); Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 637 (1988) (“In sum, a trade secret need not be novel, inventive, or patentable, and may be a device that is clearly anticipated in the prior art or one that is merely a mechanical improvement that a good mechanic can make. However, it may not be part of the general knowledge or information of an industry or a matter of public knowledge.”). 164 See Rohm & Haas Co. v. Adco Chem. Co., 689 F.2d 424, 429–30 (3d Cir. 1982). 165 See id. at 430. 166 See id. 167 See Shamrock Techs., Inc. v. Med. Sterilization, Inc., 808 F. Supp. 932, 941 (E.D.N.Y. 1992) (applying New Jersey law), aff ’d, 6 F.3d 788 (Fed. Cir. 1993). 168 See also Tri-Tron Int’l v. Velto, 525 F.2d 432, 436 (9th Cir. 1975); Digital Dev. Corp. v. Int’l Memory Sys., 185 U.S.P.Q. (BNA) 136 (S.D. Cal. Oct. 24, 1973); Cent. Plastics Co. v. Goodson, 1975 Okla. 71, 537 P.2d 330, 189 U.S.P.Q. (BNA) 748 (Okla. 1975). 169 Hammock by Hammock v. Hoffmann-LaRoche, Inc., 142 N.J. 356, 384, 662 A.2d 546, 560 (1995); accord Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 637 (1988).
34 Chapter 1 What Is Protectable as a Trade Secret?
to establishing the existence of a trade secret.170 Texas has no formula for weighing the secrecy factors. Courts are required to consider the value of the trade secret to the owner in conferring a substantial advantage over competitors and should consider the cost to develop the secret. In “egregious” cases, however, a trade secret misappropriation may be found where the secret was not of great value and was developed at little cost.171 Departing from the Section 757 requirement, Texas holds that information may be subject to protection even if the plaintiff is not using it.172 Also in Texas, a person who gains trade secret information in confidence may be enjoined from using or disclosing the information even after it has become public.173 When an employee has an intimate knowledge of the employer’s business, a confidential relationship will be implied.174 The statute of limitations in Texas is three years but is subject to both the discovery rule175 and the fraudulent concealment doctrine.176 The Restatement protects both technical and nontechnical trade secrets such as price codes, customer lists, economic studies, and the like.177 Courts recognize that trade secrets can be stolen either physically or through the use of memory.178 Texas also recognizes a separate tort of “misappropriation” based on the use by the defendant, in competition with the plaintiff, of a unique pecuniary interest created by the plaintiff through the expenditure of labor, skill,
170 See In re Bass, 113 S.W.3d 735, 739–40 (Tex. 2003). The Texas Supreme Court in Bass also explained that:
171 172 173 174 175 176 177 178
Texas courts of appeals who [sic] continue to apply this test [tort test to determine trade secret] are split on whether the six-factors should be weighed as relevant criteria or whether a person claiming trade secret privilege must satisfy all six factors before trade secret status applies. See American Derringer Corp. v. Bond, 924 S.W.2d 773, 777 n.2 (Tex. App.-Waco 1996, no writ) (the factors are “to be considered in determining whether given information is a trade secret”); Expo Chem. Co. v. Brooks, 572 S.W.2d 8, 11 (Tex. Civ. App.-Houston [1st Dist.] 1978, rev’d on other grounds, 576 S.W.2d 369, 22 Tex. Sup. Ct. J. 192 (Tex. 1979)); but see Birnbaum v. Alliance of Am. Insurers, 994 S.W.2d 766, 783 (Tex. App.-Austin 1999, pet. denied) (all six factors “must be established by a claimant”). . . . [W]e agree with the Restatement and the majority of jurisdictions that the party claiming a trade secret should not be required to satisfy all six factors because trade secrets do not fit neatly into each factor every time. See Metallurgical Indus., Inc. v. Fourtek, Inc., 229 U.S.P.Q. (BNA) 945, 949 (5th Cir. June 2, 1986). See Bertotti v. C.E. Shepherd Co., 752 S.W.2d 648, 653 (Tex. App. 1988). See Bryan v. Kershaw, 366 F.2d 497, 500 (5th Cir. 1966). See Zoecon Indus. v. Am. Stockman Tag Co., 713 F.2d 1174, 1178 (5th Cir. 1983). See Seatrax, Inc. v. Sonbeck Int’l, Inc., 200 F.3d 358, 365 (5th Cir. 2000). See id. at 366; Coastal Distrib. Co. v. NGK Spark Plug Co., 779 F.2d 1033, 1035–36 (5th Cir. 1986). See Ecolaire, Inc. v. Crissman, 542 F. Supp. 196, 206–07 (E.D. Pa. 1982). See Am. Republic Ins. Co. v. Union Fidelity Life Ins. Co., 295 F. Supp. 553, 555 (D. Or. 1968), supplemental opinion, 315 F. Supp. 311 (D. Or. 1970).
New York, New Jersey, and Texas: The Restatement (First) of Torts Definition 35
and money.179 In one case, a defendant was found liable for misappropriating confidential information related to industrial control systems developed by his employer by setting up a competing business while still employed.180 There, the defendant was liable for the plaintiff’s lost development cost even though the plaintiff had never finished the product and the defendant never made a product using the misappropriated information. The court observed that the Texas misappropriation law was designed to protect the “sweat equity” that goes into creating a valuable work.181 The elements of a claim for unfair competition by misappropriation in Texas are (1) the creation of a product by the plaintiff through extensive time, labor, skill and money; (2) the defendant’s use of that product in competition with the plaintiff, thereby gaining a special advantage because the defendant is burdened with little or no development expense; and (3) commercial damage to the plaintiff.182 The misappropriation claim is subject to challenge. In at least one case, it was held preempted by the Copyright Act183 and a more recent Fifth Circuit decision questioned whether the cause of action even exists.184 Texas provides a pro-plaintiff legal environment. Courts in Texas will issue an injunction and allow damages for trade secret theft extending beyond a public disclosure of the secret.185 Texas courts will also grant preliminary injunctions based on the doctrine of “inevitable disclosure” if “it appears very possible” that a trade secret will be revealed despite the good faith on the part of a former employee.186 Texas even allows the recovery of the lost profits a plaintiff would have earned had he or she not been hindered by the defendant in developing that product.187 In one case, a Texas court awarded both compensatory and punitive damages when the defendant used the knowledge of trade secrets gained through license negotiations to increase the sale price of its business even though it never made any product embodying the trade secrets.188
179 See U.S. Sporting Prods., Inc. v. Johnny Stewart Game Calls, Inc., 865 S.W.2d 214, 217 (Tex. App. 1993), writ denied (Mar. 30, 1994). 180 See Dresser-Rand Co. v. Virtual Automation, Inc., 361 F.3d 831, 837–38, 840 (5th Cir. 2004). 181 See id. at 839. 182 See U.S. Sporting Prods., Inc., 865 S.W.2d at 218. 183 See Synercom Tech., Inc. v. Univ. Computing, 474 F. Supp. 37, 44 (N.D. Tex. 1971). 184 See Seatrax, Inc. v. Sonbeck Int’l, Inc., 200 F.3d 358, 368 (5th Cir. 2000). 185 See Hyde Corp. v. Huffines, 158 Tex. 566, 580, 314 S.W.2d 763, 772, 117 U.S.P.Q. (BNA) 44, 51 (1958) (following the rule in Shellmar Prods. Co. v. Allen-Qualley Co., 87 F.2d 104, 109–10 (7th Cir. 1936)). 186 FMC Corp. v. Varco Int’l, Inc., 677 F.2d 500, 504 (5th Cir. 1982). 187 See DSC Commc’ns Corp. v. Next Level Commc’ns, 107 F.3d 322, 330 (5th Cir. 1997) (affirming award of $369 million in compensatory damages, $10 million in punitive damages and attorneys’ fees based upon the inherent power of the court). 188 See Texas Tanks, Inc. v. Owens-Corning Fiberglas Corp., 99 F.3d 734, 739–40 (5th Cir. 1996), withdrawn, 99 F.3d 740 (5th Cir. 1997).
36 Chapter 1 What Is Protectable as a Trade Secret?
D. The Massachusetts Definition Massachusetts has also adopted the Restatement (First) of Torts definition of “trade secret” and allows common-law claims brought under the Restatement.189 In addition, it has enacted specific trade secret statutes. One provides for the award of double damages for a trade secret theft: Whoever embezzles, steals or unlawfully takes, carries away, conceals, or copies, or by fraud or deception obtains, from any person or corporation, with intent to convert to his own use, any trade secret, regardless or value, shall be liable in tort to such person or corporation for all damages resulting therefrom. Whether or not the case is tried by a jury, the court, in its discretion, may increase the damages up to double the amount found.190
The Massachusetts statute also provides for injunctive relief, notably authorizing the courts to enforce noncompete agreements to protect trade secrets after a misappropriation has occurred: Any aggrieved person may file a petition in equity in the supreme judicial court or in the superior court for the county in which either the petitioner or the respondent resides or transacts business, or in Suffolk County, to obtain appropriate injunctive relief including orders or decrees restraining and enjoining the respondent from taking, receiving, concealing, assigning, transferring, leasing, pledging, copying or otherwise using or disposing of a trade secret, regardless of value. . . . In an action by an employer against a former employee under the provisions of this section for the conversion of a trade secret and where such conversion is in violation of the terms of a written employment agreement between said employer and employee, said employer shall, upon petition, be granted a preliminary injunction if it is shown that said employee is working in a directly competitive capacity with his former employer in violation of the terms of such agreement and that in violation of the terms of such agreement said employee has used such trade secret in such competition.191
The foregoing civil statutes do not rely on the Restatement (First) of Torts definition of “trade secret” but, rather, incorporate the definition of “trade secret” taken from the Massachusetts larceny statute: The term “trade secret” as used in this paragraph means and includes anything tangible or intangible or electronically kept or stored, which constitutes, represents,
189 See Burten v. Milton Bradley Co., 763 F.2d 461, 463 (1st Cir. 1985); J.T. Healy & Son, Inc., v. James A. Murphy & Son, Inc., 357 Mass. 728, 736, 260 N.E.2d 723, 729 (1970). 190 Mass. Ann. Laws ch. 93, § 42 (1975). 191 Id. § 42A.
The Massachusetts Definition 37 evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement.192
Massachusetts courts also apply the six-factor test of the Restatement (First) of Torts test of secrecy.193 As under the Restatement, information in Massachusetts must be in continuous use to be protectable.194 Massachusetts also imposes a strict obligation on owners to protect their trade secrets. A trade secret owner must provide constant warnings to all persons to whom the trade secret has become known; must obtain their agreement, preferably in writing, acknowledging the secrecy of the information and promising to respect it; and must have taken affirmative steps to preserve the secrecy of the information against any alleged misappropriator.195 As in most UTSA states, Massachusetts applies a three-year statute of limitations subject to the “discovery rule,” in which the limitations period does not begin until the owner has had a reasonable opportunity to discover the trade secret misappropriation.196 Massachusetts, however, also applies the New York rule that if the trade secret is used but not converted totally or destroyed, each separate use will give rise to a separate cause of action.197 The same limitations period applies to claims for unjust enrichment resulting from the unlawful use of trade secrets.198 In contrast to the general rule in UTSA states, Massachusetts allows trade secret misappropriation claims when the information at issue could have been, but was not, obtained by reverse engineering a product sold publicly.199 In such cases, any damages and injunctive relief are measured by the “head start” gained by the misappropriator.200 Otherwise, actual and punitive damages may be awarded and any defendants who mutually enjoy the benefits of a misappropriation may be held jointly liable.201 The damage award ordinarily reflects the unjust enrichment of the defendant because of its exploitation of the trade secret but may consist of the plaintiff’s losses or
192 Mass. Ann. Laws ch. 266, § 30 (2007). 193 See Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 939, 466 N.E.2d 138, 140 (1984); Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972). 194 See Trimless-Flashless Design, Inc. v. Thomas & Betts Corp., 34 Fed. Appx. 913, 915 (4th Cir. 2002). 195 See Incase, Inc. v. Timex Corp., 488 F.3d 46, 53 (1st Cir. 2007) (citing J.T. Healy & Son, Inc. v. James A. Murphy & Son, Inc., 357 Mass. 728, 737–39, 260 N.E.2d 723, 730–31 (1970)). 196 See Prescott v. Morton Int’l, Inc., 769 F. Supp. 404, 408 (D. Mass. 1990). 197 See id. 198 See id. 199 See Analogic Corp. v. Data Translation, Inc., 371 Mass. 643, 647–48, 358 N.E.2d 804, 807 (1976). 200 See id. 201 See Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 844, 282 N.E.2d 921, 927 (1972).
38 Chapter 1 What Is Protectable as a Trade Secret?
the defendant’s profits, whichever is greater.202 A reasonable royalty is the proper measure of damages only if the defendant has made no actual profit and the plaintiff is unable to prove a specific loss.203 In contrast to UTSA states, Massachusetts makes no provision for attorneys’ fees in trade secret cases.204 To obtain a preliminary injunction in Massachusetts, a plaintiff must demonstrate that (1) it has a reasonable likelihood of success on the merits, (2) it will suffer irreparable harm if the injunction is not granted, and (3) the harm to the plaintiff if the injunction is denied will outweigh the harm to the defendant if the injunction is granted.205 Only rights that are not capable of vindication by a final judgment, either at law or in equity, qualify as irreparably lost.206 Massachusetts courts are not inclined to grant preliminary injunctive relief based on the “inevitable disclosure” doctrine but will issue a protective order prohibiting the use or disclosure of trade secrets.207 To prove a claim for misappropriation, a plaintiff must ordinarily show that it shared a confidential relationship with the defendant, possessed a trade secret, disclosed it to the defendant, and that the defendant used the trade secret in breach of the confidence.208 An agreement attempting to prevent the establishment of a confidential relationship must specifically waive the confidentiality in express terms.209
E. The North Carolina Definition North Carolina, whose statute is loosely based on the UTSA as drafted in 1979, offers a broader protection of trade secrets than is afforded under the Restatement (First) of Torts. The North Carolina statute adds “including but not limited to” to the Restatement definition of “trade secret”: As used in this Article, unless the context requires otherwise: ...
202 See USM Corp. v. Marson Fastener Corp., 392 Mass. 334, 338–39, 467 N.E.2d 1271, 1276–77 (1984). 203 See Curtiss-Wright Corp. v. Edel-Brown Tool & Die Co., 381 Mass. 1, 12, 407 N.E.2d 319, 327 (1980). 204 See Data Gen. Corp. v. Grumman Sys. Support Corp., 825 F. Supp. 340, 345–46 (D. Mass. 1993) (allowing plaintiff to rely on the Copyright Act to seek award of attorneys’ fees and costs). 205 See Campbell Soup Co. v. Giles, 47 F.3d 467, 470 (1st Cir. 1995). 206 See id. 207 See Architext, Inc. v. Kikuchi, No. 0500600, 20 Mass. L. Rptr. 127, 2005 WL 2864244 (Super. Ct. May 19, 2005). 208 See Burten v. Milton Bradley Co., 763 F.2d 461, 463 (1st Cir. 1985). 209 See id.
The North Carolina Defi nition 39 (3) “Trade Secret” means business or technical information, including but not limited to a formula, pattern, program, device, compilation of information, method, technique, or process that: (a) Derives independent actual or potential commercial value for not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The existence of a trade secret shall not be negated merely because the information comprising the trade secret has also been developed, used, or owned independently by more than one person, or licensed to other persons.210
North Carolina further defines “misappropriation” as the “acquisition, disclosure, or use of a trade secret of another without express or implied authority or consent, unless such trade secret was arrived at by independent development, reverse engineering, or was obtained from another person with a right to disclose the trade secret.”211 Thus, in North Carolina there is no requirement that a trade secret have been obtained through improper means for a misappropriation to occur. A defendant may therefore be found liable even if it proves that it obtained the trade secret in good faith. North Carolina, however, does apply the six-factor test from the Restatement (First) of Torts to determine whether information is sufficiently secret as to qualify for protection.212
210 N.C. Gen. Stat. §§ 66-152 (2007). 211 See id. 212 See Area Landscaping, L.L.C. v. Glaxo-Wellcome, Inc., 160 N.C. App. 520, 525, 586 S.E.2d 507, 511 (2003) (court “should” consider those factors); Combs & Assocs. v. Kennedy, 147 N.C. App. 362, 369–70, 555 S.E.2d 634, 640 (2001) (Restatement factors “are to be considered”); Byrd’s Lawn & Landscaping, Inc. v. Smith, 142 N.C. App. 371, 375, 542 S.E.2d 689, 692 (2001) (factors are “properly considered”).
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CHAP T ER
2 Litigating Trade Secret Actions—Plaintiff’s Perspective
A. Alleging Trade Secret Misappropriation
43
1. Misappropriation
43
2. Improper Means
44
3. Acquisition, Use, or Disclosure
46
4. Imputed and Joint Liability
48
B. Elements of Misappropriation Claim
48
C. Alleging Alternative Claims
50
1. State Law Claims
54
a. Breach of Express Contract
54
(i) Employment Agreements
55
(ii) License and Franchise Agreements
57
b. Breach of Implied-in-Fact Contract
58
c. Breach of Implied-in-Law Contract
58
d. Breach of Duty of Confidence
59
e. Breach of Fiduciary Duty
61
f. Breach of Duty of Loyalty
62
g. Common-Law Misappropriation
62
h. Conversion
64
i. Interference with Prospective Business Advantage
65
j. Unfair Competition
66
k. Civil Conspiracy
67
l. Replevin or Civil Writ of Possession
68
m. Unjust Enrichment
69
n. Unauthorized Access to Computers
69
2. Federal Claims
71
a. Copyright Infringement
71
b. Computer Fraud and Abuse Act
73
41
42 Chapter 2 Litigating Trade Secret Actions—Plaintiff ’s Perspective c. Stored Wire and Electronic Communications and Transactional Records Access
75
d. RICO Claims
75
3. U.S. International Trade Commission Investigation
77
D. Requirement to Identify Trade Secrets with “Reasonable Particularity”
83
E. Preliminary Injunctive Relief
87
1. Bases for Relief
88
a. Actual Misappropriation
88
b. Threatened Misappropriation
89
c. “Inevitable Disclosure” Doctrine
91
2. Seeking a Temporary Restraining Order
101
3. Obtaining a Preliminary Injunction
104
a. Irreparable Injury
106
b. Likelihood of Success
107
c. Balancing the Hardships
108
4. Bond Requirement
108
F. Choosing an Expert
110
G. Discovery Tactics
119
H. Remedies
122
I. Settlement J. Procedural Considerations 1. Strategic Venue Choices
126 129 129
a. Plaintiff Needs Quick Discovery
129
b. Plaintiff Seeks to Enforce a Noncompete Agreement
130
c. Plaintiff Seeks to Enjoin “Inevitable Disclosure“ of Trade Secrets
131
d. Defendant Files Preemptive Action
132
e. Choosing a Different Defendant
133
2. Statute of Limitations
133
a. UTSA
133
b. Restatement (First) of Torts
137
c. New Jersey
137
d. New York
137
K. Standing
138
Alleging Trade Secret Misappropriation
Organizing a strong plaintiff’s case for trade secret misappropriation requires— as in other litigation—a blend of thorough substantive knowledge, care in selecting the best claims to assert, determination of the best forum for the action, judgment as to whether to seek provisional relief, and a sensible plan for working with fact and expert witnesses. This chapter begins with a discussion of the legal requirements for establishing a case for trade secret misappropriation under the USTA. Trade secret claims generally are brought together with other causes of action. The principal contract, tort, and statutory claims that may be combined with a claim for trade secret misappropriation are identified and the strategic benefits for bringing such additional claims briefly discussed. Trade secret plaintiffs should always consider seeking a temporary restraining order or preliminary injunction because the course of litigation is often decided by the outcome of the preliminary injunction battle. The final sections in this chapter discuss discovery considerations and selection of experts.
A. Alleging Trade Secret Misappropriation 1. Misappropriation Under Section 1(2) of the UTSA, “misappropriation” is defined as: (i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (ii) disclosure or use of a trade secret of another without express or implied consent by a person who (A) used improper means to acquire knowledge of the trade secret; or (B) at the time of disclosure or use knew or had reason to know that his knowledge of the trade secret was (I) derived from or through a person who has utilized improper means to acquire it; (II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (C) before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
To establish liability under the UTSA, a plaintiff must therefore show that the defendant “knew or had reason to know” of the wrongful use or disclosure.
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44 Chapter 2 Litigating Trade Secret Actions—Plaintiff ’s Perspective
An employer may be charged with constructive knowledge if it fails to make reasonable inquiry of a new employee who brings new information to his or her employment.1 If the defendant is found liable for misappropriation, it may be enjoined from using the trade secret, at least for the period of the “head start” it gained as a result of the misappropriation. On the other hand, if a defendant has innocently received and used another’s trade secret, a court might decline to impose an injunction, instead requiring that the defendant pay a reasonable royalty. A significant difference between the UTSA and the Restatement (First) of Torts’ view of misappropriation is that the latter requires disclosure or use for a misappropriation to occur.2 Under the UTSA, the wrongful acquisition of a trade secret, without more, can constitute misappropriation. Under both the Restatement and the UTSA, however, if the trade secret was properly acquired from the trade secret owner, no liability will attach unless the defendant has improperly made actual use of the trade secret.3
2. Improper Means There is no clear definition of the type of “improper” conduct that will result in a finding of trade secret misappropriation. As a general matter, however, if a trade secret was not acquired by permission of the owner as a result of independent creation or through reverse engineering, its acquisition was most likely improper. The Restatement (Third) of Unfair Competition, which attempts to achieve consistency with the UTSA, explains that: It is not possible to formulate a comprehensive list of the conduct that constitutes “improper” means of acquiring a trade secret. If a trade secret is acquired through conduct that is itself a tortious or criminal invasion of a trade secret owner’s rights, the acquisition ordinarily will be regarded as improper. . . . A person who obtains a trade secret by inducing or knowingly accepting a disclosure from a third person who has acquired the secret by improper means, or who induces or knowingly accepts a disclosure from a third person that is in breach of a duty of confidence owed by the third person to the trade secret owner, also acquires the secret by improper means.
1 See Rohm & Hass Co. v. Adco Chem. Co., 89 F.2d 424, 431 (3d Cir. 1982) (“Defendants never asked where the ‘Harvey process’ had come from. Defendants therefore were charged ‘with whatever knowledge such inquiry would have led to.’”) (quoting Vulcan Detinning Co. v. Am. Can Co., 72 N.J. Eq. 387, 398–99, 67 A. 339, 344 (1907); Data Gen’l Corp. v. Grumman Sys. Support Corp., 825 F. Supp. 340, 360 (D. Mass. 1993) (“studious ignorance” is not a defense). 2 See Restatement (Third) of Unfair Competition § 40 cmt. b (1995). 3 Id. § 40 cmt. b.
Alleging Trade Secret Misappropriation The acquisition of a trade secret can be improper even if the means of acquisition are not independently wrongful. The propriety of the acquisition must be evaluated in light of all the circumstances of the case, including whether the means of acquisition are inconsistent with accepted principles of public policy and the extent to which the acquisition was facilitated by the trade secret owner’s failure to take reasonable precautions against discovery of the secret by the means in question. Among the factors relevant to the reasonableness of the trade secret owner’s precautions are the foreseeability of the conduct through which the secret was acquired and the availability and cost of effective precautions against such an acquisition, evaluated in light of the economic value of the trade secret.4
Whether a trade secret was acquired by improper means is a highly factual inquiry. The acquisition of a trade secret by improper means will be found if a person authorized to see trade secret information exceeds that authorization. For example, an employee who downloads or copies trade secret information after deciding to tender his or her resignation has committed a wrongful act and, in a UTSA state, will be found to have misappropriated trade secrets even though no use or disclosure have yet occurred.5 An improper acquisition commonly involves copying or removing trade secret information6 or obtaining trade secret information directly from the trade secret owner’s employee.7 However, such obvious skullduggery need not be employed. An “improper” acquisition may also be found even when otherwise lawful means are used to obtain information. The Fifth Circuit held that a trade secret misappropriation had occurred through “a school boy’s trick” when a competitor took aerial photographs of a DuPont factory under construction from public air space.8 However, the same court later held that it was not improper for a competitor to observe a factory from a public highway.9 Trade secrets can also be misappropriated through the use of memory. “It does not matter whether a copy of [the plaintiff’s] drawing came out in a defendant’s hand or in his head.”10 Yet courts may react differently depending on whether information is casually remembered or deliberately memorized. For example, in Tactica International, Inc. v. Atlantic Horizon International, Inc., the court declared that “[r]emembered information as to specific needs and
4 5 6 7 8 9 10
Id. § 43 cmt. c. Liebert Corp. v. Mazur, 357 Ill. App. 3d 265, 281, 827 N.E.2d 909, 925 (2005). See Chicago Lock Co. v. Fanberg, 676 F.2d 400, 404 (9th Cir.1982). Sinclair v. Aquarius Elecs., 42 Cal. App. 3d 216, 116 Cal. Rptr. 654 (1974). E.I. duPont deNemours & Co. v. Christopher, 431 F.2d 1012, 1016 (5th Cir. 1970). Interox Am. v. PPG Indus., 736 F.2d 194, 201 (5th Cir. 1984). Sperry Rand Corp. v. Rothlein, 241 F. Supp. 549, 563 (D. Conn. 1964).
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business habits of particular customers is not confidential.”11 Similarly, the Restatement (Third) of Unfair Competition Section 42, comment d, explains: Courts are . . . more likely to conclude that particular information is a trade secret if the employee on termination of the employment appropriates some physical embodiment of the information such as written formulas, blueprints, plans, or lists of customers. However, although information that is retained in the employee’s memory may be less likely to be regarded as a trade secret absent evidence of intentional memorization, the inference is not conclusive.12
The permissible balance of competitive intelligence-gathering frequently has been the subject of litigation. As a general matter, courts recognize that fair means of increasing competition, including the use of competitive intelligence, are beneficial. Even while railing against the use of an airplane to photograph a chemical plant under construction, the Fifth Circuit observed that “for our industrial competition to remain healthy there must be breathing room for observing a competing industrialist. A competitor can and must shop its competition for pricing and examine his products for quality, components, and methods of manufacture.”13 The key, of course, is fairness. Thus, it is perfectly acceptable to gather a competitor’s secrets by observing its presentation at a convention or visiting areas of a competitor’s facility open to the public, unless entry is gained through false pretenses such as pretending to be a prospective customer.14 Courts view the shredding of trade secrets documents as among the spectrum of measures that can reasonably be taken to protect the secrecy of information, but at the same time usually view rummaging through a competitor’s trash as improper.15
3. Acquisition, Use, or Disclosure The UTSA does not define “acquisition,” “disclosure,” or “use.” Nonetheless, an understanding of these terms has emerged. The acquisition of a trade secret need not be intentional. Some courts have held constructive knowledge is sufficient, applied a “knew or should have known” test, and relied upon the familiarity with the practices and customs in the industry
11 12 13 14
Tactica Int’l, Inc. v. Atl. Horizon Int’l, Inc., 154 F. Supp. 2d 586, 606 (S.D.N.Y. 2001). Restatement (Third) of Unfair Competition § 42 cmt. d (1995). E.I. duPont deNemours & Co., 431 F.2d at 1016. Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772, 785 (5th Cir. 1999); Cont’l Data Sys., Inc. v. Exxon Corp., 638 F. Supp. 432, 435–36 (E.D. Pa.1986). 15 See B.C. Ziegler & Co. v. Ehren, 141 Wis. 2d 19, 30, 414 N.W.2d 48, 53 (1987); Tennant Co. v. Advance Mach. Co., 355 N.W.2d 720, 725 (Minn. Ct. App. 1984); Drill Parts & Serv. Co. v. Joy Mfg. Co., 223 U.S.P.Q. (BNA) 521, 526 (Ala. Sept. 23, 1983).
Alleging Trade Secret Misappropriation
to suggest that a third person’s disclosure to a party was unauthorized.16 An actionable use may occur even if the trade secret was previously misappropriated by another person if the second user knows of the earlier misappropriation.17 Inadvertent acquisition can occur, for example, while interviewing prospective employees concerning their job skills or when an employee uses or discloses information belonging to a prior employer.18 Even if a defendant did not directly or indirectly participate in the acquisition of a trade secret, the defendants may nonetheless be liable for its subsequent use or disclosure.19 A misappropriation can also occur based on the use or disclosure of only a portion of a trade secret.20 A use may also consist of nothing more than “passive consideration.”21 Use also may occur if a company avoided incurring development expenses.22 The corollary is also true: the use of the trade secret as a starting point to assist or accelerate research is also actionable.23 An improper “use” may occur when one uses a trade secret that is owned jointly with another, and the allegedly improper use is outside the scope of the joint venture, agreement, or other restrictions on the joint use of the secret.24 No liability will attach to someone who acquires trade secret information without notice that it belongs to another.25 When the recipient is placed on notice of another’s rights, however, he or she may thereafter be liable for misappropriation based on the use or disclosure of the information.26 In this regard, the UTSA differs from the Restatement (First) of Torts, which provides that one who pays value in good faith or who changes his position in reliance on a belief that no misappropriation has occurred cannot be liable for misappropriation.27
16 Computer Assocs. Int’l v. Altai, Inc., 982 F.2d 693, 718 (2d Cir. 1992) (“constructive notice is sufficient”); Anaconda Co. v. Metric Tool & Die Co., 485 F. Supp. 410, 425 (E.D. Pa. 1980) (“knew or should have known”); Warrington Assocs. v. Real-Time Eng’g Sys. Inc., 522 F. Supp. 367, 370 (N.D. Ill. 1981) (the defendant’s familiarity with practices and customs in the industry should have suggested that a third person’s disclosure to the defendant was unauthorized). 17 PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368, 1383, 1385, 93 Cal. Rptr. 2d 663, 673, 675 (2000). 18 See Loral Corp. v. Moyes, 174 Cal. App. 3d 268, 275, 219 Cal. Rptr. 836, 840 (1985). 19 Intermedics, Inc. v. Ventritex, Inc., 822 F. Supp. 634, 647 (N.D. Cal. 1993). 20 Vermont Microsys., Inc. v. Autodesk, Inc., 88 F.3d 142, 147–49 (2d Cir. 1996); Religious Tech. Ctr. v. Netcom On-Line Commc’n Servs., Inc., 923 F. Supp. 1231, 1257 n.31 (N.D. Cal. 1995). 21 Syngenta Crop Protection, Inc. v. Helliker, 138 Cal. App. 4th 1135, 1172, 42 Cal. Rptr. 3d 191, 218 (2006) (state agency passively considered previously submitted data in making decision regarding trade secret holder’s competitor). 22 See Telex Corp. v. IBM Corp., 510 F.2d 894, 932 (10th Cir. 1975) (defendant avoided development expenses for product that was never marketed). 23 N. Petrochem. v. Tomlinson, 484 F.2d 1057, 1059 n.2 (7th Cir. 1973). 24 Morton v. Rank Am., Inc., 812 F. Supp. 1062, 1074–75 (C.D. Cal. 1993). 25 Ferroline Corp. v. Gen’l Aniline & Film Corp., 207 F.2d 912, 923 (7th Cir. 1953). 26 Restatement (Third) of Unfair Competition § 40 cmt. d (1995); UTSA §§ 2(b), 3(a) (amended 1985); Forest Labs., Inc. v. Pillsbury Co., 452 F.2d 621, 627 (7th Cir. 1971). 27 Restatement (First) of Torts § 758 (1939).
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48 Chapter 2 Litigating Trade Secret Actions—Plaintiff ’s Perspective
4. Imputed and Joint Liability In a misappropriation action, the potential defendants include more than the employee who departed with trade secrets (if that is what happened) and the new employer to whom the trade secrets were disclosed. If another company has improperly acquired, used, or disclosed the trade secrets, it and its shareholders, officers, and directors may be held personally liable for the misappropriation “when they knew or had reason to know about but failed to put a stop to tortious conduct.”28 Similarly, employees and agents of a corporate misappropriator “are jointly liable for torts committed in the corporate name.”29
B. Elements of Misappropriation Claim Most USTA states require that four elements be alleged in a misappropriation claim: (1) The plaintiff is the owner of a trade secret. (2) The plaintiff disclosed the trade secret to the defendant, or the defendant wrongfully took the trade secret from the plaintiff without the plaintiff ’s authorization. (3) The defendant was in a legal relation with reference to the plaintiff as a result of which the defendant’s use or disclosure of the trade secret to the plaintiff ’s detriment was wrongful. (4) The defendant has used or disclosed (or will use or disclose) the trade secret to the plaintiff ’s detriment; or the defendant, who knew or should have known of the plaintiff ’s rights in a trade secret, used such secret to the plaintiff ’s detriment.30
Some states combine or reorganize the required elements without making a substantive departure from the Uniform Act.31 In Ohio, to allege a cause of action for wrongful appropriation of trade secrets, a plaintiff must establish three
28 PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368, 1385, 1389, 93 Cal. Rptr. 2d 663, 675, 678 (2000) (reversing summary judgment in favor of defendants because there were triable issues of fact as to whether “in anticipation of enormous corporate and personal profit, [they] knowingly invested at a bargain price in a corporation whose sole business assets consisted of stolen confidential information and processes, and subsequently controlled the entity which was engaging in unlawful conduct”); see also Components for Research, Inc. v. Isolation Prods., Inc., 241 Cal. App. 2d 726, 729–30, 50 Cal. Rptr. 829, 831 (1966) (holding that directors were personally liable for the corporation’s misappropriation). 29 Vacco Indus., Inc. v. Van Den Berg, 5 Cal. App. 4th 34, 53 n.20, 6 Cal. Rptr. 2d 602, 613 n.20 (1992). 30 Greenberg v. Croydon Plastics Co., 378 F. Supp. 806, 811 (E.D. Pa. 1974). 31 See Appendix for a more detailed discussion of specific state requirements.
Elements of Misappropriation Claim 49
elements: (a) the existence of a trade secret, (b) the acquisition of the trade secret as a result of a confidential relationship, and (c) the unauthorized use of the secret.32 Florida requires that a misappropriation claimant establish (1) the plaintiff possessed “trade secret” information and took reasonable steps to protect its secrecy; and (2) the trade secret it possessed was misappropriated, either by one who knew or had reason to know that the “trade secret” was improperly obtained or by one who used improper means to obtain disclosure of the trade secret in confidence.33 Virginia modifies those elements slightly by requiring that the plaintiff prove (1) it possessed a valid trade secret, (2) the defendant acquired its trade secret, and (3) the defendant knew or should have known that the trade secret was acquired by improper means.34 Oregon does things a bit differently. The elements of a trade secret claim are (1) a valuable commercial design, (2) a confidential relationship, and (3) the disclosure of a key feature of the design shown to be the creative product of the party asserting protection.35 Under Tennessee law, the four elements of a trade secret claim are (1) the existence of a trade secret, (2) which is secret, (3) which was obtained by a breach of confidence or through improper means, and (4) which information was used by the defendant to the plaintiff’s detriment.36 In Wisconsin, the four-element test is tweaked to emphasize that the essence of the action lies in the inequitable taking or use of a trade secret. Accordingly, a plaintiff in Wisconsin must prove (1) the defendant engaged in improper conduct, (2) the information was a trade secret, (3) the plaintiff took reasonable efforts to keep the information secret, and (4) the defendant knew or should have known that its action was improper.37 As might be expected, other tests are used outside the UTSA states. New Jersey has established a six-point list of elements, focusing on the “secrecy” of the information. As explained by one court: It appears . . . that the essential elements of a claim of this nature against a third person in New Jersey are: (1) existence of a trade secret, (2) a substantial element
32 GTI Corp. v. Calhoon, 309 F. Supp. 762, 767 (S.D. Ohio 1969); see also Penetone Corp. v. Palchem, Inc., 627 F. Supp. 997, 1005, 228 U.S.P.Q. (BNA) 497, 503 (N.D. Ohio 1985). 33 See Greenberg v. Miami Children’s Hosp. Research Inst., Inc., 264 F. Supp. 2d 1064, 1076–77 (S.D. Fla. 2003); Select Portfolio Servicing, Inc. v. Evaluation Solutions, L.L.C., No. 306CV582J33MMH, 2006 WL 2691784, *12–13 (M.D. Fla. Sept. 20, 2006). 34 See Religious Tech. Ctr. v. Lerma, 908 F. Supp. 1362, 1368 (E.D. Va. 1995). 35 See Lamb-Weston, Inc. v. McCain Foods, Ltd., 941 F.2d 970, 972, 19 U.S.P.Q.2d (BNA) 1775 (9th Cir. 1991). 36 See Combustion Eng’g, Inc. v. Murray Tube Works, Inc., 222 U.S.P.Q. (BNA) 239, 243 (E.D. Tenn. Feb. 24, 1984). 37 See RTE Corp. v. Coatings, Inc., 84 Wis. 2d 105, 115, 267 N.W.2d 226, 231 (1978).
50 Chapter 2 Litigating Trade Secret Actions—Plaintiff ’s Perspective of secrecy preserved, (3) disclosure to someone under an express or implied obligation to preserve secrecy, (4) disclosure by that person in breach of confidence, (5) to a third party who acquires information with knowledge of the claimant’s rights therein and (6) use by the third party to the detriment of plaintiff.38
New York, in contrast, has streamlined the elements to require a plaintiff to show (1) it possessed a trade secret, and (2) the defendant is using the trade secret in breach of an agreement or a duty of confidence, or as a result of the discovery of the trade secret by improper means.39 In Massachusetts, the four elements of a trade secret case are (1) a showing that the owner shared a confidential relation with the defendant, (2) proof that the plaintiff possessed a trade secret, (3) proof that the trade secret was disclosed to the defendant, and (4) proof that the defendant used the trade secret in breach of the confidence.40 Finally, Texas has a flexible approach to establishing trade secret misappropriation revolving, of course, around proof of secrecy. Beyond that, no standard formula is used. The courts consider the value of the secret to the owner in providing a substantial advantage over competitors and the cost to the plaintiff to develop the secret.41 In one case, the Fifth Circuit explained that proof of trade secret misappropriation in Texas requires (1) the existence of a trade secret, (2) the breach of a confidential relationship or improper discovery of the secret, (3) the use of the secret by the defendant, and (4) damages.42
C. Alleging Alternative Claims Beyond the time-honored principle of “throw it all up to see what sticks,” there are a number of reasons why a plaintiff might want to allege alternative claims in a trade secret misappropriation action, either in addition to or in lieu of alleging a claim under the UTSA or other state trade secret misappropriation law.
38 Ferroline Corp. v. Gen’l Aniline & Film Corp., 207 F.2d 912, 921 (7th Cir. 1953); see also Rohm & Haas Co. v. Adco Chem. Co., 689 F.2d 424, 429–30 (3d Cir. 1982). 39 See Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173 (2d Cir. 1990); Worldwide Sport Nutritional Supplements, Inc. v. Five Star Brands, L.L.C., 80 F. Supp. 2d 25, 30 (N.D.N.Y. 1999). 40 See Burten v. Milton Bradley Co., 763 F.2d 461, 463 (1st Cir. 1985). More recently a Massachusetts court defined the test as requiring proof that (1) the information is a trade secret, (2) the owner took reasonable steps to preserve its secrecy, and (3) the defendant used improper means in breach of a confidence to acquire and use the trade secret. See Data Gen’l Corp. v. Grumman Sys. Support Corp., 825 F. Supp. 340, 357 (D. Mass. 1993). 41 See Metallurgical Indus. Inc. v. Fourtek, Inc., 790 F.2d 1195, 1201 (5th Cir. 1986). 42 See Taco Cabana Int’l, Inc. v. Two Pesos, Inc., 932 F.2d 1113, 1123 (5th Cir. 1991), aff ’d, 505 U.S. 763, 112 S. Ct. 2753, 120 L. Ed. 2d 615 (1992).
Alleging Alternative Claims
The most important reason for asserting alternative claims is that it may be easier for a plaintiff to prevail under an alternative theory than on a UTSA claim. Success on alternative claims might not require establishing that the information at issue rises to the level of a trade secret. A wrongful disclosure of “confidential” information prohibited by contract may be established even if the information is neither “secret” nor the subject of “reasonable efforts” to protect secrecy, as required under the UTSA. Further, a breach of a duty of loyalty or a fiduciary duty may occur if there is a disclosure of information that does not qualify as a “trade secret.” In addition, there can be procedural or strategic advantages to pursuing alternative claims. First, alleging an alternative claim that arises under federal law will ensure access to the federal courts under the doctrine of federal question jurisdiction. Otherwise, one could proceed in federal court only pursuant to diversity jurisdiction, which would require complete diversity of citizenship between all plaintiffs and all defendants and an amount in controversy of at least $75,000. Practitioners generally believe that there are advantages to proceeding in federal court. Federal judges are often of higher caliber than state court trial judges (and they have more law clerks to assist them). Federal judges are frequently more willing to grant summary judgment than their state court counterparts and may grant summary adjudication of issues, as opposed to entire causes of action. This is usually not the case in states whose procedural rules do not mirror the Federal Rules of Civil Procedure. And federal courts in some districts (including famously the Eastern District of Virginia near Washington, D.C.) are known as “rocket dockets” for moving their cases along rapidly, thus allowing a plaintiff to get to trial in a matter of months, far less time than would be required in state court. Yet if there is a concern that a case might be subject to transfer to another district less convenient for the plaintiff, one might want to be careful to allege only state law claims because of the ease by which such transfers are accomplished in federal court under 28 U.S.C. §1404. A second advantage to pursuing alternative claims is that a number of states now require that trade secrets be identified with “reasonable particularity” before the plaintiff may commence discovery related to the trade secret.43 Certain federal courts are now requiring such identification as well.44 In those
43 See infra Chapter 2(D). 44 See, e.g., Dura Global Techs., Inc. v. Magna Donnelly Corp., No. 07-CV-10945-DT, 2008 U.S. Dist LEXIS 38989, at *4 (E.D. Mich. May 14, 2008) (court enforced earlier requirement that plaintiff “clearly, unambiguously, and with specificity” define trade secrets at issue and stayed discovery pending such list); DeRubeis v. Witten Techs., Inc., 244 F.R.D. 676, 681 (N.D. Ga. 2007) (requiring identification of trade secrets with “reasonable particularity” prior to commencement of discovery); Levenger Co. v. Feldman, 516 F. Supp. 2d 1272, 1287 (S.D. Fla. 2007) (requiring identification of trade secrets with reasonable particularity under Florida law); Advanced Modular Sputtering, Inc. v. Super. Ct., 132 Cal. App. 4th 826, 833–34, 33 Cal.
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states and districts, trade secret misappropriation defendants reflexively object that the plaintiff has not identified its alleged trade secrets with sufficient particularity. On that basis, the defendants refuse to provide discovery until the court resolves the dispute. Thus, several months may pass before a plaintiff is able to gain any evidence through the discovery process unless the case is expedited through a request for preliminary injunctive relief, combined with a motion for expedited discovery. If the plaintiff needs interlocutory injunctive relief but cannot obtain it except by relying on evidence obtained through discovery, it will obviously be disadvantaged. For this reason, a plaintiff might want to consider omitting any claim for trade secret misappropriation from its complaint and proceeding under other legal theories instead. In executing this strategy, a plaintiff should be careful to avoid pleading other theories in such a manner that the defendant could argue that they are preempted by the UTSA.45 Once the plaintiff has obtained the evidence necessary to obtain a temporary restraining order and/or preliminary injunction, it may ask leave of court to amend its complaint by adding a claim under the UTSA “to conform to proof.”
Rptr. 3d 901, 906 (2005); Neothermia Corp. v. Rubicor Med., Inc., 345 F. Supp. 2d 1042, 1043 (N.D. Cal. 2004); Excelligence Learning Corp. v. Oriental Trading Co., No. 5:03-CV4947 JF (RS), 2004 WL 2452834, at *3 (N.D. Cal. June 14, 2004); Callaway Golf Co. v. Dunlop Slazenger Group Ams., Inc., 318 F. Supp. 2d 205, 216 (D. Del. 2004) (applying California law); Postx Corp. v. Secure Data in Motion, Inc., No. C 02-04483 SI, 2004 WL 2663518, at *3 (N.D. Cal. Nov. 20, 2004) (failure to identify trade secrets with particularity before commencing discovery may result in grant of summary judgment against the plaintiff ); Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1322, 1323 (S.D. Fla. 2001) (“[N]o other state has codified a rule similar to California Civil Procedure Code § 2019(d) [later renumbered as § 2019.210]. This does not mean, however, that Florida would not require Del Monte to identify with reasonable particularity the trade secrets it claims Dr. Funk has misappropriated. In fact, the opposite is true.”); AutoMed Techs., Inc. v. Eller, 160 F. Supp. 2d 915, 926 (N.D. Ill. 2001); Canter v. West Publ’g Co., No. C 96-20440 PVT, 1999 WL 11701, at *8 (N.D. Cal. Jan. 6, 1999); Computer Economics, Inc. v. Gartner Group, 50 F. Supp. 2d 980, 985 (S.D. Cal. 1999); Vermont Microsys., Inc. v. Autodesk, Inc., 88 F.3d 142, 147 (2d Cir. 1996) (“To assert a cause of action for a trade secret misappropriation under California law, VMI was required to ‘identify the trade secret with reasonable particularity.’”); Cal. Micro Devices, Corp. v. Universal Semiconductor, Inc., No. C93-20476 JW (PVT), 1995 WL 705144, at *1 (N.D. Cal. Nov. 21, 1995); Leucadia, Inc. v. Applied Extrusion Techs, Inc., 755 F. Supp. 635, 636 (D. Del. 1991) (requiring identification of trade secrets as part of the plaintiff ’s “notice pleading” requirement); Magnox v. Turner, No. Civ. A. 11951, 1991 WL 182450, at *1 (Del. Ch. Sept. 10, 1991) (denying plaintiff ’s motion to compel discovery because “the relevance of [its] requests cannot be determined until [it] identifies the trade secrets that it claims have been misappropriated by defendant”); Engelhard Corp. v. Savin Corp., 505 A.2d 30, 32–33 (Del. Ch. 1986); Struthers Scientific & Int’l Corp. v. Gen. Foods Corp., 51 F.R.D. 149, 151–52 (Del. 1970). 45 Section 7(a) of the UTSA implicitly preempts alternative civil remedies based on trade secret misappropriation. Callaway Golf Co. v. Dunlop Slazenger Group Ams., Inc., 318 F. Supp. 2d 216, 219 (D. Del. 2004). However, the UTSA allows other civil remedies not based on trade secret misappropriation. See UTSA § 7(b) (amended 1985). For more on preemption, see Chapter 3(A)(1), infra.
Alleging Alternative Claims
Third, a successful plaintiff may be entitled to remedies under alternative theories that it might not obtain under the UTSA. By prevailing on an intentional tort theory and persuading the jury that the defendant acted with malice, oppression, or fraud, a plaintiff may recover punitive and exemplary damages in an amount several times greater than its actual damages. A plaintiff may under certain state common-law claims be able to obtain punitive damages on a showing of lesser wrongful intent than is required under the UTSA.46 By contrast, under the UTSA, a successful plaintiff that proves “willful and malicious appropriation” may, in the court’s discretion, recover exemplary damages in an amount not exceeding twice the amount of its actual damages and any additional unjust enrichment gained by the defendant.47 Likewise, by prevailing on a contract theory, a plaintiff may improve the likelihood that it will be awarded its reasonable attorneys’ fees.48 Attorneys’ fees are usually awarded only when expressly authorized by statute or contract. Under the UTSA, the court has discretion to award reasonable attorneys’ fees if “willful and malicious misappropriation exists.” If, however, a contract provides for the mandatory award of attorneys’ fees to a prevailing plaintiff, the award of attorneys’ fees will be a certainty even without proving willful and malicious misappropriation.49 Fourth, by pleading alternative theories, a plaintiff may increase the number of venues where a suit may be brought against an employee who has lived in several states. An individual defendant is subject to personal jurisdiction in the state where it resides when the action is filed and in the states where its tortious activities occurred or the effects of its tortious activity were directed and felt.50 However, by pleading a breach of contract claim, a plaintiff will likely have the option to file suit in the state where the defendant entered into the contract or where it was to be performed. A contract may contain a forum-selection or consent-to-jurisdiction clause, thereby allowing the assertion of jurisdiction elsewhere. Some forum-selection clauses, however, require that litigation be brought in a given place. In those situations, asserting a breach of contract claim may limit the plaintiff to a particular forum.
46 See, e.g., Mediware Info. Sys. v. McKesson Info. Solutions, L.L.C., No. 06-2391-JWL 2007, U.S. Dist LEXIS 22087, at *14–15 (D. Kan. Mar. 26, 2007) (willfulness needed for punitive damages can be established by showing intentional interference). 47 UTSA § 3(b). 48 The UTSA expressly allows contractual (and criminal) remedies based on trade secret misappropriation. See UTSA § 7(b). 49 See, e.g., Cal. Civ. Code § 1717(a) (2007). 50 For example, in American Eutectic Welding Alloys Sales Co. v. Dytron Alloys Corp., 439 F.2d 428 (2d Cir. 1971), the defendant former employee had been hired and given confidential information in New York. See id. at 430. He later misappropriated the information in a different state. He was nonetheless subject to jurisdiction in New York. See id. at 431.
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Finally, if the government has improperly disclosed a trade secret, a plaintiff must allege either a breach of express or implied contract due to the sovereign immunity bar to bringing tort suits.51
1. State Law Claims a. Breach of Express Contract Contracts are often implicated in the protection of trade secrets, including employment agreements, confidentiality agreements, nondisclosure agreements connected to the commercialization of an invention, and licensing agreements, to name but a few. An express contract may be either written or oral.52 The elements of a breach are easy to plead: (i) the existence of an agreement supported by mutual consideration, (ii) the plaintiff’s performance of its obligations thereunder or excuse for nonperformance, (iii) the defendant’s breach, and (iv) damage to the plaintiff. Courts may award damages for breach of an express (or implied) contract.53 Contract remedies include restitution to place the party in as favorable a position as it would have occupied had the contract been performed. Restitution may consist of disgorgement of the breaching party’s unjust enrichment.54 The deterrent effect of contractual remedies may be significant. For example, a defendant was found liable for breach of contract for disclosing confidential information during the course of judicial proceedings, notwithstanding that statements made during judicial proceedings are otherwise privileged.55 A contract requiring an employee to leave with the employer all materials embodying trade secrets avoids the question whether the employee’s personal notes embodying trade secrets are recoverable.56 A contract may also define ownership rights between an employer and an employee.57 Four types of express contracts are frequently at issue in trade secret litigation. First, there may have been a breach of a nondisclosure agreement entered
51 Breach of contract claims against the United States must be brought in the Court of Claims. Airborne Data, Inc. v. United States, 216 U.S.P.Q. (BNA) 887, 30 Cont. Cas. Fed. ¶ 70,108, 1982 WL 36734 (Ct. Cl. 1982), aff ’d, 702 F.2d 1350 (Fed. Cir. 1983). 52 The elements of a claim for breach of written or oral contract are the same. The difference, from a litigation standpoint, is that a claim for breach of written contract has a longer statute of limitations in most states and is less subject to argument concerning whether it was made at all and, if so, what its terms were. 53 Landsberg v. Scrabble Crossword Game Players, Inc., 736 F.2d 485, 489 (9th Cir. 1984). 54 Ajaxo, Inc. v. E*Trade Group, Inc., 135 Cal. App. 4th 21, 57, 37 Cal. Rptr. 3d 221, 248 (2005). 55 ITT Telecom Prods. Corp. v. Dooley, 214 Cal. App. 3d 318–19, 262 Cal. Rptr. 773, 780 (1989). 56 See Gibson-Homans Co. v. Wall-Tite, Inc., 1992 WL 512411, 26 U.S.P.Q.2d (BNA) 1867 (C.D. Cal. Oct. 27, 1992). 57 SI Handling Sys., Inc. v. Heisley, 753 F.2d 1244, 1259 (3d Cir. 1985).
Alleging Alternative Claims
into with an employee or third party that imposed an obligation to maintain the secrecy of a plaintiff’s information. Second, an employee may have entered into a noncompete agreement, breached by the employee’s taking a job with a competitor. Third, an employee may have failed to honor an assignmentof-invention agreement. Finally, a third party may have breached a franchise or license agreement by using trade secret information beyond the scope or after the term allowed by the license. (i) Employment Agreements The terms of an employee’s contract may affect a claim for trade secret misappropriation whether breach of contract is alleged or not. A number of cases have held that parties may agree contractually to protect information that would not otherwise qualify as a trade secret.58 The modern view, as reflected in the Restatement (Third) of Unfair Competition Section 41, comment d, is that trade secrets cannot be created by characterizing something as such in a contract.59 Thus, even if a UTSA claim is unavailable, a breach of contract action may still be brought. Other courts have focused on the failure of a contract to identify information as a trade secret as a basis for denying protection under the UTSA. They have reasoned that a plaintiff should not be allowed to use the UTSA to accomplish indirectly what it could not do directly by contract.60 Similarly, if a written agreement requires a fixed period of confidentiality, injunctive relief may not be available after the confidentiality period expires.61 However, contractual protections sometimes have been limited by the trade secret misappropriation laws. In Mirafi v. Murphy, an employee confidentiality agreement afforded protection coextensive with that allowed by the North Carolina
58 See, e.g., Lear Siegler, Inc. v. Ark-Ell Springs, Inc., 569 F.2d 286, 289 (5th Cir. 1978); Structural Dynamics Research Corp. v. Eng’g Mechs. Research Corp., 401 F. Supp. 1102, 1114 (E.D. Mich. 1975); Frederick Chusid & Co. v. Marshall Leeman & Co., 279 F. Supp. 913, 917 (S.D.N.Y. 1968). 59 See, e.g., Cambridge Filter Corp. v. Int’l Filter Co., 548 F. Supp. 1301, 1306 (D. Nev. 1982); Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis. 2d 202, 223, 267 N.W.2d 242, 252 (1978) (declaration of trade secret status in employment contract does not estop a subsequent challenge by employee). Some courts have never held that a contractual classification of information as “trade secret” could control. See, e.g., Sarkes Tarzian, Inc. v. Audio Devices, Inc., 166 F. Supp. 250, 265 (S.D. Cal. 1958) (“[M]atters which are generally known in the trade or readily discernable by those in the trade cannot be made secret by being so labeled in an agreement.”), aff ’d, 283 F.2d 695 (9th Cir. 1960). Cf. Restatement (Third) of Unfair Competition § 39 cmt. d (1995) (“An agreement between the parties that characterizes specific information as ‘trade secret’ can be an important although not necessarily conclusive factor in determining whether information qualifies for protection as a trade secret under this Section.”). 60 See, e.g., Ins. Assocs. Corp. v. Hansen, 111 Idaho 206, 723 P.2d 190 (Idaho Ct. App. 1986); Michels v. Dyna-Kote Indus., Inc., 497 N.E.2d 586, 591–92 (Ind. Ct. App. 1986) (holding that a formula and customer list were not entitled to protection as trade secrets). 61 Union Pac. R.R. v. Mower, 219 F.3d 1069, 1077 (9th Cir. 2000).
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trade secret misappropriation statute.62 Because the plaintiff’s information did not satisfy the statutory requirement for protection, protection was denied under the contract as well.63 The notion that there should be an interplay between a contract and a trade secret misappropriation claim finds express recognition in the Restatement (Third) of Unfair Competition Section 40, comment a: The existence of an express or implied-in-fact contract protecting trade secrets does not preclude a separate cause of action in tort under the rules in this section. The terms of a contract may be relevant to a number of issues in such an action, including the existence of a protectible trade secret (see Section 39, Comment d) and the creation of a duty of confidence (see Section 41, Comment b).64
However, the choice to allege a breach of contract may have other consequences. A choice-of-law provision in a contract will likely apply to all claims alleged, and contractual provisions may limit a plaintiff ’s available remedies or shorten the limitations period for bringing an action for misappropriation. The type of contract at issue may present special considerations. The doctrine of “inevitable disclosure,” commonly attributed to PepsiCo., Inc. v. Redmond,65 has been applied only infrequently to a departed employee unless the employee entered into a noncompete agreement.66 The inevitable disclosure doctrine has also been rejected wholesale in a number of states including, most notably, California.67 Where it applies, however, the doctrine allows courts immediately to enjoin a former employee from working for a competitor based only upon a showing that (i) the former employee had access to trade secrets while employed by the plaintiff, and (ii) the
62 Mirafi, Inc. v. Murphy, No. C-C-87-578M, 1989 WL 206491, at *19, 14 U.S.P.Q.2d (BNA) 1337, 1350 (W.D.N.C. Oct. 23, 1989), aff ’d in part and rev’d in part on other grounds, 1991 U.S. App. LEXIS 1636, 18 U.S.P.Q.2d (BNA) 1087 (Fed. Cir. Feb. 4, 1991); see also Rototron Corp. v. Lake Shore Burial Vault Co., 712 F.2d 1214, 1215 (7th Cir. 1983) (a promise to refrain from using commercial information is ordinarily unenforceable unless the information is sufficiently secret to justify the restraint); Am. Family Life Assurance Co. v. Tazelaar, 135 Ill. App. 3d 1069, 1073–74, 90 Ill. Dec. 789, 793, 482 N.E.2d 1072, 1076 (1985); Rigging Int’l Maintenance Co. v. Gwin, 128 Cal. App. 3d 594, 180 Cal. Rptr. 451 (1982); Thomas v. Best Mfg. Corp., 234 Ga. 787, 789, 218 S.E.2d 68, 70–71 (1975). 63 Mirafi, Inc. v. Murphy, 1989 WL 206491, at *19, 14 U.S.P.Q.2d (BNA) at 1350. 64 Restatement (Third) of Unfair Competition § 40 cmt. a (1995). 65 PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1268 (7th Cir. 1995). 66 See Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1326, 1336 (S.D. Fla. 2001) (discussing judicial reluctance to impose a noncompete provision when the parties never bargained for one). 67 Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 1447, 125 Cal. Rptr. 2d 277, 281 (2002). Other states that have rejected the doctrine, at least in some cases, include Alabama, Florida, Indiana, Louisiana, Maryland, Massachusetts, Michigan, Missouri, New York, Oklahoma, and Virginia. See infra Chapter 2(E)(1)(c).
Alleging Alternative Claims
former employee has such similar responsibilities with the new employer as to make it inevitable that he will use or disclose those trade secrets in the performance of his job duties for the new employer. Thus, under the “inevitable disclosure” doctrine, there is no need to prove a defendant’s intent to misappropriate trade secrets. It is sufficient that the new employer’s product “lead time” will be shortened merely because the defendant will avoid repeating experiments or approaches that he or she already knows do not work. Noncompete agreements also raise several other considerations. First, they are almost always unenforceable in California and Louisiana.68 Second, because California courts will invalidate a noncompete agreement signed elsewhere by an employee who subsequently takes a job with a California company, there may be a “race to the courthouse door” as a defendant seeks a declaration of invalidity in California and the plaintiff seeks to enforce the agreement by filing suit elsewhere.69 Third, outside of California and Louisiana, noncompete agreements are subject to “reasonableness” requirements. What is reasonable in one state might be unreasonable in another and what is reasonable in one industry might also be unreasonable in another.70 (ii) License and Franchise Agreements Contract claims must always be considered in the context of business relationships governed by license and franchise agreements. Such agreements often impose limitations even on the use of information that does not constitute a trade secret. A plaintiff may find it easier to prevail on a contract claim against a party that exceeds those limits than on a trade secret misappropriation claim. For one reason, the existence of a contract giving the defendant an arguable right to make use of certain technology may lead to dismissal of the trade secret misappropriation claim on the basis that any trade secret was not acquired through wrongful means, while preserving the possibility that the use of the information nonetheless violated
68 Cal. Bus. & Prof. Code §§ 16600–16602.5 establish a strong public policy prohibiting the enforcement of noncompete agreements except in limited circumstances, such as a sale of a business, including its goodwill, or the departure of a partner from a partnership. See Edwards v. Arthur Andersen L.L.P., 44 Cal. 4th 937, 948–49, 81 Cal. Rptr. 3d 282, 291–92, 189 P.3d 285, 292–93 (2008) (emphasizing California’s rejection of judicial exceptions to the invalidity of noncompete agreements); Muggill v. Reuben H. Donnelley Corp., 62 Cal. 2d 239, 242, 42 Cal. Rptr. 107, 109 (1965); Bosley Med. Group v. Abramson, 161 Cal. App. 3d 284, 288, 207 Cal. Rptr. 477, 480 (1984). 69 See Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881, 900–01, 72 Cal. Rptr. 2d 73, 85-86 (1998) (invalidating a noncompete agreement subject to Maryland choiceof-law and choice-of-forum provisions entered into in Maryland by a Maryland employee working for a Maryland employer because the employee later took a job telecommuting to work for a California employer). 70 See Appendix for discussion of relevant law in select states.
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contractual restrictions.71 For another, a longer statute of limitation may govern a contract claim.72 b. Breach of Implied-in-Fact Contract A suit may also be based on an implied representation to maintain information in confidence, giving rise to a claim for breach of implied contract. In addition to pleading the elements of a breach of contract, the plaintiff must also plead conduct sufficient to establish a contract and the terms of that contract. An implied-in-fact contract “consists of obligations arising from a mutual agreement and intent to promise where the agreement and promise have not been expressed in words.”73 An action for breach of an implied contract typically has the same limitations period as an action based on an oral contract. The same remedies are also available for breach of an implied contract as are available for breach of an express contract. c. Breach of Implied-in-Law Contract Many courts have recognized a duty under an implied-in-law contract, also known as a quasi-contract, to protect an employer’s confidential information: The law is well settled that one of the implied terms of a contract of employment is that the employee will hold sacred any trade secrets or other confidential information which he acquires during the course of his employment, and that therefore an employee who has left his employment is under an implied obligation not to use trade secrets or other information which he acquired during the course of his employment, for his own benefit or that of a rival, and to the detriment of his former employer.74
Some courts hold that the rule may be implied from a confidential employment relationship.75 Agreements have been implied to bind key employees
71 See, e.g., Heavenly Ham Co. v. HBH Franchise Co., L.L.C., No. 04 C 2577, 2005 U.S. Dist. LEXIS 5566, at *45 (N.D. Ill. Feb. 7, 2005) (plaintiff ’s failure to establish that the defendants improperly acquired trade secret information by assignment was fatal to trade secret misappropriation claim; contract claims survived); Evolution, Inc. v. SunTrust Bank, 342 F. Supp. 2d 943, 963 (D. Kan. 2004) (contract claim survived in dispute over software licensing but trade secret misappropriation claim was dismissed). 72 See, e.g., Bliss Clearing Niagara, Inc. v. Midwest Brake Bond Co., 339 F. Supp. 2d 944, 969–71 (W.D. Mich. 2004) (summary judgment granted on trade secret misappropriation claim with three-year statute of limitations, but denied on contract claim under six-year statute). 73 McGough v. Univ. of San Francisco, 214 Cal. App. 3d 1577, 1584, 263 Cal. Rptr. 404, 408 (1989); see also BDT Prods., Inc. v. Lexmark Int’l, Inc., 274 F. Supp. 2d 880, 886 (E.D. Ky. 2003). 74 Amedee Turner, The Law of Trade Secrets 288–89 (1962). 75 See Macbeth-Evans Glass Co. v. Schnelbach, 239 Pa. 76, 85–86, 86 A. 688, 691 (1913).
Alleging Alternative Claims
to maintain the secrecy of trade secrets of key employees under California law76 and even to bind part-time trainees who were nonemployees.77 Other courts have, however, declined to impose a duty to protect trade secrets on workers employed in a modest, hourly-rate capacity.78 Third parties may also be subject to implied-in-law contracts. An obligation to protect trade secrets has been implied with respect to trade secrets disclosed in the course of negotiations.79 Licensees, purchasers, suppliers, and members of joint ventures may also have implied duties to preserve trade secrets.80 In addition, disputes among parties with ongoing business relationships may also lead to claims for breach of implied obligations of good faith and fair dealing.81 d. Breach of Duty of Confidence Even where there is no express contract, the implied duty of confidence can be asserted, in certain states, as grounds for protecting against the wrongful use or disclosure of confidential information. The law with respect to breach of confidence claims varies from state to state, with California and New York serving as the most enthusiastic proponents. The Restatement (Third) of Unfair Competition would limit the duty of confidence to the protection of information that qualifies as “trade secret”: A person to whom a trade secret has been disclosed owes a duty of confidence to the owner of the trade secret for purposes of the rules stated in § 40 if: (a) The person made an express promise of confidentiality prior to the disclosure of the trade secret; or (b) The trade secret was disclosed to the person under circumstances in which the relationship between the parties to the disclosure or the other facts surrounding the disclosure justify the conclusions that, at the time of the disclosure, (1) the person knew or had reason to know that the disclosure was intended to be in confidence, and
76 Maxwell Alarm Screen Mfg. Co. v. Protective Serv. Corp., 218 U.S.P.Q. (BNA) 580, 581 (C.D. Cal. Apr. 3, 1982). 77 By-Buk Co. v. Printed Cellophane Tape Co., 163 Cal. App. 2d 157, 164–65, 329 P.2d 151 (1958). 78 Shatterproof Glass Corp. v. Guardian Glass Co., 322 F. Supp. 854, 864 (E.D. Mich. 1970). 79 Allen-Qualley Co. v. Shellmar Prods. Co., 31 F.2d 293, 295 (N.D. Ill.), aff ’d, 36 F.2d 623 (7th Cir. 1929); Digital Dev. Corp. v. Int’l Memory Sys., Inc., 185 U.S.P.Q. (BNA) 136, 141 (S.D. Cal. Oct. 24, 1973). 80 See Burten v. Milton Bradley Co., 763 F.2d 461, 463 (1st Cir. 1985); T.P. Labs., Inc. v. Huge, 261 F. Supp. 349, 358 (E.D. Wis. 1965) (imposing confidentiality obligations on agents). 81 See, e.g., Camp Creek Hospitality Inns, Inc. v. Sheraton Franchise Corp., 139 F.3d 1396 (11th Cir. 1998) (reversing summary judgment on claim for breach of implied obligation of good faith and fair dealing).
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60 Chapter 2 Litigating Trade Secret Actions—Plaintiff ’s Perspective (2) the other party to the disclosure was reasonable in inferring that the person consented to an obligation of confidentiality.82
However, many courts are not so restrictive. It has been held that to prevail on a claim for breach of confidence under California law, a plaintiff must demonstrate (i) it conveyed confidential and novel information to the defendant, (ii) the defendant knew that the information was being disclosed in confidence, (iii) there was an understanding between the defendant and a plaintiff that the confidence would be maintained, and (iv) there was a disclosure or use of the information in violation of the understanding.83 The District of Columbia requires only that there be an unconsented, unprivileged disclosure to a third party of “nonpublic information” that the defendant has learned within a confidential relationship.84 In Tennessee, the rule is that a plaintiff may recover if the defendant used the “confidences” given to him or her to obtain some benefit from, or advantage over, the plaintiff resulting in detriment to the plaintiff.85 Thus, the Restatement (Third) of Unfair Competition notwithstanding, it is usually said that a claim for breach of confidence will protect “information that does not qualify as a trade secret if the information is disclosed in confidence and later used in a manner that breaches the confidence.”86 In other cases, the imposition of liability for breach of confidence may be justified by the interests that prompt recognition of the general duty of loyalty owed by an employee to an employer.87 A breach of confidence does not require a fiduciary relationship but may arise even when the parties are dealing with one another at arm’s length, such as in a buyer-seller or licensor-licensee relationship.88 The duty of confidence can be created by an express or implied-in-fact promise or by operation of law.89 Because the claim is quasi-contractual, a party may not recover for both breach of confidence and breach of contract. Courts sometimes award
82 Restatement (Third) of Unfair Competition § 41 (1995); see also Johns-Manville Corp. v. Guardian Indus. Corp., 586 F. Supp. 1034 (E.D. Mich. 1983) (policies limiting the scope of trade secret protection are also applicable when the claim is described instead as one for breach of confidence), aff ’d, 770 F.2d 178 (Fed. Cir. 1985). 83 Entm’t Research Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1227 (9th Cir. 1997). 84 Doe v. Medlantic Health Care Group, Inc., 814 A.2d 939, 950 (D.C. 2003). 85 Givens v. Mullikin ex rel. Estate of McElwaney, 75 S.W.3d 383, 410 (Tenn. 2002). 86 Lehman v. Dow Jones & Co., 783 F.2d 285, 299 (2d Cir. 1986). 87 Restatement (Third) of Unfair Competition § 42 cmt. b. 88 Phillips v. Frey, 20 F.3d 623, 632 (5th Cir. 1994); Schreyer v. Casco Prods. Corp., 190 F.2d 921, 924 (2d Cir. 1951); Faris v. Enberg, 97 Cal. App. 3d 309, 321, 158 Cal. Rptr. 704, 711 (1979). 89 Pachmayr Gun Works, Inc. v. Olin Mathieson Chem. Corp., 502 F.2d 802, 807 (9th Cir. 1974); Aerospace Am., Inc. v. Abatement Techs. Inc., 738 F. Supp. 1061, 1071 (E.D. Mich. 1990); Kamin v. Kuhnau, 232 Or. 139, 152, 374 P.2d 912, 919 (1962).
Alleging Alternative Claims
damages and injunctive relief for breach of confidence in combination with trade secret misappropriation claims.90 e. Breach of Fiduciary Duty To prevail on a claim for breach of fiduciary duty, a plaintiff must prove (i) a fiduciary duty existed between the plaintiff and the defendant, (ii) the defendant breached the fiduciary duty, (iii) the breach of the fiduciary duty proximately caused damage to the plaintiff, and (iv) the amount of damage.91 Some courts hold that a company’s fiduciaries are limited to officers and managerial employees entrusted with sensitive information and allowed to exercise discretion in the performance of their job duties.92 Such courts hold that because the fiduciary is in a unique position to cause harm, he or she is subject to obligations that extend beyond a simple duty of loyalty to the employer. They hold that a fiduciary bears the obligation to reveal to management any information indicating a threat of harm to the organization.93 Courts that hew to this limited view of the nature of fiduciary duties typically hold that the fiduciary obligation owed to the employer continues beyond the end of employment. Thus, post-termination acts can give rise to a breach of fiduciary duty claim.94 On the other hand, other courts view the duty as nothing more
90 See Vacco Indus, Inc., v. Van Den Berg, 5 Cal. App. 4th 34, 50, 6 Cal. Rptr. 2d 602, 611 (1992). 91 Hoselton v. Metz Baking Co., 48 F.3d 1056, 1063 n.10 (8th Cir. 1995); Shields v. Cape Fox Corp., 42 P.3d 1083, 1989 n.13 (Alaska 2002). 92 See GAB Bus. Servs., Inc. v. Lindsey & Newsome Claim Servs., Inc., 83 Cal. App. 4th 409, 420–21, 99 Cal. Rptr. 2d 665, 672 (2000); Modern Materials, Inc. v. Advance Tooling Specialists, Inc., 557 N.W.2d 835, 838 (Wis. Ct. App. 1996). At least one state supreme court has held that there is no fiduciary obligation owed by an employee to an employer because the employee does not exert “domination and influence” over the employer. Dalton v. Camp, 548 S.E.2d 704, 708 (N.C. 2001). 93 See Lowndes Prods., Inc. v. Brower, 191 S.E.2d 761, 768 (S.C. 1972) (“When the plant manager came to know that key employees were going to leave, it became his duty to notify his employers; instead, he lured them away and kept it secret.”). 94 See Wells Fargo Home Mortgage v. Devereaux, No. 3:06CV649-HEH, 2006 U.S. Dist. LEXIS 92718, at *8 (E.D. Va. Dec. 22, 2006) (“fiduciary duties and duties of loyalty survive beyond employment”); Int’l Paper Co. v. Gilliam, 63 Va. Cir. 485, 491 (2003) (“Even after termination of an agency or employment relationship, the agent ‘has a duty to the principal not to use or to disclose to third persons, on his own account or on account of others, in competition with the principal or to his injury, trade secrets, written lists of names, or other similar confidential matters given to him only for the principal’s use.’”) (quoting Peace v. Conway, 246 Va. 278, 281–82, 435 S.E.2d 133, 135, 10 Va. Law Rep. 282 (1993) (citing the Restatement (Second) of Agency § 396 (1958)); RenewData Corp. v. Strickler, No. 03-05-00273-CV, 2006 Tex. App. LEXIS 1689, at *32, 2006 WL 504998, at *12 (Tex. App. Mar. 3, 2006) (upholding the jury’s finding that defendant breached his post-termination fiduciary duty to his former employer and noting that “[t]he employee’s obligation not to use confidential or proprietary information acquired during the relationship in a manner adverse to the employer survives the termination of employment.”); Sealed Party v. Sealed Party, No. H-04-2229, 2006 U.S. Dist. LEXIS
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than the duty of loyalty that an agent owes to a master, which duty terminates with the termination of employment.95 f. Breach of Duty of Loyalty Courts are in general agreement that the duty of loyalty applies to all employees and prohibits them from competing with their employer during their employment. As a matter of agency law, an employee owes a duty of loyalty to his or her employer.96 It may therefore be a breach of the duty of loyalty to provide assistance to a competitor while one is still employed.97 g. Common-Law Misappropriation The tort of common-law misappropriation traces to the Supreme Court decision in International News Service v. Associated Press.98 The plaintiff, the Associated Press, was in the business of gathering news abroad and distributing it to subscriber newspapers in the United States. The defendant, International News Services, routinely read the news in early publications or bulletins from the Associated Press. It would then rewrite the news and distribute its version of the news to subscribers across the country. Obviously, the Associated Press had placed its information in the public domain. Nevertheless, the defendant’s conduct was held to be tortious. The elements of the claim for misappropriation are: (a) The plaintiff invested substantial time, skill or money in developing its property; (b) the defendant appropriated and used the plaintiff ’s property at little or no cost to the defendant;
95
96
97 98
28392, at *27 (S.D. Tex. Apr. 28, 2006) (“Courts interpreting tort law from other jurisdictions [] suggest that a fiduciary’s duty to preserve confidential information survives cessation of the fiduciary relationship.”). See, e.g., Hilb, Rogal & Hamilton Co. v. DePew, 440 S.E.2d 918, 923 (Va. 1994) (rejecting postemployment fiduciary duty); First Equity Dev., Inc. v. Risko, No. CV 970162561S, 1998 Conn. Super. LEXIS 1475, at *5 (Conn. Super. Ct. May 26, 1998) (explaining that “it would be antithetical for this court to hold that an ex-employee owes a fiduciary duty to her former employer after leaving employment with the company”). Food Lion, Inc. v. Capital Cities/ABC, Inc., 194 F.3d 505, 515 (4th Cir. 1999) (reporter who took job with supermarket to expose market’s business practices nonetheless owed a duty of loyalty); see also Fields v. Thompson Printing Co., 363 F.3d 259, 270–71 (3d Cir. 2004) (under New Jersey law, every employee owes a duty of loyalty to his or her employer; the duty is breached if the employee has assisted a competitor of the employer or engaged in self-dealing). Fowler v. Varian Assocs., 196 Cal. App. 3d 34, 41, 241 Cal. Rptr. 539, 543 (1987). Int’l News Serv. v. Associated Press, 248 U.S. 215, 39 S. Ct. 68, 63 L. Ed. 211 (1918).
Alleging Alternative Claims (c) the defendant’s appropriation and use of the plaintiff ’s property was without the authorization or consent of the plaintiff; and (d) the plaintiff can establish that it has been injured by the defendant’s conduct.99
Courts that recognize the tort of misappropriation of information extend protection to information that “does not rise to the level of misappropriation of trade secrets or ideas.”100 “It is normally invoked in an effort to protect something of value not otherwise covered by patent or copyright law, trade secret law, breach of confidential relationship, or some other form of unfair competition.”101 The Supreme Court has, however, hinted that it might be willing to revisit its decision in International News Service.102 In addition, some courts have considered the case as limited to its facts in protecting news stories that are not subject to copyright protection but only as against business competitors and only until its commercial value as “hot news” has passed.103 Judge Posner, in a thoughtful opinion in Confold Pacific, Inc. v. Polaris Industries, Inc., noted that the basis for the Supreme Court’s creation of state common-law claims such as in International News Service has now been discredited, but that some states have continued to recognize a tort.104 One such state is New York. The Second Circuit, interpreting New York law, stated the elements of the tort: (i) the plaintiff generates or collects information at some cost or expense; (ii) the value of the information is highly time-sensitive; (iii) the defendant’s use of the information constitutes free-riding on the plaintiff ’s costly efforts to generate or collect it; (iv) the defendant’s use of the information is in direct competition with a product or service offered by the plaintiff;
99 U.S. Golf Ass’n v. Arroyo Software Corp., 69 Cal. App. 4th 607, 618, 81 Cal. Rptr. 2d 708, 714 (1999) (applying California law to protect against the use of a golf handicap system in a computer golf handicap program) (citing Balboa Ins. Co. v. Trans Global Equities, 218 Cal. App. 3d 1327, 1342, 267 Cal. Rptr. 787, 795 (1990)). 100 LinkCo, Inc. v. Fujitsu Ltd., 230 F. Supp. 2d 492, 501–02 (S.D.N.Y. 2002); Self Directed Placement Corp. v. Control Data Corp., 908 F.2d 462 (9th Cir. 1990); City Solutions, Inc. v. Clear Channel Commc’ns, Inc., 365 F.3d 835, 824 (9th Cir. 2004). 101 U.S. Golf Ass’n, 69 Cal. App. 4th at 618 (citing Montana v. San Jose Mercury News, Inc., 34 Cal. App. 4th 790, 793, 40 Cal. Rptr. 2d 639, 640 (1995)). 102 See Feist Publ’ns v. Rural Tel. Serv. Co., 499 U.S. 340, 353–54, 111 S. Ct. 1282, 1292, 113 L. Ed. 2d 358, 374 (1991). 103 Capitol Records, Inc. v. Naxos, Inc., 262 F. Supp. 2d 204, 209 (S.D.N.Y. 2003). 104 Confold Pac., Inc. v. Polaris Indus., Inc., 433 F. 3d 952, 960 (7th Cir. 2006).
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64 Chapter 2 Litigating Trade Secret Actions—Plaintiff ’s Perspective (v) the ability of other parties to free-ride on the efforts of the plaintiff would so reduce the incentive to produce the product or service that its existence or quality could be substantially threatened.105
Further, to the extent the tort is applied to protect information that has been placed in the public domain, the action should be barred by the Supreme Court’s holding in Bonito Boats v. Thunder Craft Boats, Inc.106 that state laws may not be used to protect information that has been placed in the public domain.107 Even if not barred, a misappropriation claim may be subject to a defense of preemption under the patent and copyright laws and under the UTSA.108 h. Conversion The tort of conversion used to be thought of as the intentional exercise of dominion and control over personal property.109 It was so limited because conversion “originated in the fifteenth century as a remedy against one who found a plaintiff’s lost goods and put them to his own use.”110 However, as Judge Alex Kozinski has noted, virtually every jurisdiction has discarded the rigid limitation of conversion as applying only to tangible property to some degree and “[m]any courts ignore or expressly reject it.”111 In California, for example, the Supreme Court held as early as 1880 that the tort applied to conversion “of every species of personal property.”112 In Kremen II, the Ninth Circuit concluded that California would reject the “merger” requirement of Restatement (Second) of Torts Section 242 that an intangible property be
105 Id., quoting Nat’l Basketball Ass’n v. Motorola, Inc., 105 F.3d 841, 852 (2d Cir. 1997) (citations omitted). 106 Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 109 S. Ct. 971, 103 L. Ed. 2d 118 (1989). 107 It has been suggested that the doctrine “may ultimately survive only as a special remedy for a special situation: the protection of extremely time-sensitive material.” See James Pooley, Trade Secrets § 3.04[5], at 3–45 (1997 & Supp. 2007). 108 Summit Mach. Tool Mfg. Corp. v. Victor CNC Sys. Inc., 7 F.3d 1434, 1442 (9th Cir. 1993) (misappropriation and unfair competition claims held preempted by patent and copyright laws); Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F. Supp. 2d 941, 955 (N.D. Cal. 2003) (holding California common-law misappropriation claims preempted by the UTSA). See discussion of preemption at Chapter 3(A)(1)(a), infra. 109 Chem. Sales Co. v. Diamond Chem. Co., 766 F.2d 364, 367 (8th Cir. 1985). 110 Kremen v. Cohen, 325 F.3d 1035, 1045 (9th Cir. 2003) (“Kremen I”) (citing Prosser and Keeton on the Law of Torts § 15, at 89 (W. Page Keeton ed., 5th ed. 1984) and J.B. Ames, The History of Trover, 11 Harv. L. Rev. 277 (1987). 111 Kremen v. Cohen, 337 F.3d 1024, 1030 (9th Cir. 2003) (“Kremen II”); see also Kremen I at 1045 (citing numerous cases); see also Restatement (Third) of Unfair Competition § 40 cmt. a (1995) (recognizing actions for conversion of trade secrets). 112 Payne v. Elliot, 54 Cal. 339, 1880 WL 1907 (1880).
Alleging Alternative Claims
merged in a tangible property, such as a document, before a conversion could occur.113 New York’s highest court more recently held that the theft of electronic records is subject to a claim of conversion.114 Notwithstanding that relatively few states have so far expressly held that trade secrets can be converted,115 conversion should nonetheless be considered as a possible alternative claim. The majority of states now recognize that intangible property can be converted when merged in tangible property,116 and the law is evolving to eliminate the merger requirement. Conversion requires (i) an ownership interest or a right to possession of property at the time of the conversion, (ii) the defendant’s conversion by wrongful act or dispossession of the plaintiff’s property rights, and (iii) damages.117 Conversion may not apply, however, if the victim retains a copy of the trade secret information and is therefore not dispossessed of its use.118 In such instance, a trade secret misappropriation victim would want to allege instead a claim for trespass to chattels.119 Conversion claims also have been asserted when the trade secret information is embodied in a tangible object, the theft of which allows the accelerated production and sale by a competitor of a product made using the trade secret.120 i. Interference with Prospective Business Advantage A misappropriation of trade secret information may also give rise to a claim for negligent or intentional interference with prospective economic advantage. To plead intentional interference, a plaintiff must allege (i) it had an economic
113 See Kremen II at 1031; see also FMC Corp. v. Capital Cities/ABC, Inc., 915 F.2d 300, 305 (7th Cir. 1990) (holding that, under California law, a defendant could be liable merely for depriving the plaintiff of the use of confidential information without regard to whether it was in tangible form). 114 See Thyruft v. Nationwide Mut. Ins. Co., 864 N.E.2d 1272, 8 N.Y.3d 283, 832 N.Y.S.2d (2007) (reasoning that virtual documents really hold no different value than the tangible documents the merger doctrine already covers). See also Mundy v. Decker, No. A-97-882, 1999 WL 14479, 1999 Neb. App. LEXIS 3 (Neb. Ct. App. Jan. 5, 1999) (conversion of electronic documents). 115 Pennsylvania is a state where the conversion of trade secrets has already been recognized. See B & B Microscopes v. Armogida, 532 F. Supp. 2d 744, 761 (W.D. Pa. 2007). 116 See, e.g., Cardionet, Inc. v. Lifewatch Corp., No. 07 C 6625, 2008 U.S. Dist. LEXIS 15938, at *7–8 (N.D. Ill., Feb. 27, 2008). 117 Miles, Inc. v. Scripps Clinic & Research Found., 810 F. Supp. 1091, 1094 (S.D. Cal. 1993) (citing Hartford Fin. Corp. v. Burns, 96 Cal. App. 3d 591, 598, 158 Cal. Rptr. 169, 172 (1979)). 118 See FMC Corp., 915 F.2d at 303; Pearson v. Dodd, 410 F.2d 701, 707 (D.C. Cir. 1969). 119 See Thrifty-Tel, Inc. v. Bezenek, 46 Cal. App. 4th 1559, 1566–67, 54 Cal. Rptr. 2d 468, 472 (1996). 120 See Del Monte Fresh Produce v. Dole Food Co., 136 F. Supp. 2d 1271, 1295 (S.D. Fla. 2001) (plaintiff stated cause of action for conversion of pineapple genetic material).
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relationship with a third party with probable future economic benefit, (ii) the defendant knew of the existence of that relationship, (iii) the defendant intentionally interfered with that relationship by independent tortious means or independent wrongful acts, (iv) an actual disruption of the economic relationship occurred, and (v) it was damaged as a result of the defendant’s acts.121 To plead negligent interference with prospective business advantage, a plaintiff must plead (i) the extent to which the transaction was intended to affect the plaintiff, (ii) the foreseeability of harm to the plaintiff, (iii) the degree of certainty that the plaintiff suffered injury, (iv) the closeness of the connection between the defendant’s conduct and the injury suffered, (v) the moral blame attached to the defendant’s conduct, and (vi) the policy of preventing future harm.122 In many jurisdictions, however, only a claim of intentional interference is recognized. Claims for interference are commonly brought against a new employer of a former employee. Typically, the plaintiff alleges that the new employer interfered with a confidentiality or noncompetition agreement between the employee and its prior employer. In such cases, it is important for the plaintiff to establish the new employer’s knowledge of the confidentiality agreement or noncompetition agreement at issue. In some jurisdictions, it may be possible to predicate a tortious interference claim on a contract that is not enforceable.123 j. Unfair Competition All states have some form of “unfair competition” laws, be their origin in common law, statute, or both. Frequently they relate to unfair trademark practices such as “passing off” or “palming off” one’s goods as those of another. However, many states also extend unfair competition claims to prohibit other improper business practices that may include the theft of proprietary information. A number of states have “Little FTC Acts” modeled after 15 U.S.C. § 45, which declares unlawful “unfair methods of competition in or affecting commerce” or “unfair and deceptive trade practices.”124 Such statutes may
121 See Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal. 4th 376, 380, 45 Cal. Rptr. 2d 436, 439 (1995). 122 See DeVoto v. Pac. Fid. Life Ins. Co., 618 F.2d 1340, 1349 n.8 (9th Cir. 1980) (citing J’Aire Corp. v. Gregory, 24 Cal. 3d 799, 804, 157 Cal. Rptr. 407, 410 (1979)). 123 See, e.g., United Yacht Brokers, Inc v. Gillespie, 377 So. 2d 668 (Fla. 1979). 124 15 U.S.C. § 45 (2000). See Alabama: Ala. Code § 8-19-l (2007); Alaska: Alaska Stat. Ann. § 45.50.471 (2007); Arizona: Ariz. Rev. Stat. Ann § 44-1521 (2007); Arkansas: Ark. Code Ann. § 4-88-101 (2007); California: Cal. Bus. & Prof. Code § 17200 (2007); Colorado: Colo. Rev. Stat. Ann. § 6-1-101 (2007); Connecticut: Conn. Gen. Stat. Ann. § 42-110a (2007); Delaware: Del. Code Ann. tit. 6, § 2511 (2007); District of Columbia: D.C. Code
Alleging Alternative Claims
extend to prohibit “a practice that is unethical, oppressive, unscrupulous, or substantially injurious”125 and frequently define “unfair” or “deceptive” conduct broadly. Courts applying such statutes “appear to zealously guard against allowing managers, employees, and persons in a special position of trust to profit from their wrongdoing.”126 Other states have statutes with similar reach not based on the FTC Act.127 k. Civil Conspiracy Alleging a civil conspiracy may be a means to reach defendants that might not otherwise be liable for the misappropriation. For example, a departing employee might be caught in the act of trade secret misappropriation before the employee’s new employer has become liable for misappropriation. A civil
Ann. § 28-3901 (2001); Florida: Fla. Stat. Ann. § 501.201 (2007); Georgia: Ga. Code Ann. § 10-1-390 (2007); Hawaii: Haw. Rev. Stat. Ann. § 480-1 (2006); Idaho: Idaho Code Ann. § 48-801 (2007); Illinois: 815 Ill. Comp. Stat. Ann. 505/1 (2007); Indiana: Ind. Code Ann. § 24-5-0.5-1 (2007); Iowa: Iowa Code Ann. § 714.16 (2007); Kansas: Kan. Stat. Ann. § 50-623 (2006); Kentucky: Ky. Rev. Stat. Ann. § 367.110 (2007); Louisiana: La. Rev. Stat. Ann. § 51:1401 (2007); Maine: Me. Rev. Stat. Ann. tit. 5, § 206 (2007); Maryland: Md. Code Ann., Com. Law § 13-301 (2007); Massachusetts: Mass. Gen. Laws Ann. ch. 93A, § 1 (2007); Michigan: Mich. Comp. Laws Ann. § 445.901 (2007); Minnesota: Minn. Stat. Ann. § 325F.68 (2007); Mississippi: Miss. Code Ann. § 75-24-1 (2007); Missouri: Mo. Ann. Stat. § 407.010 (2007); Montana: Mont. Code Ann. § 30-14-101 (2007); Nebraska: Neb. Rev. Stat. § 59-1601 (2006); Nevada: Nev. Rev. Stat. Ann. 598.0903 (2007); New Hampshire: N.H. Rev. Stat. Ann. § 358-A:1 (2007); New Jersey: N.J. Stat. Ann. § 56:8-1 (2007); New Mexico: N.M. Stat. Ann. § 57-12-1; New York: N.Y. Gen. Bus. Law § 349 (2007); North Carolina: N.C. Gen. Stat. Ann. § 75-1.1 (2007); North Dakota: N.D. Cent. Code § 51-15-01 (2007); Ohio: Ohio Rev. Code Ann. § 1345.01 (2007); Oklahoma: Okla. Stat. Ann. tit. 15, § 751 (2007); Oregon: Or. Rev. Stat. Ann. § 646.605 (2007); Pennsylvania: Pa. Stat. Ann. tit. 73, § 201-1 (2007); Puerto Rico: P.R. Laws Ann. tit. 10, § 257 (2006); Rhode Island: R.I. Gen. Laws Ann. § 6-13.1-1 (2007); South Carolina: S.C. Code Ann. § 39-5-10 (2007); South Dakota: S.D. Codified Laws § 37-24-1 (2007); Tennessee: Tenn. Code Ann. § 47-18-101 (2007); Texas: Tex. Bus. & Com. Code Ann. § 17.41 (2007); Utah: Utah Code Ann. § 13-11-1 (2007); Vermont: Vt. Stat. Ann. tit. 9, § 2451 (2007); Virginia: Va. Code Ann. § 59.1-196 (2007); Washington: Wash. Rev. Code Ann. § 19.86.010 (2007); West Virginia: W. Va. Code Ann. § 46A-6-101 (2007); Wisconsin: Wis. Stat. Ann. § 100.20 (2007); Wyoming: Wyo. Stat. Ann. § 40-12-101 (2007). 125 Reingold v. Swiftships, Inc., 126 F.3d 645, 653 (5th Cir. 1997) (citations omitted) (interpreting the Louisiana Unfair Trade Practices Act, La. Rev. Stat. Ann. § 51:1405(A) (2007)); see also Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. 937, 466 N.E.2d 138 (1984). 126 Reingold, 126 F.3d at 653 (citing Turner v. Purina Mills, Inc., 989 F.2d 1419, 1422 (5th Cir. 1993)). 127 See, e.g., Cal. Bus. & Prof. Code § 17200 (2007) (prohibiting unfair competition, defined to “mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising”); Airport Sys. Int’l, Inc. v. Airsys ATM, Inc., 144 F. Supp. 2d 1268, 1269, 1270 (D. Kan. 2001) (unfair competition claim based on Restatement (Third) of Unfair Competition allowed to proceed).
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conspiracy claim may ensure that, if a judgment is obtained, sufficient resources are available to satisfy the judgment. A conspiracy requires that each conspirator agree to do something to further the conspiracy while knowing of its improper purpose.128 By participating in a conspiracy, a coconspirator is deemed to have adopted the torts of the other co-conspirators within the scope of the conspiracy and thus becomes jointly and severally liable for those torts.129 The elements of a conspiracy are (i) formation and operation of the conspiracy and (ii) damage resulting to the plaintiff (from a wrongful act in furtherance of a conspiracy).130 Ordinarily, conspiracy may not be alleged as a claim in and of itself; rather, the claim is conspiracy to effect a tort—such as trade secret misappropriation. l. Replevin or Civil Writ of Possession The civil writ of replevin, or writ of possession, is the closest thing a civil litigator has to a search warrant. It allows a plaintiff to enlist the assistance of law enforcement officials to search for and recover tangible property that the defendant has taken from the plaintiff. Nothing will change the complexion of a litigation faster than to have the defendant deny under oath in deposition that he has purloined documents from the plaintiff and then have the marshals recover the documents from his house. A court may order “affirmative acts to protect a trade secret” pursuant to UTSA Section 2(a). The Commissioners’ Comment explains that Section 2(a) “authorizes mandatory injunctions requiring that a misappropriator return the fruits of misappropriation to an aggrieved person, e.g., the return of stolen blueprints or the surrender of surreptitious photographs.” In the alternative, a plaintiff may recover stolen property under the replevin or claim and delivery statutes. A prejudgment writ of possession may issue if the plaintiff (1) establishes the probable validity of its claim to the possession of the personal property, (2) provides an undertaking, and (3) establishes the probable location of the property.131 A writ of possession may issue without notice to the defendant if the court finds that the defendant gained possession of the property feloniously.132 The plaintiff need not prove that the property sought contains trade secrets or has any particular value.133 Replevin is authorized in federal proceedings through Federal Rule of Civil
128 See Powell Prods. v. Marks, 948 F. Supp. 1469, 1480 (D. Colo. 1996). 129 See Applied Equip. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 511, 28 Cal. Rptr. 2d 475, 478 (1994). 130 See Rusheen v. Cohen, 37 Cal. 4th 1048, 1062, 39 Cal. Rptr. 3d 516, 526 (2006). 131 See, e.g., Cal. Civ. Proc. Code § 512.020(b)(i) (2007). 132 Id. § 512.060. 133 Pillsbury, Madison & Sutro v. Schectman, 55 Cal. App. 4th 1279, 1286, 64 Cal. Rptr. 2d 698, 703 (1997).
Alleging Alternative Claims
Procedure 64.134 Thus, no claim for writ of possession need be alleged in the complaint; the writ may be sought at any time during the litigation after the plaintiff develops evidence establishing the location of the plaintiff’s property. Such evidence usually will not be uncovered in the formal discovery process but may be gained from former friends or business associates or through the efforts of private investigators. m. Unjust Enrichment The core principle of unjust enrichment—that if a party has received something of value to which it is not entitled, the benefit must be restored to the rightful owner—both informs the calculation of damages in trade secret misappropriation cases135 and, unless held preempted, can serve as an independent basis for recovery.136 The principle that one should not be enriched at the expense of another is an equitable doctrine that has great application in the factual scenarios that gives rise to trade secret cases. The elements of a claim for unjust enrichment are straightforward: (1) receipt of a benefit by the defendant and (2) unjust retention of the benefit at the expense of the plaintiff.137 It is a useful alternative claim to be asserted, if only to protect against the possibility that a valid trade secret might not be found. It is based on the notion that equity requires that a defendant’s wrongful gain from property belonging to the plaintiff be redressed.138 n. Unauthorized Access to Computers A number of states provide a civil right of action for violation of a criminal statute prohibiting the unauthorized access to computers, computer systems,
134 Institutional Mgmt. Corp. v. Translation Sys., Inc., 456 F. Supp. 661, 670–71 (D. Md. 1978). 135 See, e.g., Reingold v. Swiftships, Inc., 210 F.3d 320, 322 (5th Cir. 2000) (Louisiana trade secret act allows for recovery of both plaintiff ’s damages and unjust enrichment of defendant); R.K. Enters., L.L.C. v. Pro-Comp Mgmt., Inc., 372 Ark. 199, 205–06, 2008 Ark. LEXIS 53, at *9–10 (Ark. 2008) (court may look to law of unjust enrichment to determine proper compensation under trade secret act; fair market value of trade secret misappropriated constituted appropriate measure); Gen. Clutch Corp. v. Lowry, 10 F. Supp. 2d 124 (D. Conn. 1998). 136 See, e.g, Veritas Operating Corp. v Microsoft Corp., No. C06-0703C, 2006 U.S. Dist. LEXIS 79451, at *7–8 (W.D. Wash. Oct. 31, 2006) (unjust enrichment claim held preempted to extent it sought recovery for trade secret misappropriation; not preempted to extent it was based on quasi-contract theory of restitution). 137 See Memry Corp. v. Ky. Oil Tech., N.V., No. C-04-03843 RMW, 2007 U.S. Dist. LEXIS 82015, at *26 (N.D. Cal. Nov. 5, 2007). 138 See, e.g., ClearOne Commc’ns, Inc. v. Chiang, No. 2:07-CV-37 TC, 2007 U.S. Dist. LEXIS 91693, at *12–13 (D. Utah Dec. 13, 2007) (refusing to dismiss unjust enrichment claim at early stage of litigation because claim not preempted if no valid trade secret is ultimately found).
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and computer data.139 The California statute provides that anyone who does any of the following nine things commits a violation: (1) Knowingly accesses and without permission alters, damages, deletes, destroys, or otherwise uses any data, computer, computer system, or computer network . . . to either (A) devise or execute any scheme or artifice to defraud, deceive, or extort, or (B) wrongfully control or obtain money, property, or data. (2) Knowingly accesses and without permission takes, copies, or makes use of any data from a computer, computer system, or computer network, or takes or copies any supporting documentation, whether existing or residing internal or external to a computer, computer system or computer network. (3) Knowingly and without permission uses or causes to be used computer services. (4) Knowingly accesses and without permission adds, alters, damages, deletes, or destroys any data, computer software, or computer programs which reside or exist internal or external to a computer, computer system or computer network. (5) Knowingly and without permission disrupts or causes the disruption of computer services or denies or causes the denial of computer services to an authorized user of a computer, computer system, or computer network. (6) Knowingly and without permission provides or assists in providing a means of accessing a computer, computer system, or computer network in violation of this section. (7) Knowingly and without permission accesses or causes to be accessed any computer, computer system, or computer network. (8) Knowingly introduces any computer contaminant into any computer, computer system, or computer network. (9) Knowingly and without permission uses the Internet domain name of another individual, corporation, or entity in connection with the sending
139 See Cal. Penal Code § 502(e)(1) (2008). Other states that provide a similar remedy include Arkansas: Ark. Code Ann. §§ 5-41-101 to 5-41-107; Connecticut: Conn. Gen. Stat. Ann. §§ 53a-250 to 53a-261 and § 52-570b; Delaware: Del. Code Ann. tit. 11, §§ 931−941; Florida: Fla. Stat. Ann. §§ 815.01 to 815.07; Georgia: Ga. Code Ann. §§ 16-9-90 to 16-994; Illinois: Ill. Comp. Stat. Ann. 5/16D-1 to 5/16D-7; New Jersey: N.J. Stat. Ann. §§ 2A:38A-1 to 2A:38A-6; North Dakota: N.D. Cent. Code §§ 12.1-06.1-01 to 12.1-06.108; Oklahoma: Okla. Stat. Ann. tit. 21, §§ 1951−1959; Rhode Island: R.I. Gen. Laws §§ 11-52-1 to 11-52-8; South Carolina: S.C. Code Ann. §§ 16-16-10 to 16-16-40; Tennessee: Tenn. Code Ann. §§ 39-14-601 to 39-14-606; Vermont: Vt. Stat. Ann. tit. 13, §§ 4101−4107; Virginia: Va. Code Ann. §§ 18.2-152.1 et seq. and § 8.01-40.1; and West Virginia: W. Va. Code Ann. §§ 61-3C-1 to 61-3C-21.
Alleging Alternative Claims of one or more electronic mail messages, and thereby damages or causes damage to a computer, computer system, or computer network.140
In addition to any other civil remedy available, the owner or lessee of the computer, computer system, computer network, computer program, or data who suffers damage or loss by reason of a violation “may bring a civil action against the violator for compensatory damages and injunctive relief or other equitable relief.”141 “Compensatory damages” are defined to “include any expenditure reasonably and necessarily incurred by the owner or lessee to verify that a computer system, computer network, computer program, or data was or was not altered, damaged, or deleted by the access.”142 Further, in actions brought pursuant to Section 502, “the court may award reasonable attorneys’ fees.”143 And, if the plaintiff proves by clear and convincing evidence that the defendant has been guilty of “oppression, fraud, or malice,” punitive or exemplary damages may be awarded.144 The statute of limitations is the later of three years from the date of the act complained of or the date of the discovery of the damage.145
2. Federal Claims a. Copyright Infringement Federal courts have exclusive jurisdiction to hear copyright claims.146 Accordingly, one can ensure federal jurisdiction by alleging copyright infringement. Because trade secret misappropriation frequently involves the copying of trade secret information or materials, copyright infringement should always be considered as a potential claim. Copyright protection inures from the moment a work is “fixed in any tangible means of expression . . . from which [it] can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.”147 For “United States works” (which, as the term relates to unpublished
140 141 142 143 144 145 146
Cal. Penal Code § 502(c). Id. § 502(e)(1). Id. Id. § 502(e)(1), (2). Id. § 502(e)(4). See id. § 502(e)(5). See 28 U.S.C. § 1338(a) (2000) (giving federal district courts “original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks” and further providing that in patent, plant variety protection and copyright cases, such “jurisdiction shall be exclusive of the courts of the states”). 147 17 U.S.C. § 102(a) (2000).
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works, means works created exclusively by nationals, domiciliaries, or habitual residents of the United States, or, in the case of a pictorial or graphic work, one that relates to a building or structure in the United States) copyright registration is not a prerequisite for copyright protection. However, registration and deposit of two copies of the work (or the denial of a registration application) is a jurisdictional prerequisite for bringing an infringement action.148 (Registration and deposit are not required of non-“United States works” that have not been “published”—i.e., offered to the general public—in the United States.) A trade secret owner should never deposit a work containing trade secretion information in unredacted form. Doing so may vitiate any further trade secret protection.149 Since the United States’ 1989 accession to the Berne Convention, the use of a copyright notice has not been required.150 Indeed, the use of a copyright
148 See id. § 411(a). Although a copyright registration will be dated as of the day of its receipt by the Copyright Office, registration is a very time-consuming, albeit very easy, process. However, one can jump to the front of the queue upon payment of an expedition fee. Trade secret software programs may be registered for copyright with the trade secret portions protected. See id. § 407(c), 37 C.F.R. § 202.20(d) (2007). This may be done by depositing the object code, alone; depositing the first and last 25 pages of the source code with any trade secret portions redacted; depositing the first and last ten pages of source code without redaction; or depositing the first and last 25 pages of object code together with any ten pages of source code. Id. It is sometimes possible to register works containing trade secrets without depositing the work at all. For example the Register of Copyrights has adopted regulations permitting the deposit of “identifying material” in lieu of full copies of certain other works when effecting a registration, including computer programs and databases embodied in machine-readable copies, 37 C.F.R. § 202.20(c)(2)(vii) (2007), and machine-readable copies of works other than computer programs and databases. Id. § 202.20(c)(2)(viii). Further, various works are exempted entirely from the deposit requirements set forth in 17 U.S.C. § 407(a) (2000), including certain technical or scientific diagrams, such as architectural blueprints. 37 C.F.R. § 202.19(c)(1) (2007). In registering works containing trade secrets, the owner may also seek “special relief.” As explained in the Compendium of Copyright Office Practices § 808.01 (1998), “special relief was devised because it is impossible to establish exemptions or alternatives to cover all cases where the general deposit provisions of the statute might cause unnecessary hardship. Special relief is intended to respond to legislative directive that deposit provisions be kept flexible . . . so that reasonable adjustments can be made to meet practical needs in special cases.” As set forth in Section 808.03(a), requests for special relief must be made in writing to the Chief, Examining Division, Copyright Office and must set forth the specific reasons that it should be granted. These reasons include confidentiality. Id.; see also 37 C.F.R. § 202.20 (2007). 149 Warrington Assocs. v. Real-Time Eng’g Sys., 522 F. Supp. 367, 368 (N.D. Ill. 1981). 150 17 U.S.C. §§ 401(a), 405(a) (2000). A copyright notice is still required on all works created prior to 1989, but only to the extent they have been “published”—meaning that there has been an offer to distribute copies to the public. Presumably, a work as to which trade secret protection is sought would not fall into that category.
Alleging Alternative Claims
notice is sometimes viewed as inconsistent with maintaining trade secret protection.151 An important limitation on copyright claims is that protection “for an original work of authorship [does not] extend to any idea, procedure, process, system, method of operation, concept, principal, or discovery, regardless of the form in which it is described, explained [or] illustrated.”152 Copyright protection does, however, extend to literary works, which may include manuals, business directories, and computer software, among others.153 Copyright protection also extends to “compilations,”154 and to maps and architectural drawings, which are protected as “pictorial, graphic and architectural works.”155 Provided that registration with the U.S. Copyright Office is effected “not later than . . . one month after the copyright owner has learned of the infringement,” a successful plaintiff will be entitled to the full panoply of remedies provided by the Copyright Act.156 Those remedies include “the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages,” or, in the alternative, statutory damages of up to $150,000 per work infringed if the infringement was willful.157 In addition, a court has discretion to award recoverable litigation costs and reasonable attorneys’ fees.158 b. Computer Fraud and Abuse Act Anyone who “intentionally accesses a computer without authorization or exceeds authorized access and thereby obtains . . . information from any protected computer if the conduct involved an interstate or foreign communication” may be in violation of the Computer Fraud and Abuse Act (CFAA).159 The Act provides that “[a]ny person who suffers damage or loss by reason of a violation of this section may maintain a civil action against the violator to obtain compensatory damages and injunctive relief or other equitable relief.”160 Most courts require that the loss be directly associated with the unauthorized access of a computer or directly address the unauthorized
151 152 153 154 155 156 157 158 159 160
Videotronics, Inc. v. Bend Elecs., 564 F. Supp. 1471, 1476–77 (D. Nev. 1983). 17 U.S.C. § 102(b) (2000). See id. § 102(a)(1). Id. § 103(a). Id. § 102(a)(5), (8). Id. § 412. Id. § 504. See id. § 505. 18 U.S.C. § 1030(a)(2) (2000). Id. § 1030(g).
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access.161 A civil action may be maintained only if the conduct involved one of the five factors enumerated at 18 U.S.C. § 1030(a)(5)(B). The only factor likely to be implicated in a misappropriation case is the first “loss to one or more persons during any one-year period . . . aggregating at least $5,000 in value.” “Loss” is defined to include “any reasonable costs to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service.”162 In one case, the operator of an Internet Web site used for matching trucks with available loads sued a competitor that had repeatedly accessed the plaintiff’s Web site to obtain the plaintiff’s trade secret information. At trial, the plaintiff was awarded $60,000 under the Idaho Trade Secrets Act and an additional $450 for three violations of the CFAA, together with close to $350,000 in costs and fees.163 The CFAA may also be invoked with respect to anyone who, with an intent to defraud, traffics in or transfers “any password or similar information through which a computer may be accessed without authorization, if such trafficking affects interstate or foreign commerce.”164 Any civil action under
161 See, e.g., Chas. S. Winner, Inc. v. Polistina, No. 06-4865 (NLH), 2007 WL 1652292, at *4 (D.N.J. June 4, 2007) (loss of revenue due to use of ill-gotten information is irrelevant under the loss provisions of the Act); L-3 Commc’ns Westwood Corp. v. Robicharux, No. 06-0279, 2007 WL 756528, at *4 (E.D. La. Mar. 8, 2007) (“L-3’s allegations of loss of trade secrets and lost profits are not contemplated by the CFAA. Losses under CFAA are compensable when they result from damage to a computer system or the inoperability of the accessed system.”); Lockheed Martin Corp. v. Speed, No. 6:05-CV-1580-ORL-31, 2006 WL 2683058, at *7 (M.D. Fla. Aug. 1, 2006) (“loss of trade secrets does not constitute ‘damage’ under the statute”); Resdev, L.L.C. v. Lot Builders Ass’n, No. 6:04-CV-1374ORL31DAB, 2005 WL 1924743, at *4 (M.D. Fla. Aug. 10, 2005); Nexans Wires S.A. v. Sark-USA, Inc., 319 F. Supp. 2d 468, 477–78 (S.D.N.Y. 2004) (use of proprietary information to compete unfairly after that information has been extracted from a computer is not a loss under the Act), aff ’d, 166 Fed. Appx. 559, 2006 U.S. App. LEXIS 3619 (2d Cir. 2006). 162 18 U.S.C. § 1030(e)(11) (2000); In re DoubleClick, Inc. Privacy Litig., 154 F. Supp. 2d 497, 521 (S.D.N.Y. 2001) (legislative history makes “clear that Congress intended the term ‘“loss”‘to target remedial expenses borne by victims that could not be properly considered direct damage caused by a computer hacker”). 163 See Creative Computing v. Getloaded.com, L.L.C., 386 F.3d 930, 933 (9th Cir. 2004); see also I.M.S. Inquiry Mgmt. Sys., Ltd. v. Berkshire Info. Sys., Inc., 307 F. Supp. 2d 521, 525–26 (S.D.N.Y. 2004) (provider of advertising tracking services stated claim under CFAA by asserting that competitor’s copying of forms used for storage of information forced provider to incur costs of more than $5,000 in damage assessment and remedial measures); Shurgard Storage Centers, Inc. v. Safeguard SelfStorage, Inc., 119 F. Supp. 2d 1121, 1127 (W.D. Wash. 2000) (self-storage company stated claim against competitor for violation of CFAA notwithstanding that its information remained intact within its computers; it suffered loss in the form of expenses incurred to modify its computers to prevent further data transfer). 164 18 U.S.C. § 1030(a)(6) (2000).
Alleging Alternative Claims
the CFAA must be brought “within two years of the date of the act complained of or the date of the discovery of the damage.”165 c. Stored Wire and Electronic Communications and Transactional Records Access Title II of the Electronic Communications Privacy Act of 1986, which addresses stored wire and electronic communications and transactional records, prohibits unlawful access to stored communications.166 It provides that whoever “(1) intentionally accesses without authorization a facility through which an electronic communication service is provided; or (2) intentionally exceeds an authorization to access that facility; and thereby obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system” has committed an offense.167 Although a criminal statute, the Act authorizes civil actions as well: [A]ny provider of electronic communication service, subscriber, or other person aggrieved by any violation of this chapter in which the conduct constituting the violation is engaged in with a knowing or intentional state of mind may, in a civil action, recover from the person or entity, other than the United States, which engaged in that violation such relief as may be appropriate.168
d. RICO Claims Claims under the Racketeer Influenced and Corrupt Organizations (RICO) Act169 are popular with litigants but not with their lawyers. If successful, a plaintiff that prevails on a RICO claim may recover treble damages and an award of attorneys’ fees. For those reasons, and because defendants dislike being characterized as “racketeers,” the assertion of a RICO claim can have a significant in terrorem effect. In General Motors Corp. v. Ignacio Lopez de Arriortua,170 Volkswagen settled a trade secret claim brought by General Motors (GM) for well over $1 billion in cash and parts purchases after the trial court denied its motions to dismiss GM’s claims. Although GM had alleged a variety of claims, participants in the litigation reported that the RICO claim was critical to achieving an early and favorable settlement for GM. In many cases, however, alleging a RICO claim is more trouble than it is worth. Most federal judges have come to view RICO as widely overused and
165 166 167 168 169 170
Id. § 1030(g). See id. § 2701. Id. § 2701(a). Id. § 2707(a). 18 U.S.C. §§ 1961–1968 (2000). Gen. Motors Corp. v. Ignacio Lopez de Arriortua, 948 F. Supp. 656 (E.D. Mich. 1996).
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are disposed to dismiss RICO claims when they are alleged against anyone but true racketeers. Federal judges often do not wait for a defendant to bring a motion to dismiss a RICO claim but, instead, issue sua sponte orders to show cause why RICO claims should not be dismissed or require plaintiffs to file a “RICO case statement” identifying how the RICO pleading requirements are satisfied. To survive past the pleading stage, a RICO claim must be alleged with enormous specificity.171 To prevail on an RICO claim, a plaintiff must show that the defendant engaged in a “pattern” of “predicate acts” involving an “enterprise.” Specifically, to allege a RICO claim under 18 U.S.C. § 1964(c), a plaintiff must plead (1) the defendants’ violation of Section 1962, (2) an injury to plaintiff’s business or property, and (3) causation of the injury by the defendant’s violation.172 In turn, there are four potential violations of Section 1962: (a) using an enterprise to launder money obtained from racketeering activities; (b) maintaining an interest in or control of an enterprise through racketeering activities; (c) being employed by or associated with an enterprise that engages in racketeering activity, and participating in such activities (i.e., manipulating a business for racketeering purposes); or (d) conspiring to violate Section 1962(a), (b), or (c). Most commonly, trade secret misappropriation victims allege violations of Section 1962(c). To prove a violation of that section, a plaintiff must prove (1) the existence of an enterprise; (2) the enterprise affected interstate commerce; (3) the defendant was employed by or associated with the enterprise; (4) the defendant participated, even indirectly, in the affairs of the enterprise; (5) the defendant participated through a pattern of racketeering activity; and (6) the plaintiff suffered injury to its business or property.173 The statute defines “enterprise” as “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.”174 The attributes of an “enterprise” are that there is a common or shared purpose, an organization whose members function as a continuing unit, and its existence as an ascertainable structure distinct from that inherent in the conduct of the pattern of racketeering activity.175 An “enterprise” need not be a legitimate entity; it may simply
171 State trial courts are less inclined to react to a RICO claim with hostility, in part because they so rarely see them. A defendant will virtually always remove an action to federal court if a RICO claim is pleaded. 172 See Commercial Cleaning Servs., L.L.C. v. Collin Serv. Sys., Inc., 271 F.3d 374, 380 (2d Cir. 2001). 173 Bergen v. Rothschild, 648 F. Supp. 582, 588 (D.D.C. 1986); Cole v. Circle R. Convenience Stores, Inc., 602 F. Supp. 1108, 1112 (M.D. La. 1985). 174 18 U.S.C. § 1961(4) (2000). 175 See United States v. Kragness, 830 F.2d 842, 855 (8th Cir. 1987); United States v. Lemm, 680 F.2d 1193, 1198 (8th Cir. 1982).
Alleging Alternative Claims
constitute an association-in-fact.176 Under Section 1962(c), the “person” and the “enterprise” cannot be one and the same (although under Sections 1962(a) and (b), they may be). To prove a “pattern” of racketeering activity, a plaintiff must prove that at least two predicate acts occurred within ten years of one another. The predicate acts typically consist of mail fraud or wire fraud pursuant to 18 U.S.C. §§ 1341, 1343.177 The elements of a wire or mail fraud are that the defendant knowingly participated in a scheme to defraud and knowingly used the mail or wires in interstate commerce to further that scheme.178 To show a “pattern,” it is also necessary to show that the predicate acts were related. Predicate acts are related when they have the same or similar purposes, participants, victims, or methods, or are otherwise interrelated by distinguishing characteristics and not by isolated events. Further, the pattern must amount to or pose a threat of continued criminal activity. Thus, to establish continuity, a plaintiff must show either that the related predicate acts “amounted to” continuing criminal activity or a “threat” or realistic prospect of continued activity.179 The pattern requirement is a significant hurdle for plaintiffs seeking to bring RICO actions based on trade secret misappropriations, which generally occur during a brief period of time and concern a single series of events.180 Civil RICO actions are subject to a four-year statute of limitations.181
3. U.S. International Trade Commission Investigation Whenever the misappropriation of trade secrets results in the importation of goods whose design or manufacturing method incorporates the trade secret and results in damage to a business operating in the United States, the victim should consider filing a complaint with the U.S. International Trade Commission (ITC). Pursuant to Section 337 of the Antidumping Act of 1921, 19 U.S.C. § 1337, the Commission is empowered to eliminate unfair acts and unfair methods of competition, including trade secret misappropriation, that
176 See United States v. Thevis, 665 F.2d 616, 625 (5th Cir. 1982). 177 For a more complete description of mail fraud and wire fraud, see infra Chapter 6(D)(1). 178 See Laro, Inc. v. Chase Manhattan Bank (Nat’l Ass’n), 866 F. Supp. 132, 136 (S.D.N.Y. 1994), aff ’d, 60 F.3d 810 (2d Cir. 1995). 179 Ahmed v. Rosenblatt, 118 F.3d 886, 888–89 (1st Cir. 1997). 180 See Clement Commc’ns, Inc. v. Am. Future Sys., Inc., No. 89-6280, 1990 U.S. Dist. LEXIS 9165, at *14–15 (E.D. Pa. July 19, 1990) (granting judgment on pleadings because single, isolated scheme to misappropriate trade secrets did not constitute required pattern). But see Formax, Inc. v. Hostert, 841 F.2d 388, 391 (Fed Cir. 1988) (allegations of sale of trade secrets by defendant to customers satisfied RICO pleading requirements). 181 See Agency Holding Corp. v. Malley-Duff & Assocs., 483 U.S. 143, 156, 107 S. Ct. 2759, 2767, 97 L. Ed. 2d 121, 133–34 (1987).
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tend to injure an industry in the United States.182 Section 337 actions are not limited to U.S. companies; any company engaged in business in the United States may bring a Section 337 action based on the misappropriation of its trade secrets (or the infringement of its patents, copyrights, mask works, or hull designs). Actions before the Commission move quickly and may result in the complete exclusion of a competitor’s product from the U.S. market. Further, the Commission is empowered to issue temporary exclusion orders to exclude such products during the pendency of the litigation and both cease and desist and permanent exclusion orders afterwards. Unlike the victim in a criminal proceeding, a complainant does not lose all control when a matter is accepted by the Commission. The Commission rules provide that a party may move to terminate an investigation as to one or more respondents on the basis of a licensing or other settlement agreement, including an agreement to arbitrate.183 The Commission rules also provide that an investigation may be terminated as to one or more respondents on the basis of a Consent order.184 The jurisdiction of the Commission to act in trade secret cases is established by Section 337(a)(1)(A): (1) Subject to paragraph (2), the following are unlawful, and when found by the Commission to exist shall be dealt with, in addition to any other provision of law, as provided in this section: (A) Unfair methods of competition and unfair acts in the importation of articles . . . into the United States, or in the sale of such articles by the owner, importer, consignee, the threat or effect of which is— (i) to destroy or substantially injure an industry in the United States; (ii) to prevent the establishment of such an industry; or (iii) to restrain or monopolize trade and commerce in the United States.185
Although the statutory language seems to impose a major limitation in requiring a threat to “destroy or substantially injure” an industry, “prevent” the establishment of an industry, or “monopolize” a trade and commerce, the jurisdictional requirements have been reduced. Before 1988, the Commission lacked jurisdiction to act in the face of misappropriations that merely “threatened” those consequences.
182 See In the Matter of Certain Apparatus for the Continuous Production of Copper Rod, 2 Int’l Trade Rep. (BNA) 5006, 206 U.S.P.Q. (BNA) 138, 162, 1979 WL 33484 (I.T.C. Nov. 23, 1979). 183 See 19 C.F.R. § 210.21(a)–(b), (d) (2007). 184 See id. § 210.21(c). 185 19 U.S.C. § 1337(a)(1)(A) (2007).
Alleging Alternative Claims
The Commission exercises considerable discretion in deciding what constitutes a “substantial injury” to a domestic industry. Unfortunately, there is no bright-line test to determine what constitutes an “injury,” as distinct from a “substantial injury.” The following factors all bear on the Commission’s determination and should be addressed in the victim’s complaint: (i) lost sales or loss of potential sales, (ii) increased importation of infringing articles, (iii) declining production by U.S. competitors due to lost sales, (iv) declining profits of U.S. competitors, (v) lower prices of infringing imports, (vi) infringing articles forcing the complainant’s prices lower, (vii) a decline in U.S. employment as a result of the importation of infringing articles, (viii) the loss of royalties from licensees or potential licensees as a result of the infringing articles, (ix) the capacity of foreign competitors to produce a significant quantity of infringing articles, and (x) the threat to the domestic market. Generally speaking, “substantial injury” can more easily be shown in small industries because the connection between the importation of infringing articles and economic injury is more easily demonstrated. Further, it is usually easier to show “substantial injury” if there are only a few competitors in the industry. When there are many competitors, it may be difficult for the complainant to show that its alleged losses are due to unfair competition by an infringer, as opposed to fair competition from other competitors.186 Although they are not mutually exclusive, bringing a complaint before the ITC has a number of advantages compared to ordinary civil litigation for trade secret misappropriation. First, the process is much faster. Assuming the Commission initiates an investigation, it will likely be concluded, absent appeals, within 12 to 15 months. Second, the Commission will serve the complaint. Third, the Commission’s jurisdiction is in rem rather than in personam. Thus, there are no disputes concerning whether a defendant is subject to personal jurisdiction or whether another forum would be more convenient. Additionally, there is no need to join every importer and distributor of an infringing product. Any exclusion order issued by the Commission will apply equally to all sellers of the challenged product. Finally, a successful outcome before the Commission on a trade secret issue may be given res judicata or collateral estoppel effect in a civil trial court. Although the Court of Appeals for the Federal Circuit has held that Congress did not intend ITC decisions on patent issues to have preclusive effect in subsequent judicial matters,187 a number of circuit courts have held that ITC adjudicative decisions on nonpatent issues, including antitrust and unfair competition claims, are entitled
186 All orders and decisions issued by administrative law judges in Commission proceedings or by the Commission (except those containing confidential business information), may be found on line at http://edis.usitc.gov per DWQ. Many may also be found in the FINT-ITC database on Westlaw and the ITC file of the ITrade Library on LEXIS. 187 See Tex. Instruments, Inc. v. Cypress Semiconductor Corp., 90 F.3d 1558, 1569 n.10 (Fed. Cir. 1996).
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to preclusive effect.188 It is likely that this reasoning will also apply to ITC decisions in trade secret cases. 189 There is, however, a drawback to an ITC proceeding: the Commission is not authorized to award damages. Therefore, to recover its damages, a misappropriation victim must bring a separate civil action. Actions are commenced by the filing of a complaint with the Dockets Branch of the Commission’s Office of the Secretary in Washington, D.C.190 Documents may be hand delivered, mailed, or filed electronically and must conform to the Commission’s rules on document specifications.191 In contrast to the “notice pleading” requirement in federal court, an ITC complaint must include a detailed statement of facts. In particular, a complaint must address (i) the volume and trends of domestic production, (ii) the sales, (iii) the inventories of the domestic article involved, (iv) a description of facilities and number and type of workers employed in the production of the domestic article involved, (v) profit-and-loss information covering overall operations and those involving the domestic articles, (vi) pricing information with respect to the domestic articles, (vii) volume and sales of imports, and (viii) other data pertinent to the subject matter of the complaint that would support the allegation of substantial injury to a domestic industry.192 In addition to pleading the foregoing information, a plaintiff must plead and prove four elements of a misappropriation claim: To prove misappropriation of a trade secret for purposes of establishing an unfair act within the purview of Section 337, four elements must be proven: (1) the existence of a trade secret which is not in the public domain, (2) that the complainant is the owner of the trade secret or possesses a proprietary interest therein, (3) that the complainant disclosed the trade secret to respondent while
188 See, e.g., Aunyx Corp. v. Canon U.S.A., Inc., 978 F.2d 3, 4 (1st Cir. 1992) (upholding district court decision giving ITC antitrust decision res judicata effect); Union Mfg. Co., Inc. v. Han Baek Trading Co., 763 F.2d 42, 45–46 (2d Cir. 1985) (holding that ITC trademark decisions pursuant to 19 U.S.C. § 1337 are entitled to res judicata effect); Baltimore Luggage Co. v. Samsonite Corp., 1992 U.S. App. LEXIS 27493, at *2–3, 24 U.S.P.Q.2d (BNA) 1851, 1851–52 (4th Cir. Oct. 16, 1992) (concluding that district court properly applied doctrines of res judicata and collateral estoppel to an earlier ITC determination concerning antitrust and unfair competition claims). 189 Even though ITC decisions are made by an administrative law judge and civil litigants in federal court have a Seventh Amendment right to a jury trial, the administrative law proceeding may be given preclusive effect in subsequent civil cases as long as the parties are afforded a full and fair opportunity to litigate the issues. See Parklane Hosiery Co. v. Shore, 439 U.S. 322, 335–36, 99 S. Ct. 645, 653–54, 58 L. Ed. 2d 552, 565 (1979) (Seventh Amendment right to trial by jury not violated by application of collateral estoppel to prior equitable determination). 190 The Dockets Branch is located 500 E Street, S.W., Room 112, Washington, D.C. 20436. 191 See International Trade Commission Rules 210.8, 210.4, 19 C.F.R. §§ 210.8, 210.4 (2007). 192 See 19 C.F.R. §§ 210.4, 210.8 (2007).
Alleging Alternative Claims in a confidential relationship or that the respondent wrongfully took the trade secret by unfair means, and (4) that the respondent has used or disclosed the trade secret causing injury to the complainant.193
Before filing a complaint, a prospective complainant should contact the Commission’s Office of Unfair Import Investigations (OUII) to discuss the procedural requirements. After the complaint is filed, the OUII will examine the complaint for sufficiency and make a recommendation to the Commission. The OUII examination may result in a request for supplementation or amendment of the complaint before the Commission determines whether to institute an investigation. The Commission will normally decide whether to institute an investigation within 30 days following the filing of the complaint. If the Commission decides not to proceed, the matter dies there. Otherwise, a notice of investigation defining the scope of the investigation is published in the Federal Register the following week. Until then, the respondents are typically unaware of the complaint. Thereafter the Commission will serve a copy of the complaint and notice of investigation on all respondents named in the investigation, as well as on the U.S. embassy for each country in which they are located. At the outset, the matter is assigned to an administrative law judge (ALJ), who typically issues a set of ground rules for the conduct of the investigation. The ground rules set forth the times for responding to motions, methods for asserting privilege, number of copies required of evidentiary exhibits, and the like. Section 337 investigations are conducted in conformity with the Administrative Procedure Act, 5 U.S.C. §§ 551, et seq., and pursuant to the Commission rules published at 19 C.F.R. Part 210. The Commission rules are in many respects similar to the Federal Rules of Civil Procedure. Once the Commission has initiated the investigation and served the complaint, a respondent has 20 days to respond “unless otherwise ordered in the notice of investigation or by the Administrative Law Judge.”194 The responses required by the Commission are similar to those required in federal court. A response must include specific admissions, denials, or explanations of each fact alleged in the complaint, or a statement that the respondent is without knowledge of such facts. In addition, a response should include, when available, statistical data on the quantity and value of the imports of the article, a statement concerning the respondent’s capacity to produce the article, and the relevant significance of the U.S. market.195 Respondents are also allowed to file counterclaims in Commission proceedings even though the Commission
193 In re Certain Apparatus for Continuous Production of Copper Rod, 2 Int’l Trade Rep. (BNA) 5006, 206 U.S.P.Q. (BNA) 138, 156, 1979 WL 33484 (I.T.C. Nov. 23, 1979). 194 19 C.F.R. § 210.13(a) (2007). 195 See id. § 210.21(b).
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will not consider them.196 Pursuant to Section 337(c), removal of counterclaims to a federal district court is mandatory. Discovery is governed by ITC Rules 210.27–210.32, which parallel the Federal Rules of Civil Procedure. They provide for depositions, interrogatories, document requests, requests for admissions, and subpoenas.197 Confidential business information is protected in Section 337 investigations by a protective order issued by the ALJ. Although the orders permit a party’s outside counsel to view confidential business information produced during an investigation, the orders typically do not permit in-house counsel to see it. Two prehearing conferences are usually conducted with the ALJ, one shortly after the investigation is assigned and a second shortly before the evidentiary hearing. Hearings generally are open to the public except while confidential business information is being presented. Hearings proceed in a manner similar to federal bench trials and generally are conducted in accord with the Federal Rules of Civil Procedure and the Federal Rule of Evidence, with the exception that the hearsay rule is relaxed. Following the hearing, the ALJ will issue an initial determination. Under the Commission’s rules, the parties may petition for Commission review of an initial determination if they believe it (i) contains a clearly erroneous finding of material fact, (ii) contains an erroneous legal conclusion, or (iii) affects Commission policy. If the Commission decides not to review some or all of an initial determination, the unreviewed portions become the Commission’s determination. Otherwise, the Commission may affirm, set aside, or modify the portions of the initial determination under review.198 Once the Commission decision is made, the Commission may issue exclusion orders and cease and desist orders. A general exclusion order will direct the U.S. Customs Service to exclude all infringing articles, without regard to source. A limited exclusion order will direct the Customs Service to exclude all infringing articles that originate from a specified firm. If an entity has previously attempted to import an excluded article into the United States and the article was denied entry, the Commission may order the seizure and forfeiture of subsequent shipments.199 A cease and desist order directs a respondent to cease its unfair acts, including selling infringing imported articles from its U.S. inventory. Unlike exclusion orders, cease and desist orders are enforced by the Commission rather than by the Customs Service. Upon issuance, Commission remedial orders are sent to the president who may, within 60 days, disapprove them for policy reasons. However, disapprovals
196 197 198 199
See id. § 210.14(e). See id. §§ 210.27–210.32. See id. §§ 210.43–210.45. See 19 U.S.C. § 1337(i) (2000).
Requirement to Identify Trade Secrets with “Reasonable Particularity”
are rare. During this period, infringing articles may enter the United States provided the importer posts a bond with the Customs Service. If the president does not disapprove the Commission’s remedial orders within the 60day review period, infringing imports may no longer be imported and a complainant may seek to have the bonds posted by the importers forfeited to it. Even then, however, an adverse determination may still be appealed to the U.S. Court of Appeals for the Federal Circuit. If no appeal is commenced within 60 days, the initial determination will become final.
D. Requirement to Identify Trade Secrets with “Reasonable Particularity” It is axiomatic that “[a] plaintiff seeking relief for misappropriation of trade secrets ‘must identify the trade secrets and carry the burden of showing that they exist’” at the summary judgment stage or trial.200 However, the courts in some states impose an additional burden on the plaintiff—to identify the trade secrets with “reasonable particularity” before commencing discovery related to the trade secret.201 In California, this requirement is codified as a procedural rule: In any action alleging the misappropriation of a trade secret under the Uniform Trade Secrets Act, before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject to any orders that may be appropriate under [Section 5 of the UTSA].202
Although it predates the statutory early disclosure requirement, the meaning of “reasonable particularity” was explained in Diodes, Inc. v. Franzen203: Before a defendant is compelled to respond to a complaint based upon claimed misappropriation or misuse of a trade secret and to embark on discovery which may be both prolonged and expensive, the complainant should describe the subject matter of the trade secret with sufficient particularity to separate it from
200 Imax Corp. v. Cinema Techs. Inc., 152 F.3d 1161, 1164 (9th Cir. 1998) (quoting MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 522 (9th Cir. 1993)). 201 See cases collected supra at Chapter 2(C), n.44. 202 Cal. Civ. Proc. Code § 2019.210 (2007). 203 Diodes, Inc. v. Franzen, 260 Cal. App. 2d 244, 253, 67 Cal. Rptr. 19, 24 (1968); accord Advanced Modular Sputtering, Inc. v. Super. Ct., 132 Cal. App. 4th 826, 835, 33 Cal. Rptr. 3d 901, 907 (2005); Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 1453, 125 Cal. Rptr. 2d 277, 286 (2002).
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84 Chapter 2 Litigating Trade Secret Actions—Plaintiff ’s Perspective matters of general knowledge in the trade or of special knowledge of those persons who are skilled in the trade, and to permit the defendant to ascertain at least the boundaries within which the secret lies. If the subject matter of the claimed trade secret is a manufacturing process, the plaintiff must not only identify the end product manufactured, but also supply sufficient data concerning the process, without revealing the details of it, to give both the court and the defendant reasonable notice of the issues, which must be met at the time of trial and to provide reasonable guidance in ascertaining the scope of appropriate discovery.
A number of policy reasons undergird the early disclosure requirement: (1) it promotes well-investigated claims and dissuades the filing of meritless trade secret complaints, (2) it prevents plaintiffs from conducting “fishing expeditions” and using discovery as a means to obtain the defendant’s trade secrets, (3) it assists the court in framing the appropriate scope of discovery, and (4) it enables defendants to form complete and well-reasoned defenses and ensures that defendants need not wait until the eve of trial to defend against trade secret claims effectively.204 Notwithstanding that federal trial courts are bound to follow the Federal Rules of Civil Procedure even when deciding claims arising under state law, federal courts typically require plaintiffs in actions arising under the California UTSA to identify their trade secrets with reasonable particularity before commencing discovery. They may do so to avoid forum shopping or because they view the California procedural requirement as a rule of substantive, rather than procedural, law.205 Recently, however, one federal court has disagreed that federal courts must apply the early disclosure requirement to trade secret cases arising under California law.206
204 See Computer Economics, Inc. v. Gartner Group, 50 F. Supp. 2d 980, 985 (S.D. Cal. 1999); Advanced Modular Sputtering, 132 Cal. App. 4th at 833–34, 33 Cal. Rptr. 3d at 906. 205 See, e.g., id. at 992; Canter v. West Publ’g Co., No. C 96-20440 PVT, 1999 WL 11701, at *8 (N.D. Cal. Jan. 6, 1999); Cal. Micro Devices, Corp. v. Universal Semiconductor, Inc., No. C9320476 JW (PVT), 1995 WL 705144, at *1 (N.D. Cal. Nov. 21, 1995); see also Vermont Microsys., Inc. v. Autodesk, Inc., 88 F.3d 142, 147 (2d Cir. 1996) (“To assert a cause of action for a trade secret misappropriation under California law, VMI was required to ‘identify the trade secret with reasonable particularity.’”); Neothermia Corp. v. Rubicor Med., Inc., 345 F. Supp. 2d 1042, 1043 (N.D. Cal. 2004); Excelligence Learning Corp. v. Oriental Trading Co., No. 5:03-CV4947 JF (RS), 2004 WL 2452834, at *3 (N.D. Cal. June 14, 2004); Callaway Golf Co. v. Dunlop Slazenger Group Ams., Inc., 318 F. Supp. 2d 205, 216 (D. Del. 2004) (applying California law); Postx Corp. v. Secure Data in Motion, Inc., No. C 02-04483 SI, 2004 WL 2663518, at *3 (N.D. Cal. Nov. 20, 2004) (failure to identify trade secrets with particularity before commencing discovery may result in grant of summary judgment against the plaintiff ); Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1322, 1323 (S.D. Fla. 2001) (applying California and Florida law). 206 See Funcat Leisure Craft, Inc. v. Johnson Outdoors, Inc., No. S-06-0533GEBGGH, 2007 WL 273949, at *3 (E.D. Cal. Jan 29, 2007) (“Section 2019.210 clearly addresses procedure and
Requirement to Identify Trade Secrets with “Reasonable Particularity”
The requirement that the plaintiff identify its trade secrets with reasonable particularity at the outset has been applied to cases arising under the laws of other states as well. In Engelhard v. Savin, a Delaware court applied a common-law rule similar to section 2019.210, explaining that a “[p]laintiff would normally be required first to identify with reasonable particularity the matter which it claims constitutes a trade secret, before it would be allowed (given a proper showing of need) to compel discovery of its adversary’s trade secrets.”207 Engelhard has been followed by an Illinois federal court208 and a requirement like the California procedural requirement has been held to apply in Florida.209 Additionally, a Minnesota federal court has observed that “[o]rdering the listing of trade secrets at the outset of the litigation is a common requirement,” noting that such a list is “a starting point for more particular discovery.”210 A Mississippi court also noted in dictum that the “exact and specific identification of trade secrets should have been the starting point of discovery.”211 Similar requirements have been imposed by courts in Michigan and Georgia.212 The requirement that trade secrets be identified with reasonable particularity before the plaintiff initiates discovery has a number of ramifications.
207
208 209
210 211 212
not substance. The California statute simply sets out a procedural pleading or identification threshold prior to the initiation of discovery—both purely procedural matters. Rule 26, et seq., without question regulates the procedure for discovery.”); cf. Upjohn Co. v. Hygieia Biological Labs., 151 F.R.D. 355, 359 (E.D. Cal. 1993) (declining request to order identification of trade secrets but implying that order might have issued if more than one vaccine had been at issue). Engelhard Corp. v. Savin Corp., 505 A.2d 30, 32–33 (Del. Ch. 1986); see also Leucadia, Inc. v. Applied Extrusion Techs, Inc., 755 F. Supp. 635, 636 (D. Del. 1991) (requiring identification of trade secrets as part of the plaintiff ’s “notice pleading” requirement); Struthers Scientific & Int’l Corp. v. Gen. Foods Corp., 51 F.R.D. 149, 151–52 (Del. 1970); Magnox v. Turner, No. Civ. A. 11951, 1991 WL 182450, at *1 (Del. Ch. Sept. 10, 1991) (quoting Engelhard and denying plaintiff ’s motion to compel discovery because “the relevance of [its] requests cannot be determined until [it] identifies the trade secrets that it claims have been misappropriated by defendant”). See AutoMed Techs., Inc. v. Eller, 160 F. Supp. 2d 915, 926 (N.D. Ill. 2001). See Del Monte Fresh Produce Co., 148 F. Supp. 2d at 1323 (“[N]o other state has codified a rule similar to California Civil Procedure Code § 2019(d) [later renumbered as § 2019.210]. This does not mean, however, that Florida would not require Del Monte to identify with reasonable particularity the trade secrets it claims Dr. Funk has misappropriated. In fact, the opposite is true.”); Levenger Co. v. Feldman, 516 F. Supp. 2d 1272, 1287 (S.D. Fla. 2007) (requiring identification of trade secrets with reasonable particularity under Florida law). Porous Media Corp. v. Midland Brake, Inc., 187 F.R.D. 598, 599–600 (D. Minn. 1999). Diversified Tech. v. Dubin, 31 U.S.P.Q.2d (BNA) 1692, 1695 (S.D. Miss. Mar. 8, 1994). See, e.g., Dura Global Techs., Inc. v. Magna Donnelly Corp., No. 07-CV-10945-DT, 2008 U.S. Dist LEXIS 38989, at *4 (E.D. Mich., May 14, 2008) (court enforced earlier requirement that plaintiff “clearly, unambiguously, and with specificity” define trade secrets at issue and stayed discovery pending such list); DeRubeis v. Witten Techs., Inc., 244 F.R.D. 676, 681 (N.D. Ga. 2007) (requiring identification of trade secrets with “reasonable particularity” prior to commencement of discovery).
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First, if a plaintiff has an urgent need for discovery to support a request for injunctive relief, it might want to bring its claim in a state where the “reasonable particularity” requirement has not been applied or omit any claim for a trade secret misappropriation altogether and seek injunctive relief under another theory. The reason why is obvious: a defendant will, if it can, object to the plaintiff’s trade secret identification as lacking in reasonable particularity and, on that basis, will frustrate the plaintiff’s attempts to conduct discovery while proceeding with its own discovery. In most courts, it appears that the burden to identify with “reasonable particularity” is relatively minimal. In Whyte v. Schlage Lock Co., the “pricing of Schlage’s products,” “profit margins on Schlage’s products,” “Schlage’s costs in producing the products it sells,” “Line Review Documents” given to Home Depot, “pricing concessions made by Schlage,” “Schlage’s market research data,” and “finishing processes for new and existing Schlage products” were all found to be reasonably particular trade secret identifications. On the other hand, “information about Schlage’s new products” was held not to be a reasonably particular identification.213 There are, however, cases that have dismissed trade secret claims for failure to satisfy the “reasonable particularity” requirement.214 Second, once served, the trade secret designation will define the proper scope of discovery. A defendant may legitimately refuse to provide information concerning aspects of its business operations unrelated to the claimed trade secrets. If, as a result of discovery, the plaintiff’s theory of its case changes, the plaintiff should attempt to serve an amended identification of its trade secrets.215 Third, what is good for the goose is good for the gander. Any trade secrets identified by the plaintiff will inevitably become subject to the defendant’s discovery. Notwithstanding that parties typically enter into protective orders providing that highly confidential information may be designated as “attorneys’ eyes only” to prevent the defendant from learning the plaintiff’s trade secrets, there is a widely held belief among practitioners that such protective orders are susceptible to “leakage.” That can occur even if, as is almost always the case, counsel for the defendant is both honest and ethical. In trying to prepare an effective defense, counsel may ask his or her client questions based on information obtained pursuant to the protective order with a specificity that allows the defendant to infer what the plaintiff’s secret is. Or, one of the
213 Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 1452–54, 125 Cal. Rptr. 2d 277, 285–86 (2002). 214 See, e.g., Levenger Co. v. Feldman, 516 F. Supp. 2d 1272, 1287 (S.D. Fla. 2007). 215 See Vacco Indus., Inc. v. Van Den Berg, 5 Cal. App. 4th 34, 51 n.16, 6 Cal. Rptr. 2d 602, 612 n.16 (1992) (holding that the trial court properly denied a motion in limine seeking to limit the plaintiff ’s proof at trial to the trade secret set forth in its initial designation because the plaintiff had amended the designation during discovery).
Preliminary Injunctive Relief 87
plaintiff’s own attorneys might inadvertently fail to designate highly confidential information as “attorneys’ eyes only,” thereby allowing defense counsel to share it with the defendant. Still further, in-house counsel may be allowed to see and possess “attorneys’ eyes only” materials if their role is simply to advise the defendant with respect to legal questions, as opposed to participating in business decisions, and there is no indication that in-house counsel are disposed to violate the protective order.216 Regardless of the integrity of in-house counsel, a plaintiff will legitimately worry that if its trade secret information is present at the defendant’s place of business, the wrong eyes may see it. Accordingly, a trade secret misappropriation plaintiff may want, as a tactical matter, to allege misappropriation only of its less valuable and less sensitive secrets.
E. Preliminary Injunctive Relief Section 2 of the UTSA provides that “actual or threatened” misappropriation may be enjoined. In many states that is true. Some states, however, will also enjoin “inevitable” misappropriation. The difference between “threatened” and “inevitable” misappropriation is not just semantic; it will likely affect the nature of any injunction that issues. Courts that reject the doctrine of “inevitable disclosure” are reluctant to read a noncompete provision into an employee’s employment agreement with the trade secret owner. Therefore, if they issue an injunction on the basis that a trade secret misappropriation is “threatened,” they are apt to enjoin only the employee’s use of the secret. In contrast, a court proceeding on the basis that an employee will “inevitably” use or disclose a former employer’s trade secret in the course of his current employment will likely enjoin any further work with the current employer. The first issue, then, is to determine on what basis to seek relief.
216 See U.S. Steel Corp. v. United States, 730 F.2d 1465, 1468 (Fed. Cir. 1984) (“Like retained counsel, . . . in-house counsel are officers of the court, are bound by the same Code of Professional Responsibility, and are subject to the same sanctions [as retained counsel.]”); Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1470 (9th Cir. 1992); United States v. Dentsply, Int’l, Inc., 187 F.R.D. 152, 159–60 (D. Del. 1999) (a “crucial factor” in deciding whether to prohibit in-house counsel from access is whether in-house counsel is involved in “competitive decision making (e.g., advising the opposing party on marketing, pricing, produce design, etc.) and ‘would have a difficult time compartmentalizing his knowledge.’”); Volvo Penta, Inc. v. Brunswick Corp., 187 F.R.D. 240, 242 (E.D. Va. 1999) (the courts also consider “the nature of the litigation and whether the litigation presents difficult or complex issues or claims”).
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1. Bases for Relief a. Actual Misappropriation In states that have adopted the UTSA, an actual misappropriation may be found even absent evidence of disclosure or use. Section 1(2) of the UTSA provides that “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means” constitutes misappropriation. Thus, if an employee having knowledge of a company’s trade secrets departs to accept employment with a competitor, the trade secret owner should investigate the departed employee’s immediate predeparture activities carefully. If the employee downloaded trade secret information to a personal e-mail account, requested or copied trade secret reports without a job-related need to do so, or failed to return manuals or laptop computers containing trade secret information, the employee acquired trade secrets by improper means and thus committed an actual misappropriation.217 An injunction may also issue based on an actual misappropriation if the defendant obtained trade secrets lawfully, such as pursuant to a license agreement, but later used them beyond the permitted scope or term.218 This may occur in a variety of situations, such as when a prospective purchaser of a business gains access to trade secrets for the purpose of valuing the business,219 licenses a technology,220 or enters into an agreement to supply specially designed machinery.221 Under any of the above scenarios, a trade secret owner is likely to have very strong evidence of actual misappropriation and, assuming that it can persuade the court that its information is entitled to trade secret protection, should have little difficulty obtaining preliminary injunctive relief. Note that it is not necessary to have “proof positive” of actual misappropriation. Even if the defendant did not directly copy the plaintiff’s trade secrets, using the trade secrets as a guide may be found to constitute misappropriation, especially if there is a strong similarity in the resulting products.222 In some cases, a trade secret “is so unique that the emergence of a similar, slightly altered product
217 See Liebert Corp. v. Mazur, 357 Ill. App. 3d 265, 282, 827 N.E.2d 909, 926 (2005) (employee downloaded trade secret information hours before employment terminated); see also Minuteman, Inc. v. Alexander, 147 Wis. 2d 842, 854, 434 N.W.2d 773, 778 (1989) (liability based on improper acquisition). 218 See Restatement (Third) of Unfair Competition § 41 cmt. b (1995). 219 See, e.g., Phillips v. Frey, 20 F.3d 623, 631 (5th Cir. 1994). 220 See, e.g., Speedry Chem. Prods., Inc. v. Carter’s Ink Co., 306 F.2d 328, 332 (2d Cir. 1962). 221 See Metallurgical Indus., Inc. v. Fourtek, Inc., 790 F.2d 1195, 1200 (5th Cir. 1986) (specially configured blast furnace). 222 QSRSoft, Inc. v. Rest. Tech., Inc., 2006 U.S. Dist. LEXIS 76120, at *27–28, 84 U.S.P.Q.2d (BNA) 1297, 1305 (N.D. Ill. Oct. 19, 2006).
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gives rise to an inference of misappropriation.”223 An injunction may also issue based upon a showing that a defendant had access to the plaintiff’s trade secrets and thereafter introduced a new product in an impossibly short time.224 b. Threatened Misappropriation It is rare that a defendant overtly threatens to misappropriate trade secrets. Absent such an expressed threat, it is unclear what type of conduct will establish a threat sufficient to justify judicial intervention. Clearly, a departed employee’s mere possession of trade secrets is not enough.225 Instead, an injunction based on threatened misappropriation “must be supported by actual evidence that there is a realistic prospect that the party to be enjoined intends imminently to engage in the prohibited activity.”226 In making such assessment, wrongful acts by an agent may be imputed to a defendant corporation.227 Arguing that a trade secret misappropriation is “imminent,” however, does not make it so. The case law does not explain what additional facts must be shown beyond that (1) an employee (2) with knowledge of trade secrets (3) has accepted employment with a competitor (4) in such capacity that it would be logical for the employee to rely on his knowledge of his former employer’s trade secrets in performing his job duties for his new employer. In states that do not recognize the “inevitable disclosure” doctrine, such a showing would be viewed, at best, as merely speculative. In states such as California and Louisiana (whose public policies are hostile to the enforcement of noncompete agreements),228 such an argument would likely be viewed as an attempt to impose a
223 Wyeth v. Natural Biologics, Inc., 395 F. 3d. 897, 900 (8th Cir. 2005). However, the involvement of an employee possessing trade secrets, although suspicious, may be overcome by other evidence showing no misappropriation is likely. See, e.g., Benefit Resource v. Apprize Tech. Solutions, Inc., No. 07-4199 (JNE/FLN), 2008 U.S. Dist. LEXIS 39701, at *21–22 (D. Minn. May 15, 2008). 224 See Electro-Miniatures Corp. v. Wendon Co., 771 F.2d 23, 26 (2d Cir. 1985); Telex Corp. v. IBM Corp., 510 F.2d 894, 911 (10th Cir. 1975). 225 See Cont’l Group, Inc. v. Amoco Chems. Corp., 614 F.2d 351, 358–59 (3d Cir. 1980) (apparently applying Third Circuit law); Xantrex Tech. Inc. v. Advanced Energy Indus., U.S. Dist. LEXIS 41206, at *50–52, No. 07-CV-02324-WYD-MEH, 2008 (D. Colo. May 23, 2008) (“[F]or a party to make a claim of threatened misappropriation . . . the party must establish more than the existence of generalized trade secrets and [a] competitor’s employment of the party’s former employee who has knowledge of [the] trade secrets.”); Cont’l Car-Na Var Corp. v. Moseley, 24 Cal. 2d 104, 107, 148 P.2d 9, 13 (1944). 226 Korean Phila. Presbyterian Church v. Cal. Presbytery, 77 Cal. App. 4th 1069, 1084, 92 Cal. Rptr. 2d 275, 285 (2000). 227 Magnecomp Corp. v. Athene Co., 209 Cal. App. 3d 526, 538, 257 Cal. Rptr. 278, 284–85 (1989). 228 See Cal. Bus. & Prof. Code § 16600 (2007); La. Rev. Stat. Ann. § 23:921 (2007).
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noncompete agreement in contravention of state law. In Standard Brands, Inc. v. Zumpe, the court refused to grant a preliminary injunction because: It is hornbook law that injunctive relief is an unusual remedy, available only in those instances in which the rights of the parties cannot be otherwise adequately protected. The issuance of an injunction is not justified by the mere fact that irreparable harm may possibly ensue if restraint is not imposed. The plaintiff must make out a case for the issuance of the injunction by demonstrating that there is a clear present need for it. Injunctions will not be issued merely to allay the fears and apprehensions or to soothe the anxieties of the parties.229
Indeed, even the possession of a personal notebook kept during the course of employment and containing secret formulas has been held not to present a sufficient threat of disclosure absent proof of an intent to use or disclose by the defendant.230 Presumably the outcome would have differed had the notebook been prepared in anticipation of the employee’s departure. One court has suggested that “threatened misappropriation” may be demonstrated by showing a likelihood of “inevitable disclosure” combined with an unwillingness to preserve confidentiality.231 In the authors’ experience, proof of the four elements identified above, coupled with acts of dishonesty related to the employee’s new employment, may suffice to support the issuance of an injunction. The necessary dishonesty may consist of such things as secretly contacting customers in advance of the employee’s departure, secretly consulting with the new employer or going on sales calls with a new employer prior to the termination of the employee’s employment, misrepresenting the employee’s postemployment plans during an exit interview on Friday before reporting to work for the new employer on Monday, deleting the contents of the hard drive of the employee’s computer and writing over it to make recovery of the deleted information impossible, and affirmatively misrepresenting the fact or nature of the employee’s work for the new employer. In one frequently cited case (albeit affirming the issuance of a preliminary injunction under the “inevitable disclosure” doctrine), the
229 Standard Brands, Inc. v. Zumpe, 264 F. Supp. 254, 267 (E.D. La. 1967); see also Cont’l Group, Inc. v. Amoco Chems. Corp., 614 F.2d 351, 359 (3d Cir. 1980) (apparently applying Third Circuit law); Eaton Corp. v. Appliance Valves Corp, 526 F. Supp. 1172, 1178, 1181 (N.D. Ind. 1981), aff ’d, 688 F.2d 842 (7th Cir. 1982). 230 Gibson-Homans Co. v. Wall-Tite, Inc., 26 U.S.P.Q.2d (BNA) 1867, 1870–71, 1992 WL 512411, at *4–5 (C.D. Cal. Oct. 27, 1992). 231 See Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1326, 1338 (S.D. Fla. 2001). See also H & R Block E. Tax Servs., Inc. v. Enchura, 122 F. Supp. 2d 1067, 2075 (W.D. Mo. 2000).
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Seventh Circuit noted that a departed employee’s dishonesty gave rise to a threat of misappropriation: Redmond’s lack of forthrightness on some occasions, and out and out lies on others, in the period between the time he accepted the position with defendant Quaker and when he informed plaintiff that he had accepted that position leads the court to conclude that defendant Redmond could not be trusted to act with the necessary sensitivity and good faith under the circumstances in which the only practical verification that he was not using plaintiff ’s secrets would be defendant Redmond’s word to that effect.232
Notwithstanding that the court held that misappropriation was threatened, PepsiCo, Inc. v. Redmond now stands for the proposition that a preliminary injunction may issue on the basis that trade secret misappropriation is “inevitable.” c. “Inevitable Disclosure” Doctrine Some courts have long recognized that trade secret misappropriation is inevitable if an employee with knowledge of a company’s specialized trade secrets accepts an equivalent position with a competitor. In that situation, they find that an employee who wants to do good work will inevitably rely on whatever he knows, including the former employer’s trade secrets. For example, in B.F. Goodrich Co. v. Wohlgemuth, a departing employee had worked as an engineer in the plaintiff’s space suit program. He then left to work for a competitor in the same area. Because his specialty was so unusual, it was obvious that he could not use his skills in his new position without relying on his knowledge of the plaintiff’s trade secrets.233 The inevitability of disclosure is typically invoked as a basis for seeking preliminary injunctive relief although, as suggested above, in rare circumstances it is used to justify the entry of a permanent injunction.234
232 PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1270 (7th Cir. 1995). See also W.L. Gore & Assocs. v. Wu, No. 263-N, 2006 WL 2692584, at *17 (Del. Ch. Sept. 15, 2006) (defendant’s “lack of trustworthiness and the serious risk of inevitable disclosure of [plaintiff ’s] trade secrets” justified injunction prohibiting defendant from participating in certain polymer research), aff ’d, 918 A.2d 1171 (Del. 2007), cert. denied, 128 S. Ct. 379, 169 L. Ed. 2d 262 (2007). 233 See B.F. Goodrich Co. v. Wohlgemuth, 192 N.E.2d 99, 104–05, 137 U.S.P.Q. (BNA) 804, 807 (Ohio Ct. App. 1963); see also Air Prods. & Chem., Inc. v. Johnson, 442 A.2d 1114, 1122, 215 U.S.P.Q. (BNA) 547, 556 (Pa. Super. Ct. 1982) (affirming injunction prohibiting employee from working in a particular field because “it would be impossible to perform his managerial functions” without resort to confidential information). 234 Lucini Italia Co. v. Grappolini, No. 01 C 6405, 2003 WL 1989605, at *18 (N.D. Ill. Apr. 28, 2003); W.L. Gore & Assocs. v. Wu, No. 263-N, 2006 WL 2692584, at *17 (Del. Ch. Sept. 15, 2006) (defendant’s “lack of trustworthiness and the serious risk of inevitable disclosure of [plaintiff ’s] trade
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Notwithstanding its long existence, the “inevitable disclosure” doctrine is commonly attributed to PepsiCo Inc. v. Redmond.235 PepsiCo was locked in fierce competition with Quaker Oats in the “sports drinks” and “new age drinks” markets. Redmond worked for PepsiCo as the general manager of its California business unit. His position gave him access to PepsiCo’s strategic and annual operating plans that included information concerning pricing, customers, and new delivery systems. After leaving PepsiCo, Redmond accepted a position with Quaker as its Vice President–Field Operations for its Gatorade isotonic beverage unit. As summarized by the Seventh Circuit: PepsiCo has asserted that Redmond cannot help but rely on [PepsiCo’s] trade secrets as he helps plot Gatorade and Snapple’s new course, and that these secrets will enable Quaker to achieve a substantial advantage by knowing exactly how [PepsiCo] will price, distribute, and market its sports drinks and new age drinks and be[] able to respond strategically.236
The Seventh Circuit agreed and affirmed an injunction prohibiting Redmond from assuming any duties with Quaker related to beverage pricing, marketing, and distribution. The current state of the inevitable disclosure doctrine could charitably be described as “muddled.” A few states appear to have unequivocally rejected the doctrine and a few states appear to have applied the doctrine without qualms. Nevertheless, courts in a large number of states claim to have applied the doctrine and, at the same time, other courts in those same states have declined to apply the doctrine. An examination of the cases in which the doctrine was purportedly applied shows that the decisions frequently turned on other factors. Commonly, the doctrine was used as a hook to find that enforcement of a contractual noncompete provision would be reasonable.237 At other times, courts have found that misappropriation was already either threatened or actually occurring and therefore concluded that misappropriation would “inevitably” occur in the absence of an injunction. Courts in the following 28 states have applied, rejected, or suggested they would apply or reject, the inevitable disclosure doctrine in some form: Alabama. In Public Systems, Inc. v. Towry, a court stated in dictum that one who is not a party to a restrictive covenant cannot properly be enjoined from
secrets” justified injunction prohibiting defendant from participating in certain polymer research), aff ’d, 918 A.2d 1171 (Del. 2007), cert. denied, 128 S. Ct. 379, 169 L. Ed. 2d 262 (2007). 235 PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995). 236 Id. at 1270. 237 See Restatement (Third) of Unfair Competition § 41 cmt. d (“A promise by an employee not to compete with the employer after the termination of employment or by a seller of a business not to compete with the buyer after the sale may be justified as a reasonable attempt to protect confidential information, provided that the duration and geographic scope of the covenant are appropriately related to the promisee’s legitimate interests.”).
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engaging in business.238 Based on this case, it appears unlikely that Alabama would apply the doctrine. Arkansas. In Bendinger v. Marshalltown Trowell Co., the court held that the plaintiff could prove a claim of trade secret misappropriation by demonstrating that a defendant’s new employment would inevitably lead it to rely on those trade secrets.239 On the other hand, the same court noted that the “mere fact that a person assumes a similar position at a competitor does not, without more, make it inevitable that he will use or disclose trade secrets.”240 Another court purported to rely on the doctrine to enjoin a former employee from working for a competitor during the one-year term of the employee’s nondisclosure obligations under a noncompete agreement.241 California. California has long been hostile to the inevitable disclosure doctrine. In Continental Car-Na-Var Corp. v. Moseley, the California Supreme Court held that “the mere fact that the defendant knew the formulae for plaintiff’s products when he left plaintiff’s employ . . . was not sufficient evidence from which an inference could be drawn that he was using or intended to use such formulae on behalf of defendants.”242 Since then, a number of courts have held that the doctrine is inapplicable in California. Recent decisions have rejected application of the doctrine as conflicting with California’s strong public policy favoring employee mobility, as reflected in Cal. Bus. & Prof. Code Section 16600.243
238 See Public Sys., Inc. v. Towry, 587 So. 2d 969, 973, 21 U.S.P.Q.2d (BNA) 1220, 1223 (Ala. 1991) (“The majority, and the better considered, of the cases, support the proposition that one who is in no sense a party to a covenant not to engage in a competing business cannot properly be enjoined from engaging in such business.”). 239 See Bendinger v. Marshalltown Trowell Co., 994 S.W.2d 468, 474 (Ark. 1999). 240 Id. at 475. 241 See Cardinal Freight Carriers, Inc. v. J.B. Hunt Transp. Servs., Inc., 987 S.W.2d 642, 647 (Ark. 1999); see also S.W. Energy Co. v. Eickenhorst, 955 F. Supp. 1078, 1082 (W.D. Ark. 1997) (stating in dictum that “injunctive relief should be granted to protect trade secrets where there is a belief, not simply that future acts are threatened, but that such acts will in all probability be committed”). 242 Continental Car-Na-Var Corp. v. Moseley, 24 Cal. 2d 104, 107, 148 P.2d 9, 11 (1944). 243 See Lam Research Corp. v. Deshmukh, 157 Fed. Appx. 26, 28 (9th Cir. 2005); GlobeSpan, Inc. v. O’Neill, 151 F. Supp. 2d 1229, 1235 (C.D. Cal. 2001) (doctrine conflicts with public policy favoring employee mobility); Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1326, 1336–37 (S.D. Fla. 2001) (under either California or Florida law, inevitable disclosure doctrine should not be applied to create a noncompete agreement absent actual or threatened disclosure); Bayer Corp. v. Roche Molecular Sys., Inc., 72 F. Supp. 2d 1111, 1120 (N.D. Cal. 1999) (“California trade secrets laws does not recognize the theory of inevitable disclosure; indeed, such a rule would run counter to the strong public policy in California favoring employee mobility.”); Danjaq L.L.C. v. Sony Corp., No. CV 97-8414-ER (MCX), 1999 WL 317629, at *1 n.1 (C.D. Cal. 1999) (“PepsiCo is not the law of the State of California or the Ninth Circuit.”); Universal Analytics, Inc. v. MacNeal-Schwendler Corp., 707 F. Supp. 1170, 1177 (C.D. Cal. 1989); Meissner Filtration Prods., Inc. v. Harrington, No. CIV212103, 2004 WL 2189249, at *4 (Cal. App. 2004); Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443,
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Connecticut. Several Connecticut decisions have embraced the doctrine. In Aetna Retirement Services, Inc. v. Hug, the court granted a temporary restraining order even though it was “unquestionable” that the former employee was “a person of unimpeachable integrity whose honesty [was] widely respected and admired.”244 In Branson Ultrasonics v. Stratman, the court invoked the doctrine as a basis to enforce a covenant not to compete.245 Delaware. Delaware courts have also recognized the doctrine. In E.I. duPont de Nemours & Co. v. American Potash & Chemical Corp., the doctrine was invoked to deny the defendant’s summary judgment motion.246 In American Hoechst Corp. v. Nuodex, Inc., the court suggested in dictum that the doctrine should apply in Delaware.247 Florida. The status of the doctrine in Florida is unclear. One federal decision rejected it unequivocally, declaring that “[a]bsent evidence of actual or threatened misappropriation, a court should not allow a plaintiff to use inevitable disclosure as an after-the-fact noncompete agreement to enjoin an
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1462, 125 Cal. Rptr. 2d 277, 292 (2002) (“[T]he doctrine of inevitable disclosure ‘creates a de facto covenant not to compete’ and ‘runs[s] counter to the strong public policy in California favoring employee mobility.’”) (quoting Bayer Corp., 72 F. Supp. 2d at 1120)); see also GibsonHomans Co. v. Wall-Tite, Inc., 1992 WL 512411, at *5, 26 U.S.P.Q.2d (BNA) 1867, 1871 (C.D. Cal. Oct. 27, 1992) (holding that employee’s possession of a personal notebook containing former employer’s trade secrets did not constitute a “threat” of misappropriation even though the former employee had taken competitive employment). The California Supreme Court’s reaction to a 1999 California Court of Appeal decision finding that the inevitable disclosure doctrine did apply in California serves to underscore California’s antipathy to the doctrine. See Electro Optical Indus., Inc. v. White, 90 Cal. Rptr. 2d 680, 684 (1999) (“Although no California court has yet adopted it, the inevitability disclosure rule is rooted in common sense and calls for a fact specific inquiry. We adopt the rule here.”). Electro Optical was subsequently ordered depublished by the California Supreme Court. See Cal. R. Ct. 976, 977. Decisions of California appellate courts are ordered depublished when the Supreme Court disagrees with them. Aetna Retirement Servs., Inc. v. Hug, No. CV970479974S, 1997 Conn. Super. LEXIS 1781, at *27–28, 1997 WL 396212, at *11 (Conn. Super. Ct. June 18, 1997); see also Avery Dennison Corp. v. Finkle, No. CV010757706, 2002 WL 241284, at *2 (Conn. Super. Ct. Feb. 1, 2002). But see Aetna, Inc. v. Fluegel, No. 074033345S, 2008 Conn. Super. LEXIS 326, at *15–16 (Conn. Super. Ct. Feb. 7, 2008) (declining to issue injunction based on inevitability of disclosure because the defendant was not subject to a noncompete agreement and the plaintiff would easily be able to detect any misappropriation). See Branson Ultrasonics Corp. v. Stratman, 921 F. Supp. 909, 913 (D. Conn. 1996); see also Weseley Software Dev. Corp. v. Burdette, 977 F. Supp. 137, 147 (D. Conn. 1997) (enforcing covenant not to compete); Cannondale Corp. v. GT Bicycles, No. CV 970156601S, 1997 WL 53561 at *1 (Conn. Super. Ct. 1997) (enjoining ex-employee from disclosing or using plaintiff ’s trade secrets or confidential information). See E.I. duPont de Nemours & Co. v. Am. Potash & Chem. Corp., 200 A.2d 428, 436 (Del. Ch. 1964). See Am. Hoechst Corp. v. Nuodex, Inc., No. 7950, 1985 WL 11563, at *5 (Del. Ch. April 23, 1985); see also Am. Totalisator Co. v. Autotote Ltd., No. Civ. A. 7268, 1983 WL 21374, at *5 (D. Del. 1983).
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employee from working for the employer of his or her choice.”248 A more recent decision suggested that the doctrine might nonetheless be applied in Florida, declaring that “[q]uestions of inevitable disclosure need not be addressed” because there was actual misappropriation.249 An early Florida decision upheld the issuance of a temporary restraining order enjoining employment because a former employee’s knowledge of trade secrets was so intertwined with his new employment as to render ineffective any prohibition aimed only at disclosure.250 Georgia. One Georgia court has purported to apply the doctrine after finding that the defendant “sought to obtain [the plaintiff’s trade secrets] by the simple act of hiring” the plaintiff’s employee.251 Illinois. By and large, Illinois courts have either followed PepsiCo or anticipated it.252 One court has, however, held that the doctrine is contrary to the public policy of Illinois.253 Indiana. The few Indiana decisions to address the doctrine have expressed mixed views. In Bridgestone/Firestone Company v. Lockhart, the court found PepsiCo instructive but found no inevitable disclosure on the facts.254 Two other decisions have appeared to embrace the doctrine, at least if a restrictive covenant is present.255 Iowa. Several decisions in Iowa have been sympathetic to the doctrine.256
248 249 250 251 252
253 254 255
256
Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1326, 1337 (S.D. Fla. 2001). Hatfield v. Autonation, Inc., 939 So. 2d 155, 158 (Fla. Dist. Ct. App. 2006). See Fountain v. Hudson Cash-N-Foam Corp., 122 So. 2d 232, 234 (Fla. Dist. Ct. App. 1960). Essex Group, Inc. v. Southwire Co., 269 Ga. 553, 557, 501 S.E.2d 501, 505 (1998). Quixote Transp. Safety, Inc. v. Cooper, No. 03 C 1401, 2004 WL 528011, at *5 (N.D. Ill. Mar. 12, 2004); YCA, L.L.C. v. Berry, 2004 WL 1093385, at *15 (N.D. Ill. May 7, 2004); RKI, Inc. v. Grimes, 177 F. Supp. 2d 859, 875–76 (N.D. Ill. 2001); Abbott Labs. v. Chiron Corp., 43 U.S.P.Q.2d (BNA) 1695 (N.D. Ill. Apr. 23, 1997); Zellweger Analytics, Inc. v. Milgram, No. 95 C 5998, 1997 WL 667778, at *3 (N.D. Ill. Oct. 21, 1997); Teradyne, Inc. v. Clear Commc’ns Corp., 707 F. Supp. 353, 356 (N.D. Ill. 1989); Dulisse v. Park Int’l Corp., No. 97 C 8018, 1998 WL 25158, at *4, 45 U.S.P.Q.2d (BNA) 1688, 1691 (N.D. Ill. Jan. 9, 1998); AMP Inc. v. Fleischhacker, No. 84 C 1676, 1986 WL 3598, at *1 (N.D. Ill. Mar. 18, 1986); Strata Mktg., Inc. v. Murphy, 317 Ill. App. 3d 1054, 1067–71, 251 Ill. Dec. 595, 740 N.E.2d 1166, 1175–79 (1st Dist. 2000). See Motorola v. Qualcomm, Inc., No. 96 ch. 7575 (Cir. Ct. Cook County 1996). See Bridgestone/Firestone Inc. v. Lockhart, 5 F. Supp. 2d 667, 682 (S.D. Ind. 1998). See Schlumberger Well Servs. v. Blaker, 623 F. Supp. 1310, 1314, 1318 (S.D. Ind. 1985) (enjoining use of information but finding that noncompete agreement was not supported by adequate consideration; Ackerman v. Kimball Int’l, Inc., 652 N.E.2d 507, 510 (Ind. 1995). See APAC Teleservs. Inc. v. McRae, 985 F. Supp. 852, 865–66 (N.D. Iowa 1997) (applying doctrine but finding no inevitable disclosure on the facts); Uncle B’s Bakery, Inc. v. O’Rourke, 920 F. Supp. 1405, 1436 (N.D. Iowa 1996) (preliminary injunction issued prohibiting employee from working for another bagel company even though it did not produce bagels competitive with the plaintiff ’s principal line of bagels); Barilla Am., Inc. v. Wright, 2002 WL 31165069, at *12 (S.D. Iowa July 5, 2002) (applying doctrine to find that the evidence established a threat of disclosure but not inevitable disclosure); Diversified Fastening Sys., Inc. v.
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Louisiana. One Louisiana decision has addressed, and rejected, the doctrine. In Standard Brands v. Zumpe, the court held that Louisiana’s public policy, as expressed in a statute prohibiting generalized noncompetition clauses in employment agreements, would prevent a Louisiana court from enjoining employment in which disclosure might appear inevitable.257 Maryland. Maryland appears to reject the doctrine. A federal decision explained that the doctrine “has not been expressly adopted by the Maryland state courts,” and a subsequent state decision viewed California law favorably.258 Massachusetts. Massachusetts courts sometimes have purported to apply the doctrine as a basis for enforcing a noncompete agreement, sometimes have refused to apply the doctrine, and sometimes have displayed agnosticism concerning its applicability.259 Michigan. Courts here generally, but not uniformly, have been hostile to the doctrine. In CMI International, Inc. v. Intermet International Corp., a court implicitly rejected the doctrine: Even assuming that the concept of “threatened misappropriation” of trade secrets encompasses a concept of inevitable disclosure, that concept must not compromise the right of employees to change jobs. Accordingly, we hold that for a party to make a claim of threatened misappropriation, whether under a theory of inevitable disclosure or otherwise, the party must establish more than the existence of generalized trade secrets and a competitor’s employment of the party’s former employee who has knowledge of the trade secrets.260
257
258
259
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Rogge, 786 F. Supp. 1486, 1494 (N.D. Iowa 1991) (enjoining employment to protect trade secrets although not specifically mentioning inevitable disclosure). Standard Brands, Inc. v. Zumpe, 264 F. Supp. 2d 254, 261 (E.D. La. 1967) (nevertheless allowing an injunction to prohibit disclosure); cf. Tubular Threading, Inc. v. Scandaliato, 443 So. 2d 712, 715 (La. App. 1983) (reversing grant of permanent injunction because there was no finding of misappropriation and injunction could not issue merely “to forestall future problems”). See Padco Advisors, Inc. v. Omdahl, 179 F. Supp. 2d 600, 611 (D. Md. 2002); LeJeune v. Coin Acceptors, Inc., 849 A.2d 451, 472 (Md. 2004) (“Maryland has a policy in favor of employee mobility similar to that of California.”). See Campbell Soup Co. v. Giles, 47 F.3d 467, 468 (1st Cir. 1995) (noting that under the circumstances of the case, inevitable disclosure was not likely); Safety-Kleen Sys., Inc. v. McGinn, 233 F. Supp. 2d 121, 124 (D. Mass. 2002) (rejecting any use of the doctrine absent a showing of actual disclosure); New England Circuit Sale v. Randall, 1996 WL 1171929, at *3 (D. Mass. June 4, 1996) (relying on doctrine to prohibit employment during noncompete term when former employer proved existence of trade secret and irreparable harm); Marcam Corp. v. Orchard, 885 F. Supp. 294, 297 (D. Mass. 1995) (relying on doctrine to grant injunction in support of non-compete agreement); C.R. Bard, Inc. v. Intoccia, 1994 WL 601944, at *3 (D. Mass. 1994) (applying doctrine to enforce a noncompetition agreement); Architext, Inc. Kikuchi, 20 Mass. L. Rptr. 127, 2005 WL 2864244, at *3 (Mass. Super. 2005) (noting that doctrine has not been adopted in Massachusetts). CMI Int’l, Inc. v. Intermet Int’l Corp., 251 Mich. App. 125, 133–34, 649 N.W.2d 808, 813 (2002) (citation omitted); see also Degussa Admixtures, Inc. v. Burnett, 471 F. Supp. 2d 848,
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Other Michigan courts have flatly rejected the doctrine,261 but still others have accepted it.262 Minnesota. Minnesota courts are generally hostile to the doctrine, holding that it “should not act as an ex-post-facto covenant not to compete.”263 Some decisions, however, suggest that the doctrine may be applied in rare instances.264 Missouri. Recent Missouri cases have rejected the doctrine. For example, in H & R Block Eastern Tax Services, Inc. v. Enchura, the court explained that PepsiCo requires not only a showing of inevitability, but also a finding that
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856 (W.D. Mich. 2007) (citing CMI favorably and declaring that the “doctrine has never been adopted in Michigan and, even where it has been discussed, it has only been suggested to be applicable to high executives and key designers of the company’s strategic plans and operations”). Kelly Servs., Inc. v. Greene, 535 F. Supp. 2d 180, 188 (D. Me. 2008) (declining to apply “inevitable disclosure” doctrine absent evidence of specific acts of actual or threatened misappropriation) (applying Michigan law). See Leach v. Ford Motor Co., 299 F. Supp. 2d 763, 775 (E.D. Mich. 2004) (rejecting application of the doctrine); Superior Consultant Co. v. Bailey, No. 00-CV-73439, 2000 U.S. Dist. LEXIS 13051, at *32–37, 2000 WL 1279161, at *11 (E.D. Mich. 2000) (distinguishing PepsiCo from the facts of the case, and requiring “demonstrated inevitability” as required in PepsiCo in order to enjoin employment under the doctrine, but enforcing a covenant not to compete). See United Rentals (N. Am.), Inc. v. Keizer, 202 F. Supp. 2d 727, 741 (W.D. Mich. 2002) (predicting in dictum that Michigan would adopt the doctrine but declining to apply it based on the facts of the case); Hoskins Mfg. Co. v. PMC Corp., 47 F. Supp. 2d 852, 856 (E.D. Mich. 1999) (recognizing the doctrine in dictum but finding it inapplicable because there was no “substantial threat” of trade secret disclosure); Allis-Chalmers Mfg. Co. v. Cont’l Aviation & Eng’g Corp., 255 F. Supp. 645, 654 (E.D. Mich. 1966) (applying doctrine to enjoin employee from engaging in development of an injection pump). See Int’l Bus. Mach. Corp. v. Seagate Tech., Inc., 941 F. Supp. 98, 101 & n.1 (D. Minn. 1992) (“Merely possessing trade secrets and holding a comparable position with a competitor does not justify an injunction.”); Equus Computer Sys., Inc. v. N. Computer Sys., Inc., No. CIV. 01657DWFAJB, 2001 WL 1636487, at *5 (D. Minn. May 4, 2001) (same, noting that the Eighth Circuit had never adopted PepsiCo); cf. Medtronic, Inc. v. Sun, Nos. C7-97-1185, C9-971186, 1997 WL 729168, at *4 (Minn. App. 1997) (“Minnesota cases clearly establish a ‘reasonableness’ test for enforcement of covenants not to compete, not an ‘inevitable disclosure’ test.”). Surgidev Corp. v. Eye Tech., Inc., 648 F. Supp. 661, 695 (D. Minn. 1986) (moving party must “show that there is a ‘high degree of probability of inevitable disclosure’”), aff ’d, 828 F.2d 452 (8th Cir. 1987); NewLeaf Designs, L.L.C. v. BestBins Corp., 168 F. Supp. 2d 1039, 1043 (D. Minn. 2001) (following Surgidev); United Prods. Corp. of Am., Inc. v. Cederstrom, No. A05-1688, 2006 WL 1529478, at *5, 2006 Minn. App. LEXIS 594 (June 6, 2006) (requiring high degree of probability); Reliastar Life Ins. Co. v. KMG Am. Corp., No. A05-2079, 2006 WL 2529760, at *4, 2006 Minn. App. LEXIS 1018 (Sept. 5, 2005) (same); cf. Lexis-Nexis v. Beer, 41 F. Supp. 2d 950, 958 (D. Minn. 1999) (recognizing doctrine in dictum, but finding no trade secrets on the facts); La Calhene, Inc. v. Spolyar, 938 F. Supp. 523, 530–31 (W.D. Wis. 1996) (applying Minn. law) (enjoining former employee from disclosing trade secrets and working in a competing industry).
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“there is unwillingness to preserve confidentiality” by the defendant.265 Older Missouri cases, however, do recognize the doctrine.266 New Jersey. New Jersey courts have been sympathetic to the doctrine and have applied it in a number of instances.267 In one early case, however, the Third Circuit declined to apply the doctrine.268 New Mexico. A New Mexico court has recognized the doctrine in dictum but declined to apply it based on the facts.269 New York. New York courts frequently have been hostile to the doctrine, characterizing it as “fraught with hazards” due to the power it puts in the hands of employers, the concomitant chilling effect it has on employees, and the failure to provide guideposts for courts apart from the “nebulous standard of inevitability.”270
265 H & R Block E. Tax Servs., Inc. v. Enchura, 122 F. Supp. 2d 1067, 1075 (W.D. Mo. 2000); see also Conseco Fin. Servicing Corp. v. N. Am. Mortgage, 2000 WL 33739340, at *12 (E.D. Mo. Dec. 6, 2000) (applying Eighth Circuit law to conclude that “[g]ranting an inevitable disclosure injunction would essentially require the Court to judicially craft a covenant not to compete and apply it ex post facto, even though such a covenant never existed, and even though no former [] employee ever agreed to such a covenant”); Carboline Co. v. Lebeck, 990 F. Supp. 762, 767 (E.D. Mo. 1997) (a plaintiff asserting inevitability “must do more than assert that a skilled employee is taking his abilities to a competitor”). 266 See Baxter Int’l, Inc. v. Morris, 976 F.2d 1189, 1194 (8th Cir. 1992) (affirming issuance of narrowly limited injunction prohibiting only disclosure of information even though it was “far from clear” that the employee’s new employer would seek to develop comparable products or could use the trade secret technology); Sigma Chem. Co. v. Harris, 586 F. Supp. 704, 711 (E.D. Mo. 1984); A.B. Chance Co. v. Schmidt, 719 S.W.2d 854, 857 (Mo. App. 1986). 267 See Apollo Techs. Corp. v. Centrosphere Indus. Corp., 805 F. Supp. 1157, 1210 (D.N.J. 1992); E.R. Squibb & Sons, Inc. v. Hollister, Inc., No. 91-203 (JCL), 1991 WL 15296, at *8 (D.N.J. Feb. 5, 1991), aff ’d, 941 F.2d 1201 (3d Cir. 1991); Nat’l Starch & Chem. Corp. v. Parker Chem. Corp., 530 A.2d 31, 33 (N.J. Super. Ct. App. Div. 1987). 268 See Cont’l Group, Inc. v. Amoco Chems. Corp., 614 F.2d 351, 358–59 (3d Cir. 1980) (apparently applying Third Circuit law and holding that preliminary injunction to enforce restrictive covenant issued improperly despite possibility of inadvertent disclosure because there was no risk of irreparable harm). 269 See Insure New Mexico, L.L.C. v. McGonigle, 128 N.M. 611, 617, 995 P.2d 1053, 1059 (N.M. Ct. App. 2000). 270 See Payment Alliance Int’l, Inc. v. Ferreira, 530 F. Supp. 2d 477, 485 (S.D.N.Y. 2007) (recognizing “inevitable disclosure” doctrine as disfavored but using it as a basis to find reasonable the enforcement of a restrictive covenant in issuing a preliminary injunction); EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299, 311 (S.D.N.Y. 1999) (also noting that “such retroactive alterations [of employment agreements] distort the terms of the employment relationship and upset the balance which courts have attempted to achieve in construing non-compete agreements” and declaring that the doctrine should be applied “only in the rarest of cases”); see also PSC, Inc. v. Reiss, 111 F. Supp. 2d 252 (W.D.N.Y. 2000) (following EarthWeb); Tactica Int’l, Inc. v. Atl. Horizon Int’l, Inc., 154 F. Supp. 2d 586, 608 (S.D.N.Y. 2001) (refusing to apply doctrine absent evidence of “overt theft or actual misappropriation of either trade secrets or confidential information”); Colonize.com v. Perlow, No. 03-CV-466, 2003 WL 24256576, at *6, 2003 U.S. Dis. LEXIS 20021, at *15–16 (N.D.N.Y. Oct. 23, 2003) (holding that doctrine is disfavored in New York as are noncompete agreements generally); Marietta Corp. v. Fairhurst, 301 A.D.2d 734, 737 (N.Y. App. Div. 2003) (holding that doctrine is disfavored “[a]bsent
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However, a large number of opinions have either applied the doctrine or endorsed it in dictum.271 North Carolina. In a number of cases, courts in North Carolina have stated in dictum that the inevitable disclosure doctrine applies and in others courts have applied it.272 Ohio. Courts in Ohio have twice applied the inevitable disclosure doctrine and on a third occasion have noted its existence.273
evidence of actual misappropriation” and cautioning that a plaintiff should not be permitted to “make an end-run around the [confidentiality] agreement by asserting the doctrine of inevitable disclosure as an independent basis for relief ”). 271 See Estée Lauder Cos. v. Batra, 430 F. Supp. 2d 158, 174 (S.D.N.Y. 2006); Delphine Software Int’l v. Elec. Arts, Inc., No. 99 CIV. 4454 AGAS, 1999 WL 627413, at *3 (S.D.N.Y. Aug. 18, 1999); Int’l Paper Co. v. Suwyn, 966 F. Supp. 246, 257–59 (S.D.N.Y 1997); Lumex, Inc. v. Highsmith, 919 F. Supp. 624, 631, 636 (E.D.N.Y. 1996) (“[E]ven assuming the best of good faith, it is doubtful whether the [former employee] could completely divorce his knowledge of the trade secrets from any . . . work he might engage in.”) (quoting Monovis, Inc. v. Aquino, 905 F. Supp. 1205, 1234 (W.D.N.Y. 1994)); Multiform Desiccants v. Sullivan, No. 95-CV0283E(F), 1996 WL 107102, at *2 (finding the doctrine inapplicable on the facts of the case) (W.D.N.Y. Mar. 8, 1996); Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 732 F. Supp. 370, 378 (S.D.N.Y. 1989), aff ’d, 920 F.2d 171 (2d Cir. 1990); Bus. Intelligence Servs., Inc. v. Hudson, 580 F. Supp. 1068, 1072 (S.D.N.Y. 1984); Cont’l Group, Inc. v. Kinsley, 422 F. Supp. 838, 845 (D. Conn. 1976); Willis of New York, Inc. v. DeFelice, 299 A.D.2d 240, 242, 750 N.Y.S.2d 39, 42 (2002) (enjoining high-level employees but refusing to enjoin lowlevel employees absent showing of actual misappropriation); Eastman Kodak Co. v. Powers Film Prods., Inc., 179 N.Y.S. 325, 330, 189 A.D. 556, 561–62 (1919); Spinal Dimensions, Inc. v. Chepenuk, No. 07 Civ. 4805, 2007 N.Y. Misc. LEXIS 5691, 16 Misc. 3d 1121A, 847 N.Y.S.2d 905, 2007 WL 2296503, at *6–7 (2007) (finding inevitable disclosure based on (i) the extent to which the new employer was a direct competitor of the former employer; (ii) the extent the employee’s new position was sufficiently identical to his former position such that the employee could not reasonably be expected to fulfill his new job responsibilities without utilizing the former employer’s trade secrets; (iii) the extent to which the secrets would be valuable to the new employer; and (iv) the nature of the industry and its trade secrets); DoubleClick, Inc. v. Henderson, No. 116914/97, 1997 WL 731413, at *5 (N.Y. Sup. Nov. 7, 1997) (purporting to apply doctrine after finding actual misappropriation). 272 See Glaxo Inc. v. Novopharm, Ltd., 931 F. Supp. 1280, 1303 (E.D.N.C. 1996) (dictum), aff ’d, 110 F.3d 1562 (Fed. Cir. 1997); Merck & Co. v. Lyon, 941 F. Supp. 1443, 1464–65 (M.D.N.C. 1996); FMC Corp. v. Cyprus Foote Mineral Co., 899 F. Supp. 1477, 1493 (W.D.N.C. 1995) (requiring showing of “bad faith, underhanded dealing, or employment by an entity so plainly lacking comparable technology that misappropriation can be inferred”); Analog Devices, Inc. v. Michalski, 157 N.C. App. 462, 470–71, 579 S.E.2d 449, 454–55 (2003) (following FMC in declining to apply doctrine); Barr-Mullin, Inc. v. Browning, 108 N.C. App. 590, 424 S.E.2d 226 (1993); Travenol Labs., Inc. v. Turner, 228 S.E.2d 478, 484 (N.C. App. 1976); Union Carbide Corp. v. Sunox, Inc., 590 F. Supp. 224, 228 (W.D.N.C. 1984). 273 See Kemper Mortgage, Inc. v. Russell, No. 3:06-CV-042, 2006 WL 4968120, at *6 (S.D. Ohio May 4, 2006) (granting injunction based on “inevitable use” or “inevitable disclosure”); Procter & Gamble v. Stoneham, 747 N.E.2d 268, 278–79 (Ohio Ct. App. 2000) (referring to doctrine); Emery Indus. v. Cottier, 202 U.S.P.Q. (BNA) 829, 834 (S.D. Ohio 1978) (granting injunction based on “transfer of employment to a head-to-head competitor and [on fact that] the responsibilities and employment are comparable”); B.F. Goodrich Co. v. Wohlgemuth,
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Oregon. Oregon has twice applied the doctrine, although on one occasion an injunction issued solely to prevent the defendant from using trade secret information.274 Pennsylvania. Pennsylvania is sympathetic to the inevitable disclosure doctrine.275 Texas. Courts in Texas have treated the doctrine inconsistently. In a number of cases, the doctrine has been applied.276 In one case, an application for a preliminary injunction granted on the basis of inevitable disclosure was reversed without opinion.277 One older case concluded that Texas would not restrict solicitation of plaintiff’s customers by a former employee in the absence of a restrictive covenant.278 Yet another case granted an injunction
274
275
276
277
278
192 N.E.2d 99, 105, 137 U.S.P.Q. (BNA) 804, 807 (Ohio Ct. App. May 22, 1963) (granting injunction); Patio Enclosures, Inc. v. Herbst, 39 Fed. Appx. 964, 969 (6th Cir. 2002) (applying Ohio law and recognizing doctrine but finding it inapplicable on the facts). See Temco Metal Prods. v. GT Dev. Corp., No. 99-755-K1, 2000 WL 556607, at *3 (D. Or. May 5, 2000) (applying Washington law); Holland Devs., Ltd. v. Mfrs. Consultants, Inc., 81 Or. App. 57, 66, 724 P.2d 844, 849 (1986) (enjoining use of information). See Doebler’s Pa. Hybrids, Inc. v. Doebler’s Seeds, L.L.C., 88 Fed. Appx. 520, 522 n.1, 2004 WL 260781, at *1 n.1 (3d Cir. 2004) (predicting that Pennsylvania courts would apply the inevitable disclosure doctrine); SI Handling Sys., Inc. v. Heisley, 753 F.2d 1244, 1265 (3d Cir. 1985); Cont’l Group, Inc. v. Amoco Chems. Corp., 614 F.2d 351, 358–59 (3d Cir. 1980) (apparently applying Third Circuit law); Nat’l Bus. Servs., Inc. v. Wright, 2 F. Supp. 2d 701 (E.D. Pa. 1998); Christopher M’s Hand Poured Fudge v. Hennon, 699 A.2d 1272, 1277 (Pa. Super. Ct. 1997); Den-Tal-Ez, Inc. v. Siemens Capital Corp, 566 A.2d 1214, 1231–32 (Pa. Super. Ct. 1989) (involving a prospective buyer purchasing a competitor). See Trilogy Software, Inc. v. Callidus Software, Inc., 143 S.W.3d 452, 464 (Tex. App. 2004) (holding that inevitable misappropriation was an appropriate basis for an injunction notwithstanding that no Texas case had expressly adopted the inevitable disclosure doctrine); Conley v. DSC Commc’ns Corp., No. 05-98-01051-CV, 1999 WL 89955, at *4 (Tex. App. Feb. 24, 1999) (finding no Texas case referring to the doctrine but recognizing “probable” disclosure as did Rugen v. Interactive Business Systems, Inc., 864 S.W.2d 548, 552 (Tex. App. 1993), and referring to Rugen’s potential factors that could support a finding of inevitable disclosure: the existence of misconduct on the part of the departing employee; and the new employer’s apparent need for the trade secret information due to its lack of a comparable technology; a significant degree of similarity between employee’s former and current positions; absence of efforts by the new employee to protect the trade secrets of the former employers; and the existence of a noncompetition agreement); T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d 18, 24 (Tex. App. 1998) (narrow injunction issued based on finding that it was “likely” that former employees would use confidential information and trade secrets in new employment); Weed Eater, Inc. v. Dowling, 562 S.W.2d 898, 902, 203 U.S.P.Q. (BNA) 635 (Tex. App. Feb. 9, 1978) (finding inevitable disclosure); Elec. Data Sys. Corp. v. Powell, 524 S.W.2d 393, 398 (Tex. App. 1975) (broadening injunction to enforce noncompete agreement). See Maxxim Med., Inc. v. Michelson, 51 F. Supp. 2d 773, 754–87 (S.D. Tex.) (applying California law), rev’d without opinion, 182 F.3d 915 (5th Cir. 1999); see also Guy Carpenter & Co. v. Provenzale, 334 F.3d 459, 469 (5th Cir. 2003) (finding use of trade secrets not probable and denying injunction). See Hart v. McCormack, 746 S.W.2d 330, 330 (Tex. App. 1988).
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after finding that there had been a disclosure of trade secrets to a new employer and that the new employer had previously copied the former employer’s products and had failed to implement any measures to prevent trade secret misappropriation.279 Utah. A number of Utah courts have applied the doctrine.280 Virginia. Two Virginia cases have flatly rejected the doctrine.281 Washington. Several Washington cases have recognized the doctrine.282 Wisconsin. Wisconsin courts have not yet considered the doctrine but because “Wisconsin law disfavors covenants not to compete” and “a contract that operates to restrict trade or competition is prima facie suspect,” it is likely that Wisconsin courts will prove hostile to the doctrine.283
2. Seeking a Temporary Restraining Order A trade secret plaintiff should always consider seeking a temporary restraining order (TRO). A TRO is an interlocutory injunction that issues upon very short notice to the defendant. When a plaintiff gives notice of a TRO application, it typically notifies the defendant only on the day it files its papers.284 Usually, a defendant may have only one or two days to prepare a written opposition.
279 See FMC Corp v. Varco Int’l, Inc., 677 F.2d 500, 504 (5th Cir. 1982). 280 See Utah Med. Prods. Inc. v. Clinical Innovations Assocs., 79 F. Supp. 2d 1290, 1314 (D. Utah 1999) (recognizing doctrine but finding it inapplicable on the facts); Novell, Inc. v. Timpanogos Research Group, Inc., 1998 WL 177721, 46 U.S.PQ.2d (BNA) 1197 (D. Utah 1998) (applying doctrine even though there was evidence of misappropriation); Sys. Concepts, Inc. v. Dixon, 669 P.2d 421, 425–26, 428 (Utah Aug. 8, 1983) (finding probable entitlement to injunctive relief based on covenant not to compete, and likely, threatened, and irreparable misappropriation of plaintiff ’s confidential information and goodwill by reason of manager’s employment with competitor). 281 See Motion Control Sys., Inc. v. East, 262 Va. 33, 38, 546 S.E.2d 424, 426 (2001) (holding that the mere fact that an employee has trade secrets is insufficient to enjoin actual or threatened misappropriation; there must be a showing of actual or threatened disclosure); Gov’t Tech. Servs. Inc. v. IntelliSys Tech. Corp. No. 160265, 1999 WL 1499548, at *1 (Va. Cir. Ct. Oct. 20, 1999) (“Virginia does not recognize the inevitable disclosure doctrine.”). 282 See Ed Nowogroski Ins., Inc. v. Rucker, 971 P.2d 936, 137 Wash. 2d 427, 437 (1999); Solutec Corp, Inc. v. Agnew, No. 16105-6-III, 1997 WL 794496, at *8 (Dec. 30, 1997) (enjoining exemployees from making carnauba- or shellac-based apple waxes because it was “highly unlikely” that ex-employees, “without college level degrees in chemistry or chemical engineering” could have developed the “high quality, competitive edible apple waxes” absent former employer’s trade secrets); Temco Metal Prods. v. GT Dev. Corp., No. 99-755-KI, 2000 WL 556607, at *3 (D. Or. May 5, 2000) (applying Washington law). 283 Genyzme Corp. v. Bishop, 460 F.Supp. 2d 939, 945–46 (W.D. Wis. 2006) (citing Equity Enters., Inc. v. Milosch, 2001 Wis. App. 186, ¶ 12, 247 Wis. 2d 172, 183, 633 N.W.2d 662, 668 (2001); and Mut. Serv. Cas. Ins., Co. v. Brass, 2001 Wis. App. 92, 96, 242 Wis. 2d. 733, 738, 625 N.W.2d 648, 652 (2001)). 284 See Hoechst Diafoil Co. v. Nan Ya Plastics Corp., 174 F.3d 411, 422 (4th Cir. 1999).
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Depending on the court, a TRO may issue on the papers or may issue following an oral argument, which may occur within hours of the defendant’s submission of its opposition papers. If granted, a TRO will remain in effect only for a short period before an application for a preliminary injunction must be heard. In federal court and in the courts of states that have adopted rules mirroring the Federal Rules of Civil Procedure, a TRO may issue for not more than ten days and may be extended for not more than an additional ten “for good cause shown.”285 The preliminary injunction, if ordered, will then remain in place until the case is tried or settled. A plaintiff should give strong consideration to applying for a TRO. If the TRO issues, it will do so because the trial judge is persuaded that the plaintiff has a strong case and is likely to prevail on the merits. Further, the defendant’s business operations may be thrown into disarray as the defendant scrambles to comply with the TRO. And unless it stipulates to continue the TRO in effect for a longer time, the defendant’s counsel will have very little time to defend the motion for preliminary injunction. The plaintiff should concurrently apply to conduct expedited discovery.286 In some states, this is done on an ex parte basis. The right to conduct expedited discovery is often critical to finding documents and other evidence that confirm the suspicion that the defendant has trade secrets in its possession and is utilizing them. The best practice is to include a focused set of document requests with the request for expedited discovery and to ask that the normal time (usually 30 days) for a response be shortened. In federal courts, it may be prudent to add an express proviso that discovery should not be delayed pending the submission of an initial scheduling order to the court. Regardless of whether the case is brought in state or federal court, a plaintiff should be prepared to identify the expected number of depositions it plans to take and, to the extent possible, the identities of the deponents. The burden on the defendant in having to provide expedited discovery is another strategic advantage in seeking a TRO. Even if the application for TRO is denied, the plaintiff may still have won some advantages. First, many courts are authorized to grant a request for an expedited preliminary injunction hearing (in some states, in the form of an
285 Fed. R. Civ. P. 65(b). Of course, a defendant may stipulate to extend a TRO as long as it wants. Id. That is typically done by defendants who require additional time to put together more effective opposition to the preliminary injunction motion. 286 See Stanley v. Univ. of S. Cal., 13 F.3d 1313, 1326 (9th Cir. 1994) (party may seek an order permitting immediate discovery based on a showing of urgent need); MAI Sys. Corp. v. Peak Computer, Inc., No. Civ. A. CV 92-1654-R, 1992 WL 159803, at *7, 1992 U.S. Dist. LEXIS 21829, at *18 (C.D. Cal. Apr. 14, 1992) (recognizing appropriateness of expedited discovery when ongoing misappropriation of trade secrets is alleged and injunctive relief is sought), aff ’d in part and rev’d in part on other grounds, 991 F.2d 511 (9th Cir. 1993).
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order to show cause), thereby allowing the preliminary injunction hearing to proceed in less time than it would take if the plaintiff did not seek a TRO287 Second, if the court grants the plaintiff’s request to conduct expedited discovery, the plaintiff will be well prepared to proceed with a preliminary injunction application on an accelerated basis. And if an order granting expedited discovery issues, the plaintiff will have sidestepped any challenge that its trade secret identification lacked “reasonable particularity.” TROs are granted without any notice to the defendant only in extraordinary circumstances (such as if it appears that serious or irreparable injury would occur if the TRO did not issue immediately, the plaintiff was unable to find the defendant to give notice, or the defendant was shown to be likely to hide or destroy evidence if given notice of a legal proceeding).288 One circumstance in which a TRO might issue without notice is when the plaintiff is seeking permission to inspect the defendant’s business premises without notice.289 In general, a TRO should issue if the plaintiff can establish four basic elements: (1) (2) (3) (4)
irreparable harm to the plaintiff in the absence of a TRO the balance of public interest favors issuing a TRO other interested parties will be harmed if the TRO is not granted the plaintiff is likely to succeed on the merits at trial290
TRO applications are decided based on the evidentiary declarations submitted by the parties and argument of counsel. In some courts, preliminary injunctions are issued or denied the same way, without any live witness testimony. Obviously, the declarations should be well crafted. Courts recognize, however, that due to the time pressure involved in bringing TRO and preliminary injunction applications, it may not always be possible to obtain declarations from persons who would be competent to testify at trial. Accordingly, a trial court has discretion to consider hearsay evidence.291
287 See, e.g., Local Rules of the United States District Court for the Central District of California, Local Rule 65-1 (“If the TRO is denied, the Court may set the hearing on the order to show cause without regard to the twenty-one (21) days of notice of motion requirement of [Local Rule] 6-1.”). 288 See First Tech. Safety Sys., Inc. v. Depinet, 11 F.3d 641, 650–51 (6th Cir. 1993); Am. Can Co. v. Mansukhani, 742 F.2d 314, 322 (7th Cir. 1984). 289 See Reading & Bates Constr. Co. v. O’Donnell, 627 S.W.2d 239, 242 (Tex. App. 1982). 290 See Murphy v. Soc’y of Real Estate Appraisers, 388 F. Supp. 1046, 1049 (E.D. Wis. 1975), vacated and remanded, 544 F.2d 521 (7th Cir. 1976). 291 See Heideman v. S. Salt Lake City, 348 F.3d 1182, 1188 (10th Cir. 2003) (“The Federal Rules of Evidence do not apply to preliminary injunction hearings.”); Flynt Distrib. Co. v. Harvey, 734 F.2d 1389, 1394 (9th Cir. 1984) (“The trial court may give even inadmissible evidence some weight when to do so serves the purpose of preventing irreparable harm before trial.”).
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There may be circumstances in which it would behoove a trade secret misappropriation plaintiff to forego seeking a TRO. These circumstances include an inability to post the bond a court might require as a condition for issuing a TRO; the possibility that if the defendant were to prevail at trial, the plaintiff would be liable for any damages the defendant suffered as a result of the TRO (and, potentially be liable for the defendant’s attorneys’ fees as well); a desire not to incur the very substantial attorneys’ fees usually required to prepare a TRO application under “fire drill” conditions; a belief that the defendant will cease using the plaintiff’s trade secrets upon notification of the pendency of the action lest it increase its exposure to both damages and punitive damages for willful conduct; and the desire to avoid having the trial judge reach an early, unfavorable opinion of the plaintiff’s case if the plaintiff’s case is speculative or based on a thin showing that the information at issue is protectable.
3. Obtaining a Preliminary Injunction A trade secret misappropriation victim may seek a preliminary injunction even if it never sought a TRO. Preliminary injunctions issue premised on the notion that they are required to prevent further irreparable injury to the moving party. Because courts tend to assume that a party will not sit idly by while suffering an irreparable injury, any application for a preliminary injunction should be brought quickly. Otherwise, the court may infer from the passage of time that the trade secret owner’s protestations of irreparable injury ring hollow. Because the court’s ruling on a preliminary injunction application may have the practical effect of deciding the case, an order granting, continuing, modifying, denying, or dissolving a preliminary injunction is immediately appealable.292 Many state courts apply a four-factor test for the issuance of a preliminary injunction: (1) the existence of a clearly ascertained right which needs protection (2) the occurrence of irreparable injury without the protection of an injunction (3) the remedy at law is inadequate (4) there is a likelihood of success on the merits of the case293
292 See 28 U.S.C. § 1292(a)(1) (2000). 293 See, e.g., MBL (USA) Corp. v. Diekman, 112 Ill. App. 3d 229, 233, 67 Ill. Dec. 938, 942, 445 N.E.2d 418, 422 (1983); see also CPG Prods. Corp. v. Mego Corp., No. C-1-79-582, 214 U.S.P.Q. (BNA) 206, 213–14 (S.D. Ohio Jan. 12, 1981); FMC Corp. v. Varco Int’l, Inc., 677 F.2d 500, 502 (5th Cir. 1982) (applying Texas law); Eaton Corp. v. Appliance Valves Corp., 526 F. Supp. 1172, 1178 (N.D. Ind. 1981), aff ’d, 688 F.2d 842 (7th Cir. 1982); Testerion, Inc. v. Skoog, 602 F. Supp. 578, 581 (D. Minn. 1984); accord Crowe v. DeGioia, 447 A.2d 173, 176–77
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In New York, the test has been shortened to three factors. There, the movant must show (1) a likelihood of success on the merits, (2) irreparable injury absent the injunction, and (3) that a balance of equities favors the movant’s position.294 The Third Circuit announced a “federal standard” for granting preliminary injunctions in Continental Group, Inc. v. Amoco Chemicals Corp.295 It relied on the conventional four-factor test but explained that state law would define the cognizable injury and the assessment of the probability of success on the merits. Most federal courts, however, utilize the test historically employed by courts of equity that requires a plaintiff to demonstrate (1) a likelihood of success on the merits; (2) a substantial threat that the plaintiff will suffer irreparable injury if the injunction is denied; (3) the threatened injury outweighs any damage the injunction might cause to the defendant (i.e., the balance of hardships favors the moving party); and (4) the injunction will not disserve the public interest.296 The Second and Ninth Circuits also employ an “alternative” test that permits the moving party to meet its burden by showing either (1) a combination of probable success on the merits and the possibility of irreparable injury or (2) serious questions as to those matters and that the balance of hardships tips sharply in the moving party’s favor.297 Irreparable injury and probability of success “are not two separate tests, but merely ‘extremes of a single continuum.’”298 Thus, the required degree of irreparable harm decreases as the probability of success increases. However, no matter how strong the probability of success on the merits, some irreparable injury must be threatened.299 To prevail on an application for preliminary injunction, a trade secret owner must give notice to all adverse parties and to all nonparties that will be directly affected by the injunction.300 Substantively, the owner must demonstrate that all factors of the applicable test are met. The key to success lies, of course, in persuading the court that the trade secret owner will be irreparably injured absent an injunction.
294 295 296 297
298 299 300
(N.J. 1982), aff ’d, 505 A.2d 591; Wright Chem. Corp. v. Johnson, 563 F. Supp. 501, 504 (M.D. La. 1983); Combustion Eng’g, Inc. v. Murray Tube Works, Inc., 222 U.S.P.Q. (BNA) 239, 243 (E.D. Tenn. Feb. 24, 1984). See Walter Karl, Inc. v. Wood, 137 A.D.2d 22, 26, 528 N.Y.S.2d 94, 97 (1988). Cont’l Group, Inc. v. Amoco Chems. Corp., 614 F.2d 351 (3d Cir. 1980). See ebay, Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837, 1839, 164 L. Ed. 2d 641, 645–46 (2006). See Dep’t of Parks & Recreation v. Bazaar Del Mundo, Inc., 448 F.3d 1118, 1123 (9th Cir. 2006); Cliffs Notes, Inc. v. Bantam Doubleday Dell Publ’g Group, 886 F.2d 490, 497 (2d Cir. 1989). Benda v. Grand Lodge of Int’l Ass’n of Machinists & Aerospace Workers, 584 F.2d 308, 315 (9th Cir. 1978). See Local Union No. 884 v. Bridgestone/Firestone, Inc., 61 F.3d 1347, 1355 (8th Cir. 1995). See Fed. R. Civ. P. 65(a)(1); Parker v. Ryan, 960 F.2d 543, 545 (5th Cir. 1992).
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a. Irreparable Injury Courts have regularly held that “[t]he very nature of a trade secret mandates that misappropriation will have significant and continuous long-term effects,” such as permanent loss of competitive business advantage or market share.301 An injury may be held irreparable when it is of such a nature that the injured party cannot be adequately compensated for it in money damages or when there are no good means to measure the damages.302 Some courts have resolved the issue by declaring that once a protectable interest is established, an irreparable injury will be presumed to follow if the interest remains unprotected.303 The Second Circuit has recognized that the loss of a trade secret cannot be measured in money damages because a trade secret, once lost, is forever lost.304 Irreparable harm can constitute the loss of business reputation and proprietary business position by the trade secret owner. It may also constitute a loss of a “head start” that would have given the trade secret owner dominance in the marketplace. 305 The manufacture and sale of products embodying trade secrets may threaten to destroy the value of the unique design parameters and manufacturing procedures developed by the trade secret owner through years of experimentation. A trade secret misappropriation may also result in a loss of reputation and goodwill if a competitor is allowed to pass off products based on the trade secret owner’s work as its own. Such harms are difficult to quantify and unlikely to be redressed with money damages.306 An irreparable injury may also flow from transgressions of a continuing nature and such frequent recurrence that no redress could be had at law.307 Irreparable injury may also be found when the moving party would need to
301 Arminius Schleifmittel GmbH v. Design Indus., Inc., No. 1:06CV00644, 2007 U.S. Dist. LEXIS 10847, at *22 (M.D.N.C. Feb. 15, 2007) (quoting Barr-Mullin, Inc. v. Browning, 108 N.C. App. 590, 597, 424 S.E.2d 226, 230 (1993)). 302 See Interox Am. v. PPG Indus., Inc., 736 F.2d 194, 202 (5th Cir. 1984). 303 See, e.g., Cortland Line Co. v. Vincent, 48 U.S.P.Q.2d (BNA) 1684, 1687 (N.D.N.Y. Aug. 15, 1998). 304 See N. Atl. Instruments, Inc. v. Haber, 188 F.3d 38, 49 (2d Cir. 1999); FMC Corp. v. Taiwan Tainan Giant Indus. Co., 730 F.2d 61, 63 (2d Cir. 1984). 305 See Analogic Corp. v. Data Translation, Inc., 371 Mass. 643, 647–49, 358 N.E.2d 804, 807–08 (1976) (recognizing injunctive relief appropriate remedy for loss of head start due to wrongful appropriation of trade secrets and confidential business information). But see Ossur Holdings, Inc. v. Bellacure, Inc., No. C05-1552JLR, 2005 U.S. Dist. LEXIS 38750, at *22 (W.D. Wash. Dec. 14, 2005) (holding market disadvantage in loss of head start to be generalized threat of loss of revenue compensable by monetary damages). 306 See Dulisse v. Park Int’l Corp., No. 97 C 8018, 1998 WL 25158, at *4, 45 U.S.P.Q.2d (BNA) 1688, 1691–92 (N.D. Ill. Jan. 9, 1998). 307 See Hydroaire, Inc. v. Sager, 98 Ill. App. 3d 758, 767, 53 Ill. Dec. 928, 935, 424 N.E.2d 719, 726 (1981); see also Norlund v. Faust, 675 N.E.2d 1142 (Ind. Ct. App. 1997) (injunctive relief is appropriate if it is more practical or efficient than a remedy afforded by law).
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conduct multiple lawsuits to obtain the same relief if the preliminary injunction were denied.308 “[A]n intention to make imminent or continued use of a trade secret or to disclose it to competitor will almost always certainly show irreparable harm.”309 However, once the secret has been disclosed publicly, “further disclosure of something already revealed [will] not, by itself,” establish irreparable injury.310 Damages as a remedy need not be wholly ineffectual. Rather, damages need only be “seriously deficient as compared to the harm suffered.”311 Courts have been inconsistent in considering whether the availability of monetary relief means that there is an adequate remedy at law, thus nullifying irreparability.312 It is important to research the law that will govern a particular case to determine whether one may safely plead a request for damages without compromising the claim for injunctive relief. In most courts, it is possible and advisable not only to allege irreparable harm but to also allege a claim for monetary damages to the extent such damages can be established. There is no inconsistency in such a request: the monetary damages do not fully redress the loss of a trade secret. b. Likelihood of Success The key to establishing likelihood of success at trial is to persuade the court that the plaintiff possesses legally protectable trade secrets.313 In making that showing, a plaintiff need not offer all the evidence that will be required at trial. A prima facie showing of a right to relief is sufficient. All that is needed is to raise a fair question as to the existence of the right claimed.314 In practical terms, this means that the trade secret owner may rely solely on declarations from its own employees attesting that the information at issue is not generally known or readily ascertainable by persons who could obtain economic value from its disclosure or use, derives independent economic value from not being generally known, and has been the subject of reasonable efforts to maintain its secrecy. No expert testimony will be required to establish that the information provides a competitive advantage and is not generally known.
308 309 310 311 312
See Savoie v. Merchants Bank, 84 F.3d 52, 58 (2d Cir. 1996). Campbell Soup Co. v. ConAgra, Inc., 977 F.2d 86, 92–93 (3d Cir. 1992). Id. Foodcomm Int’l v. Barry, 328 F.3d 300, 304 (7th Cir. 2003). See, e.g., Hydroaire, Inc. v. Sager, 98 Ill. App. 3d 758, 767, 53 Ill. Dec. 928, 935, 424 N.E.2d 719, 726 (1981). 313 See Ecolaire, Inc. v. Crissman, 542 F. Supp. 196, 205 (E.D. Pa. 1982); MBL (USA) Corp. v. Diekman, 112 Ill. App. 3d 229, 234, 67 Ill. Dec. 938, 942, 445 N.E.2d 418, 422 (1983). 314 See MBL (USA) Corp., 112 Ill. App. 3d 229, 234, 67 Ill. Dec. 938, 942, 445 N.E.2d 418, 422 (1983).
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Of course, it is not sufficient for the trade secret owner to demonstrate that it has protectable secrets; to establish a likelihood of success it must also show that the defendant learned or used the trade secrets.315 c. Balancing the Hardships In balancing the hardships between the parties, the issue is not the degree of harm that will be suffered by the plaintiff or the defendant if the injunction is granted or denied. Rather, it is the degree of harm that will be suffered if the injunction is granted or denied improperly.316 If the harm likely to be suffered by the defendant if the injunction issues substantially outweighs any injury threatened by the defendant’s conduct in the absence of an injunction, the plaintiff must make a stronger showing of likelihood of success on the merits.317 A preliminary injunction that merely prohibits the misappropriation of trade secrets will not be found to tip the balance of hardships in favor of the defendant because there can be no legally cognizable harm in obeying the law.318 In assessing the relative hardships, the court may consider the size and strength of each party.319 The court may also consider whether the potential injury to the defendant resulting from the injunction could be adequately protected against by a bond.320 In assessing the balance of hardships, a court may also consider whether third parties would be injured by the issuance of an injunction.321 The analysis of the effect on third parties may include an analysis of the public interest.322
4. Bond Requirement In federal court, no party may be granted a TRO or preliminary injunction without first posting security “in such sum as the court deems proper for the payment of such costs and damages as may be incurred or suffered by any
315 See Wright Chem. Corp. v. Johnson, 563 F. Supp. 501, 505 (M.D. La. 1983). See discussion of actual and threatened misappropriation at Chapter 2(E)(1)(a) and (b), supra. 316 See Scotts Co. v. United Indus. Corp., 315 F.3d 264, 284 (4th Cir. 2002). 317 See MacDonald v. Chicago Park Dist., 132 F.3d 355, 357 (7th Cir. 1997). 318 See Dulisse v. Park Int’l Corp., No. 97 C 8018, 1998 WL 25158, 45 U.S.P.Q.2d (BNA) 1688, 1692 (N.D. Ill. Jan. 9, 1998). 319 See Sardi’s Restaurant Corp. v. Sardi, 755 F.2d 719, 726 (9th Cir. 1985). 320 See Ohio Oil Co. v. Conway, 279 U.S. 813, 815, 49 S. Ct. 256, 257, 73 L. Ed. 972, 973 (1929). 321 See Ayres v. City of Chicago, 125 F.3d 1010, 1013 (7th Cir. 1997); Horwitz v. S.W. Forest Indus. Inc., 604 F. Supp. 1130, 1136 (D. Nev 1985). 322 See United States v. First Nat’l City Bank, 379 U.S. 378, 383, 85 S. Ct. 528, 531, 13 L. Ed. 2d 365, 369 (1965).
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party who is found to have been wrongfully enjoined.”323 In state courts, the issuance of a TRO is not always conditioned on the posting of a bond, but the issuance of a preliminary injunction generally requires a bond.324 Some courts, however, have argued that because a nominal bond is permitted, then no bond at all is required.325 The purposes of the bond requirement are to (1) discourage the moving party from seeking preliminary injunctive relief to which it is not entitled; (2) assure the court that if it errs in granting such relief, the moving party rather than the wrongfully enjoined party will bear the cost of the error; and (3) provide a wrongfully enjoined party a source from which it may readily collect damages without regard to the moving party’s solvency.326 The latter point is particularly important because seeking and obtaining injunctive relief by itself is not a tort. Absent evidence of malicious prosecution or abuse of process, “[a] party injured by the issuance of an injunction later determined to be erroneous has no action for damages in the absence of a bond.”327 The amount of the bond should be set according to the evidence of the nature and scope of the likely harm to the defendant, including its attorneys’ fees.328 When an injunction restrains the operation of a business, the foreseeable damages include “the profits which [the operator] would have made had he not been prevented by the injunction from carrying on his business.”329 The amount of the bond is within the court’s discretion and will not be reviewed on appeal except for abuse of discretion.330 A plaintiff should not wait for the defendant to address the bond requirement in its papers. Instead, the plaintiff’s papers should include a suggested bond amount. When the balance of the potential hardships weighs overwhelmingly in favor of the plaintiff or the plaintiff has a strong likelihood of success on the merits, courts may impose a nominal bond or, on rare occasions, waive the requirement altogether.331
323 Fed. R. Civ. P. 65(c). 324 See, e.g., Abba Rubber Co. v. Seaquist, 235 Cal. App. 3d 1, 286 Cal. Rptr. 518 (Cal. Ct. App. 1991) (undertaking is required for injunction to take effect). 325 See, e.g., Vanguard Transp. Sys., Inc. v. Edwards Transfer & Storage Co., 673 N.E.2d 182, 186 (Ohio Ct. App. 1996). 326 See Continuum Co. v. Incepts, Inc., 873 F.2d 801, 803 (5th Cir. 1989). 327 W.R. Grace & Co. v. Local Union 759, 461 U.S. 757, 770 n.14, 103 S. Ct. 2177, 2185 n.14, 76 L. Ed. 2d 298, 309 n.14 (1983). 328 See Uncle B’s Bakery, Inc. v. O’Rourke, 920 F. Supp. 1405, 1440 (N.D. Iowa 1996). 329 ABBA Rubber Co. v. Seaquist, 235 Cal. App. 3d 1, 10, 286 Cal. Rptr. 518, 524 (1991). 330 See GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1211 (9th Cir. 2000) (affirming order requiring the posting of a nominal bond when the amount demanded by the defendant would have effectively precluded injunctive relief). 331 See Elliott v. Kieswetter, 98 F.3d 47, 60 (3d Cir. 1996) (balance of hardships); Scherr v. Volpe, 466 F.2d 1027, 1035 (7th Cir. 1972) (likelihood of success).
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Because an injunction cannot take effect until the bond has been posted, the plaintiff should contact a bonding company in advance to be prequalified and to have everything in place to get the bond posted once the bond amount is set.
F. Choosing an Expert A trade secret misappropriation plaintiff ideally should commence its search for technical experts before filing suit. Identifying experts as early as possible will assist in framing the issues in the case, understanding the technology in the field, and preparing for a preliminary injunction hearing for which technical expertise may be required. At trial, the plaintiff will obviously want experts who can testify that its information is valuable, derives independent value from not being known to the public or competitors, and is not readily ascertainable by proper means by competitors. The plaintiff may also want to retain an expert to testify to any head start the defendant gained as a result of the misappropriation (and, as in most cases, the plaintiff will also want an economist to testify as to damages). Initially, however, experts should be retained only as “consultants.” As such, they will be able to explain the technology to counsel and explain how the defendant’s method or product changed following the misappropriation. They should be present at all depositions of technical witnesses to help counsel prepare follow-up questions. There are several advantages to designating experts as “consultants.” For one, their work product is generally not subject to discovery under Fed. R. Civ. P. 26(b)(4)(B) unless and until they are designated as testifying experts.332 Second, unless the protective order entered in the action requires otherwise, the existence of a consulting expert need not be disclosed to the adverse party. Third, as the evidence develops through the discovery process, the expert’s opinion may become less favorable. If so, another expert can later be designated to testify without risk of prejudice to the client’s case. Fourth, designating experts as “consultants” will allow counsel a long opportunity to judge whether they would make effective communicators on the witness stand.
332 It is not unusual, however, for confidentiality orders to require that all experts or consultants, whether testifying or not, be disclosed before they receive access to confidential documents produced by the other side. Such provisions reflect legitimate concerns that the disclosure of trade secret information to a consultant who has other clients in the industry, or who may participate in the industry in other capacities, creates the risk of competitive injury. The result, however, is that the identity of consulting witnesses will become known to the other side. In addition, this type of confidentiality order often allows a party to object to particular experts. Such objections then need to be resolved by the court before the party is permitted to share confidential information with the consultant.
Choosing an Expert
If cost is an issue, the plaintiff may consider trying to force the defendant to share the cost of a single, neutral expert. One way this may be achieved is pursuant to Federal Rule of Evidence 706(a), which states, in part: The court may on its own motion or on the motion of any party enter an order to show cause why expert witnesses should not be appointed, and may request the parties to submit nominations. The court may appoint any expert witnesses agreed upon by the parties, and may appoint expert witnesses of its own selection. . . . A witness so appointed shall advise the parties of the witness’ findings, if any; the witness’ deposition may be taken by any party; and the witness may be called to testify by the court or any party.
Court-appointed experts are compensated pursuant to Rule 706(b), which provides that the witness’ compensation “shall be paid by the parties in such proportion and at such time the court directs, and thereafter charged in like manner as other costs. In practice, the “neutral witness” procedure is rarely invoked. In the alternative, a cost-conscious litigant could seek the appointment of a special master pursuant to Fed. R. Civ. P. 53(a). The Commissioners’ Comments to Section 5 of the UTSA suggest disclosing trade secrets to a special master who can report conclusions to the court.333 There are several differences between court-appointed experts and special masters, including that an expert may be cross-examined but a special master may not. Further, unless the court directs otherwise, a master has authority to regulate all proceedings, may impose sanctions other than contempt, and may recommend contempt sanctions against a party.334 One question that always arises is where to find technical experts. Trial lawyers typically have a stable of economic experts they can call upon for damages testimony, but the technical experts needed vary from case to case. As a general rule, a trade secret misappropriation plaintiff should avoid pursuing university professors. Academics tend to believe, frequently with some justification, that the state of technical knowledge is more advanced in research institutions than in industry. Also, it may be difficult for a professor to admit that he was ignorant of valuable information in his area of expertise. A better choice is to look for persons who have recently left employment by competitors. Although they will be subject to confidentiality obligations owed to the competitor, they should nonetheless be able to testify that the
333 See Johnson Controls, Inc. v. Phoenix Control Sys. Inc., 886 F.2d 1173, 1176 (9th Cir. 1989) (special master appointed in copyright case with trade secret claims); Lee Pharms. v. DenMat, Inc., No. CV 75-2311, 1976 U.S. Dist. LEXIS 12037, at *5 (C.D. Cal. Dec. 1, 1976) (special master appointed to ascertain what trade secrets were at issue). 334 See Fed. R. Civ. P. 53(c).
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plaintiff’s information is not known in the industry and conferred a competitive advantage on the plaintiff. Further, it is unlikely that they will have testified previously in any expert capacity and therefore will have no prior opinions with which they could be impeached. A tempting alternative is to ask the plaintiff’s employees most knowledgeable concerning the trade secrets to serve as experts. This has certain advantages, including that they presumably understand the trade secrets inside and out and will not charge the client a substantial hourly fee to work on the case. There are, however, disadvantages. Among them are that the protective order will likely prohibit counsel from sharing with the in-house expert any highly confidential information obtained from the defendant; the jury will likely perceive the in-house expert as biased; and the in-house expert will lack credibility and foundation when testifying that his employer’s information is not generally known to, or readily ascertainable by, competitors. Beyond that is another drawback that is sometimes overlooked with disastrous consequences: there is no attorney-client privilege in communications with an expert, even one employed by a client.335 For these reasons, in-house experts are rarely a complete substitute for the retention of outside experts. If a client employee is designated as a witness, counsel should not only follow the usual practice of asking in advance that as little as possible be committed to writing (lest it be used to argue that the expert was given a onesided view of the case or told to change his opinion), but counsel should be scrupulous about separating communications related to the witness’ expert assignment from all other communications. Even then, counsel should hope that the judge does not decide to order the production of all documents reflecting communications between the attorney and the employee. In addition to looking for recently retired competitors or canvassing the plaintiff’s own ranks for witnesses, counsel may turn to a variety of firms whose business it is to supply technical experts for litigation. Some of the ones used by the authors and their firms are listed below.
335 See Dyson Tech. Ltd. v. Maytag Corp., 241 F.R.D. 247, 248, 250–51 (D. Del. 2007) (citing cases); Intermedics, Inc. v. Ventritex, Inc., 139 F.R.D. 384, 397 (N.D. Cal. 1991). See also Reg’l Airport Auth. v. LFG, L.L.C., 460 F.3d 697, 717 (6th Cir. 2006) (“mandating disclosure of all documents, including attorney opinion work product, given to testifying experts”); Magnivision, Inc. v. Bonneau Co., Nos. CV 91-2167-DT, CV 92-7553-DT, CV 97-8351 DT, 2003 WL 23320550, at *3 (C.D. Cal. Dec. 18, 2003) (“[W]ritten and oral communications from a lawyer to an expert that are related to matters about which the expert will offer testimony are discoverable.”) (emphasis in original); United States v. Am. Elec. Power Serv. Corp., Nos. 2:99-CV-1182, 2:99-CV-1250, 2006 WL 3827509, at *3 (S.D. Ohio, Dec. 28, 2006) (court required production of document expert had considered in preparing his report). But see Haworth, Inc. v. Herman Miller, Inc., 162 F.R.D. 289, 293–96 (W.D. Mich. 1995); Smith v. Transducer Tech., Inc., 197 F.R.D. 260, 261–62 (D.V.I. 2000); Krisa v. Equitable Life Assurance Soc’y, 196 F.R.D. 254, 259–61 (M.D. Pa. 2000) (all protecting privileged materials provided to testifying experts).
Choosing an Expert
American Standards Testing Bureau, Inc. 40 Water Street New York, New York 10004 Tel: 202-943-3160 Fax: 212-825-2250 www.astm.org E-Mail—
[email protected] Specializes in Products Liability, Construction, Engineering, Forensic Sciences, Failure Analysis, Metals/Metallurgy
CONSOR 7342 Girard Avenue, Suite 8 La Jolla, CA 92037 Tel: 858-454-9091 Fax: 858-454-7819 www.consor.com Offices in New York, London, Germany
Media and Entertainment, Patents and Technology, Electronic, Internet and Software, Celebrities and Estates, Trademark and Corporate Brand Assets, Sports and Events
Cornerstone Research 699 Boylston Street, 5th Floor Boston, MA 02116-2836 Tel: 617-927-3000 Fax: 617-927-3100 www.cornerstone.com E-Mail—
[email protected] 6 Offices in the United States
Securities, Antitrust, Intellectual Property, Financial Institutions, Accounting, Energy, Business Litigation Issues Such as Taxation, Breach of Contract, Fraudulent Conveyance, and Piercing the Corporate Veil; Pharmaceuticals, Healthcare, Telecommunications, Real Estate, High Technology
Expert Resources, Inc. 1225 East Samuel Avenue, Suite B Peoria Heights, IL 61616-6455 Tel: (800) 383-4857 or (309) 688-4857 Fax: (888) 815-2778 www.expertresources.com E-Mail—
[email protected] Nationwide Expert Referral Service
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FTI Forensic Services 500 E. Pratt Street Suite 1400 Baltimore, MD 21202 Tel: 410.951.4800 Fax: 410.951.4895 www.fticonsulting.com 35 Offices in the United States, 4 Offices in Asia; 2 Offices in Europe; 2 Offices in South America
Corporate Governance and Compliance Issues; Technology Risk Assessments; Transaction Advisory Services for Acquisitions, Divestitures and Recapitalizations; Interim Management; and Nonlitigation-Related Management Consulting, Such as Corporate Strategy, Transfer Pricing and Asset Optimization
Gerson Lehrman Group 850 Third Avenue, 9th Floor New York, NY 10022 Tel: 212 984 8500 Fax: 212 984 8538 www.glgroup.com E-Mail—
[email protected] 7 Offices in the United States, 7 International Offices
Industry Coverage Consumer Goods & Services Energy & Industrials Financial & Business Services Real Estate Healthcare Technology, Media & Telecom Accounting & Financial Analysis Legal, Economic & Regulatory Affairs
IMS ExpertServices 4400 Bayou Blvd., Suite 6 Pensacola, FL 32503 Tel: (877) 838-8464: toll free Tel: 850-473-2512 Fax: 850-473-2525 www.ims-expertservices.com
[email protected] Antitrust, Bankruptcy, Complex Litigation, Computing, Economic Damages, Energy & Natural Resources, Environmental, Financial Services, Investment & Insurance, Intellectual Property, Intellectual Property Valuation, Labor and Employment, Life Sciences, Product Liability, Technology, Telecommunications
Choosing an Expert
IPExperts.com 114 Clarkson Executive Drive St. Louis, MO 63011 Tel: 800-442-5491 Fax: 636-527-4088 www.ipexperts.com
Electrical Engineering; Computer and Software Engineering; Optical Sciences; Applied Physics; Engineering and Medical Development Technology; Telecommunication Engineering; E-Commerce and Internet Technology; Pharmaceutical Engineering; Organic, Inorganic, and Process Chemistry; Design, Manufacturing, and Product Development Technology; Mechanical Engineering; Packaging, Coatings, and Materials Science
Kevin Kennedy & Associates, Inc. 3815 River Crossing Parkway, Suite 100 Indianapolis, Indiana 46240 Tel: (317) 536-7000 & 536-7001 Fax: (317) 536-7220 www.rapid-response-consulting. com E-Mail—
[email protected] Damages Analysis Expert Services Expert Witness Litigation Support Services Patent Infringement Expert Witness Engineering and Scientific Consulting Services Product Development Consulting Product and Systems Engineering Life Sciences Consulting Manufacturing Optimization Technology Consulting Materials Technology Consulting Forensic Investigation Environmental Sciences Expert Services Construction Technology Expert Services Health Science & Technology Expert Services Continued
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NERA Economic Consulting 50 Main Street White Plains, NY 10606 Tel: (914)-488-4014 www.nera.com E-mail—
[email protected] 11 Offices in the United States, 20 Offices Worldwide
Economic Analysis of Intellectual Property Claims Involving Trade Secrets, Patents, Copyrights, and Trademarks
Network Consulting Service® 5215 B Militia Hill Road Plymouth Meeting, PA 19462 Tel: 1-800-355-1329 Tel: 1-800-666-7045 Tel: 610-941-9730 Tel: 610-941-3980 www.techmedexperts.com E-Mail—
[email protected] Medical Advisors/Technical
Round Table Group 601 Pennsylvania Avenue NW South Building, Suite 900 Washington, DC 20004 Tel: 202-595-2000 Other Offices in Chicago, Dallas and London www.roundtablegroup.com E-Mail—
[email protected] Network of Over 95,000 WorldClass Professors and Industry Experts Who Provide Research, Consultation, and Expert Witness Testimony Services
Silicon Valley Expert Witness Group 2570 W. El Camino Real Suite 550 Mountain View, CA 94040 Tel: 650-917-0700 Fax: 650-917-0701 www.svewg.com
Accident Investigation, Automotive Technology, Avionics Systems, Biology, Chemistry, Biochemistry, Business Processes, Cable Television, Communications, Computer Peripherals, Consumer Electronics, Data & Information Security, Digital Data Processing, Digital Signal Processing, Display Technology, Electrical Engineering, Electronic Circuit Design, Electronic Component Design, Electronics, Microelectronics, Fire Safety Technology,
Choosing an Expert
Image Processing, Integrated Circuit Design, Internet Technologies, Marketing, Materials Science, Mechanical Engineering, Medical Devices, Medical Sciences, Memory & Data Storage, Optoelectronics, Plastic Technology, Power Systems, Robotics, Semiconductor Device Design, Semiconductor Equipment, Marketing, Software, Telecommunications Equipment and Wireless Technology TASA 1166 DeKalb Pike Blue Bell, PA 19422-1853 Tel: 1-800-523-2319 wws.tasanet.com
Nationwide Expert Referral Service
Teklicon 3031 Tisch Way Suite 1010 San Jose, CA 95128-2533 Tel: (800) 926-8972 Tel: (408)-261-8800 Fax: (408) 261-0320 www.teklicon.com E-Mail—
[email protected] Trade Secret, Software, Computer, Patent, Copyright Infringement, and All Related Technologies
OTHER RESOURCES: California Directory of Expert Witnesses & Consultants Published by American Lawyer Media in Association with Texas Lawyer www.callaw.com E-Mail—
[email protected] Continued
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Texas Lawyer/American Lawyer Media 900 Jackson Street, Suite 500 Dallas, Texas 75202 Tel: (800) 456-5484, Ext. 138 www.texlaw.com Los Angeles County Bar Association Southern California Directory of Experts & Consultants Published by Los Angeles Lawyer www.expert4law.org E-Mail—
[email protected] In retaining an expert, one should be careful to make sure that the expert understands the obligation to maintain the confidentiality of the trade secrets at issue, does not take notes that could later be used for impeachment purposes, does not create draft opinions without permission,336 does not create any draft opinions without clearly labeling them as “preliminary,” and does not engage in spoliation of evidence by destroying documents that are probably the subject of discovery. Here is a sample portion of an expert retainer letter containing such protections: Form Expert Retainer Letter It is understood that (i) you will make a reasonable effort to be available upon reasonable advance notice; (ii) you will keep confidential all information obtained, or analyses developed, in connection with this litigation or any related litigations with respect to which we may seek your advice and counsel; (iii) you will use such confidential information solely in connection with your engagement by us on our client’s behalf; (iv) you will preserve any written materials, including e-mails, generated or received by you in connection with this engagement, as such materials are potentially discoverable in litigation; (v) you will not in the future consult for, or otherwise represent, any other person or entity with an interest adverse to our client’s interests in or concerning the pending litigation, or the events or occurrences out of which the pending litigation arises; and (vi) you will keep confidential your retention by this firm on behalf of our client, unless and until you are identified in court papers as a testifying expert or we otherwise authorize you to breach this confidentiality. 336 If an expert’s draft opinions have never been shown to counsel, they might not be discoverable. See Trigon Ins. Co. v. United States, 204 F.R.D. 277, 283 n.8 (E.D. Va. 2001).
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It is specifically understood that, if you are later designated a testifying expert, all documents that you create may become discoverable, including drafts and notes prepared prior to the time that your opinion or report is finalized. In our experience, opposing counsel who obtain such documents in discovery often seek to use them in an unfair and misleading way—for example, to suggest that a change from an earlier draft to a later version has some sinister explanation. This is particularly unfair because you will be learning the case over time, and you may not know all relevant information prior to the time that you finalize your opinion and report. In addition, the preparation of draft opinions and reports is expensive and should not be undertaken prematurely. Therefore, you agree that: (i) you will not prepare any draft opinion or report without our consent (regardless of whether the draft is for internal purposes or to share with others); (ii) you will not share any draft opinion or report, or any notes, with any other person without our consent; (iii) every draft opinion or report will bear the following legend: “THIS IS A PRELIMINARY DRAFT. IT HAS BEEN PREPARED BASED ON PRELIMINARY INFORMATION AND ON ASSUMPTIONS. NO ONE MAY RELY ON THIS DRAFT. IT IS SUBJECT TO CHANGE AS ADDITIONAL INFORMATION BECOMES AVAILABLE OR IS CLARIFIED”; and (iv) all notebooks or individual pages of notes will bear the following legend: “THESE NOTES ARE INCOMPLETE AND HAVE BEEN PREPARED FOR PERSONAL USE ONLY. NO ONE MAY RELY ON THEM FOR ANY PURPOSE. ALL VIEWS ARE SUBJECT TO CHANGE AS ADDITIONAL INFORMATION BECOMES AVAILABLE OR IS CLARIFIED.”337
Often, to facilitate work with experts, the parties will stipulate that draft reports (as well as other notes and communications with counsel) will not be discoverable. Absent such an agreement, draft expert reports and expertattorney communications should be viewed as fully discoverable.
G. Discovery Tactics A trade secret plaintiff will ordinarily want to look within when commencing discovery. If it suspects that an employee has departed with more than just his or her skills, the employer should examine the employee’s predeparture activities carefully. Such examination should include (1) a review of the employee’s telephone records to determine whether, and to what extent, the employee
337 Reprinted with permission from Gregory P. Joseph, Engaging Experts (2005), at http://www. josephnyc.com/articles/viewarticle.php?24.
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may have communicated with others who could derive value from learning the trade secrets; (2) a forensic examination of the employee’s computer, looking both for the presence of files the employee likely had no need for and evidence of deletion (in most instances, “deleted” files can easily be recovered during forensic examination because they continue to reside on a computer’s hard drive until written over); (3) a review of the employee’s e-mail messages, looking both for communications with potential users of the trade secrets and the transmission of work-related documents to the employee’s personal e-mail account;338 (4) an interview of the departed employee’s colleagues and subordinates to determine whether the employee requested to see any proprietary information without having a good purpose for doing so; and (5) an examination of a list of items the employee returned to the employer upon the termination of employment to determine whether the employee improperly maintained possession of items embodying proprietary information. If the employer suspects an ongoing misappropriation involving one of its current employees, it should gather and review all the types of information described above. In addition, it may consider monitoring the telephone conversations of any employee under suspicion, but before doing so must be careful to comply with federal and state laws that govern such activity.339 Of course, the employer should take great care not to allow any employee under suspicion to sense that an investigation is occurring. After all, the employer
338 There is no federal law that limits an employer’s right to review e-mail messages previously sent by an employee using an employer-owned computer. The Stored Wire and Electronic Communications and Transactional Records Access Act, 18 U.S.C. §§ 2701–2711 (1994), exempts “the person or entity providing a wire or electronic communication service” from its prohibitions. Id. § 2701(c)(1). The Federal Wiretap Act, 18 U.S.C. §§ 2510–2521 (1986), generally prohibits the interception of e-mail messages. The term “intercept” has generally been interpreted by the courts to require that the review of electronic communications occur during the actual transmission of the message. See United States v. Steiger, 318 F.3d 1039, 1047–49 (11th Cir. 2003); United States v. Jones, 451 F. Supp. 2d 71, 75 (D.D.C. 2006); Fraser v. Nationwide Mut. Ins. Co., 135 F. Supp. 2d 623, 634 (E.D. Pa. 2001), aff ’d in part, vacated in part and remanded, 352 F.3d 107 (3d Cir. 2003). Even if that were not so, there is a “business-interest” exception that allows a business to monitor equipment that it furnishes in the ordinary course of business when doing so is a “necessary incident . . . to the protection of the rights and property” of the employer. 18 U.S.C. §§ 2510(5)(a)(i), 2511(2)(a)(i) (1986). Before reviewing a former employee’s stored communications, counsel should verify that the states where the employee worked and where the communications are stored have not enacted privacy statutes that might circumscribe the unfettered right the employer would otherwise have to review such communications. 339 Some courts have held that an employer may eavesdrop on a telephone conversation to the extent necessary to determine the nature of the call but not to the extent of discovering the contents of the call. See Watkins v. L.M. Berry & Co., 704 F.2d 577, 584 (11th Cir. 1983); United States v. McLaren, 957 F. Supp. 215, 219 (M.D. Fla. 1997). Recording an employee’s calls on a continuous basis without clear disclosure and consent is unlawful. See, e.g., Williams v. Poulos, 801 F. Supp. 867, 873 (D. Me. 1992), aff ’d, 11 F.3d 271 (1st Cir. 1993).
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may want to ask the government to conduct a criminal investigation in the hope of catching the malefactor in flagrante delicto.340 When a plaintiff commences discovery of a company suspected of using misappropriated trade secrets, a plaintiff’s natural tendency is to seek evidence of the defendant’s current product, process, or software program. Although such discovery should be conducted, it is often a mistake to focus the discovery there. Misappropriators seldom make unadulterated use of purloined secrets. Instead, they may attempt to camouflage their use of a stolen trade secret or use the plaintiff’s trade secrets as the starting point to develop a better mousetrap.341 Thus, if the claimed trade secret involves software, a plaintiff is much more likely to find its code copied in the first iteration of the defendant’s code than the last. Similarly, the first design of the defendant’s product or process is more likely to reflect the plaintiff’s secrets than the last. One should not overlook that under the UTSA, it is no longer necessary to prove use to prevail on a misappropriation claim. The mere improper acquisition of trade secrets will suffice to establish liability. Because courts will allow a rebuttable inference of misappropriation when a defendant’s development process was unusually rapid,342 a plaintiff may want to take discovery of the defendant’s development process. In addition to establishing the development timeline from start to finish, the plaintiff should look for evidence of the types of experiments or research the defendant did not conduct. Such omissions and the absence of missteps along the way will support an inference that the defendant was relying on its knowledge of the plaintiff’s “negative know-how.”343 The plaintiff should also take careful discovery of the process the defendant followed in hiring its key employees. Specifically, the plaintiff should find out what, if anything, they were told concerning the use of proprietary information obtained during prior employments; what kind of written policy statement, if any, they were given explaining the defendant’s position with respect to the use of proprietary information gained elsewhere; whether they were aware of restrictive covenants or confidentiality agreements signed by plaintiff’s ex-employees; and what specific measures the defendant employs to put teeth into its policy. Ordinarily it will be the defendant rather than the plaintiff that wishes to take trade secret discovery of third parties. A defendant may wish to do so to rebut the plaintiff’s argument that a claimed trade secret is not generally known by, or readily ascertainable through proper means by, others who could derive
340 See infra Chapter 6(A). 341 See Monovis, Inc. v. Aquino, 905 F. Supp. 1205, 1252 (W.D.N.Y. 1994). 342 See Electro-Miniatures Corp. v. Wendon Co., 771 F.2d 23, 26 (2d Cir. 1985); Telex Corp. v. IBM Corp., 510 F.2d 894, 911 (10th Cir. 1975). 343 See Salsbury Labs., Inc. v. Merieux Labs., Inc., 908 F.2d 706, 709 (11th Cir. 1990).
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value from its disclosure or use. Regardless, if discovery of a third party’s trade secret information will be helpful, a court may order it if the party seeking discovery establishes that it is relevant and necessary to the action.344
H. Remedies A successful plaintiff may obtain a number of remedies following trial, including the issuance of a permanent injunction, an order requiring affirmative acts to protect trade secrets, an award of royalties in lieu of an injunction, an award of compensatory damages, an award of punitive damages, and an award of attorneys’ fees. Because the UTSA expressly allows contractual and criminal remedies in addition to the remedies it provides, the above remedies are nonexclusive. Permanent Injunction. A permanent injunction is easier to obtain than a preliminary injunction for several reasons. Principally, because it is not an “extraordinary” remedy, the standard for issuance is lower. Having won at trial, the plaintiff need not establish a “likelihood of success” and, misappropriation having been proved, irreparable harm will ordinarily be presumed.345 An injunction generally lasts no longer than is necessary to protect the plaintiff and deny the defendant the fruits of the misappropriation.346 A permanent injunction, therefore, usually terminates once the trade secret has been made public, but it may be extended for an additional time to eliminate any head start or commercial advantage the misappropriator improperly gained.347 Although the duration of a permanent injunction is ordinarily limited, the court need not specify a date on which the injunction will cease. An injunction may be terminated upon application to the court if the enjoined party can prove that the trade secret has ceased to exist.348 Injunctions may be extended by consent decree,349 settlement agreement, or contract.350
344 See Upjohn Co. v. Hygieia Biological Labs., 151 F.R.D. 355, 357–59 (E.D. Cal. 1993); In re Worlds of Wonder Secs. Litig., 147 F.R.D. 214, 216 (N.D. Cal. 1992). Objections to discovery can also be based on relevance and overbreadth. See Cacique, Inc. v. Robert Reiser & Co., 169 F.3d 619, 622–23 (9th Cir. 1999). 345 See Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1247 (Fed. Cir. 1989) (“[A] misappropriator of trade secrets has no authorization or right to continue to reap the benefits of its wrongful acts.”). 346 See Restatement (Third) of Unfair Competition § 44(3) (1995). 347 See UTSA § 2(a) (amended 1985); Stampede Tool Warehouse, Inc. v. May, 651 N.E.2d 209, 217 (Ill. App. Ct. 1995). 348 See In re Wilson, 248 B.R. 745, 749 (M.D.N.C. 2000); Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514, 1528, 66 Cal. Rptr. 2d 731, 740 (1997). 349 See Motorola, Inc. v. Computer Displays Int’l, Inc., 739 F.2d 1149, 1153 (7th Cir. 1984). 350 See Aronson v. Quick Point Pencil Co., 440 U.S. 257, 99 S. Ct. 1096, 59 L. Ed. 2d 296 (1979).
Remedies
Affirmative Acts to Protect Trade Secrets. Under UTSA Section 2(c), a court may issue affirmative injunctions to protect a trade secret. Such injunctions may include ordering the return of materials containing trade secrets,351 the destruction of materials containing or embodying trade secrets,352 the assignment of rights to the trade secret owner by the misappropriator of inventions derived from the trade secrets,353 the notification by the misappropriator to customers of the injunction,354 and the sealing of trial records.355 In many jurisdictions, the filing of an appeal will automatically stay a mandatory injunction. For that reason, a plaintiff should attempt to phrase an injunction providing affirmative relief in prohibitory terms. Royalty in Lieu of Injunction. The notion of a nonconsensual royalty was recognized in the original (1979) version of the UTSA. Pursuant to the 1985 amendments, a court may award the payment of a nonconsensual remedy in “exceptional circumstances,” defined to include “a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable.”356 In general, an exception to the rule that a trade secret owner is entitled to injunctive relief prohibiting the use of its trade secrets is limited to “innocent misappropriators” who inextricably incorporate the plaintiff’s trade secrets into their business or product before learning of the plaintiff’s interest in those secrets. However, one court ordered a royalty in lieu of an injunction simply because “too much time ha[d] passed and too many events had occurred to turn back the clock.”357 At other times, a royalty in lieu of injunction has been ordered when a court has concluded that the use of a trade secret was in the public interest.358 Another court entered a permanent injunction but stayed it and allowed the payment of a royalty based on the defendant’s showing that it could reverse engineer the trade secrets within a relatively short time.359 Compensatory Damages. A plaintiff may recover for the actual loss caused by a misappropriation and for any unjust enrichment to the defendant not
351 See Tracer Research Corp. v. Nat’l Envtl. Serv. Co., 843 F. Supp. 568, 580 (D. Ariz. 1993), rev’d on other grounds, 42 F.3d 1292 (9th Cir. 1994). 352 See Gladstone v. Hillel, 203 Cal. App. 3d 977, 988, 250 Cal. Rptr. 372, 379 (1988) (commonlaw trade secret). 353 See Cubic Corp. v. Marty, 185 Cal. App. 3d 438, 451, 229 Cal. Rptr. 828, 834–35 (1986). 354 See id. at 451. 355 See In re Adobe Sys., Inc. Secs. Litig., 141 F.R.D. 155, 161–62 (N.D. Cal. 1992). 356 UTSA § 2(b) (amended 1985). 357 Kilbarr Corp. v. Bus. Sys., Inc., 679 F. Supp. 422, 426 (D.N.J. 1988), aff ’d, 869 F.2d 589 (3d Cir. 1989). 358 See Republic Aviation Corp. v. Schenk, 152 U.S.P.Q. (BNA) 830, 834–35 (N.Y. Sup. Ct. Jan. 13, 1967) (armament and control systems for jet fighters); cf. Weinberger v. Romero-Barcelo, 456 U.S. 305, 102 S. Ct. 1798, 72 L. Ed. 2d 91 (1982) (Navy’s use of land for training pilots). 359 See Boeing Co. v. Sierracin Corp., 716 P.2d 956, 957–58 (Wash. Ct. App. 1986).
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taken into account in computing the actual loss damages.360 The unjust enrichment damages will typically consist of the research and development costs the defendant was spared by misappropriating the trade secrets. The plaintiff’s loss may include a decline in sales361 and price erosion.362 Profits may also be awarded for a product that was not marketed, if the plaintiff proves its probable success,363 and a plaintiff may recover the value of lost business opportunities.364 A plaintiff may also be awarded the fair market value of the trade secret if the defendant has disclosed the secret publicly.365 Liability for lost profits may also be imposed on intermediaries who did not profit personally from sales made by a company but disclosed the trade secret that resulted in the lost sales.366 In addition to a defendant’s unjust enrichment resulting from reduced research and development costs, a plaintiff may attempt to recover the “head start” that a defendant made from misappropriating the plaintiff’s trade secrets367 and the increased value of the defendant’s business resulting from the head start.368 In one case, a company chemist filed a patent application using information developed by independent researchers. Because the product was commercially successful, unjust enrichment damages in excess of $53 million were awarded.369 If neither the plaintiff’s actual damages nor the defendant’s unjust enrichment are provable, the court may award a reasonable royalty. This is commonly done when a misappropriated trade secret has been used to improve a manufacturing process or the defendant has not yet profited from the misappropriation.370 The reasonable royalty calculation attempts to establish the amount that the defendant would have been willing to pay to obtain the secret information properly. The reasonable royalty calculation cannot be combined with other damage valuation methods such as the cost of creating the trade secret.371
360 See UTSA § 3(a) (amended 1985); Sokol Crystal Prods. v. DSC Commc’ns Corp., 15 F.3d 1427, 1433 (7th Cir. 1994). 361 See EFCO Corp. v. Symons Corp., 219 F.3d 734, 741–42 (8th Cir. 2000). 362 See Roton Barrier, Inc. v. Stanley Works, 79 F.3d 1112, 1120 (Fed. Cir. 1996). 363 See DSC Commc’ns Corp. v. Next Level Commc’ns, 107 F.3d 322, 329 (5th Cir. 1997). 364 See Eagle Group, Inc. v. Pullen, 114 Wash App. 409, 420–21, 58 P.3d 292, 299 (2002). 365 See Precision Plating & Metal Finishing, Inc. v. Martin-Marietta Corp., 435 F.2d 1262, 1263 (5th Cir. 1970). 366 See Mangren Research & Dev. Corp. v. Nat’l Chem. Co., 87 F.3d 937, 945 (7th Cir. 1996). 367 See Analogic Corp. v. Data Translation, Inc., 371 Mass. 643, 649, 358 N.E.2d 804, 808 (1976). 368 See Children’s Broad. Corp. v. Walt Disney Co., 357 F.3d 860, 864 (8th Cir. 2004). 369 See Univ. of Colo. Found., Inc. v. Am. Cyanamid Co., 216 F. Supp. 2d 1188, 1204, 1206 (D. Colo. 2002), aff ’d, 342 F.3d 1298 (Fed. Cir. 2003). 370 See LinkCo, Inc. v. Fujitsu, Ltd., 232 F. Supp. 2d 182, 186 (S.D.N.Y. 2002). 371 See Am. Sales Corp. v. Adventure Travel, Inc., 862 F. Supp. 1476, 1480 (E.D. Va.), reconsidered and amended on other grounds, 867 F. Supp. 378 (E.D. Va. 1994).
Remedies
A royalty calculation may not be based on future sales when an injunction issues barring the use of the trade secrets.372 Constructive Trust. A constructive trust is an equitable remedy that a court may impose upon finding that the defendant has taken and misused property rightfully belonging to the plaintiff in violation of a fiduciary or confidentiality duty. Courts have held that constructive trusts are available as a remedy in trade secret cases if there was a prior confidential relationship or fiduciary duty.373 Importantly, a third party can be subject to a constructive trust if it is unjustly enriched by the fraudulent actions of a party who violates a confidential relationship.374 Constructive trust remedies have special importance when a bankruptcy is involved in that they provide a basis for a plaintiff to assert a claim to ownership of specific assets that otherwise might be part of the defendant’s bankruptcy estate and, thus, subject to the claims of competing creditors. Punitive Damages. The UTSA authorizes the award of punitive damages if “willful and malicious misappropriation exists.”375 This standard encompasses both intentional misappropriation as well as misappropriation resulting from the conscious disregard of the rights of others.376 Under the UTSA, the actual award of punitive damages lies within the trial judge’s discretion. Thus, the question whether the defendant’s conduct was “willful and malicious” may be submitted to the jury, and the trial judge will determine the consequence of the jury’s finding.377 Under the UTSA, punitive damages are capped at double the amount of compensatory damages.378 In states that have not adopted the UTSA, punitive damages are awarded in trade secret actions pursuant to the laws applicable to intentional torts. Attorneys’ Fees. Section 4 of the UTSA provides that if a claim of misappropriation “is made in bad faith,” a motion to terminate an injunction “is made or resisted in bad faith,” or “willful and malicious misappropriation exists,” the court may award reasonable attorneys’ fees to the prevailing party. Whether to award fees and, if so, how much, lies within the discretion of the trial judge.379 These are fixed by the court in a posttrial motion and recovered as part of the prevailing party’s costs.380
372 See Robert L. Cloud & Assocs. v. Mikesell, 69 Cal. App. 4th 1141, 1150, 82 Cal. Rptr. 2d 143, 147 (1999). 373 See, e.g., Tlapek v. Chevron Oil Co., 407 F.2d 1129, 1133–34 (8th Cir. 1969). 374 See, e.g., EEMSO, Inc. v. Complex Techs., Inc., No. 3:05-CV-0897-P, 2006 U.S. Dist. LEXIS 67225, at *30–31 (N.D. Tex. Aug. 31, 2006). 375 UTSA § 3(c) (amended 1985). 376 See Mangren Research & Dev. Corp. v. Nat’l Chem. Co., 87 F.3d 937, 946 (7th Cir. 1996). 377 See Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1111–12 (9th Cir. 2001). 378 See UTSA § 3(b) (amended 1985). 379 See Boeing Co. v. Sierracin Corp., 108 Wash. 2d 38, 65, 738 P.2d 665, 682 (1987). 380 See Vacco Indus., Inc. v. Van Den Berg, 5 Cal. App. 4th 34, 54, 6 Cal. Rptr. 2d 602, 614 (1992).
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I. Settlement Most cases are settled, not adjudicated, and trade secret cases are no exception. (In the authors’ experience, trade secret litigations are more likely than other cases to result in some form of merits determination, such as on a request for injunctive relief. If true, this may reflect the importance companies place on protecting their trade secrets and the difficulties they have quantifying damages.) The settlement of a trade secret litigation involves questions of timing, process, and form—and, of course, content, which will depend on who holds the stronger hand. Although there is no universally “right” time to discuss settlement, a few observations may be made. First, a plaintiff may desire to explore settlement before filing suit. A trade secret owner may seek to resolve its concern that a former employee has joined a competitor by reaching agreement with the new employer on restrictions regarding the ex-employee’s work. The benefits of avoiding the costs of litigation and avoiding even the limited disclosures required in a complaint should be weighed against the disadvantages of alerting the defendant to the incipient lawsuit and possibly allowing the defendant to prepare a peremptory strike in another jurisdiction. In addition, a prefiling settlement will lack injunctive force. Therefore, a breach will not be punishable as a contempt of court (unless it includes a confession of judgment or stipulation for entry of judgment nunc pro tunc). Once the case is filed, the defendant may want to push for the identification of trade secrets with particularity before even considering the subject of settlement. Without such an identification, it may be difficult for the defendant to assess the risks of the litigation or frame a settlement with sufficient specificity to avoid such amorphous provisions as “defendant will refrain from using any plaintiff’s alleged trade secrets” that will lead to misunderstandings later. Following the plaintiff’s identification of trade secrets with sufficient particularity, and after the parties conduct initial discovery that allows the plaintiff to assess the extent of the problem and the defendant to assess the strength of the plaintiff’s case, both parties may be sufficiently informed and motivated to discuss settlement seriously. Most courts, especially federal courts, will order the parties to mediation before trial. If the mediation is too early in the process, the parties may lack the information needed to assess the case properly. For a defendant, a mediation that occurs while dispositive motions are pending is often a desirable time to get to the settlement table. The process of reaching settlement of a trade secret case may be more complicated than settling other forms of litigation. Trade secret cases often have extensive confidentiality restrictions that prevent outside counsel from sharing information learned in discovery with their client’s executives and even with in-house counsel. The decision makers’ lack of full information can
Settlement
be a major stumbling block to productive settlement discussions. In addition, the very process of explaining the importance of the trade secret information at issue may be complicated by the prohibition on disclosing confidential information even for the purpose of settlement. The selection of a mediator may also be complicated by the need to understand the importance of highly technical processes. The valuation of a trade secret that has been compromised is also difficult, as virtually by definition, a trade secret is rarely susceptible to a market valuation. There are tools to combat these difficulties. Involving experts in the settlement process may assist in informing the mediator and in bridging information gaps. (Retained consultants, for example, generally have access to all the discovery in a case and can be invaluable in helping both client and counsel assess the strengths and weaknesses of the case.) A court may appoint a mediator or ask the parties to choose a neutral expert to help it understand and assess the merits of the dispute. A mediator with technical expertise in the area might be beneficial, but given that such an individual is often a consultant or participant in the industry, the use of such a knowledgeable mediator might not be acceptable. Whether assisted by a mediator or not, the parties must typically consider numerous issues in the course of negotiating the settlement of a trade secret litigation. Obviously, if the plaintiff is likely to prevail at trial, it will want to consider asking for damages and, possibly, punitive damages and attorneys’ fees, as allowed under the UTSA. By the same token, a defendant with an especially strong case might request payment of the attorneys’ fees it has incurred to defend against the trade secret misappropriation claim. If the agreed payments are large, the party required to make the payment will likely want to request a payment schedule. If the parties do agree to a payment schedule, they may want to negotiate a notice-and-cure provision that would apply before the payor is sanctioned for defaulting on its obligation to make payments. If a payment is missed, the sanction may consist of accelerating all remaining payments or it may consist of a “penalty.” The latter can be achieved by agreeing to a settlement in a larger amount but “waiving” a portion of it if all payments are timely made. If there is substantial evidence that the plaintiff had bona fide trade secrets that were misappropriated by the defendant, the plaintiff will want injunctive relief. Demanding that a defendant enter into a consent judgment, however, may pose an impediment to settlement. A corporate defendant may resist the stigma, and possible adverse inferences that might be drawn in future litigations with third parties that flows from the entry of a judgment in the public record. An individual defendant may justifiably object that the entry of a judgment could adversely affect his or her credit rating, especially if it appears to reflect an outstanding judgment. Even though a defendant may request that the plaintiff file a notice of satisfaction of judgment once the judgment is paid, doing so will not end the damage to one’s credit rating.
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As a consequence of the concerns described above, the parties may want to consider structuring a settlement in various ways. They may enter into a settlement agreement that requires the defendant to make any settlement payment before a consent judgment is entered, thus allowing the entry of a judgment that does not reflect any payment obligation. Or, they may avoid having any injunction entered at all. This can be accomplished by entering into a settlement agreement pursuant to which a defendant agrees contractually not to engage in prohibited activities for a specified time and further agrees that the trial court will retain continuing jurisdiction to enforce the terms of the settlement agreement, including through the punishment of a willful breach as a contempt of court. Assuming the court agrees to accept continuing jurisdiction, this approach works well and provides confidentiality. If the court declines to accept continuing jurisdiction, the same result may be achieved by entering into a stipulation for entry of judgment nunc pro tunc that would, in the event of a breach, allow the plaintiff to file a new action and immediately seek entry of an injunction that would be enforceable retroactively. A plaintiff will want to think carefully about all the obligations it imposes on a defendant. A plaintiff may request that the defendant agree not to (i) use specific information for a specified time or until the information becomes generally known in the industry, perhaps tacking on an additional period to offset the value of the “head start” the defendant got from using it earlier; (ii) permit specified individuals with knowledge of the plaintiff’s trade secrets to work in particular areas or on particular products for a particular time; (iii) develop or market particular products for a specified time; or (iv) hire any more of the plaintiff’s employees or former employees having knowledge of its trade secrets for a specified time. (The parties should bear in mind that trade secret settlements, like other intellectual property settlements, are agreements between competitors and are therefore potentially subject to antitrust scrutiny.) In addition, a plaintiff might want to require periodic certifications by the defendant’s chief technology officer that the defendant is complying with the agreed prohibitory terms. A settlement agreement might also make provision for periodic “audits” to be conducted by independent experts to verify that the defendant has, indeed, desisted from further use of the plaintiff’s trade secrets and is not allowing individuals with knowledge of those trade secrets to work in areas that might be competitively damaging to the plaintiff. As part of a settlement, the plaintiff will also want to remember to ask the defendant to agree to a release of the preliminary injunction bond, if any, and should discuss what any press release will say. The parties will also want to consider what to do with documents produced by the other party that contain trade secret information. Typically protective orders specify that a party receiving trade secret information must destroy all electronic and paper copies of it, as well as notes related to it, upon the conclusion of a litigation. However, the
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parties may want to agree to allow each other’s outside counsel to keep one set for a specified period in case there are further disputes between the parties.
J. Procedural Considerations 1. Strategic Venue Choices Because the choice of forum can be outcome-determinative, a plaintiff should examine its litigation options before filing suit and, if possible, avoid proceeding in certain states. A plaintiff that wishes to rely on the doctrine of inevitable disclosure to enjoin a former employee from working for a competitor should avoid bringing its action in states whose courts have sometimes refused to recognize the doctrine (including Alabama, California, Florida, Indiana, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New York, Oklahoma, and Virginia). If the employee is subject to an express noncompete agreement, a plaintiff should avoid states that typically refuse to enforce such agreements (such as California and Louisiana).381 If a trade secret misappropriation plaintiff believes that it needs discovery to adduce sufficient evidence to obtain preliminary injunctive relief, it may want to avoid states that require the identification of a plaintiff’s trade secrets with “reasonable particularity” before the plaintiff may commence discovery (including California, Delaware, Florida, Georgia, Illinois, and possibly Minnesota). a. Plaintiff Needs Quick Discovery As previously discussed,382 in states that require the identification of a plaintiff’s trade secrets with “reasonable particularity” before the plaintiff may commence discovery, the defendant will characteristically challenge any trade secret identification made by the plaintiff as insufficiently specific. The plaintiff will then lose valuable time litigating the sufficiency of its trade secret identification before it can commence discovery related to the misappropriation. If it is not possible to avoid bringing suit in one of those states, the plaintiff should consider alleging claims other than trade secret misappropriation.383
381 Louisiana will enforce noncompete agreements up to two years in duration provided they are narrowly limited to specific parishes and municipalities. See Kimball v. Anesthesia Specialists of Baton Rouge, Inc., 809 So. 2d 405, 410–11 (La. Ct. App. 2001); Sentilles Optical Servs. v. Phillips, 651 So. 2d 395, 399 (La. Ct. App. 1995). 382 See supra Chapter 2(D). 383 See supra Chapter 2(C).
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After it has obtained discovery, it can then seek leave of court to amend its complaint to state a trade secret misappropriation claim.384 One note of caution: if the plaintiff is not careful in pleading the alternative claims, the defendant might seek dismissal on the basis that the claims, as pleaded, are preempted by the UTSA.385 An alternative tack is to include an identification of the trade secrets at issue in the complaint or to file a separate “Notice Identifying Trade Secrets at Issue” concurrently with the filing of a complaint. For this purpose, it is not necessary to state what the trade secrets are. It is necessary only to identify with reasonable particularity “the boundaries within which the secret lies.”386 If multiple trade secrets are involved, the plaintiff may want to cherry-pick ones in different areas as to which it has strong claims. Of course, the actual trade secrets may be alleged, but if that is done, the plaintiff should be careful to file them under seal. Otherwise, any trade secret protection will be lost.387 Next, the plaintiff should seek expedited discovery and accompany its request with a proposed order that includes a finding that “plaintiff has identified its claimed trade secrets with reasonable particularity.” If such an order is entered, the defendant will have no means to withhold discovery based on a purported failure adequately to identify the trade secrets in issue. b. Plaintiff Seeks to Enforce a Noncompete Agreement California, Louisiana, and Wisconsin are very protective of an employee’s right to seek new employment and, therefore, will not enforce most noncompete agreements. (Exceptions may be made for the sale of the goodwill of a business or the dissolution of a partnership and, in Louisiana, for agreements that are limited to specific parishes or municipalities or parts thereof.388) The courts in those states recognize that their state’s statutes represent “a strong public policy” against noncompete agreements.389 In keeping with their strong
384 The authors are aware of at least one instance in which defense counsel attempted to frustrate this tactic by objecting that the complaint was a “sham” calculated to circumvent the trade secret identification requirement and, on that basis, refused to respond to the plaintiff ’s discovery requests. 385 See infra Chapter 3(A)(1). 386 Diodes, Inc. v. Franzen, 260 Cal. App. 2d 244, 253, 67 Cal. Rptr. 19, 24 (1968). 387 See DVD Copy Control Ass’n v. McLaughlin, No. CV 786804, 2000 WL 48512 (Cal. App. Dept. Super. Ct. Jan. 21, 2000), rev’d sub nom. DVD Copy Control Ass’n v. Bunner, 93 Cal. App. 4th 648, 113 Cal. Rptr. 2d 338 (Ct. App. 2001), review granted and opinion superseded, 41 P.3d 2, 117 Cal. Rptr. 2d 167 (2002), rev’d, DVD Copy Control Ass’n, Inc. v. Bunner, 31 Cal. 4th 864, 75 P.3d 1, 4 Cal. Rptr. 3d 69 (2003). 388 See Cal. Bus. & Prof Code §§ 16602, 16602.5 (2007); La. Rev. Stat. Ann. § 23:921 (2007). 389 See Scott v. Snelling & Snelling, 732 F. Supp. 1034, 1042 (N.D. Cal. 1990); Millet v. Crump, 687 So. 2d 132, 135 (La. Ct. App. 1996) (citing Sanborn v. Oceanic Contractors, Inc., 448 So.
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public policies, the courts in each state are free to disregard choice-of-forum and choice-of-law provisions in noncompete agreements.390 Thus, if a former employee is subject to a written noncompetition obligation but is in California or Louisiana, the plaintiff should consider whether the noncompete agreement was signed in another state or contains a forumselection or choice-of-law clause that would provide a basis for bringing suit elsewhere. If so, the plaintiff should consider proceeding there. One risk in doing so is that a California or Louisiana court might not be required to enforce an injunction that issued elsewhere if the injunction is offensive to its policy prohibiting the enforcement of most noncompete agreements.391 On the other hand, the Full Faith and Credit clause of the U.S. Constitution392 requires every state to recognize a money judgment entered elsewhere, even if the judgment was entered in an action repugnant to the enforcing state’s public policy.393 c. Plaintiff Seeks to Enjoin “Inevitable Disclosure” of Trade Secrets If the plaintiff seeks to obtain a TRO and/or preliminary injunction but cannot show that the defendant has already engaged in actual or “threatened” misappropriation, it should attempt to proceed in a state (such as Arkansas, Connecticut, Delaware, Illinois, Iowa, New Jersey, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, Utah, Washington, or Wisconsin) that consistently recognizes the inevitable disclosure doctrine. Even then, the
390
391
392 393
2d 91 (1984)); Genzyme Corp. v. Bishop, 460 F. Supp. 2d. 939, 945–46 (W.D. Wis. 2006) (“[B]ecause Wisconsin law favors the mobility of workers . . . a contract that operates to restrict trade or competition is prima facie suspect.”). See, e.g., Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881, 901-02, 72 Cal. Rptr. 2d 73, 85–86 (1998) (invalidating noncompete agreement with Maryland choice-offorum and choice-of-law provisions entered into in Maryland between Maryland employer and Maryland employee because employee later accepted a job with California employer that allowed her to “telecommute” to work from Maryland); see also Scott v. Snelling & Snelling, 732 F. Supp. 1034, 1039 (N.D. Cal. 1990); La. Rev. Stat. Ann. § 23:921(A)(2) (2007). See Hannah v. Gen. Motors Corp., 969 F. Supp. 554, 559 (D. Ariz. 1996) (Full Faith and Credit clause did not require enforcement of Michigan injunction in Arizona because enforcement would violate a public policy of Arizona); Smith v. Super. Ct., 41 Cal. App. 4th 1014, 1025–26, 49 Cal. Rptr. 2d 20, 26 (1996) (pursuant to public policy exception to Full Faith and Credit clause, California courts were not compelled to recognize a Michigan injunction that prohibited a former automobile manufacturing employee from testifying without the consent of the manufacturer). U.S. Const., art. IV, § 1. See Baker by Thomas v. Gen. Motors Corp., 522 U.S. 222, 232–34, 118 S. Ct. 657, 663–64, 139 L. Ed. 2d 580, 591–93 (1998) (“In numerous cases this Court has held that credit must be given to the judgment of another state although the forum would not be required to entertain the suit on which the judgment was founded.”) (quoting Milwaukee County v. M.E. White Co., 296 U.S. 268, 277, 56 S. Ct. 229, 234, 80 L. Ed. 220, 228 (1935)).
132 Chapter 2 Litigating Trade Secret Actions—Plaintiff ’s Perspective
plaintiff should attempt to persuade the court to frame the injunction as prohibiting “threatened” misappropriation. d. Defendant Files Preemptive Action Because the choice of forum can be outcome-determinative, the defendant might not wait for the plaintiff to select a forum. Instead, a defendant may launch a preemptive action seeking a declaration of nonenforceability of a noncompete agreement or a declaration that the plaintiff lacks protectable trade secrets. When the trade secret owner later files suit elsewhere, the erstwhile defendant will attempt to invoke the “first-filed” rule to enjoin the trade secret owner from proceeding there.394 If the misappropriator wins the race to the courthouse door, the trade secret owner may nonetheless defeat the misappropriator’s attempt to stay the owner’s action filed elsewhere. This may be done on several bases. First, a state court may not issue any injunction that will have the direct or indirect effect of staying an action in a federal court.395 Second, California state courts are prohibited from enjoining, either directly or indirectly, courts of other states from determining the enforceability of noncompete agreements in California.396 Third, federal courts are usually unable to enjoin proceedings in a state court. The Anti-Injunction Act provides that “[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.”397 (One important limitation of the Anti-Injunction Act is that it prohibits injunctions only against pending state court proceedings but does not preclude injunctions prohibiting commencement of state court proceedings.)398 Finally, declaratory relief actions filed for the purpose of preempting a litigation elsewhere are
394 See Ellicott Mach. Corp. v. Modern Welding Co., 502 F.2d 178, 180 n.2 (4th Cir. 1974); Mattel, Inc. v. Louis Marx & Co., 353 F.2d 421, 423 (2d Cir. 1965). 395 See Donovan v. City of Dallas, 377 U.S. 408, 412–13, 84 S. Ct. 1579, 1582, 12 L. Ed. 2d 409, 413 (1964); Gross v. Weingarten, 217 F.3d 208, 224 (4th Cir. 2000). Conversely, a federal court usually cannot enjoin proceedings in a state court. See 28 U.S.C. § 2283 (2000) (“A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.”). 396 See Advanced Bionics Corp. v. Medtronic, Inc., 29 Cal. 4th 697, 707, 59 P.3d 231, 237, 128 Cal. Rptr. 2d 172, 179 (2002), modified on denial of pleading (2003). 397 28 U.S.C. § 2283 (2000); see also Atl. Coast Line R. Co. v. Bhd. of Locomotive Eng’rs, 398 U.S. 281, 287, 90 S. Ct. 1739, 1743, 26 L. Ed. 2d 234, 241 (1970) (“[P]roceedings in state court should normally be allowed to continue unimpaired by intervention of the lower federal courts, with relief from error, if any, through the state appellate courts and ultimately this Court.”). 398 See Dombrowski v. Pfister, 380 U.S. 479, 485 n.2, 85 S. Ct. 1116, 1120 n.2, 14 L. Ed. 2d 22, 27 n.2 (1965).
Procedural Considerations 133
disfavored. A court should decline to exercise jurisdiction over declaratory judgment actions filed “for the purpose of anticipating the trial an issue in a court of coordinate jurisdiction.”399 e. Choosing a Different Defendant Alternatively, a trade secret owner need not limit itself to suing a former employee whom it believes has taken its trade secrets to a competitor. The trade secret owner may instead sue the competitor, seeking to restrain the competitor from using the trade secrets or continuing to employ the worker in question. Because a company may be sued wherever it maintains a business presence or transacts a not-insignificant amount of business, the competitor may be subject to suit in many jurisdictions where the employee might not be.
2. Statute of Limitations a. UTSA Under the UTSA, “[a]n action for misappropriation must be brought within 3 years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.”400 The UTSA thus codifies the commonlaw “discovery rule” that tolls the statute of limitations until the plaintiff is on notice of “enough suspicious circumstances that would lead a reasonably prudent person to discover the harm.”401 That rule is relaxed when the defendant hides the evidence of its wrongdoing; a defendant’s deliberate concealment of a misappropriation may operate to extend the limitations period.402 What constitutes the exercise of reasonable diligence in discovering a misappropriation is not entirely clear. What is clear is that widespread publicity concerning a product that incorporates the plaintiff’s secret may constitute constructive knowledge that commences the limitations period.403 If a
399 Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 324 (4th Cir. 1937); see also Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 258 (4th Cir. 1996) (“[A]lthough the federal action was filed first, we decline to place undue significance on the race to the court house door, particularly in this instance where [the plaintiff ] had constructive notice of [the defendant’s] intent to sue.”); Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 602 (5th Cir. 1983) (holding that the plaintiff should not have been permitted to gain precedence in time and forum by filing a declaratory action that was merely anticipatory of a parallel state action). 400 UTSA § 6 (amended 1985). 401 Mass. Eye & Ear Infirmary v. QLT Phototherapeutics, Inc., 412 F.3d 215, 239–40 (1st Cir. 2005). 402 See Telex Corp. v. IBM Corp., 367 F. Supp. 258, 360 (N.D. Okla. 1973), aff ’d in part and rev’d in part, 510 F.2d 894 (10th Cir. 1975). 403 See Stutz Motor Car of Am. v. Reebok Int’l, Ltd., 909 F. Supp. 1353, 1362 (C.D. Cal. 1995), aff ’d, 113 F.3d 1258 (Fed. Cir. 1997).
134 Chapter 2 Litigating Trade Secret Actions—Plaintiff ’s Perspective
prudent person has sufficient information to realize that further inquiry is warranted, any knowledge that would have been learned from that further inquiry will be deemed acquired.404 Inaction may also be deemed a failure to take reasonable steps to maintain secrecy and may thus negate the existence of a trade secret.405 In general, if a claimant knows or should have known that a trade secret was disclosed, the limitations period commences.406 The mere fact that a plaintiff writes to a competitor seeking assurances that a former employee would not use proprietary information does not trigger the statute if the plaintiff’s concerns are allayed by the competitor’s response.407 On the other hand, the limitations period is not triggered by mere “suspicions and fears.”408 Nor is the limitations period triggered merely by a defendant’s unlawful acquisition of a product. Instead, the limitations period is triggered when a defendant reverse engineers a product because that is when the trade secret is disclosed.409 Because the courts recognize that litigants should not be pressured to file suit without solid evidence of misappropriation,410 they freely grant leave to add misappropriation claims based on facts discovered during litigation. Under the UTSA, a continuing misappropriation constitutes a single claim.411 There are conflicting authorities concerning whether violation of the separate substantive standards prohibiting improper acquisition and unauthorized use or disclosure, or separate disclosures to different persons gives rise to separate claims.412 A plaintiff may have more than one claim for
404 See Ralph Andrews Prods., Inc. v. Paramount Pictures Corp., 222 Cal. App. 3d 676, 682, 271 Cal. Rptr. 797, 800 (1990). See also Cypress Semiconductor v. Super. Ct., 163 Cal. App. 4th 575, 586, 77 Cal. Rptr. 3d 685, 692 (2008) (“‘A plaintiff has reason to discover a cause of action when he or she “has reason at least to suspect a factual basis for its elements.” [citations omitted]. Under the discovery rule, suspicion of one or more of the elements of a cause of action, coupled with knowledge of any remaining elements, will generally trigger the statute of limitations period.’”) (quoting Fox v. Ethicon Endo-Surgery, Inc., 35 Cal. 4th 797, 807, 27 Cal. Rptr. 3d 661, 667, 110 P.3d 914, 919 (2005)). 405 See Alamar Biosciences, Inc. v. Difco Labs, Inc., 40 U.S.P.Q.2d (BNA) 1437, 1442 (E.D. Cal. Feb. 27, 1996). 406 See McLeod v. N.W. Alloys, Inc., 969 P.2d 1066, 1069 (Wash. Ct. App. 1998). 407 Callaway Golf Co. v. Dunlop Slazenger Group Ams., Inc., 318 F. Supp. 2d 222, 225 (D. Del. 2004). 408 Sokol Crystal Prods. v. DSC Commc’ns Corp., 15 F.3d 1427, 1430 (7th Cir. 1994). 409 See Minn. Mining & Mfg. Co. v. Johnson & Johnson Orthopaedic, Inc., 22 U.S.P.Q.2d (BNA) 1401, 1411 (D. Minn. July 26, 1991), aff ’d, 976 F.2d 1559 (Fed. Cir. 1992). 410 See Intermedics, Inc. v. Ventritex, Inc., 775 F. Supp. 1258, 1266 (N.D. Cal. 1991). 411 See UTSA § 6 (amended 1985). 412 Cf. Ashton-Tate Corp. v. Ross, 916 F.2d 516, 523–24 (9th Cir. 1990) (later unauthorized use following improper acquisition does not extend the limitations period); McCormack & Dodge Corp. v. ABC Mgmt. Sys., Inc., 222 U.S.P.Q. (BNA) 432, 444 (Wash. Super. Dec. 22, 1983) (each unauthorized sale of a product incorporating a trade secret is an independent appropriation).
Procedural Considerations 135
misappropriation, each with its own statute of limitation, where more than one defendant is involved.413 Because misappropriation is not a continuing tort, the defendant’s temporary cessation of its use of a trade secret will not toll the running of the statute of limitations.414 An exception to the single-claim principle has been recognized when the defendant is a third party not involved in the initial misappropriation. In that circumstance, there are separate claims for misappropriation, each with its own statute of limitation.415 The selection of which state’s statute of limitations will apply can be an important, indeed dispositive, issue. Even though the UTSA is a uniform act, eight states have changed the three-year statute of limitations in adopting it. Illinois, for example, has a five-year statute.416 Which statute of limitations will govern an action may also be an issue in conjunction with conflicts between UTSA states and Restatement (First) of Torts states, where misappropriation is a continuing tort. Courts, to date, have almost uniformly held that the statute of limitations in trade secret misappropriation cases is procedural.417 In general, if a statute of limitations is viewed as procedural, the forum state’s limitations period will govern a trade secret misappropriation claim; if it is viewed as substantive, a misappropriation claim will be governed by the statute of the state whose substantive trade secrets law is applied to the claim. The courts’ analysis as applied to claims arising under the UTSA has been superficial. In federal court, the analysis begins with the principle that a court sitting in diversity jurisdiction must apply the choice-of-law rules of the
413 See Cypress Semiconductor Corp. v. Super. Ct., 163 Cal App. 4th 575, 583, 77 Cal. Rptr. 3d 685, 690 (2008) (holding that a cause of action for misappropriation against a particular defendant accrues with the plaintiff ’s discovery of that defendant’s misappropriation). 414 See Glue-Fold, Inc. v. Slautterback Corp., 82 Cal. App. 4th 1018, 1028, 98 Cal. Rptr. 2d 661, 667 (2000). 415 See Cadence Design Sys., Inc. v. Avant! Corp., 29 Cal. 4th 215, 224–25, 127 Cal. Rptr. 2d 169, 175, 57 P.3d 647, 652 (2002); Cypress Semiconductor Corp. v. Super. Ct., 163 Cal. App. 4th 575, 583–84, 77 Cal. Rptr. 3d 685, 690–91 (2008). 416 765 Ill. Comp. Stat. Ann. 1065/7 (2008). 417 See, e.g., Ford v. Int’l Harvester Co., 399 F.2d 749, 751 (9th Cir. 1968); Mack Trucks, Inc. v. Bendix-Westinghouse Auto. Air Brake Co., 372 F.2d 18, 20 (3d Cir. 1966); Flavorchem Corp. v. Mission Flavors & Fragrances, Inc., 939 F. Supp. 593, 598 (N.D. Ill. 1996); Architectronics, Inc. v. Control Sys., Inc., 935 F. Supp. 425, 431 (S.D.N.Y. 1996); Intermedics, Inc. v. Ventritex, Inc., 775 F. Supp. 1258, 1265 (N.D. Cal. 1991); Kistler Instrumente A. G. v. PCB Piezotronics, Inc., 419 F. Supp. 120, 122 (W.D.N.Y. 1976); Freeman v. Lawton, 353 Pa. 613, 616–17, 46 A.2d 205, 206–07 (1946); Rosenzweig v. Heller, 302 Pa. 279, 285–86, 153 A. 346, 348 (1931). One exception to the rule that states view the statute of limitations in trade secret actions as procedural is New Jersey. To determine what state’s statute of limitations applies, New Jersey uses the interest-based test normally reserved for determining which state’s substantive law will apply. See Computer Assocs. Int’l, Inc. v. Altai, Inc., 22 F.3d 32, 35 n.3 (2d Cir. 1994) (concluding that New Jersey would have applied the Texas statute of limitations).
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forum state.418 Even when exercising only supplemental jurisdiction, a federal court “applies the forum state’s choice-of-law rules and the state statute of limitations indicated thereby.”419 Because virtually all states treat statutes of limitations in general as procedural rather than substantive, the forum state’s statute of limitations is applied to trade secret misappropriation claims.420 Although the question whether the statute of limitations in trade secret actions is procedural appears settled, this line of authority should be critically examined. The usual rationale for treating statutes of limitations as procedural arises from the notion that they “pertain[] to the remedy rather than the right.”421 In that regard, they are distinguished from statutes of repose, which are usually considered substantive.422 Statutes of repose are typically found in the products liability and probate arenas, where they serve to cut off liability after a specified time period. Two hallmarks of a statute of repose are that they are triggered by the happening of an event—which need not be an act by the defendant—and they may bar a plaintiff’s claim before the plaintiff has incurred any damage. Under the UTSA, the statute of limitations is triggered by, among other things, the improper acquisition or disclosure of a trade secret. As with a statute of repose, the limitations period therefore may begin to run before the plaintiff has suffered damage.423 In Cadence Design Systems, Inc. v. Avant! Corp., the California Supreme Court explained: A misappropriation within the meaning of the UTSA occurs not only at the time of the initial acquisition of the trade secret by wrongful means, but also with each misuse or wrongful disclosure of the secret. But a claim for misappropriation of a trade secret arises for a given plaintiff against a given defendant only once, at the time of the initial misappropriation, subject to the discovery rule provided in [California Civil Code] section 3426.6. Each new misuse or
418 See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496–97, 61 S. Ct. 1020, 1021–22, 85 L. Ed. 1477, 1480–81 (1941); Architectronics, 935 F. Supp. at 430–31. 419 A.I. Trade Fin., Inc. v. Petra Int’l Banking Corp., 62 F.3d 1454, 1464 (D.C. Cir. 1995); see also Ideal Elec. Sec. Co. v. Int’l Fid. Ins. Co., 129 F.3d 143, 148 (D.C. Cir. 1997) (“When deciding state-law claims under diversity or supplemental jurisdiction, federal courts apply the choice-of-law rules of the jurisdiction in which they sit.”). 420 See, e.g., Flavorchem, 939 F. Supp. at 598 (applying Illinois statute of limitations to claim arising under California law); Architectronics, 935 F. Supp. at 430–33 (applying New York statute of limitations to claim arising under Minnesota law); Intermedics, 775 F. Supp. at 1265 (applying California statute of limitations to claim arising under Texas law). 421 Tanges v. Heidelberg N. Am., Inc., 93 N.Y.2d 48, 54–55, 687 N.Y.S.2d 604, 607, 710 N.E.2d 250, 253 (1999) (quoting Martin v. Julius Dierck Equip. Co., 43 N.Y.2d 583, 588, 374 N.E.2d 97, 99, 403 N.Y.S.2d 185, 187 (1978)). 422 See Barnett v. Johnson, 839 F. Supp. 236, 242 (S.D.N.Y. 1993). 423 In such instance, a trade secret misappropriation victim should seek injunctive relief rather than allow the statute of limitations to expire.
Procedural Considerations 137 wrongful disclosure is viewed as augmenting a single claim of continuing misappropriation rather than as giving rise to a separate claim. *** Cadence argues that a continuing misappropriation constitutes a single claim only for statute of limitations purposes. This argument cannot withstand scrutiny. . . . The term “claim” does not have some theoretical meaning apart from the context in which it is used. . . . Therefore, “claim” must be defined in the context of litigation. If “continuing misappropriation” is viewed as a single claim for statute of limitations purposes (citation omitted), then it is difficult to fathom how it could be treated as more than one claim for purposes of litigation generally.424
Although the court therefore did not address whether the UTSA statute of limitations is procedural or substantive, its analysis suggests that the statute of limitations affects not just the plaintiff’s remedy but also the plaintiff’s right and, thus, should be treated as substantive. b. Restatement (First) of Torts Under the Restatement, the statute of limitations is three years. However, states following the Restatement tend to employ the continuing tort theory under which each separate act may give rise to a new misappropriation claim.425 c. New Jersey New Jersey has abandoned the rule that the statute of limitations is a procedural matter to be determined by the law of the forum state. Instead, New Jersey applies the interest-based test normally reserved for determining which state’s substantive law will apply.426 d. New York New York’s three-year statute of limitations for property-injury claims applies to trade secret misappropriation.427 When a claim for trade secret
424 Cadence Design Sys., Inc. v. Avant! Corp., 29 Cal. 4th 215, 223, 127 Cal. Rptr. 2d 169, 174, 57 P.3d 647, 651 (2002) (emphasis supplied by court). 425 See, e.g., Epstein v. C.R. Bard, Inc., 460 F.3d 183, 188 (1st Cir. 2006); Kistler Instrumente A.G. v. PCB Piezotronics, Inc., 419 F. Supp. 120, 122 (W.D.N.Y. 1976). 426 See Computer Assocs. Int’l, Inc. v. Altai, Inc., 22 F.3d 32, 35 n.3 (2d Cir. 1994); Constr. Tech., Inc. v. Lockformer Co., 704 F. Supp. 1212 (S.D.N.Y. 1989). 427 See N.Y. C.P.L.R. 214(4) (2007); Architectronics, Inc. v. Control Sys., Inc., 935 F. Supp. 425, 432 (S.D.N.Y. 1996).
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misappropriation actually accrues, however, depends on whether the defendant discloses the information or keeps the information secret for its own commercial use: If a defendant misappropriates and discloses a trade secret, he becomes liable to the plaintiff upon the disclosure. On the other hand, if the defendant keeps the secret confidential yet makes use of it to his own commercial advantage, each successive use constitutes a new actionable tort for the purposes of the Statute of Limitations.428
If the defendant misappropriates and publicly discloses a trade secret, the statute of limitations will begin to run upon the disclosure.429 The mere fact, however, that a publicly available product incorporates or is otherwise based on trade secret information is alone insufficient to “disclose” the trade secret for statute of limitations purposes. If, for example, an inspection of product would not reveal the trade secrets that were used in making it or that are embodied in it, the plaintiff’s rights in the trade secret will not be extinguished.430 New York courts have not thus far recognized the discovery rule.431
K. Standing The UTSA does not address whether a trade secret plaintiff must be an owner of the trade secret. Roger Milgrim states in his treatise that: “[t]ypically, courts require that a plaintiff in a trade secret action show that it is the owner.”432 However, the few courts to address the issue recently have concluded otherwise. In DTM Research, L.L.C. v. AT&T Corp., the Fourth Circuit concluded that “fee simple ownership in its traditional sense is not an element” of a UTSA claim under Maryland law.433 In reaching that conclusion, the court noted that although trade secrets are property, the “‘proprietary aspect’ of a trade secret flows, not from the knowledge itself, but from its secrecy. It is the secret aspect of the knowledge that provides value to the person having the knowledge.”434 In DTM, the plaintiff was not a licensee. The defendant alleged that DTM’s trade secrets were based upon technology that DTM had
428 429 430 431 432 433 434
Architectronics, 935 F. Supp. at 433. See id.; Bausch & Lomb, Inc. v. Alcon Labs., Inc., 64 F. Supp. 2d 233, 247 (W.D.N.Y. 1999). See Architectronics, 935 F. Supp. at 433. See Bausch & Lomb, 64 F. Supp. 2d at 246. 1 Roger M. Milgrim, Milgrim on Trade secrets §1.01[2][a] at n.9 (2006). DTM Research, L.L.C. v. AT&T Corp., 245 F.3d 327, 333 (4th Cir. 2001). Id. at 332.
Standing
allegedly misappropriated from the United States. Nonetheless, it had a protectable interest in its trade secrets. More recently, the Northern District of California has followed two other courts in concluding that an exclusive licensee of a trade secret has standing to sue for misappropriation.435 In Memry Corp. v. Kentucky Oil Technology, N.V., the court noted that “nothing in the wording of the California UTSA suggests that [an] exclusive licensee cannot bring suit for misappropriation.”436 Accordingly, it appears likely that courts will today recognize the right of exclusive licensees to file suit to protect trade secrets. Further, under the logic of DTM, even a nonexclusive licensee might have standing provided that it can adequately demonstrate that it has an interest in protecting the confidentiality of information consistent with the purposes of the Act.
435 See Memry Corp. v. Ky. Oil Tech., N.V., No. C-04-03843 RMW, 2006 WL 3734384, at *7 (N.D. Cal. Dec. 18, 2006) (following Denison v. Westmore Dental Arts, P.C., No. 80-842, 212 U.S.P.Q. (BNA) 601, 605 (W.D. Pa. Jan. 15, 1981), and Bus. Trends Analysts v. Freedonia Group, Inc., 650 F. Supp. 1452, 1458 (S.D.N.Y. 1987). 436 Id. While Kansas was still operating under the common law of trade secret misappropriation, a court there recognized the right of an exclusive trade secret licensee to bring suit. Koch Eng’g Co. v. Faulconer, 227 Kan. 813, 610 P.2d 1094, 1096, 1105 (1980).
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CHAP T ER
3 Litigating Trade Secret Actions—Defendant’s Perspective
A. Defenses
143
1. Preemption
143
a. Preemption of State Law Claims by the UTSA
143
(i) Breach of Confidence
146
(ii) Breach of Fiduciary Duty/Duty of Loyalty
147
(iii) Common-Law Misappropriation
147
(iv) Conversion
148
(v) Fraudulent Misrepresentation
149
(vi) Tortious Interference
150
(vii) Unfair Competition/Unfair Trade Practices
151
(viii) Unjust Enrichment
153
b. Preemption of Misappropriation Claims by Contract
153
c. Preemption of Misappropriation and Other State Claims by the Copyright Act
154
(i) Preemption of Ancillary State Law Claims
156
(ii) Preemption of Trade Secret Misappropriation Claims
157
d. Preemption of Misappropriation Claims by Patent Applications
158
2. Statute of Limitations
160
3. Other Defenses
163
a. Reverse Engineering
165
b. Ready Ascertainability
168
c. Independent Development
170
d. Lack of Reasonable Efforts by Plaintiff to Maintain Secrecy
171
e. Public Knowledge of Plaintiff’s Information
174
f. Equitable Defenses
177
141
142 Chapter 3 Litigating Trade Secret Actions—Defendant’s Perspective g. Justification or Privilege
178
h. Anticompetitive Effects
179
B. Effect of Arbitration Provision
180
C. Challenges to the Plaintiff ’s Trade Secret Identification
185
D. Discovery Considerations
186
1. Potentially Patentable Trade Secrets
187
2. Trade Secrets Potentially Disclosed to the Government
188
3. Other Trade Secret Disclosures by the Plaintiff
189
4. Trade Secrets Incorporating Antecedent Works
189
5. Plaintiff’s Plan to Maintain Secrecy
190
6. Damages
191
7. Equitable Relief
191
8. Attorneys’ Fees
192
E. Finding Experts
192
Defending a trade secret lawsuit places a premium on strategic thinking and early planning. Important choices must be made at the outset: should one contest the identification of trade secrets by the plaintiff as imprecise, at the cost of possibly inducing the plaintiff to identify a stronger basis for the case? Does an early motion based on preemption successfully eliminate alternative claims or alert the plaintiff to the necessity of identifying and proving the extra elements that will allow it to survive preemption? Is a defendant better off in arbitration or in court? Given the frequency that preliminary injunctions are sought in trade secret cases, many defense choices will have to be made on the basis of limited information and extreme time pressure. This chapter seeks to identify the legal and factual building blocks for successfully defending against trade secret claims. The discussion begins with consideration of the rich tableau of preemption arguments: preemption of common law claims by the UTSA, preemption of trade secret misappropriation and other claims by the Copyright Act, and preemption of misappropriation claims by patent applications. The statute of limitations— from the defendant’s perspective—is discussed next. Trade secret cases also present a series of unique defenses: reverse engineering, independent development, ready ascertainability, failure to maintain secrecy, and failure to take reasonable measures to maintain secrecy are all important avenues of defense. The final sections of the chapter consider the challenges of the defense with respect to arbitration, remedies, discovery, and the selection of experts.
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A. Defenses 1. Preemption a. Preemption of State Law Claims by the UTSA It is not always easy for a plaintiff to prove a claim of trade secret misappropriation. After all, the plaintiff has to prove that the information misappropriated was secret, subject to reasonable efforts to protect its secrecy, and derived independent economic value from not being generally known to, and not being readily ascertainable by proper means by others.1 Because a plaintiff may have a difficult time satisfying the statutory burden to prove misappropriation, it will likely allege related torts in the hope that it will prevail on one or more even if it fails to meet the strict requirements for proving trade secret misappropriation. By the same logic, a defendant generally will want to knock out as many of the related claims as possible, thus forcing the plaintiff to try to prove all the elements of trade secret misappropriation. Section 7 of the UTSA governs preemption. Section 7(a) provides that, with certain exceptions, the UTSA “displaces conflicting tort, restitutionary, and other laws of this State providing civil remedies for misappropriation of a trade secret.” The exceptions are set forth in Section 7(b), which states that the UTSA does not affect: (1) contractual remedies, whether or not based upon misappropriation of a trade secret; (2) other civil remedies that are not based upon misappropriation of a trade secret; or (3) criminal remedies, whether or not based upon misappropriation of a trade secret.
The comment to Section 7 by the National Conference of Commissioners explains that the preemption provision “applies to a duty to protect competitively significant secret information that is imposed by law” but “does not apply to a duty voluntarily assumed through an express or an implied-in-fact contract.” For that reason, “[t]he enforceability of covenants not to disclose trade secrets and covenants not to compete that are intended to protect trade secrets” are “governed by other law.” The comment further provides that the UTSA does not apply to any duty imposed by law that is “not dependent upon the existence of competitively significant secret information,” such as an agent’s duty of loyalty to his or her principal.
1 UTSA § 1 (amended 1985).
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The UTSA preemption provision is subject to varying interpretations. As explained by the Wisconsin Court of Appeals, the majority rule is that the UTSA “preempts common law claims for unauthorized use of allegedly confidential information that does not meet the statutory definition of a trade secret.”2 The Court explained that “the purpose of the preemption provision is to preserve a single tort action under state law for misappropriation of a trade secret as defined in the statute and thus to eliminate other tort causes of action founded on allegations of misappropriation of information that may not meet the statutory standard for a trade secret.”3 The Court further expressed concern that “[i]f a common law claim for unauthorized use of information that did not meet the statutory definition of a trade secret were permitted, the result ‘would undermine the uniformity and clarity that motivated the creation and passage of the [UTSA].’”4 On appeal, the Wisconsin Supreme Court reversed that seemingly well reasoned decision.5 It surveyed a large number of preemption cases from other states and derived the following principles: (1) when the claims are based only on the misuse of confidential information that fits the statutory definition of a trade secret, a claim under the UTSA is the only tort claim available; (2) when the claims are based on the misuse of confidential information that does not meet the statutory definition of a trade secret, the UTSA does not abrogate those claims; and (3) when the claims are based on misuse of confidential information, some of which meet the statutory definition of a trade secret and some of which do not, the UTSA abrogates claims only to the extent that they are based on a trade secret; separate claims based on other factual allegations survive.6
Ultimately, the Wisconsin Supreme Court interpreted the UTSA, as enacted in Wisconsin, as “replac[ing] all pre-existing definitions of ‘trade secret’ and remedies for tort claims dependent solely on the existence of a specific class of information statutorily defined as ‘trade secrets,’” and leaving available “all other types of civil actions that do not depend on information
2 Burbank Grease Servs., L.L.C. v. Sokolowski, 2005 WI App 28, ¶ 29, 278 Wis. 2d 698, 717, 693 N.W.2d 89, 98 (2005), aff ’d in part and rev’d in part, 2006 WI 103, 294 Wis. 2d 274, 717 N.W.2d 781 (2006). 3 Id. (citing Leucadia, Inc. v. Applied Extrusion Techs., Inc., 755 F. Supp. 635, 637 (D. Del. 1991)). 4 Id. at ¶ 30, 278 Wis. 2d at 718, 693 N.W.2d at 99 (citing Auto Channel, Inc. v. Speedvision Network, L.L.C., 144 F. Supp. 2d 784, 789 (W.D. Ky. 2001)). 5 Burbank, 294 Wis. 2d 274, 717 N.W.2d 781. 6 Id. at 294 Wis. 2d at 295–96, 717 N.W.2d at 792–93 (emphasis in original) (citations omitted). Other courts that have canvassed the preemption field include Chatterbox, L.L.C. v. Pulsar Ecoprods., L.L.C., No. CV 06-512-S-LMB, 2007 WL 1388183 (D. Idaho May 9, 2007); and Hauck Mfg. Co. v. Astec Indus., Inc., 375 F. Supp. 2d 649 (E.D. Tenn. 2004).
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that meets the statutory definition of a ‘trade secret.’” The Court concluded, therefore, that “any civil tort claim not grounded in a trade secret, as defined in the statute, remains available.”7 Under this approach, preemption may be found even if a UTSA claim is not specifically pleaded. For example, in C&F Packing Co. v. IBP, Inc., a fraud claim that appeared indistinguishable from a trade secret misappropriation claim was held preempted under the Kansas UTSA.8 In this vein, Tennessee has adopted a “same proof” preemption standard, providing that “a claim will be preempted when it necessarily rises or falls based on whether the defendant is found to have ‘misappropriated’ a ‘trade secret’ as those two terms are defined in the UTSA.”9 A small minority of courts apply a “nucleus of facts” test and will find other claims preempted by the UTSA if those claims are largely, although not necessarily entirely, based on allegations of trade secret misappropriation.10 In B & M National Automation, L.L.C. v. AMX Corp., the Southern District of Florida held that a claim under the Florida UTSA was preempted because it was “partially based on the allegation that the Defendants ‘represent[ed] that they would not use or disclose AMX Trade Secrets.’”11
7 Burbank, 294 Wis. 2d at 298, 717 N.W.2d at 793–94 (emphasis in original). The notion that preemption is available only if the information at issue is not a trade secret has been sharply criticized. One commentator has noted that: “[i]t is not clear . . . whether and to what extent an alternative claim based on the same information would proceed through trial in a manner different from the UTSA claim. A common law claim premised on information that fails to qualify as a trade secret would seemingly undercut the statute’s primary goal of uniformity, potentially render parties liable for using information that is not secret when the UTSA would not impose liability, and potentially pose Supremacy Clause problems. Likewise, it is not clear if such alternative claims would permit different results on matters such as the statute of limitations, punitive damages, attorneys’ fees, and the like.” James Pooley, Trade Secrets § 2.03[6], at 2–30 (Supp. 2008). 8 C&F Packing Co. v. IBP, Inc., 224 F.3d 1296, 1307 (Fed. Cir. 2000). 9 Hauck Mfg. Co. v. Astec Indus. Inc., 375 F. Supp. 2d 649, 658 (E.D. Tenn. 2004). 10 See, e.g., Monolithic Power Sys., Inc. v. 02 Micro Int’l Ltd., No. C 04-2000 CW, 6 06-2929 CW, 2007 WL 801886, at *6 (N.D. Cal. Mar. 14, 2007); Chatterbox, L.L.C. v. Pulsar Ecoprods., L.L.C., No. CV 06-512-S-LMB, 2007 WL 1388183, at *4 (D. Idaho May 9, 2007) (“Plaintiff ’s claims for unjust enrichment and unfair competition are based on the same nucleus of facts as its trade secrets claim and, therefore, they should be dismissed as preempted by the Idaho Trade Secrets Act.”); Digital Envoy, Inc. v. Google, Inc., 370 F. Supp. 2d 1025, 1035 (N.D. Cal. 2005) (unfair competition claim based on same nucleus of facts as trade secret claim held preempted under California UTSA); Callaway Golf Co. v. Dunlop Slazenger Group Ams., Inc., 318 F. Supp. 2d 216, 219 (D. Del. 2004) (applying California law); Samsung Elecs. Am., Inc. v. Bilbruck, No. 06 CC 08239, 2006 WL 3012875, at *1 (Cal. Super. Ct. Oct. 19, 2006) (same); see also Weins v. Sporleder, 605 N.W.2d 488, 491–92 (S.D. 2000) (“[T]he court is to look beyond the label to the facts being asserted in support of the claims. A plaintiff ‘may not rely on acts that constitute trade secret misappropriation to support other causes of action.’”) (citation omitted) (quoting Ed Nowogroski Ins., Inc. v. Rucker, 944 P.2d 1093, 1097 (Wash. Ct. App. 1997), aff ’d, 971 P.2d 936 (1999)). 11 B&M Nat’l Automation, L.L.C. v. AMX Corp., No. 06-20412 CIV, 2007 WL 809675, at *3 (S.D. Fla. Mar. 15, 2007).
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Still other courts have concluded that the preemption provision of the UTSA is intended to encompass all claims based upon confidential business information, even when a claim does not allege or depend on a determination that the confidential information meets the statutory definition of a trade secret. There are, however, relatively few decisions espousing that view.12 A Pennsylvania court offered a rejoinder to those cases, explaining that “if the Court were to dismiss plaintiff’s conversion claim and later make the finding that, although plaintiff had proved that defendants took its pricing structure and business proposals, such information was not a protected trade secret under the [Pennsylvania UTSA], the Court would be in the difficult position of telling the plaintiff that it had no remedy.”13 Thus, some courts refuse to dismiss allegedly preempted claims until they decide whether the alleged trade secrets actually constitute trade secrets.14 This approach, however, will not save state law claims that are necessarily predicated on the existence of a trade secret. In MicroStrategy, Inc v. Business Objects, S.A., the Court of Appeals for the Federal Circuit, applying Virginia law, held that a conspiracy claim based on the misappropriation of trade secrets was preempted without the need to determine whether the facts showed that a misappropriation had actually occurred. (i) Breach of Confidence In Lucini Italia Co. v. Grappolini, the Northern District of Illinois concluded that claims for misappropriation of confidential information are
12 See, e.g., Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1265 (7th Cir. 1992) (“Illinois has abolished all common law theories of misuse of [secret] information. Unless defendants misappropriated a (statutory) trade secret, they did no legal wrong.”) (citation omitted); Goldthread v. Davison, No. 3:06-0805, 2007 WL 2471803, at *7 (M.D. Tenn. Aug. 29, 2007) (because Tennessee UTSA “‘preempts all general tort claims for theft of secret information’” and the plaintiff failed to state a claim upon which relief could be granted under the Tennessee UTSA, the plaintiff ’s common-law causes of action were held preempted by the UTSA and dismissed) (quoting Hauck Mfg. Co. v. Astec Indus. Inc., 375 F. Supp. 2d 649, 661 (E.D. Tenn. 2004)); Chatterbox L.L.C. v. Pulsar Ecoprods., L.L.C., No. CV 06-512-S-LMB, 2007 WL 1388183, at *3 (D. Idaho May 9, 2007) (following the “majority view” in holding that the Idaho UTSA “‘preempts claims that are based upon the unauthorized use of information, regardless of whether that information meets the statutory definition of a trade secret’”) (quoting Mortgage Specialists, Inc. v. Davey, 904 A.2d 652, 664 (N.H. 2006)); Ethypharm S.A. France v. Bentley Pharms., Inc., 388 F. Supp. 2d 426, 433 (D. Del. 2005); Bliss Clearing Niagara, Inc. v. Midwest Brake Bond Co., 270 F. Supp. 2d 943, 948–49 (W.D. Mich. 2003); Learning Curve Toys, L.P. v. Playwood Toys, Inc., No. 94 C 6884, 1999 WL 529572, at *3 (N.D. Ill. July 20, 1999) (“[T]he [preemption] provision eliminated common law claims based on conduct [that] might support an [Illinois UTSA] action. In other words, if the operative facts are arguably cognizable under the [Illinois UTSA], any common law claim that might have been available on those facts in the past now no longer exists in Illinois.”). 13 Cenveo Corp. v. Slater, No. Civ. A 06-CV-2632, 2007 WL 527720, at *3 (E.D. Pa. Feb. 12, 2007). 14 See Stone Castle Fin., Inc. v. Friedman, Billings, Ramsey & Co., 191 F. Supp. 2d 652, 657–59 (E.D. Va. 2002).
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preempted by the Illinois UTSA.15 The Eleventh Circuit reached a similar result in Penalty Kick Management Ltd. v. Coca-Cola Co., applying Georgia law.16 However, in Editions Play Bac, S.A. v. Western Publishing Co., a New York court reached the opposite conclusion while applying Wisconsin law.17 Similarly, the Washington Supreme Court has concluded that the UTSA does not displace breach of confidence claims.18 (ii) Breach of Fiduciary Duty/Duty of Loyalty The preemption provisions of the Illinois UTSA were applied to bar a breach of fiduciary duty claim based on the theft of confidential information in Composite Marine Propellers, Inc. v. Van Der Woude19 and Omnitech International, Inc. v. Clorox.20 In contrast, the Wisconsin UTSA was held not to preempt a claim for breach of the duty of loyalty,21 and the Louisiana UTSA was held not to preempt a breach of fiduciary duty claim based on the theft of confidential information.22 (iii) Common-Law Misappropriation A variety of courts have held common-law actions for the misappropriation of trade secret information preempted by the UTSA.23 In Cadence Design
15 Lucini Italia Co. v. Grappolini, 231 F. Supp. 2d 764, 772 (N.D. Ill. 2002). 16 Penalty Kick Mgmt. Ltd. v. Coca-Cola Co., 318 F.3d 1284, 1298 (11th Cir. 2003) (applying Georgia law); see also ABC Coating Co. v. J. Harris & Sons Ltd., 747 P.2d 266, 269 (Okla. 1986) (claim barred absent trade secret misappropriation or fraud); First Advantage Background Servs. Corp. v. Private Eyes, Inc., No. C-07-2424 SC, 2008 U.S. Dist. LEXIS 28974 (N.D. Cal. Mar. 5, 2008). 17 Editions Play Bac, S.A. v. W. Publ’g Co., No. 92 Civ. 3652 (JSM), 1993 WL 541219, at *9 (S.D.N.Y. Dec. 28, 1993). 18 Boeing Co. v. Sierracin Corp., 108 Wash. 2d 38, 47–48, 738 P.2d 665, 673 (1987). 19 Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1265 (7th Cir. 1992); Lucini Italia Co. v. Grappolini, No. 01 C 6405, 2003 WL 1989605, at *22 (N.D. Ill. Apr. 28, 2003) (claims for breach of fiduciary duty, fraud, and promissory estoppel were based on the alleged misuse of trade secrets and, therefore, were preempted); Thomas & Betts Corp. v. Panduit Corp., 108 F. Supp. 2d 968, 972–73 (N.D. Ill. 2000). 20 Omnitech Int’l, Inc. v. Clorox Co., 11 F.3d 1316, 1330 (5th Cir. 1994) (holding that a breach of fiduciary duty claim based on trade secret information was preempted by the Louisiana UTSA); see also Thola v. Henschell, 164 P.3d 524 (Wash. Ct. App. 2007) (Washington law). 21 Genzyme Corp. v. Bishop, 460 F. Supp. 2d 939, 951–52 (W.D. Wis. 2006). 22 Defcon, Inc. v. Webb, 687 So. 2d 639, 643 (La. Ct. App. 1997); see also Stone Castle Fin., Inc. v. Friedman, Billings, Ramsey & Co., 191 F. Supp. 2d 652, 657–59 (E.D. Va. 2002) (no preemption until court could determine whether the alleged trade secrets were, in fact, trade secrets); see also Illumination Station, Inc. v. Cook, No. CIV. 07-3007, 2007 WL 1624458, at *4 (W.D. Ark. June 4, 2007) (stating in dictum that “any disloyalty that took the form of misappropriation of trade secrets would be preempted” by the Arkansas UTSA); AutoMed Techs., Inc. v. Eller, 160 F. Supp. 2d 915, 921–22 (N.D. Ill. 2001). 23 See, e.g., Nora Beverages, Inc. v. Perrier Group of Am., Inc., 164 F.3d 736, 751 (2d Cir. 1998) (applying Wisconsin law); Goldthread v. Davison, No. 3:06-0805, 2007 WL 2471803, at *6
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Systems, Inc. v. Avant! Corp., the California Supreme Court noted that any misappropriation claim arising after the effective date of the California UTSA had to be brought as a UTSA claim.24 However, in Bagley v. Lumbermens Mutual Casualty Co., the Northern District of Illinois held that a commonlaw misappropriation claim was not barred under Illinois law because the plaintiff did not claim that his misappropriated business plan constituted a trade secret.25 In Confold Pacific, Inc., v. Polaris Industries, Inc.,26 Judge Posner suggested that to the extent the misappropriation of information theory recognized in International News Service v. Associated Press27 has validity, the claim probably is not preempted by the UTSA. (iv) Conversion The courts are divided concerning whether conversion claims are preempted. In R.K. Enterprise, L.L.C. v. Pro-Comp Management, Inc., the Arkansas Supreme Court held that conversion and conspiracy claims stemming from the same acts found to constitute misappropriations of trade secrets were preempted.28 In Illumination Station, Inc. v. Cook, an Arkansas federal court held that a conversion claim was preempted because “the gravamen of their conversion would be the conversion of the information they contain, and that is covered by the [Arkansas UTSA].”29 In Callaway Golf Co.
24
25 26 27 28 29
(M.D. Tenn. Aug. 29, 2007) (the Tennessee UTSA “has been held to preempt common-law claims for misappropriation of trade secrets”); Digital Envoy, Inc. v. Google, Inc., 370 F. Supp. 2d 1025, 1035 (N.D. Cal. 2005) (all common-law claims based on trade secret misappropriation held preempted in California); Ernest Paper Prods., Inc. v. Mobil Chem. Co., No. CV957918 LGB(AJWX), 1997 WL 33483520, at *8 (C.D. Cal. Dec. 2, 1997); Defcon, Inc. v. Webb, 687 So. 2d 639, 642 (La. Ct. App. 1997); Am. Hoechst Corp. v. Nuodex, Inc., 1985 WL 11563 (Del. Ch. 1985) (applying Delaware law). Cadence Design Sys., Inc. v. Avant! Corp., 29 Cal. 4th 215, 224, 127 Cal. Rptr. 2d 169, 175, 57 P.3d 647, 652 (Cal. 2002); see also Trinity Hospice, Inc. v. Miles, No. 406 CV 1674 CDP, 2007 WL 844817, at *3 (E.D. Mo. Mar. 16, 2007) (Missouri UTSA preempts “‘conflicting . . . laws . . . providing civil remedies for misappropriation of trade secrets and civil remedies based upon the misappropriation of a trade secret’”) (quoting Mo. Ann. Stat. § 417.463(1) (2007)); Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F. Supp. 2d 941, 954 (N.D. Cal. 2003) (“Certainly the strong suggestion here is that a common law claim does not survive after [enactment of the California UTSA].”). Bagley v. Lumbermens Mut. Cas. Co., 100 F. Supp. 2d 879, 883 (N.D. Ill. 2000). Confold Pac. Inc. v. Polaris Indus., Inc., 433 F.3d 952, 960 (7th Cir. 2006) (“The broader, INStype claim probably is not preempted”). Int’l News Serv. v. Associated Press, 248 U.S. 215, 39 S. Ct. 68, 63 L. Ed. 211 (1918). See discussion supra at Chapter 2(C)(1)(g). R.K. Enter., L.L.C. v. Pro-Comp Mgmt., Inc., 356 Ark. 565, 574, 158 S.W.3d 685, 690 (2004). Illumination Station, Inc. v. Cook, No. Civ. 07-3007, 2007 WL 1624458, at *3 (W.D. Ark. June 4, 2007); see also Diamond Power Int’l, Inc. v. Davidson, Nos. 1:04-CV-0091-RWSCCH, 1:04-CV-1708-RWS-CCH, 2007 WL 2904119, at *17 (N.D. Ga. Oct. 1, 2007) (holding conversion and unjust enrichment claims barred under Georgia law because they sought
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v. Dunlop Slazenger Group Americas, Inc., a Delaware federal court held that a conversion claim was preempted.30 In Samsung Electronics America, Inc. v. Bilbruck, a California state court held that if the nucleus of facts upon which other causes of action are based is trade secret misappropriation, the claim is preempted.31 On the other hand, an Illinois federal court held that a conversion claim was not preempted to the extent the materials allegedly converted did not constitute a trade secret.32 A conversion claim was also held not preempted in Terarecon, Inc. v. Fovia, Inc. because the trade secret misappropriation claim was not incorporated by reference.33 A conversion claim was also held not preempted by a Nevada court in Custom Teleconnect, Inc. v. International TeleServices, Inc.34 and by a Minnesota court in Micro Display Systems, Inc. v. Axtel, Inc.35 In Ohio, trade secret conversion claims are statutorily recognized.36 (v) Fraudulent Misrepresentation A fraud claim that relies on a misappropriation of trade secrets is likely to be held preempted. In Thomas & Betts Corp. v. Panduit Corp., the court granted summary judgment to the defendant on a fraud claim that simply restated the claim for misappropriation of trade secrets.37 Likewise, in MG Capital v. Sullivan, the court struck the portion of a fraud claim that relied on the misappropriation of trade secrets but allowed any portion of the claim
30
31 32 33
34 35 36 37
recovery “for precisely the same conduct and resulting injury as [plaintiff ] alleged was caused by the misappropriation of its trade secrets: the taking of supposedly proprietary information”); Atco Mfg. Co. v. Share Corp., No. 3:07-CV-028, 2007 WL 1521008, at *3 (E.D. Tenn. May 22, 2007). Callaway Golf Co. v. Dunlop Slazenger Group Ams., Inc., 318 F. Supp. 2d 216, 219 (D. Del. 2004) (applying California law). Conversion claims were also held preempted in Penalty Kick Mgmt. Ltd. v. Coca-Cola Co., 318 F.3d 1284, 1298 (11th Cir. 2003) (applying Georgia law); R.K. Enter., L.L.C. v. Pro-Comp Mgmt., Inc., 356 Ark. 565, 574, 158 S.W.3d 685, 690 (2004); Tronitec, Inc. v. Shealy, 547 S.E.2d 749 (Ga. App. 2001), overruled on other grounds by Williams Gen. Corp. v. Stone, 279 Ga. 428, 431, 614 S.E.2d 758, 761 (2005); Atco Mfg. Co. v. Share Corp., No. 3:07-CV-028, 2007 WL 1521008, at *3 (E.D. Tenn. May 22, 2007); Opteum Fin. Servs., L. L.C. v. Spain, 406 F. Supp. 2d 1378, 1381 (N.D. Ga. 2005); and Veritas Operating Corp. v. Microsoft Corp., No. C06-0703C, 2006 U.S. Dist. LEXIS 79451, at *4–5 (W.D. Wash. Oct. 31, 2006). Samsung Elecs. Am., Inc. v. Bilbruck, No. 06 CC 08239, 2006 WL 3012875, at *1 (Cal. Super. Ct. Oct. 19, 2006). Combined Metals of Chicago Ltd. P’ship v. Airtek, Inc., 985 F. Supp. 827, 830 (N.D. Ill. 1997). Terarecon, Inc. v. Fovia, Inc., No. C 05-4407 CW, 2006 WL 1867734 (N.D. Cal. July 6, 2006) (allowing claim for conversion of a computer code); see also ITT Schadow, Inc. v. Stein, 36 Pat. Trademark & Copyright J. (BNA) 29 (D. Minn. May 12, 1988) (dismissing conversion claim against former employee in trade secret misappropriation action). Custom Teleconnect, Inc. v. Int’l Tele-Servs., Inc., 254 F. Supp. 2d 1173, 1182–83 (D. Nev. 2003). Micro Display Sys., Inc. v. Axtel, Inc., 699 F. Supp. 202, 205 (D. Minn. 1988). Ohio Rev. Code § 1333.51 (1967). They are also statutorily recognized in Massachusetts, a non-UTSA state. See Mass. Ann. Laws ch. 93, § 42A (1975). Thomas & Betts Corp. v. Panduit Corp., 108 F. Supp. 2d 968, 974 (N.D. Ill. 2000).
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independent of trade secret misappropriation to proceed.38 In Goldthread v. Davison, the court explained that the Tennessee UTSA preempted the plaintiff’s misappropriation claim because it “‘preempts all general tort claims for theft of secret information.’”39 In New Lenox Industries, Inc., v. Fenton,40 a federal court applying Florida law found that a fraudulent inducement claim was not preempted because of material differences with the Florida UTSA claim. An Idaho court adopted a different approach by allowing a fraud claim to proceed in its entirety even though the claim was clearly based in part on the alleged theft of trade secret information. In Chatterbox, L.L.C. v. Pulsar Ecoproducts, L.L.C., the court explained: Although the fraud claim includes the allegation that the information revealed was a trade secret and/or amounted to confidential information, it includes other allegations that Pulsar represented it would keep confidential all information sent to it by Plaintiff in the course of their relationship (regardless of its status as a trade secret). It is this alleged representation of confidentiality, and not the nature of the confidential information, that is critical to Plaintiff ’s fraud claim. For this reason, and because the comment notes to the UTSA suggest that claims such as this fraud claim may be brought along with a trade secrets claim, Defendant Pulsar’s Motion to Dismiss the fraud claim should be denied.41
Similarly, in Hecny Transportation, Inc. v. Chu, 42 the Seventh Circuit held that “[a]n assertion of trade secret in a customer list does not wipe out claims of theft, fraud, and breach of the duty of loyalty that would be sound even if the customer list were a public record.” Judge Easterbrook’s opinion noted it “is unimaginable that someone who steals property, business opportunities, and the labor of the firm’s staff would get a free pass just because none of what he filched is a trade secret.”43
38 MG Capital, L.L.C. v. Sullivan, No. 01 C 5815, 2001 WL 1609382, at *4 (N.D. Ill. Dec. 17, 2001); see also Micro Display Sys., Inc. v. Axtel, Inc., 699 F. Supp. 202, 205 (D. Minn. 1988) (allowing claimant to go forward to the extent it had “more” to its factual allegations than the near misuse or misappropriation of trade secrets). 39 Goldthread v. Davison, No. 3:06-0805, 2007 WL 2471803, at *7 (M.D. Tenn. Aug. 29, 2007) (citing Hauck Mfg. Co. v. Astec Indus., Inc., 375 F. Supp. 2d 649, 661 (E.D. Tenn. 2004)). 40 New Lenox Indus., Inc., v. Fenton, No. 5:06 CV 184 OC 10GRJ, 2007 WL 1303035, at *10–11 (M.D. Fla. May 3, 2007). 41 Chatterbox, L.L.C. v. Pulsar Ecoprods., L.L.C., No. CV 06-512-S-LMB, 2007 WL 1388183, at *4 (D. Idaho May 9, 2007) (citations omitted.). 42 Hecny Transp., Inc. v. Chu, 430 F.3d 402, 404–05 (7th Cir. 2005). 43 Id. at 404.
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(vi) Tortious Interference Whether claims for negligent or intentional interference with prospective advantage or contractual relations will be held preempted usually turns, as elsewhere, on whether the claim is based on a theft of trade secret information. Thus, in Labor Ready, Inc. v. Williams Staffing, L.L.C., the court dismissed a claim for tortious interference with contractual relations “to the extent plaintiff relies on use of trade secret information.”44 In addition, a Georgia court concluded that because the “full extent” of the plaintiff’s tortious interference claim was clearly “based” upon a trade secret, it was superseded by the Georgia UTSA.45 In Greif, Inc. v. MacDonald, a Kentucky court held that a claim for tortious interference with contract was preempted because the claim was based upon the misappropriation of trade secrets.46 On the other hand, when a tortious interference with prospective economic advantage claim was based on the failure to keep confidential information that clearly did not qualify as a trade secret, the claim was held not preempted.47 An Arkansas federal court held that a claim of interference was broad enough to encompass acts that did not arise out of the misappropriation of trade secrets and, therefore, was not subject to preemption.48 An Oregon federal court, finding no preemption, explained that “there are numerous ways in which a defendant may interfere with contracts between a plaintiff and its customers for improper purposes or improper means that do not rely on that defendant misappropriating trade secrets.”49 A minority of courts take the
44 Labor Ready, Inc. v. Williams Staffing, L.L.C., 149 F. Supp. 2d 398, 410 (N.D. Ill. 2001). 45 Diamond Power Int’l, Inc. v. Davidson, Nos. 1:04-CV-0091-RWS-CCH, 1:04-CV-1708-RWSCCH, 2007 WL 2904119, at *19 (N.D. Ga. Oct. 1, 2007). 46 Greif, Inc. v. MacDonald, No. CIV A 3:06CV-312-H, 2007 WL 679040, at *1 (W.D. Ky. Mar. 1, 2007) (explaining that the Kentucky UTSA “does not preempt all causes of action that have to do with trade secrets, and if misappropriation is simply one element of a claim, such causes of action are not necessarily preempted”) (citing Auto Channel, Inc. v. Speedvision Network, L.L.C., 144 F. Supp. 2d 784, 789 (W.D. Ky. 2001)); see also Airdefense, Inc. v. Airtight Networks, Inc., No. C 05-04615JF, 2006 U.S. Dist. LEXIS 55364, at *11 (N.D. Cal. July 26, 2006) (noting that although no California court has determined which claims are preempted by the UTSA, “multiple federal courts have determined that claims based on the same factual allegations as the claim for misappropriation of trade secrets are preempted”). 47 Custom Teleconnect, Inc. v. Int’l Tele-Servs., Inc., 254 F. Supp. 2d 1173, 1182–83 (D. Nev. 2003); see also Smithfield Ham & Prods. Co. v. Portion Pac, Inc., 905 F. Supp. 346, 348–49 (E.D. Va. 1995); Micro Display Sys., Inc. v. Axtel, Inc., 699 F. Supp. 202, 205 (D. Minn. 1988). 48 Illumination Station, Inc. v. Cook, No. CIV 07-3007, 2007 WL 1624458, at *4 (W.D. Ark., June 4, 2007); see also Eldorado Stone, L.L.C. v. Renaissance Stone, Inc., No. 04CV2562 JM(CAB), 2007 WL 2403572, at *5 (S.D. Cal. Aug. 20, 2007) (holding an intentional interference with prospective economic advantage claim not preempted by the California UTSA because there was “sufficient evidence of independent wrongs”). 49 Precision Automation, Inc. v. Technical Servs., Inc., No. 07-CV-707-AS, 2007 U.S. Dist. LEXIS 94555, at *6 (D. Or. Dec. 14, 2007).
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more extreme view that tortious interference claims are never preempted by the UTSA because they do not “conflict” with it.50 (vii) Unfair Competition/Unfair Trade Practices Numerous courts have held that unfair competition claims can be preempted by the UTSA.51 However, unfair competition claims have been held not preempted when they were not based on the misappropriation of trade secrets. In Custom Teleconnect, Inc. v. International Tele-Services, Inc., the Nevada UTSA was held not to preempt a claim for the misappropriation of confidential information subject to a nondisclosure agreement because the information was not a trade secret and would have been ascertainable by a competitor with reasonable diligence.52 In Micro Display Systems, Inc. v. Axtel, Inc., a Minnesota federal court explained that “[t]o the extent a cause of action exists in the commercial area not dependent on trade secrets, that cause continues to exist.”53 A Kentucky court
50 See, e.g., IDX Sys. Corp. v. Epic Sys. Corp., 285 F.3d 581, 586–87 (7th Cir. 2002) (applying Wisconsin law). 51 See, e.g., Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1265 (7th Cir. 1992) (applying Illinois law); Pepsico, Inc. v. Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995) (Illinois UTSA “mostly codifies rather than modifies” the Illinois common law of unfair trade practices); First Advantage Background Servs. Corp. v. Private Eyes, Inc., No. C-07-2424 SC, 2007 WL 2572191, at *5 (N.D. Cal. Sept. 5, 2007) (“The [California UTSA] preempts claims for unfair competition under the [Unfair Competition Law].”); Monolithic Power Sys., Inc. v. O2 Micro Int’l Ltd., No. C 04-2000 CW, C 06-2929 CW, 2007 WL 801886, at *6 (N.D. Cal. Mar. 14, 2007) (“The allegations that form the predicate acts for [the] unfair competition claim are based on the same nucleus of facts as the allegations in [the plaintiff ’s] pleading asserting a claim of trade secret misappropriation against O2 Micro.”); UD Tech. Corp. v. Phenomenex, Inc., No. CA 05-842-GMS, 2007 WL 28295, at *8 (D. Del. Jan. 4, 2007) (“Since no additional facts, independent of those alleged in support of its trade secret misappropriation claim, have been averred to support these claims, [the plaintiff ’s] deceptive trade practice and unjust enrichment claims are therefore dismissed, as preempted.”); Chatterbox, L.L.C. v. Pulsar Ecoprods., L.L.C., No. CV 06-512-S-LMB, 2007 WL 1388183, at *4 (D. Idaho May 9, 2007) (“Plaintiff ’s claims for unjust enrichment and unfair competition are based on the same nucleus of facts as its trade secrets claim and, therefore, these should be dismissed as preempted by the Idaho Trade Secrets Act.”); Digital Envoy, Inc. v. Google, Inc., 370 F. Supp. 2d 1025, 1035 (N.D. Cal. 2005) (unfair competition claim based on same nucleus of facts as trade secret claim held preempted under California UTSA); Allegiance Healthcare Corp. v. Coleman, 232 F. Supp. 2d 1329, 1335–36 (S.D. Fla. 2002) (Florida law); C&F Packing Co. v. IBP, Inc., 224 F.3d 1296, 1307 (Fed. Cir. 2000) (Kansas UTSA preempted fraud claim based in part on acts of unfair competition indistinguishable from trade secret misappropriation); Hutchison v. KFC Corp., 809 F. Supp. 68, 71–72 (D. Nev. 1992) (unfair competition claim was preempted because it was based solely on alleged trade secret theft); Savor, Inc. v. FMR Corp, 812 A.2d 894, 898 (Del. 2002) (holding that the Delaware UTSA preempted common-law unfair competition and conspiracy claims). 52 Custom Teleconnect, Inc. v. Int’l Tele-Servs., Inc., 254 F. Supp. 2d 1173, 1182–83 (D. Nev. 2003). 53 Micro Display Sys., Inc. v. Axtel, Inc., 699 F. Supp. 202, 205 (D. Minn. 1988).
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explained that to the extent an unfair competition claim was “not based upon the alleged misappropriation of a trade secret, and to the extent that [the] claim [was] supported by more than labels, conclusions, and a formulaic recitation of the elements of a cause of action,” the defendants’ motion to dismiss would be denied.54 In one case, however, a Kansas court allowed an unfair competition claim to proceed even though it was based on the alleged misuse of trade secrets.55 (viii) Unjust Enrichment Unjust enrichment claims based only on the use of trade secret or confidential information are routinely held preempted.56 However, in Micro Display Systems, Inc. v. Axtel, Inc., a Minnesota court held that to the extent there was “more” to the plaintiff’s factual allegations “than the mere misuse or misappropriation of trade secrets,” a claim for unjust enrichment was not preempted.57 A Nevada court held that an unjust enrichment claim based on the misappropriation of information that was alleged to be confidential but not trade secret would be allowed to proceed in Custom Teleconnect, Inc. v. International Tele-Services, Inc.58 And an Arkansas court allowed an unjust enrichment claim that did not “necessarily stem from the acts alleged to constitute misappropriation of trade secrets” to proceed.59
54 KCH Servs., Inc. v. Vanaire, Inc., No. CIV A 05-777-C, 2007 WL 2571671, at *7 (W.D. Ky. Aug. 31, 2007) (explaining that the Kentucky UTSA “does not necessarily preempt all causes of action that relate to trade secrets; . . . if the misappropriation of trade secrets forms only one element of a claim, then [the Kentucky UTSA] may not preempt such a claim”). 55 Airport Sys. Int’l, Inc. v. AIRSYS ATM, Inc., 144 F. Supp. 2d 1268, 1270 (D. Kan. 2001). 56 See Penalty Kick Mgmt. Ltd. v. Coca-Cola Co., 318 F.3d 1284, 1298 (11th Cir. 2003) (applying Georgia law); UD Tech. Corp. v. Phenomenex, Inc., No. C.A. 05-842-GMS, 2007 WL 28295, at *8 (D. Del. Jan. 4, 2007); Diamond Power Int’l, Inc. v. Davidson, Nos. 1:04-CV-0091-RWSCCH, 1:04-CV-1708-RWS-CCH, 2007 WL 2904119, at *19 (N.D. Ga. Oct. 1, 2007); Chatterbox, L.L.C. v. Pulsar Ecoprods., L.L.C., No. CV 06-512-S-LMB, 2007 WL 1388183, at *4 (D. Idaho May 9, 2007); Goldthread v. Davison, No. 3:06-0805, 2007 WL 2471803, at *7 (M.D. Tenn, Aug. 29, 2007); Atco Mfg. Co. v. Share Corp., No. 3:07-CV-028, 2007 WL 1521008, at *3 (E.D. Tenn. May 22, 2007); Health Alliance Network, Inc. v. Cont’l Cas. Co., 354 F. Supp. 2d 411, 423 (S.D.N.Y. 2005) (applying Illinois law); Callaway Golf Co. v. Dunlop Slazenger Group Ams., Inc., 318 F. Supp. 2d 216, 219–20 (D. Del. 2004) (applying California law); On-Line Techs. v. Perkin Elmer Corp., 141 F. Supp. 2d 246, 260–61 (D. Conn. 2001); Web Commc’ns Group, Inc. v. Gateway 2000, Inc., 889 F. Supp. 316, 321–22 (N.D. Ill. 1995); Hutchison v. KFC Corp., 809 F. Supp. 68, 71–72 (D. Nev. 1992). 57 Micro Display Sys., Inc. v. Axtel, Inc., 699 F. Supp. 202, 205 (D. Minn. 1988). 58 Custom Teleconnect, Inc. v. Int’l Tele-Servs., Inc., 254 F. Supp. 2d 1173, 1182–83 (D. Nev. 2003). 59 Illumination Station, Inc. v. Cook, No. CIV 07-3007, 2007 WL 1624458, at *5 (W.D. Ark. June 4, 2007) (emphasis in original).
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b. Preemption of Misappropriation Claims by Contract Whenever a defendant is subject to a contract that touches on the protection of trade secrets, counsel should consider whether the contract itself may provide a defense to a claim of trade secret misappropriation. As amended in 1985, UTSA Section 7(b) provides that the UTSA does not displace “contractual remedies, whether or not based upon misappropriation of a trade secret.” However, before 1985, Section 7(b) provided that the UTSA did not affect contractual or other civil liability or relief “that is not based on misappropriation of a trade secret.” In states that adopted the UTSA before 1985 and failed to conform Section 7 to the 1985 amendments, it may be possible to argue that trade secret misappropriation claims are limited by the terms of any contract the defendant negotiated with the plaintiff. It may be advantageous to attempt to characterize a trade secret misappropriation action as one for breach of contract. At a minimum, successfully doing so will eliminate the risk that exemplary damages in an amount up to twice actual damages may be awarded pursuant to Section 3 of the UTSA and, depending on the terms of the contract, may also eliminate the risk of an attorneys’ fee award. Further, the characterization of a trade secret claim as a contract claim may be relevant to determining the jurisdiction of the court and the law to be applied. Some courts have held that the finding of trade secret misappropriation under an express contract renders moot any consideration of liability under trade secret misappropriation laws, including the UTSA.60 Other courts have focused on the failure of a contract to identify information as a trade secret as a basis for denying protection under a trade secret misappropriation law.61 They reason that a plaintiff should not rely on the UTSA to accomplish indirectly what it could not do directly by contract. c. Preemption of Misappropriation and Other State Claims by the Copyright Act In some instances, state law claims are preempted by the Copyright Act. On occasion, trade secret misappropriation claims are held preempted; more often, ancillary state claims are preempted. At other times, the UTSA and the Copyright Act will, together, preempt an ancillary state law claim.62 The preemption provision of the Copyright Act is set forth in Section 301(a). It explains, in pertinent part:
60 See, e.g., Ins. Assocs. Corp. v. Hansen, 111 Idaho 206, 210, 723 P.2d 190, 194 (Ct. App. 1986). 61 See, e.g., Michels v. Dyna-Kote Indus., Inc., 497 N.E.2d 586 (Ind. Ct. App. 1986). 62 See, e.g., Brookhaven Typesetting Servs., Inc. v. Adobe Sys., Inc., No. C-01-20813 RMW, 2007 WL 2429653, at *11 (N.D. Cal. Aug. 24, 2007) (granting summary adjudication of unfair competition claim alleging predicate acts of copyright infringement and trade secret misappropriation).
Defenses 155 [A]ll legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright . . . in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright . . . are governed exclusively by this title. . . . [N]o person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.63
Significantly, copyright preemption may apply even if the information at issue is not itself copyrightable. Any claim based on the acquisition or use of information that is “fixed in a tangible medium of expression,” i.e., written or recorded electronically, and that falls within the “subject matter” of copyright, is subject to preemption. In ProCD, Inc. v. Zeidenberg, the Seventh Circuit held that a plaintiff could not assert state law claims to protect a national telephone book from copying.64 The telephone book was not itself copyrightable.65 The Seventh Circuit explained that copyright preemption nonetheless applied: One function of § 301(a) is to prevent states from giving special protection to works of authorship that Congress has decided should be in the public domain, which it can accomplish only if “subject matter of copyright” includes all works of a type covered by sections 102 and 103, even if a federal law does not afford protection to them.66
Following ProCD, the Second Circuit held in National Basketball Association v. Motorola, Inc. that a common-law misappropriation claim directed at a service that provided its subscribers with continuously updated information derived from live, copyrighted broadcasts of supporting events was subject to copyright preemption.67 Noting that the preemptive effect of the Copyright Act is broader than its protective features, another federal court has held that “for purposes of preemption, the Copyright Act applies with equal force to ideas.”68 The Copyright Act does not, however, preempt contract claims alleging breach of an agreement prohibiting reverse engineering.69
63 17 U.S.C. § 301(a) (2007). 64 ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). 65 In Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 363, 111 S. Ct. 1282, 1297, 113 L. Ed. 2d 358, 380 (1991), the Supreme Court held that a compilation of telephone numbers lacks sufficient originality to qualify for copyright protection. 66 ProCD, 86 F.3d at 1453 (emphasis in original). 67 Nat’l Basketball Ass’n v. Motorola, Inc., 105 F.3d 841, 850–54 (2d Cir. 1997). 68 Panizza v. Mattel, Inc., No. 02 CV 7722 (GBD), 68 U.S.P.Q.2d (BNA) 1469, 1472, 2003 WL 22251317, at *3 (S.D.N.Y. Sept. 30, 2003) (holding that because plaintiff had alleged theft of ideas contain in written and graphic material to the defendant, claims based on the copying of the materials were subject to preemption). 69 Bowers v. Baystate Techs., Inc., 302 F.3d 1334, 1341–45 (Fed. Cir. 2002), vacated, 320 F.3d 1316 (Fed. Cir. 2003).
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To determine whether the Copyright Act preempts a state law claim, the courts have adopted the “extra element” test.70 Under this test, the plaintiff must allege some “extra element” that qualitatively distinguishes the action and its underlying rights from those addressed by copyright law.71 When there is no “extra element,” a misappropriation action may be preempted.72 To save a state claim from preemption, the extra element must relate to the economic scope of the right and not to the defendant’s state of mind.73 (i) Preemption of Ancillary State Law Claims A conversion claim will be preempted unless the plaintiff is required to prove that the defendant unlawfully retained the physical object embodying the plaintiff’s work.74 An action for intentional interference with contractual relations may be preempted if the conduct at issue involves reproduction but not if it involves the unauthorized use of contracted-for information.75 Several cases have held civil conspiracy claims preempted.76 Claims for unjust enrichment have also been held preempted on numerous occasions,77 as have claims for tortious interference with contractual relations or prospective business advantage that did not allege an extra element.78
70 See 1 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 1.01[B][3] (2007). 71 See Stromback v. New Line Cinema, 384 F.3d 283, 302 (6th Cir. 2004) (citing collected cases). 72 For example, copyright preemption was held to bar a trade secret misappropriation claim in Relational Design & Tech., Inc. v. Data Team Corp., No. CIV A 91-2452-O, 23 U.S.P.Q.2d (BNA) 1074 (D. Kan. Apr. 16, 1992), because the UTSA claim was based upon the same factual contentions as the plaintiff ’s copyright claim and both claims relied upon the same predicate acts. On the other hand, the plaintiff ’s fraud and breach of contract claims were held not preempted because they involved qualitatively different rights. 73 See, e.g., Foley v. Luster, 249 F.3d 1281, 1285 (11th Cir. 2001) (“For example, awareness and intent are not considered to be qualitatively different elements substantial enough to serve as an ‘extra element.’”) (quoting Computer Assocs. Int’l, Inc. v. Altai, Inc., 982 F.2d 693, 717 (2d Cir.1992)). 74 See Murray Hill Publ’ns, Inc. v. ABC Commc’ns, Inc., 264 F.3d 622, 636–37 (6th Cir. 2001); U.S. ex rel. Berge v. Bd. of Trustees of the Univ. of Ala., 104 F.3d 1453, 1463 (4th Cir. 1997); Daboub v. Gibbons, 42 F.3d 285, 289 (5th Cir. 1995); Carson v. Dynegy, Inc., 344 F.3d 446, 457 (5th Cir. 2003); Oddo v. Ries, 743 F.2d 630, 635 (9th Cir. 1984). 75 See Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079, 1089–90 (9th Cir. 2005). 76 See Higher Gear Group, Inc. v. Rockenbach Chevrolet Sales, Inc., 223 F. Supp. 2d 953, 960 (N.D. Ill. 2002); Hoey v. Dexel Sys. Corp., 716 F. Supp. 222 (E.D. Va. 1989); Aqua Bay Concepts, Inc. v. Grosse Point Bd. of Realtors, 24 U.S.P.Q.2d (BNA) 1372, 1376–77 (E.D. Mich. May 7, 1992). 77 See, e.g., Del Madera Props. v. Rhodes & Gardner, Inc., 820 F.2d 973, 977 (9th Cir. 1987); Ronald Litoff Ltd. v. Am. Express Co., 621 F. Supp. 981, 986 (S.D.N.Y. 1985); Sygma Photo News, Inc. v. Globe Int’l, Inc., 616 F. Supp. 1153, 1158 n.7 (S.D.N.Y. 1985); Universal City Studios, Inc. v. Nintendo Co., 615 F. Supp. 838, 857 (S.D.N.Y. 1985), aff ’d, 797 F.2d 70 (2d Cir. 1986). 78 See, e.g., Stromback v. New Line Cinema, 384 F.3d 283, 301 (6th Cir. 2004); Walker v. Time Life Films, Inc., 784 F.2d 44, 53 (2d Cir. 1986); Ehat v. Tanner, 780 F.2d 876, 878 (10th Cir. 1985);
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Misrepresentation claims, however, are generally not subject to preemption because courts view the requirement that there be a misrepresentation as an “extra element.”79 Additionally, the federal circuit has held that breach of contract claims based on the reverse engineering of software distributed pursuant to shrinkwrap licenses are not preempted because the prohibition on reverse engineering adds an extra element of protection.80 (ii) Preemption of Trade Secret Misappropriation Claims The preemptive effect of federal copyright law as delineated in Section 301 of the Copyright Act does not extend to trade secret protection, even when the trade secrets are embodied in works of authorship, provided that the state cause of action is premised upon an improper acquisition or breach of confidence.81 Trade secret claims that allege unlawful appropriation, but not breach of confidence, are however, preempted.82 By extension, a claim of copyright protection in a work of authorship does not preclude a simultaneous claim of trade secret protection for information embodied in a work if sufficient secrecy has been maintained.83 In at least one case, however, the deposit of unredacted copies of user manuals was held not to defeat a misappropriation claim.84 Professor Paul Goldstein has suggested that in some circumstances it might be possible for a court to hold a trade secret misappropriation claim preempted
79 80 81
82
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Harper & Row Publishers, Inc. v. Nation Enters., 723 F.2d 195, 201 (2d Cir. 1983), rev’d on other grounds, 471 U.S. 539 (1985); Pac. & S. Co. v. Satellite Broad. Networks, Inc., 694 F. Supp. 1565, 1573 (N.D. Ga. 1988), rev’d on other grounds, Nat’l Broad. Co. v. Satellite Broad. Networks, Inc., 940 F.2d 1467 (11th Cir. 1991); Gemcraft Homes, Inc. v. Sumurdy, 688 F. Supp. 289, 295 (E.D. Tex. 1988). See, e.g., Valente-Kritzer Video v. Pinckney, 881 F.2d 772, 776 (9th Cir. 1989). Bowers v. Baystate Techs., Inc., 302 F.3d 1334, 1341–45 (Fed. Cir. 2002), vacated, 320 F.3d 1316 (Fed. Cir. 2003). See Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1549 (11th Cir. 1996); Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1165 (1st Cir. 1994); Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 660 (4th Cir. 1993); Computer Assocs. Int’l, Inc. v. Altai, Inc., 982 F.2d 693, 717 (2d Cir. 1992); Huckshold v. HSSI, L.L.C., 344 F. Supp. 2d 1203, 1209 (E.D. Mo. 2004). See, e.g., Alcatel USA, Inc. v. Cisco Sys., Inc., 239 F. Supp. 2d 645, 660 (E.D. Tex. 2002); Tedder Boat Ramp Sys., Inc. v. Hillsborough County, Fla., 54 F. Supp. 2d 1300, 1302 (M.D. Fla. 1999) (because boat ramp design was copyrighted, misappropriation claim was preempted); Vault Corp. v. Quaid Software Ltd., 655 F. Supp. 750, 762–63 (E.D. La. 1987), aff ’d, 847 F.2d 255 (5th Cir. 1988). See Technicon Med. Info. Sys. Corp. v. Green Bay Pkg., Inc., 687 F.2d 1032, 1038–39 (7th Cir. 1982); Bishop v. Wick, 11 U.S.P.Q.2d (BNA) 1360, 1363–64 (N.D. Ill. Dec. 29, 1988); Warrington Assocs. v. Real-Time Eng’g Sys., Inc., 522 F. Supp. 367, 368 (N.D. Ill. 1981). But see Spectrum Creations, L.P. v. Carolyn Kinder Int’l, L.L.C., No. CIV A SA05-CV750-XR, 2007 WL 1046911, at *11 (W.D. Tex. Apr. 5, 2007) (holding claim for trade secret misappropriation of product design not preempted but suggesting that the result would have differed had the misappropriated items been copyrightable). Compuware Corp. v. Serena Software Int’l, Inc., 77 F. Supp. 2d 816, 820–22 (E.D. Mich. 1999).
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by Article 1, Section 8, Clause 8 of the U.S. Constitution, from which the copyright and patent protection laws flow. Professor Goldstein notes that in Kewanee Oil Co. v. Bicron Corp., the Supreme Court held that trade secret protection laws are not preempted by the patent laws because inventors are unlikely to favor trade secret protection over patent protection.85 However, Professor Goldstein has speculated that “some forms of statutorily unpreempted trade secret protection—for example, perpetual property-like protection against unfixed processes—will so offend the federal copyright scheme that a court will find preemption as a constitutional matter.”86 Professor Goldstein explains: Kewanee leaves open the possibility that property-like trade secret protection against third parties who are not in a confidential relationship with a trade secret owner will be constitutionally preempted under both the Patent Act and the Copyright Act generally, even though it is not statutorily preempted under section 301 of the Copyright Act.87
d. Preemption of Misappropriation Claims by Patent Applications In Kewanee Oil Co. v. Bicron Corp.,88 the Supreme Court addressed whether the patent laws could preempt a common-law claim for trade secret misappropriation arising under the Restatement (First) of Torts Section 757, comment b (1939). The Supreme Court concluded that the patent laws do not preempt trade secret misappropriation claims.89 More recently, in Bonito Boats, Inc. v. Thundercraft Boats, Inc.,90 the Supreme Court reaffirmed the continued vitality of trade secret misappropriation laws while holding that state laws seeking to protect that which the patent laws have placed in the public domain are preempted. A defendant accused of misappropriating an invention, process, or method, nevertheless, should never ignore the possibility that the plaintiff has applied for or obtained a patent on the secret at issue. When a U.S. patent issues, the subject matter of the patent necessarily ceases to enjoy trade secret protection.91 That is also usually the case when a trade secret is disclosed in a
85 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 489–91, 94 S. Ct. 1879, 1889–91, 40 L. Ed. 2d 315, 329–31 (1974). As noted earlier, supra at Chapter 1(A)(1), n.43, some surveys have shown the opposite—that companies prefer trade secret protection to patents. 86 3 Paul Goldstein, Goldstein on Copyright § 17.12.2 (3d ed. 2007). 87 Id. 88 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S. Ct. 1879, 40 L. Ed. 2d 315 (1974). 89 Id. at 474, 94 S. Ct. at 1882–83, 40 L. Ed. 2d at 321. 90 Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 109 S. Ct. 971, 103 L. Ed. 2d 118 (1989). 91 BondPro Corp. v. Siemens Power Generation, Inc., 463 F.3d 702, 706–07 (7th Cir. 2006); Group One Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1045–47 (Fed. Cir. 2001); Campbell Soup Co. v. ConAgra, Inc., 977 F.2d 86, 92 (3d Cir. 1992); Gaia Techs. Inc. v. Recycled Prods. Corp., 175 F.3d 365, 377 n.15 (5th Cir. 1999); Scharmer v. Carrollton Mfg. Co., 525 F.2d 95, 99 (6th Cir. 1975); Lemelson v. Kellogg Co., 440 F.2d 986, 987 (2d Cir. 1971); Lamb-Weston, Inc. v.
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foreign patent.92 Further, the publication of a U.S. patent application and, sometimes, a foreign patent application (which typically occurs long before a patent issues) will terminate a trade secret misappropriation claim.93 As explained in the Restatement (Third) of Unfair Competition Section 39, comment f (1995), “information that is disclosed in a patent or contained in published materials reasonably accessible to competitors does not qualify for protection under this Section.” Courts have held that the trade secret misappropriation laws may not be invoked to prevent the copying of information that has been the subject of a patent disclosure on the basis that the disclosure has made the information available to the public, subject to whatever patent protection the patent grantee has.94 In that regard, their decisions are consistent with the Supreme Court holdings in Sears, Roebuck & Co. v. Stiffel Co.95 and Compco Corp. v. Day-Brite Lighting, Inc.,96 which forbid state-law protection of published matter not protected by patent or concepts of commercial morality reflected in the trade secret laws. Alternatively, one may argue that information disclosed in published patent applications and patents should not be entitled to protection because the owner has not made “efforts that are reasonable under the circumstances to maintain its secrecy,” as required by Section 1 of the UTSA.
92
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94 95 96
McCain Foods Ltd., 941 F.2d 970, 975 (9th Cir. 1991); Sims v. W. Steel Co., 551 F.2d 811, 816 (10th Cir. 1977); Stutz Motor Car, Inc. v. Reebok Int’l Ltd., 909 F. Supp. 1353, 1359 (C.D. Cal. 1995), aff ’d, 113 F.3d 1258 (Fed. Cir. 1997); Apollo Techs. Corp. v. Centrosphere Indus. Corp., 805 F. Supp. 1157, 1200–01 (D.N.J. 1992); Tao of Sys. Integration, Inc. v. Analytical Servs. & Materials, Inc., 299 F. Supp. 2d 565, 575 (E.D. Va. 2004); Gallo v. Norris Dispensers, Inc., 315 F. Supp. 38, 41 (E.D. Mo. 1970); Lyon v. Gen. Motors Corp., 200 F. Supp. 89, 91 (N.D. Ill. 1961). But see Plastics & Metal Fabricators, Inc. v. Roy, 163 Conn. 257, 303 A.2d 725 (1972) (publication of patent raised question of fact whether invention was still secret). Cases that have held that trade secret protection is terminated by the issuance of a foreign patent or publication of a foreign patent application include Carson Prods. Co. v. Califano, 594 F.2d 453, 460–63 (5th Cir. 1979); Ferroline Corp. v. Gen. Aniline & Film Corp., 207 F.2d 912, 924 (7th Cir. 1953); Motorola, Inc. v. Fairchild Camera & Instrument Corp., 366 F. Supp. 1173, 1187–88 (D. Ariz. 1973); Mycalex Corp. v. Pemco Corp., 64 F. Supp. 420, 421, 424 (D. Md. 1946), aff ’d, 159 F.2d 907 (4th Cir. 1947); Abbott Labs. v. Norse Chem. Corp., 33 Wis. 2d 445, 147 N.W.2d 529 (1967); and Julius Hyman & Co. v. Velsicol Corp., 123 Colo. 563, 233 P.2d 977, 998 (1951). Carson, 594 F.2d at 462–63. But see Goldberg v. Medtronic, Inc., 686 F.2d 1219, 1223–29 (7th Cir. 1982) (defendant liable for misappropriation because it was unaware of the disclosure of the plaintiff ’s invention in foreign patent applications); Monovis, Inc. v. Aquino, 905 F. Supp. 1205, 1227–28 (W.D.N.Y. 1994) (but for its knowledge of the plaintiff ’s secret, the defendant would not have been able “to select particular items from a vast sea of public information”); Mineral Deposits Ltd. v. Zigan, 773 P.2d 606, 608 (Colo. Ct. App. 1988) (affirming finding of misappropriation of trade secret of an article patented in Australia, but for which a patent was only pending in the United States). See Conmar Prods. Corp. v. Universal Slide Fastener Co., 172 F.2d 150 (2d Cir. 1949). Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S. Ct. 784, 11 L. Ed. 2d 661 (1964). Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 84 S. Ct. 779, 11 L. Ed. 2d 669 (1964).
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The publication of a patent or a patent application will not relieve a trade secret misappropriation defendant of liability for damages for the period of misappropriation preceding publication or obviate the need for injunction to offset the defendant’s “head start.” Nor will it provide a defense to a defenant subject to a contractual obligation not to use or disclose the plaintiff’s proprietary information.97 However, the publication of a patent in the United States will always cut off the defendant’s damages exposure as of the date of publication and limit the duration of an injunction.98 The publication of a foreign patent or the publication of a patent application may have a similar effect.99 A trade secret defendant should not fear that calling the plaintiff’s attention to the existence of a patent claim would be akin to jumping from the frying pan into the fire. For a variety of reasons, patent owners are often reluctant to assert patent infringement claims. Patent infringement litigation is enormously expensive. And patent infringement defendants frequently bring disruptive and potentially risky antitrust counterclaims and not infrequently succeed in invalidating the patent.
2. Statute of Limitations Section 6 of the UTSA requires that an action for misappropriation must be brought within three years “after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.”100 Further, the UTSA provides that “a continuing misappropriation constitutes a single claim.” The limitations period in non-UTSA states is generally the same as for other property-injury claims;101 the continuing tort theory, under which each separate act of misappropriation may give rise to a new claim, generally applies.102 (The statutes of limitations are discussed from a plaintiff’s perspective in Chapter 2(J)(2).)
97 Aronson v. Quick Point Pencil Co., 440 U.S. 257, 261–63, 99 S. Ct. 1096, 1099–1100, 59 L. Ed. 2d 296, 301–02 (1979) (upholding state enforcement of a contract to pay royalties for the manufacture of a product disclosed in confidence to the licensee but later entered into the public domain). Cf. Bowers v. Baystate Techs., Inc., 302 F.3d 1334, 1341–45 (Fed. Cir. 2002), vacated, 320 F.3d 1316 (Fed. Cir. 2003) (Copyright Act does not preempt actions alleging breach of an agreement prohibiting reverse engineering). 98 See Conmar Prods. Corp. v. Universal Slide Fastener Co., 172 F.2d 150, 156 (2d Cir. 1949). 99 See Carson Prods. Co. v. Califano, 594 F.2d 453, 462–63 (5th Cir. 1979). 100 Not all UTSA states provide a three-year statute of limitations. The limitations period is two years in Alabama (Ala. Code § 8-27-5); four years in Maine (Me. Rev. Stat. tit. 10, § 545), Nebraska (Neb. Rev. Stat. § 87-506), and Ohio (Ohio Rev. Code § 1333.66); and five years in Georgia (Ga. Code Ann. § 10-1-766), Illinois (765 Ill. Comp. Stat. Ann. 1065/6), and Missouri (Mo. Rev. Stat. § 417.461). 101 New Jersey courts do not automatically apply the New Jersey statute of limitations. Instead, New Jersey applies an interest-based test to determine which state’s substantive law will apply. Computer Assocs. Int’l Inc. v. Altai, Inc., 22 F.3d 32, 35 (2d Cir. 1994). 102 See, e.g., Epstein v. C.R. Bard, Inc., 460 F.3d 183, 188 (1st Cir. 2006).
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Although when a statute of limitations accrues is ordinarily a factual question for trial, courts may grant summary judgment or a motion to dismiss if the relevant facts are undisputed.103 Pursuant to the “discovery rule” applicable in UTSA states, it is irrelevant when the plaintiff discovered that its trade secret was misappropriated. Many courts have rejected the notion that the “statute of limitations only begins running when a plaintiff can unassailably establish a legal claim for trade secret misappropriation, [as that] would effectively eviscerate the statute of limitations in all cases in which the plaintiff never discovers ‘smoking gun’ evidence of misappropriation.”104 What matters, instead, is when the plaintiff should have discovered a misappropriation through the exercise of reasonable diligence. Thus, “[i]f a person becomes aware of facts which would make a reasonably prudent person suspicious, he or she has a duty to investigate further and is charged with knowledge of matters which would have been revealed by such an investigation.”105 “‘[S]uspicion of one or more of the elements of a cause of action, coupled with knowledge of any remaining elements, will generally trigger the statute of limitations period.’”106 “[T]he misappropriation that triggers the running of the statute is that which the plaintiff suspects, not that which may or may not actually exist.”107 This principle was applied in Adcor Industries, Inc. v. Bevcor, L.L.C.108 The plaintiff’s predecessor-in-interest, Crown Cork & Seal Co., obtained a consent decree requiring that the defendants return various purloined drawings of parts and machines made by Crown Cork & Seal. The consent decree also prohibited the defendants from using those drawings “in any manner whatsoever.” In 1992, some of the defendant’s employees left and formed their own business, touting their ability to make Crown Cork & Seal parts. Between 1994 and 1999, numerous Crown Cork & Seal employees suspected that the start-up company had retained drawings in violation of the consent decree. A successor to Crown Cork & Seal’s business discovered the drawings in 2003 and filed suit. Because the plaintiff’s predecessor was in possession of
103 See, e.g., Burton v. R.J. Reynolds Tobacco Co., 397 F.3d 906, 914 (10th Cir. 2005); Chasteen v. UNISIA JECS Corp., 216 F.3d 1212, 1219 (10th Cir. 2000) (affirming summary judgment because undisputed facts showed that the misappropriation claim accrued outside the limitations period); Adcor Indus., Inc. v. Bevcorp, L.L.C., 411 F. Supp. 2d 778–93 (N.D. Ohio 2005); Precision Airmotive Corp. v. Rivera, 288 F. Supp. 2d 1151, 1153 (W.D. Wash. 2003); Read & Lundy, Inc. v. Wash. Trust Co., No. PC99-2859, 2002 WL 31867868, at *3 (R.I. Super. Ct. Dec. 13, 2002). 104 Chasteen v. UNISIA JECS Corp., 216 F.3d 1212, 1218 (10th Cir. 2000). 105 Read & Lundy, Inc., 2002 WL 31867868, at *8; see also Alamar Biosciences, Inc. v. Difco Labs., Inc., No. Civ-S-941856, 1995 WL 912345, at *3 (E.D. Cal. Oct. 13, 1995) (“[W]hen there is reason to suspect that a trade secret has been misappropriated, and a reasonable investigation would produce facts sufficient to confirm this suspicion (and justify bringing suit), the limitations period begins, even though the plaintiff has not conducted such an investigation.”). 106 Cypress Semiconductor Corp. v. Super. Ct., 163 Cal. App. 4th 575, 586, 77 Cal. Rptr. 3d 685, 692 (2008) (quoting Fox v. Ethicon Endo-Surgery, Inc., 35 Cal. 4th 797, 807, 27 Cal. Rptr. 3d 661, 667 (2005)). 107 Id. at 587, 77 Cal. Rptr. 3d at 694. 108 Adcor Indus., Inc. v. Bevcorp, L.L.C., 411 F. Supp. 2d 778, 785–86 (N.D. Ohio 2005).
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facts in the mid-1990s that would have led a reasonable person to make further inquiry, the plaintiff’s trade secret misappropriation claim was barred. However, other courts recognize that they “cannot apply statute of limitations law in a way that pressures litigants to file suits based merely on suspicions and fears” 109 and that “concerns and suspicions” do not “start the clock of the statute of limitations.” 110 The UTSA limitation that there be only a “single claim” means that a plaintiff cannot avoid the running of the statute of limitations by alleging a different type of misappropriation. Because a misappropriation occurs when a defendant improperly acquires a trade secret, the statute of limitations is triggered then and is not retriggered when the defendant later begins using the trade secret. In Chasteen v. UNISIA JECS Corp., the defendant was quoted in a 1989 magazine article disclosing certain of the plaintiff’s trade secrets.111 Nine years later, the plaintiff filed suit alleging misappropriation based on its recent discovery of the defendant’s use of those trade secrets. In affirming the district court’s grant of summary judgment, the Tenth Circuit noted that it was irrelevant whether the defendant’s employees who read the magazine article “understood that the disclosures legally constituted a misappropriation of trade secrets . . . as long as [they] knew the facts which could give rise to such a claim.”112 In Intermedics, Inc. v. Ventritex, Inc., the Northern District of California explained why the statute of limitations may be triggered even before the plaintiff unassailably establishes a legal claim for trade secret misappropriation: [U]nder plaintiff ’s theory, a defendant could successfully invoke the statute of limitations only by proving, in trial, that at an earlier time, outside the limitations period, plaintiff would have established liability if it had litigated the matter to judgment. Defendant, in other words, would be required to litigate against herself the plaintiff ’s stale claim, introducing the evidence that plaintiff would have introduced in the hypothetical earlier litigation, then introducing the evidence that she as defendant would have presented, and then asking the jury to find that she (as defendant) would have lost.113
Accordingly, the plaintiff need not have “smoking gun” evidence of misappropriation but will, instead, be deemed placed on notice of a potential misappropriation claim when there is sufficient circumstantial and inferential
109 Porex Corp. v. Haldopoulos, 644 S.E.2d 349, 353 (Ga. Ct. App. 2007), cert. denied, 2007 Ga. LEXIS 498 (Ga. June 25, 2007) (citing Intermedics, Inc. v. Ventritex, Inc., 775 F. Supp. 1258, 1266 (N.D. Cal. 1991)). 110 Sokol Crystal Prods., Inc. v. DSC Commc’ns Corp., 15 F.3d 1427, 1430 (7th Cir. 1994). 111 Chasteen v. UNISIA JECS Corp., 216 F.3d 1212 (10th Cir. 2000). 112 Id. at 1217; see also Ashton-Tate Corp. v. Ross, 916 F.2d 516, 523–24 (9th Cir. 1990). 113 Intermedics, Inc. v. Ventritex, Inc., 822 F. Supp. 634, 641 (N.D. Cal. 1993).
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evidence to prove misappropriation.114 A competitor’s “mere hiring of th[o]se employees” who knew plaintiff’s trade secrets sufficed to put the plaintiff “on guard that its trade secrets might be unlawfully disclosed.”115 Further, once a plaintiff learns facts causing the statute of limitations to begin running with respect to one trade secret, it begins to run on all trade secret claims as well.116 The only exception to this rule is that if additional employees or corporate actors participate in the misappropriation after the statute of limitations has been triggered as to the initial defendant, the statute will run as to the new entrants to the misappropriation only as of the dates of their first participation.117 The limitations period may be tolled under certain circumstances. It may be tolled based on fraudulent concealment if the misappropriator concealed an affirmative act or representation that would have caused a reasonable person to believe there was a basis on which to sue, and the trade secret owner had neither actual nor constructive notice of the facts constituting the claim for relief.118 Additionally, the statute may be tolled during the pendency of a lawsuit arising out of the same facts.119 On the other hand, the statute of limitations is not tolled by a defendant’s period of inactivity.120 Further, a belief that the misappropriator has gone out of business does not toll the limitations period.121
3. Other Defenses A trade secret misappropriation defendant may sometimes rely on traditional equitable defenses such as unclean hands,122 laches, acquiescence, estoppel,
114 Chasteen, 216 F.3d at 1218. 115 Pilkington Bros., P.L.C. v. Guardian Indus. Corp., No. 83-5260, 1986 U.S. Dist. LEXIS 24466, at *9 (E.D. Mich. June 9, 1986). See also, e.g., McCaffree Fin. Corp. v. Nunninck, 847 P.2d 1321, 1330 (Kan. Ct. App. 1993) (competitor’s hiring of employees placed the plaintiff on notice for statute of limitations purposes). 116 Intermedics, 822 F. Supp. at 657; Pilkington Bros., P.L.C. v. Guardian Indus. Corp., No. Civ. A 83-5260, 1986 WL 9876, at *6, 230 U.S.P.Q. (BNA) 300, 301 (E.D. Mich. June 9, 1986). 117 See PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368, 1387, 93 Cal. Rptr. 2d 663, 676–77 (2000) (individual defendants purchased business that was already engaged in misappropriation). 118 Stutz Motor Car of Am. v. Reebok Int’l., 909 F. Supp. 1353, 1363 (C.D. Cal. 1995), aff ’d, 113 F.3d 1258 (Fed. Cir. 1997). 119 B. Braun Med., Inc. v. Rogers, Nos. 03-56193, 04-56836, 2006 U.S. App. LEXIS 884 (9th Cir. Jan. 13, 2006) (citing Sidney v. Super. Ct., 198 Cal. App. 3d 710, 244 Cal. Rptr. 31 (1988), cert. denied, 127 S. Ct. 158, 166 L. Ed. 2d 40 (2006)). 120 Glue-Fold, Inc. v. Slautterback Corp., 82 Cal. App. 4th 1018, 1021, 98 Cal. Rptr. 2d 661, 662 (2000) (defendant was inactive for four years before recommencing misappropriation). 121 Forcier v. Microsoft Corp., 123 F. Supp. 2d 520, 526 (N.D. Cal. 2000). 122 The Supreme Court has explained the unclean hands defense in these terms: “It is a selfimposed ordinance that closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been
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and waiver. Other “defenses”—such as reverse engineering, independent development, ready ascertainability,123 failure to maintain secrecy, and failure to take reasonable precautions to maintain secrecy—are associated almost exclusively with trade secret claims. Technically, the latter are not defenses at all because the plaintiff has the affirmative burden to show that it took reasonable measures to maintain the secrecy of its information, that its information is secret, and that the defendant acquired it using improper means. Defendants, nevertheless, will want to prove these elements as if they were defenses for the purpose of seeking summary judgment124 or sanctions, or simply to offer an
the behavior of the defendant.” Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 814, 65 S. Ct. 993, 997, 89 L. Ed. 1381, 1386 (1945). See SmithKline Beecham Pharms. Co. v. Merck & Co., 766 A.2d 442, 450 (Del. 2000) (breach of an options agreement by the plaintiff did not constitute unclean hands that would constitute a defense to a claim of trade secret misappropriation). 123 In certain states, including most notably California and Illinois, a plaintiff is not required to prove that its trade secret derives independent economic value from “not being readily ascertainable by proper means” by persons who could obtain economic value from its disclosure or use. Instead, that information is “readily ascertainable” is viewed in California as a defense to a misappropriation claim. See Legislative Committee Comment-Senate, Cal. Civ. Code § 3246-2426-10 (1984); Am. Paper & Packaging Prods., Inc. v. Kirgan, 183 Cal. App. 3d 1318, 1326, 228 Cal. Rptr. 713, 727 (1986). But see ABBA Rubber Co. v. Seaquist, 235 Cal. App. 3d 1, 21, 286 Cal. Rptr. 518, 529 (1991) (concluding that readily ascertainable information is protectable only if it has not yet been ascertained by others in the industry). Under Illinois law, ready ascertainability may not provide a defense. Illinois is a strong adherent of the rule announced in Shellmar Prods. Co. v. Allen-Qualley Co., 87 F.2d 104 (7th Cir. 1936), that injunctive and other relief extending beyond the public disclosure of a trade secrets is permitted if the secret was learned or used by improper means before the public disclosure. In deference to Shellmar Products, Section 2(d)(1) of the Illinois UTSA, 765 Ill. Comp. Stat. Ann. 1065/1, provides that information is protectable as a trade secret if it is “insufficiently secret to derive economic value, actual potential, from not being generally known other persons who could obtain economic value from its disclosure or use.” In Hamer Holding Group, Inc. v. Elmore, 202 Ill. App. 3d 994, 1011, 148 Ill. Dec. 310, 321, 560 N.E.2d 907, 918 (1990), an Illinois appellate court rejected the argument that a defense that the plaintiff ’s information is “readily ascertainable by proper means” is no longer available, explaining that such inquiry is relevant to the issue of “secrecy.” 124 The existence of a trade secret is a mixed question of law and fact. Whether the information is of a type that may be protected is a question of law. Whether it meets the other requirements of independent economic value and secrecy is a question of fact. See Uncle B’s Bakery, Inc. v. O’Rourke, 920 F. Supp. 1405, 1427 (N.D. Iowa 1996). Nonetheless, summary judgment is sometimes granted. See MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 522 (9th Cir. 1993) (affirming summary judgment of misappropriation as to some issues); Alagold Corp. v. Freeman, 20 F. Supp. 2d 1305, 1315–16 (M.D. Ala. 1998) (granting the defendant summary judgment because the plaintiff had made the customer list at issue available to all employees without confidentiality markings), aff ’d, 237 F.3d 637 (11th Cir. 2000); Self Directed Placement Corp. v. Control Data Corp., 908 F.2d 462, 465 (9th Cir. 1990) (affirming grant of summary judgment for the defendant because the claimed trade secrets “were a matter of common public knowledge”); Ashton-Tate Corp. v. Ross, 916 F.2d 516, 519 (9th Cir. 1990)
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alternative to the plaintiff’s theory of the case at trial. Even if the defendant did not reverse engineer or independently develop the information at issue, it will want to prove that it could have done so, both to argue that the plaintiff’s secret is “readily ascertainable” and, if unsuccessful in that argument, to establish the length of its unfair head start.125 For those reasons, they are discussed here as if they were defenses. a. Reverse Engineering A public policy reflected in our patent laws is the notion that any product not protected by patent may freely be copied.126 This policy is not unlimited: unpatented items and information may be protected by keeping them secret or by limiting the use purchasers or licensees may make of them through the use of shrinkwrap licenses, nondisclosure agreements, and other forms of contract.127 To the extent that one lawfully obtains a device or product not subject to use restrictions, one may lawfully “reverse engineer” it. Reverse engineering is defined as “starting with a known product and working backward to divine the process which aided in its development or manufacture.”128 In Bonito Boats, Inc. v. Thunder Craft Boats, Inc., the Supreme Court observed that reverse engineering “may be an essential part of innovation,” potentially “lead[ing] to significant advances in the field.”129 For this reason, the law provides that “any person who actually acquires the information through an examination of a publicly available product has obtained the information by proper means and is thus not subject to liability.”130 A defendant may rely on reverse engineering in either of two ways. First, a defendant may show that it actually learned the plaintiff’s trade secret through reverse engineering and therefore did not acquire the trade secret improperly.
125
126
127
128 129 130
(affirming grant of summary judgment for defendant when plaintiff failed to invoke properly Fed. R. Civ. P. 56(f) to explain why the plaintiff needed additional discovery to oppose the motion). See Minuteman, Inc. v. Alexander, 147 Wis. 2d 842, 855, 434 N.W.2d 773, 778–79 (1989) (possibility of reverse engineering was a factor to consider in determining proper length of injunction). See generally Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S. Ct. 784, 11 L. Ed. 2d 661 (1964); Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 84 S. Ct. 779, 11 L. Ed. 2d 669 (1964). See, e.g., Aronson v. Quick Point Pencil Co., 440 U.S. 257, 261–63, 99 S. Ct. 1096, 1099–1100, 59 L. Ed. 2d 296, 301–02 (1979) (contractual obligation to pay royalty survived product’s entry into the public domain). Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476, 94 S. Ct. 1879, 1883, 40 L. Ed. 2d 315, 322 (1974). Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 160, 109 S. Ct. 971, 982, 103 L. Ed. 2d 118, 140 (1989). Restatement (Third) of Unfair Competition § 39 cmt. f (1995).
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Second, a defendant may show that it could have reverse engineered the plaintiff’s product as a means to establish that the plaintiff’s secret was “readily ascertainable” and, hence, not entitled to trade secret protection.131 If the defendant obtained the plaintiff’s secret by reverse engineering a product it obtained lawfully, the defense is established.132 It is irrelevant what trials and tribulations the defendant may have endured to accomplish its feat. If, however, the process of reverse engineering was significantly expensive or time-consuming, the defendant will have demonstrated that the secret is probably not “readily ascertainable” by others and may thereafter claim the reverse-engineered trade secret as its own.133 In contrast, showing that the defendant could have reverse engineered a product or re-created a customer list or database from publicly available sources does not automatically result in litigation success for a defendant.134 There is no bright-line test to determine when reverse engineering is sufficiently burdensome that a plaintiff’s secret may be said to be “not readily ascertainable.” Courts are frequently offended by the notion that the defendant is seeking to excuse its own improper conduct. Both concerns were reflected in ILG Industries, Inc. v. Scott.135 The defendant had used stolen engineering drawings of fan parts but argued that the dimensions and tolerances of the parts could have been reverse engineered from fans available for sale on the open market. The court rejected the defense because the process of reverse engineering the fan components would have been relatively time consuming. The court noted: The defendants elected to proceed in an unlawful manner although a legal means of obtaining this information apparently was available to them.136
131 See, e.g., LinkCo, Inc. v. Fujitsu Ltd., 230 F. Supp. 2d 492, 498 (S.D.N.Y. 2002) (software architecture would be easily ascertainable when product was marketed); Frink Am., Inc. v. Champion Road Mach. Ltd., 48 F. Supp. 2d 198, 206–07 (N.D.N.Y. 1999), dismissed, 62 F. Supp. 2d 679 (N.D.N.Y. 1999); Blank v. Pollack, 916 F. Supp. 165, 167, 174 (N.D.N.Y. 1996). 132 See Specialty Chems. & Servs., Inc. v. Chandler, 9 U.S.P.Q.2d (BNA) 1793, 1799 (N.D. Ga. Sept. 26, 1988) (“It is not a defense that plaintiff reverse engineered defendants’ formulas and therefore that defendants could have done the same with plaintiff ’s formulas. It is only a defense if defendants reverse engineered plaintiff ’s formulas with no reliance on information improperly gained while in plaintiff ’s employ”). 133 UTSA § 1 (4) (amended 1985); UTSA § 1 (Commissioners’ cmt.). 134 See, e.g., Smith v. Dravo Corp., 203 F.2d 369, 374 (7th Cir. 1953) (“Pennsylvania will not deny recovery merely because the design could have been obtained through inspection. Rather, the inquiry in that jurisdiction appears to be: How did defendant learn of plaintiffs’ design?”) (emphasis added); Franke v. Wiltschek, 209 F.2d 493, 495 (2d Cir. 1953) (“It matters not that defendants could have gained their knowledge from a study of the expired patent in plaintiffs’ publicly marketed product. The fact is that they did not. Instead they gained it from plaintiffs via their confidential relationship. . . . ). 135 ILG Indus., Inc. v. Scott, 49 Ill. 2d 88, 273 N.E.2d 393 (1971). 136 Id. at 96, 273 N.E.2d at 397–98.
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A Georgia court reached a similar conclusion in Coca-Cola Co. v. Reed Industries, Inc., concluding that tolerances and material specifications of beverage dispensing machines could not easily be reverse engineered from machine parts and therefore were protectable trade secrets.137 In Zotos International, Inc. v. Young, the defendant argued unsuccessfully that an ingredient in a hair-care formula that had been on the market for over 20 years could have been reverse engineered.138 The court held that the defendant’s argument created a “cognitive dissonance” between the argument that the ingredient was “readily ascertainable” and “the fact of non-discovery” for over 20 years.139 A reverse-engineering defense will not work if the product that was reverse engineered was not acquired properly. Reverse engineering is permissible “so long as the means used to get the information necessary to reverse engineer is in the public domain, and not through [a] confidential relationship established with the maker or owner of the product.”140 When a device, product, or software program is to be reverse engineered, it is permissible to ask the trade secret owner’s former employees where to look in the public domain to find the articles to be examined. To hold otherwise “would effectively eviscerate any benefit reverse engineering would provide . . . , forestall healthy notions of commercial competitiveness, and heavily contribute to an inert marketplace where products can only be developed and sold under an impenetrable cloak of originality.”141 In contrast, it is not permissible to “reverse engineer” a database, a system or process by using improperly obtained information to locate the constituent elements in the public domain. This rule flows from the principle that a trade secret may consist of a unique combination of public domain elements. The trade secret is disclosed merely in identifying the elements. As explained in the Restatement (Third) of Unfair Competition Section 39, comment f (1995) “[t]he fact that some or all of the components of the trade secret are well-known does not preclude protection for a secret combination, compilation, or integration of the individual elements.”142 Proper reverse engineering, accordingly, may not be accomplished by the unauthorized entry into a computer system or by breaching the terms of a
137 Coca-Cola Co. v. Reed Indus., Inc., No. 1:85-CV-10, 1988 U.S. Dist. LEXIS 16551, at *21, 10 U.S.P.Q.2d (BNA) 1211, 1217 (N.D. Ga. Feb. 17, 1988). 138 Zotos Int’l, Inc. v. Young, 830 F.2d 350, 353 (D.C. Cir. 1987). 139 Id.; cf. Basic Am., Inc. v. Shatila, 133 Idaho 726, 735, 992 P.2d 175, 184 (Idaho 1999) (plaintiff ’s expenditure of six years developing product was sufficient evidence that it was not readily ascertainable). 140 Kadant, Inc. v. Seeley Mach., Inc., 244 F. Supp. 2d 19, 38 (N.D.N.Y. 2003). 141 Id. 142 Restatement (Third) of Unfair Competition § 39 cmt. f (1995).
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licensing agreement.143 Likewise, a trade secret owner’s software cannot properly be obtained through a fraud on the Copyright Office, such as requesting a copy on the basis that it is needed for litigation.144 It is also improper to obtain a product to reverse engineer by misleading or paying a competitor’s customer to allow access.145 However, if intermediate copying of software is required as a necessary part of reverse engineering, the intermediate copying will constitute a fair use under 17 U.S.C. § 107.146 b. Ready Ascertainability What it means to be “readily ascertainable” is described in general terms in the Commissioners’ Comments to Section 1 of the UTSA: Information is readily ascertainable if it is available in trade journals, reference books, or published materials. Often, the nature of a product lends itself to being readily copied as soon as it is available on the market.147
To establish the readily ascertainable defense, it is not sufficient to show that the plaintiff’s trade secret can be re-created by reference to widely disparate public domain sources. “The theoretical ability of others to ascertain the information through proper means does not necessarily preclude protection as a trade secret. Trade secret protection remains available unless the information is readily ascertainable by such means.”148 If, however, a product available in the marketplace can be reversed engineered in several days to reveal the alleged trade secrets, trade secret protection will be denied.149 There is no clear demarcation of information that is “readily ascertainable.” The Restatement (Third) of Unfair Competition Section 39, comment f (1995), explains: [I]f acquisition of the information through an examination of a competitor’s product would be difficult, costly or time-consuming, the trade secret owner retains protection against an improper acquisition, disclosure, or use prohibited
143 See Telerate Sys., Inc. v. Caro, 689 F. Supp. 221, 233 (S.D.N.Y. 1988); Technicon Data Sys. Corp. v. Curtis 1000, Inc., 224 U.S.P.Q. (BNA) 286, 288 (Del. Ch. Aug. 21, 1984). 144 Atari Games Corp. v. Nintendo, Inc., 975 F.2d 832, 843–44 (Fed. Cir. 1992). 145 DSC Commc’ns Corp. v. Pulse Commc’ns, Inc., 170 F.3d 1354, 1364 (Fed. Cir. 1999). 146 See Sony Computer Entm’t, Inc. v. Connectix Corp., 203 F.3d 596, 606 (9th Cir. 2000); Sega Enters. Ltd. v. Accolade, Inc., 977 F.2d 1510, 1527–28 (9th Cir. 1992). 147 UTSA § 1(4) (amended 1985); UTSA § 1 (Commissioners’ cmt.). 148 Restatement (Third) of Unfair Competition § 39 cmt. f (1995). 149 Wesley-Jessen, Inc. v. Reynolds, No. 72 C 1677, 182 U.S.P.Q. (BNA) 135, 144–45 (N.D. Ill. May 23, 1974) (protection denied following unrestricted sale and lease of camera that could be reverse engineered in several days).
Defenses 169 under the rules stated in [Restatement (Third) of Unfair Competition] § 40. However, any person who actually acquires the information through an examination of a publicly available product has obtained the information by proper means and is thus not subject to liability. (Citation omitted.) . . . .... If the information has become readily ascertainable from public sources so that no significant benefit accrues to a person who relies instead on other means of acquisition, the information is in the public domain and no longer protectable under the law of trade secrets. Even those courts that decline to take into account a loss of secrecy following a confidential disclosure to the defendant often assert in dicta that no liability attaches if the defendant actually extracts the information from public sources. When the information is readily ascertainable from such sources, however, actual resort to the public domain is a formality that should not determine liability. The public interest in avoiding unnecessary restraints on the exploitation of valuable information supports the conclusion that protection as a trade secret terminates when the information is no longer secret.150
In part, whether a court views a plaintiff’s trade secret as “readily ascertainable” may depend on the means that the defendant employed to obtain it. The Restatement (Third) of Unfair Competition (1995), states: When a defendant has engaged in egregious misconduct in order to acquire the information, the inference that the information is sufficiently inaccessible to qualify for protection as a trade secret is particularly strong.151
On the other hand, if the information has become so “readily ascertainable from public sources . . . that no significant benefit accrues to a person who relies instead on other means of acquisition, the information is in the public domain and no longer protectable under the law of trade secrets.”152 In concluding that a detailed plan for the creation, financing, and sale of prepaid funeral services constituted a trade secret, the Ninth Circuit explained: The difficulty of securing the necessary details except by unlawful means is evidenced by the substantial sum ($55,000) paid to appellee for a corporation which appellee had formed to use the plan; and by the extreme and unlawful means appellants employed to secure those details—including concealment, affirmative misrepresentation, and commercial espionage.153
150 151 152 153
Restatement (Third) of Unfair Competition § 39 cmt. f (1995). Id. Id. Clark v. Bunker, 453 F.2d 1006, 1010 (9th Cir. 1972).
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Because the defendant had employed extreme means to obtain the plaintiff’s information, the court disregarded evidence that the plan details could have been gleaned from the plaintiff’s advertisements, sales brochures, and similar materials. When, however, a plaintiff’s information is readily ascertainable, courts will readily enter judgment for a defendant.154 c. Independent Development Section 1 of the UTSA prohibits the acquisition of trade secrets through “improper means.” The Commissioners’ Comment to Section 1 provides that “proper means” include “discovery by independent invention.” If the defendant’s product or process results from independent creation or information in the public domain, the defendant is not subject to liability.155 However, a defendant cannot avoid misappropriation liability by showing that it used the plaintiff’s information only to understand what pitfalls to avoid or as a “starting point” or “springboard” to develop its own product or process.156
154 See, e.g., LinkCo, Inc. v. Fujitsu Ltd., 230 F. Supp. 2d 492, 498 (S.D.N.Y. 2002) (granting in part motion for judgment as a matter of law because software architecture would be easily ascertainable when product was marketed); Home Paramount Pest Control Cos. v. FMC Corp./ Agric. Prods. Group, 107 F. Supp. 2d 684, 692 (D. Md. 2000) (customer list was readily ascertainable); Rainbow Nails Enters. v. Maybelline, Inc., 93 F. Supp. 2d 808, 827 (E.D. Mich. 2000) (granting summary judgment because the plaintiff ’s dissemination of its formulas negated confidentiality); Flotec, Inc. v. S. Research, Inc., 16 F. Supp. 2d 992, 1006 (S.D. Ind. 1998) (because the plaintiff had marketed its products, they could be reverse engineered); HoffmanLa Roche, Inc. v. Yoder, 950 F. Supp. 1348, 1357–58, 1364 (S.D. Ohio 1997) (denying motion for preliminary injunction because information was readily ascertainable from medical literature); Glaxo, Inc. v. Novopharm Ltd., 931 F. Supp. 1280, 1302 (E.D.N.C. 1996) (formula was readily discoverable by chemists); Mettler-Toledo, Inc. v. Acker, 908 F. Supp. 240, 240–41, 246 (M.D. Pa. 1995) (customer list could be re-created from directories and other publicly available sources); Vigoro Indus. v. Cleveland Chem. Co., 866 F. Supp. 1150, 1163 (E.D. Ark. 1994) (customer list was readily ascertainable); Hutchison v. KFC Corp., 883 F. Supp. 517, 521 (D. Nev. 1993) (granting summary judgment on basis that method of making skinless fried chicken was generally known or readily ascertainable), aff ’d, 51 F.3d 280 (9th Cir. 1995); Sheets v. Yamaha Motors Corp., 657 F. Supp. 319, 327 (E.D. La. 1987), aff ’d in part and remanded in part, 849 F.2d 179 (5th Cir. 1988) (granting motion for involuntary dismissal); Buckley v. Seymour, 679 So. 2d 220, 223 (Ala. 1996) (paintless dent-removal system was commonly known or readily ascertainable); Ashland Mgmt., Inc. v. Janien, 82 N.Y.2d 395, 407, 604 N.Y.S.2d 912, 917, 624 N.E.2d 1007, 1012–13 (1993) (mathematical stock selection model not protectable because financial analysts could reproduce the calculations). 155 See, e.g., Am. Can Co. v. Mansukhani, 742 F.2d 314, 334 n.24 (7th Cir. 1984) (defendant not subject to liability even though it had knowledge of plaintiff ’s trade secret); Reinforced Earth Co. v. Neumann, 201 U.S.P.Q. (BNA) 205 (D. Md. June 5, 1978); Miller v. Owens-Illinois, Inc., 187 U.S.P.Q. (BNA) 47, 48 (D. Md. Feb. 11, 1975) (prior, independent discovery a complete defense to liability for misappropriation); Selection Research, Inc. v. Murman, 230 Neb. 786, 433 N.W.2d 526 (1989). 156 Merck & Co. v. SmithKline Beecham Pharms. Co., No. 15443-NC, 1999 Del. Ch. LEXIS 242, at *65–70, 1999 WL 66934, at *19–21 (Del. Ch. Aug. 5, 1999), aff ’d per curiam, 746 A.2d 277,
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A claim of independent development should be corroborated with sketches, notes, copies of publications, or other concrete evidence showing how the information was developed. In American Paper & Packaging Products, Inc. v. Kirgan, the defendants defeated a claim that they had misappropriated customer information by showing that their employees had visited industrial zones in their sales area, compiled lists of manufacturing companies, consulted telephone directories, made cold calls, and avoided any focus on the plaintiff’s customers.157 Importantly, those efforts were documented by contemporaneous records. d. Lack of Reasonable Efforts by Plaintiff to Maintain Secrecy There is no precise measurement of the degree or types of secrecy measures a plaintiff must allege and prove. On the one hand, a federal court may deem a complaint that merely tracks the UTSA definition of a trade secret in conclusory fashion too conclusory to withstand a motion to dismiss.158 This result flows from the notion that “a substantial measure of secrecy must exist in order for information to be treated as a trade secret.”159 On the other hand, the secrecy “need not be absolute.”160 It is sufficient that the information confer some competitive advantage on the company that possesses it.161 As explained in Section 1(3)(ii) of the UTSA, the information claimed to be a trade secret need only be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” In making that evaluation, many states—including a number of UTSA states—consider the six-factor trade secret test set forth in the Restatement (First) of Torts (1939): [A] substantial element of secrecy must exist, so that, except by the use of improper means, there would be difficulty in acquiring the information. An exact definition of a trade secret is not possible. Some factors to be considered in determining whether given information is one’s trade secret are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the
157 158 159 160 161
2000 Del. LEXIS 45 (Del. 2000), aff ’d, 766 A.2d 442 (Del. 2000)); Affiliated Hosp. Prods., Inc. v. Baldwin, 57 Ill. App. 3d 800, 807, 373 N.E.2d 1000, 1006 (1978). Am. Paper & Packaging Prods., Inc. v. Kirgan, 183 Cal. App. 3d 1318, 1321, 228 Cal. Rptr. 713, 715 (1986). Abbott Labs. v. Chiron Corp., No. 97 C 0519, 1997 WL 208369, at *3 (N.D. Ill. Apr. 23, 1997). Lamorte Burns & Co. v. Walters, 167 N.J. 285, 298–99, 770 A.2d 1158, 1166 (2001). Restatement (third) of Unfair Competition § 39 cmt. f (1995). Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79, 107 (3d Cir. 2001); Yeti by Molly Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1108 (9th Cir. 2001); EFCO Corp. v. Symons Corp., 219 F.3d 734, 741 (8th Cir. 2000).
172 Chapter 3 Litigating Trade Secret Actions—Defendant’s Perspective extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.162
Secrecy protection policies are sometimes, but not uniformly, found insufficient on a number of bases. For example, disclosure of information to the government under circumstances not requiring that it be kept secret may defeat a trade secret claim.163 The failure to identify information in court filings as “confidential” and to properly place it under seal may be fatal.164 The failure to use nondisclosure agreements may result in the loss of trade secret protection.165 That a confidentiality agreement has expired may also result in a denial of protection, either on the grounds that the parties have contractually agreed that the plaintiff’s information would be protectable only for a
162 Restatement (First) of Torts § 757 cmt. b (1939). 163 Frazee v. United States Forest Serv., 97 F.3d 367, 372–73 (9th Cir. 1996) (information was obtainable from the government pursuant to a FOIA request); Jensen v. Redevelopment Agency, 998 F.2d 1550, 1557 (10th Cir. 1993) (information concerning auto mall was disclosed to city); Lemelson v. Kellogg Co., 440 F.2d 986, 987–88 (2d Cir. 1971) (trade secret included in Copyright Office deposit materials); Weygand v. CBS, Inc., 43 U.S.P.Q.2d (BNA) 1120, 1128 (C.D. Cal. May 20, 1997) (trade secret included in script deposited with the Copyright Office). 164 Glaxo, Inc. v. Novopharm Ltd., 931 F. Supp. 1280, 1300 (E.D.N.C. 1996); Huffy Corp. v. Super. Ct., 112 Cal. App. 4th 97, 4 Cal. Rptr. 3d 823 (2003). 165 See, e.g., Hoffmann-La Roche, Inc. v. Yoder, 950 F. Supp. 1348, 1361–63 (S.D. Ohio 1997) (no written confidentiality agreement, documents only minimally legended, no internal controls on document distribution and access); Bayline Partners L.P. v. Weyerhaeuser Co., 31 U.S.P.Q.2d (BNA) 1051, 1054–55 (N.D. Cal. Feb. 17, 1994) (company disclosed information to supplier absent a need to know and failed to require a nondisclosure agreement); Water Mgmt., Inc. v. Stayanchi, 472 N.E.2d 715, 718 (Ohio 1984) (employees not asked to sign nondisclosure agreements); Liebert Corp. v. Mazur, 827 N.E.2d 909, 923-24, 357 Ill. App. 3d 265, 279 (2005) (preliminary injunction application denied based on failure to secure employee confidentiality agreements and to identify what was confidential); ConAgra, Inc. v. Tyson Foods, Inc., 342 Ark. 672, 679, 30 S.W.3d 725, 730 (2000) (reversing grant of preliminary injunction because employee “code of conduct” was insufficient without a confidentiality agreement); N.E. Coating Techs., Inc. v. Vacuum Metallurgical Co., 684 A.2d 1323–24, 41 U.S.P.Q.2d (BNA) 1862, 1863–64 (Me. 1996) (prospectus distributed unsolicited to persons who were not asked to sign nondisclosure agreement); Delta Filter Corp. v. Morin, 108 A.D.2d 991, 993, 485 N.Y.S.2d 143, 145 (N.Y. App. Div. 1985) (employees not required to sign nondisclosure agreements); Daily Int’l Sales Corp. v. Eastman Whipstock, Inc., 662 S. W.2d 60, 63 (Tex. App. 1983) (licensee not required to sign nondisclosure agreement and documents not legended); MLB Corp. v. Diekman, 445 N.E.2d 418, 424 (Ill. App. Ct. 1983) (only some employees signed nondisclosure agreements); J.T. Healy & Son, Inc. v. James A. Murphy & Son, Inc., 260 N.E.2d 723, 730 (Mass. 1970) (plaintiff did not require employees to sign nondisclosure agreements and failed to identify alleged trade secrets to them).
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certain period or on the basis that it is no longer subject to reasonable efforts to protect its secrecy.166 Unilateral statements declaring that any dissemination is “confidential” cannot create a duty and therefore do not constitute reasonable efforts to maintain secrecy.167 The widespread disclosure of the information to employees without a need to know will frequently defeat a claim that reasonable efforts were made to maintain secrecy.168 The failure to educate employees concerning what information is or is not trade secret or proprietary may also give rise to a finding of no liability.169 Finally, a general failure to engage in any reasonable efforts to protect its trade secrets will result in the denial of a plaintiff’s claim.170
166 See, e.g., Motorola, Inc. v. Fairchild Camera & Instrument Corp., 366 F. Supp. 1173, 1187–88 (D. Ariz. 1973). 167 N.E. Coating Techs., Inc. v. Vacuum Metallurgical Co., 684 A.2d 1322, 1324, 41 U.S.P.Q.2d (BNA) 1862, 1864 (Me. 1996); see also Smith v. Snap-On Tools Corp., 833 F.2d 578, 579, 580 (5th Cir. 1987) (absent confidential relationship, the plaintiff could not state a claim for misappropriation); Abernathy-Thomas Eng’g Co. v. Pall Corp., 103 F. Supp. 2d 582, 600 (E.D.N.Y. 2000) (confidential relationship implied from former employment relationship); Mineral Deposits Ltd. v. Zigan, 773 P.2d 606, 608 (Colo. Ct. App. 1988). But see Phillips v. Frey, 20 F.3d 623, 624, 628, 631–32 (5th Cir. 1994) (confidential relationship implied from circumstances). 168 Allied Supply Co. v. Brown, 585 So. 2d 33, 36 (Ala. 1991). 169 Buffets, Inc. v. Klinke, 73 F.3d 965, 996 (9th Cir. 1996); Motorola, Inc. v. Fairchild Camera & Instrument Corp., 366 F. Supp. 1173, 1185 (D. Ariz. 1973); Shatterproof Glass Corp. v. Guardian Glass Co., 322 F. Supp. 854, 864–65 (E.D. Mich. 1970); Liebert Corp. v. Mazur, 827 N.E.2d 909, 922, 357 Ill. App. 3d 265, 277 (2005); Nat’l Rejectors, Inc. v. Trieman, 409 S.W.2d 1, 22 (Mo. 1996); Dynamics Research Corp. v. Analytic Sciences Corp., 400 N.E.2d 1274, 1287 (Mass. App. Ct. 1980); Capsonic Group, Inc. v. Plas-Met Corp., 361 N.E.2d 41, 43–44 (Ill. App. Ct. 1977). 170 See, e.g., Composite Marine Propellors, Inc. v. Van Der Woude, 962 F.2d 1263, 1266 (7th Cir. 1992); Moore v. Am. Barmag Corp., 15 U.S.P.Q.2d (BNA) 1829, 1830 (Fed. Cir. Apr. 27, 1990) (plaintiff took no measures to guard the secrecy of its information); Wilson v. Electro Marine Sys., Inc., 915 F.2d 1110, 1115 (7th Cir. 1990); Arco Indus. Corp. v. Chemcast Corp., 633 F.2d 435, 443 (6th Cir. 1980); VFD Consulting, Inc. v. 21st Servs., 425 F. Supp. 2d 1037, 1049–50 (N.D. Cal. 2006); Raymond James & Assocs. v. Leonard & Co., 411 F. Supp. 2d 689, 695 (E.D. Mich. 2006); Contracts Materials Processing, Inc. v. Kataleuna GmbH Catalysts, 164 F. Supp. 2d 520, 533 (D. Md. 2001); Hoffman-La Roche, Inc. v. Yoder, 950 F. Supp. 1348, 1357, 1358, 1364 (S.D. Ohio 1997); Nat’l Risk Mgmt., Inc. v. Bramwell, 819 F. Supp. 417, 430 (E.D. Pa. 1993); Ivy Mar Co. v. C.R. Seasons Ltd., 907 F. Supp. 547, 556 (E.D.N.Y. 1995), dismissed in part, No. 95 CV 0508 (FB), 1997 WL 37082 (E.D.N.Y. Jan. 24, 1997); Bank Travel Bank v. McCoy, 802 F. Supp. 1358, 1360 (E.D.N.C. 1992), aff ’d sub nom. Amariglio-Dunn v. McCoy, 4 F.3d 984 (4th Cir. N.C. 1993); Bus. Trends Analysts, Inc. v. Freedonia Group, Inc., 700 F. Supp. 1213, 1236 (S.D.N.Y. 1988), aff ’d in part and rev’d in part, 887 F.2d 399 (2d Cir. 1989); Nationwide Mut. Ins. Co. v. Stenger, 695 F. Supp. 688, 691 (D. Conn. 1988); Ecologix, Inc. v. Fansteel, Inc., 676 F. Supp. 1374, 1382 (N.D. Ill. 1988); Pressure Science, Inc., v. Kramer, 413 F. Supp. 618, 627–28 (D. Conn. 1976), aff ’d, 551 F.2d 301 (2d Cir. 1976); Metal Lubricants Co. v. Engineered Lubricants Co., 284 F. Supp. 483, 488 (E.D. Mo. 1968), aff ’d, 411 F.2d 426 (8th Cir. 1969); Tyson Foods, Inc. v. ConAgra, Inc., 349 Ark. 469, 479–80, 79 S.W.3d 326, 332 (2002); In re Providian Credit Card Cases, 96 Cal. App. 4th 292, 306–08, 116 Cal. Rptr.
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It is often said that reasonableness is a question of fact.171 For that reason, some courts have noted that summary judgment is granted on reasonableness grounds only in “extreme” cases.172 Other courts have taken the view that “extreme” does not necessarily mean “rare,” and have, therefore, routinely granted summary judgment based on a finding of lack of reasonableness as a matter of law.173 e. Public Knowledge of Plaintiff ’s Information Only relative secrecy is necessary for protection. The UTSA provides that the plaintiff’s information must derive independent economic value, actual or potential, from not being “generally known” to others who can obtain economic value from its disclosure or use.174 As elsewhere in trade secret law, the quantum of secrecy necessary to qualify a plaintiff’s information for protection is amorphous. The Restatement (Third) of Unfair Competition (1995) provides: To qualify as a trade secret, the information must be secret. The secrecy, however, need not be absolute. The rule stated in this Section requires only secrecy sufficient to confer an actual or potential economic advantage on one who possesses the information. Thus, the requirement of secrecy is satisfied if it would be difficult or costly for others who could exploit the information to acquire it without resort to . . . wrongful conduct. . . . 175
Earlier, the Restatement (First) of Torts (1939) explained: Matters which are completely disclosed by the goods which one markets cannot be his secret. Substantially, a trade secret is known only in a particular business in which it is used. It is not requisite that only the proprietor of the business
171 172 173
174 175
2d 833, 844–45 (2002); Cadillac Gage Co. v. Verne Eng’g Corp., 203 U.S.P.Q. (BNA) 473, 477–78 (Mich. Cir. Ct. Aug. 17, 1978); Weins v. Sporleder, 569 N.W.2d 16, 22–23 (S.D. 1997). See, e.g., Surgidev Corp. v. Eye Tech., Inc., 828 F.2d 452, 455 (8th Cir. 1987). See, e.g., Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 179–80 (7th Cir. 1991). See, e.g., Arco Indus. Corp. v. Chemcast Corp., 633 F.2d 435, 443 (6th Cir. 1980); Compuware Corp. v. Health Care Serv. Corp., 203 F. Supp. 2d 952, 957–58 (N.D. Ill. 2002), withdrawn, No. 01 C 0873, 2002 WL 31598839 (N.D. Ill. Oct. 31, 2002); S.W. Whey, Inc. v. Nutrition 101, Inc., 117 F. Supp. 2d 770, 779–80 (C.D. Ill. 2000); Motor City Bagels, L.L.C. v. Am. Bagel Co., 50 F. Supp. 2d 460, 480 (D. Md. 1999); Gemisys Corp. v. Phoenix Am., Inc., 186 F.R.D. 551, 558 (N.D. Cal. 1999); Wheelabrator Corp. v. Fogle, 317 F. Supp. 633, 639 (W.D. La. 1970), aff ’d per curiam, 438 F.2d 1226 (5th Cir. 1971); Area Landscaping, L.L.C. v. Galxo-Wellcome, Inc., 586 S.E.2d 507, 510 (N.C. Ct. App. 2003). UTSA § 1(4)(i) (amended 1985). Restatement (Third) of Unfair Competition § 39 cmt. f (1995).
Defenses 175 know it. He may, without losing his protection, communicate it to employees involved in its use. He may likewise communicate it to others pledged to secrecy. Others may also know of it independently, as, for example, when they have discovered the process or formula by independent invention and are keeping it secret.176
Notwithstanding that both the UTSA and the Restatement (First) of Torts have required that information be only largely secret to qualify for protection, a number of courts have suggested (frequently in dictum) that complete secrecy is required. In ECT International, Inc. v. Zwerlein, the court interpreted the Wisconsin UTSA as requiring that protectable information be “available from only one source.”177 Similarly, in Chicago Lock Co. v. Fanberg, the Ninth Circuit suggested that a trade secret could lose its character as private property if discovered through proper means.178 Most courts, however, ascribe to the view that information remains protectable even when it is known to several discoverers.179 In some circumstances, a lack of secrecy will almost always be found. As explained in Section (A)(1)(d) of this chapter, information disclosed in a U.S. patent or published U.S. patent application is never considered secret, and information contained in a foreign patent or published foreign patent application rarely is. Thus, when a plaintiff claims trade secret protection in information disclosed by a patent or patent application, judgment for the defendant can easily be entered as a matter of law. This is usually also the result when a plaintiff has disclosed its secret in materials deposited with the U.S. Copyright Office180 or has otherwise published it.181 A court may also rule as a matter of law that a trade secret claim is barred if the parties have
176 Restatement (First) of Torts § 757 cmt. b (1939). 177 ECT Int’l, Inc. v. Zwerlein, 228 Wis. 2d 343, 349, 597 N.W.2d 479, 482 (1999). 178 Chicago Lock Co. v. Fanberg, 676 F.2d 400, 404 (9th Cir. 1982); see also Goldin v. R. J. Reynolds Tobacco Co., 22 F. Supp. 61, 65 (S.D.N.Y. 1938); Bimba Mfg. Co. v. Starz Cylinder Co., 256 N. E.2d 357, 364, 119 Ill. App. 2d 251, 264, 164 U.S.P.Q. (BNA) 304, 308 (1969); Heatbath Corp. v. Ifkovits, 254 N.E.2d 139, 143, 117 Ill. App. 2d 158, 165, 164 U.S.P.Q. (BNA) 537, 539 (1969); James C. Wilborn & Sons, Inc. v. Heniff, 237 N.E.2d 781, 786, 95 Ill. App. 2d 155, 163–64, 159 U.S.P.Q. (BNA) 293, 295 (1968); Julius Hyman & Co. v. Velsicol Corp., 123 Colo. 563, 233 P.2d 977 (1951); Godefroy Mfg. Co. v. Lady Lennox Co., 134 S.W.2d 140, 141 (Mo. Ct. App. 1939). 179 See, e.g., E.I. duPont de Nemours & Co. v. United States, 288 F.2d 904, 911 (Ct. Cl. 1961); Bestechs. v. Trident Envtl. Sys., 681 So. 2d 1175, 1175–76 (Fla. Dist. Ct. App. 1996). 180 Lemelson v. Kellogg Co., 440 F.2d 986, 987–88 (2d Cir. 1971) (“[T]here is no cause of action for the use of an idea claimed to have been communicated in confidence when that idea has been made public by the issuance of a copyright or patent prior to its use.”); Weygand v. CBS, Inc., 43 U.S.P.Q.2d (BNA) 1120, 1128 (C.D. Cal. May 20, 1997) (“Plaintiff ’s deposit of his script with the Copyright Office destroyed any possible ‘confidential’ status.”). 181 Motorola, Inc. v. Fairchild Camera & Instrument Corp., 366 F. Supp. 1173, 1188 (D. Ariz. 1973).
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entered into a contract specifying the scope of the plaintiff’s trade secrets. If the contract failed to identify the information at issue in the litigation as a trade secret, courts sometimes hold that it is not entitled to protection at all. They reason that a plaintiff should not be allowed to use the UTSA to accomplish indirectly what it did not do directly by contract.182 Apart from situations when a plaintiff has either caused the publication of its own trade secret or limited the scope of its claim through contract, whether the plaintiff’s information retains sufficient secrecy to merit protection is generally characterized as a question of fact to be resolved at trial.183 On the other hand, when the facts are egregious, courts are frequently persuaded to enter judgment for the defendant as a matter of law. Even though it is well established that a customer list may be subject to trade secret protection, courts understand that plaintiffs frequently claim protection in customer lists simply as a means of limiting competition from former employees. For that reason, plaintiffs frequently lose claims based on the alleged misappropriation of a customer list, including by dispositive motion.184 For the same reason, claims based on the alleged misappropriation of customer information or pricing information frequently meet with defeat, even at the pleading stage.185 Of course, claims based on formulas, methods, and processes may
182 See, e.g., Ins. Assocs. Corp. v. Hansen, 111 Idaho 206, 723 P.2d 190 (Idaho Ct. App. 1986); Michels v. Dyna-Kote Indus., Inc., 497 N.E.2d 586, 591–92 (Ind. Ct. App. 1986). Similarly, if a contract requires a fixed period of confidentiality, injunctive relief may be unavailable after the confidentiality period expires. See, e.g., Union Pac. R.R. v. Mower, 219 F.3d 1069, 1077 (9th Cir. 2000). 183 See supra, Chapter 3(A)(3), n.123. 184 See, e.g., Kadant, Inc. v. Seeley Mach., Inc., 244 F. Supp. 2d 19, 35 (N.D.N.Y. 2003) (denying preliminary injunction application in part); Home Paramount Pest Control Cos. v. FMC Corp./Agric. Prods. Group, 107 F. Supp. 2d 684, 692 (D. Md. 2000); Inflight Newspapers, Inc. v. Magazines In-Flight, L.L.C., 990 F. Supp. 119, 126 (E.D.N.Y. 1997) (denying preliminary injunction application in part); Mettler-Toledo, Inc. v. Acker, 908 F. Supp. 240, 241, 246 (M.D. Pa. 1995) (denying preliminary injunction motion); Vigoro Indus. v. Cleveland Chem. Co., 866 F. Supp. 1150, 1163 (E.D. Ark. 1994); Nat’l Risk Mgmt., Inc. v. Bramwell, 819 F. Supp. 417, 430 (E.D. Pa. 1993); Licata & Co. v. Goldberg, 812 F. Supp. 403, 409–10 (S.D.N.Y. 1993); Hancock v. Essential Resources, Inc., 792 F. Supp. 924, 926 (S.D.N.Y. 1992); Golden Distribs. Ltd. v. Auburn Merch. Distributorship, Inc., 134 B.R. 750, 757 (Bankr. S.D.N.Y. 1991) (dismissing complaint); Burbank Grease Servs., L.L.C. v. Sokolowski, 278 Wis. 2d 698, 708, 715, 693 N.W.2d 89, 94, 97 (Ct. App. 2005) (affirming grant of summary judgment), aff ’d in part and rev’d in part, 294 Wis. 2d 274, 717 N.W.2d 781 (2006); Allan M. Dworkin, D.D.S., P.A. v. Blumenthal, 77 Md. App. 774, 781, 551 A.2d 947, 950 (Ct. Spec. App. 1989); Robert S. Weiss & Assoc. v. Wiederlight, 208 Conn. 525, 537–39, 546 A.2d 216, 223–24 (1988); Am. Paper & Packaging Prods., Inc. v. Kirgan, 183 Cal. App. 3d 1318, 1321, 228 Cal. Rptr. 713, 715 (1986); Pestco, Inc. v. Associated Prods., Inc., 880 A.2d 700, 705-06, 708–09, 711 (Pa. Super. Ct. 2005). 185 See, e.g., A.I.B. Express, Inc. v. FedEx Corp., 358 F. Supp. 2d 239, 252 (S.D.N.Y. 2004); Trilogy Software, Inc. v. Callidus Software, Inc., 143 S.W.3d 452, 464, 466 (Tex. App. 2004); Venture Express, Inc. v. Zilly, 973 S.W.2d 602, 606 (Tenn. Ct. App. 1998); Optic Graphics, Inc. v. Agee,
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also be defeated on motion, especially if they appear intuitively obvious or if the defendant can demonstrate that they are widely known.186 f. Equitable Defenses Equitable defenses apply in trade secret litigation, subject to certain limitations. As elsewhere, the rule that “one who seeks equity must do equity” does not mandate the denial of relief for just any past improper conduct: The misconduct which brings the unclean hands doctrine into operation must relate directly to the transaction concerning which the complaint is made, i.e., it must pertain to the very subject matter involved and affect the equitable relations between the litigants.187
Applying the above principle, an employee who was wrongfully terminated by the plaintiff was held not to have an equitable defense to the plaintiff’s trade secret misappropriation claim.188 Similarly, a plaintiff’s claim for trade secret misappropriation will not be barred simply because the plaintiff required its employees to sign unenforceable noncompete agreements.189
186
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188 189
87 Md. App. 770, 783–85, 591 A.2d 578, 584–85 (Ct. Spec. App. 1991); Numed, Inc. v. McNutt, 724 S.W.2d 432, 435 (Tex. App. 1987); Markowitz v. Serio, 11 Misc. 3d 439, 443–45, 812 N.Y.S.2d 841, 844–46 (Sup. Ct. 2006), rev’d, 39 A.D.3d 247, 833 N.Y.S.2d 444 (2007); Wellspan Health v. Bayliss, 869 A.2d 990, 997 (Pa. Super. Ct. 2005); Tyson Metal Prods., Inc. v. McCann, 546 A.2d 119, 121, 376 Pa. Super. 461, 465–66 (1988). See, e.g., Medinol Ltd. v. Boston Scientific Corp., 346 F. Supp. 2d 575, 607 (S.D.N.Y. 2004) (granting summary judgment that stent design was not protectable because stent would be marketed); LinkCo, Inc. v. Fujitsu Ltd., 230 F. Supp. 2d 492, 498 (S.D.N.Y. 2002) (software architecture was not protectable it would be easily ascertainable once product was marketed); Swartz v. Schering-Plough Corp., 53 F. Supp. 2d 95, 100 (D. Mass. 1999) (granting in part motion to dismiss because information had entered the public domain notwithstanding the plaintiff ’s efforts to preserve confidentiality); Brandwynne v. Combe Int’l Ltd., 74 F. Supp. 2d 364, 376 (S.D.N.Y. 1999) (concept of vaginal lubricant); Frink Am., Inc. v. Champion Road Mach. Ltd., 48 F. Supp. 2d 198, 206–07 (N.D.N.Y. 1999) (information in engineering drawings ceased to be secret when device was marketed); Blank v. Pollack, 916 F. Supp. 165, 167, 174 (N.D.N.Y. 1996) (granting summary judgment that device offered for sale was open to public inspection and thus not secret); Moore v. Marty Gilman, Inc., 965 F. Supp. 203, 217 (D. Mass. 1996) (granting partial summary judgment because information concerning claimed sports training device was in the public domain); Secure Servs. Tech., Inc. v. Time & Space Processing, 722 F. Supp. 1354, 1361 (E.D. Va. 1989) (granting summary judgment on various grounds, including that sale of machine disclosed its protocol variations); H.E. Butt Grocery Co. v. Moody’s Quality Meats, 951 S.W.2d 33, 36 (Tex. App. 1997) (method for making beef fajitas). Vacco Indus., Inc. v. Van Den Berg, 5 Cal. App. 4th 34, 52, 6 Cal. Rptr. 2d 602, 612 (1992) (citing Fibreboard Paper Prods. Corp. v. East Bay Union of Machinists, 227 Cal. App. 2d 675, 728, 39 Cal. Rptr. 64, 97 (1964)). Id. at 53, 6 Cal. Rptr. 2d at 613. See Winston Research Corp. v. Minn. Mining & Mfg. Co., 350 F.2d 134, 140 n.4 (9th Cir. 1965).
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Usually, however, the defense may be invoked when the plaintiff has engaged in the same type of unfair competition alleged in its complaint against the defendant.190 Other courts, however, ascribe to the view that “the inequitable conduct must concern the actual events at issue.”191 Laches is of limited usefulness in trade secret actions because courts typically will not apply the doctrine to shorten the time to bring suit otherwise allowed by the statute of limitations.192 Some courts will, however, entertain laches as a defense to a damages claim, reasoning that it is inequitable for a plaintiff to allow the defendant to earn additional profits in the hope of getting a larger damages recovery.193 Acquiescence may provide not just a defense but may go to the merits of the plaintiff’s claim. An argument that the plaintiff has acquiesced in the defendant’s initial misappropriation may support the argument that the plaintiff failed to take reasonable steps to maintain the secrecy of its information because it failed to seek judicial relief earlier.194 g. Justification or Privilege When the defendant has used the plaintiff’s trade secret information for a legitimate purpose, such as to further the public interest, a defense of privilege
190 See, e.g., Future Plastics, Inc. v. Ware Shoals Plastics, Inc., 340 F. Supp. 1376, 1384 (D.S.C. 1972) (“Should Impact . . . be allowed to enjoin the defendants from committing the same acts of which it has been guilty? Impact was conceived in the same sin of which it now accuses the defendants.”); ACI Chems., Inc. v. Metaplex, Inc., 615 So. 2d 1192, 1195 (Miss. 1993) (claims barred in part because the plaintiff acquired its trade secrets through wrongful means). 191 Microstrategy, Inc. v. Bus. Objects, S.A., 331 F. Supp. 2d 396, 419 (E.D. Va. 2004). 192 See Sokol Crystal Prods., Inc. v. DSC Commc’ns Corp., 15 F.3d 1427, 1430 (7th Cir. 1994) (rejecting laches defense as being disposed of by the rejection of the defendant’s statute of limitations defense); Highland Tank & Mfg. Co. v. PS Int’l, Inc., 393 F. Supp. 2d 348, 357 (W.D. Pa. 2005) (rejecting otherwise strong laches argument because the statute of limitations was found satisfied on the face of the complaint); cf. Wyeth v. Natural Biologics, Inc., 395 F.3d 897, 901 (8th Cir. 2005) (affirming lower court holding that ten-month delay in bringing suit after learning of evidence that strongly suggested misappropriation did not constitute either laches or waiver). But see Jones v. Ceramco, Inc., 378 F. Supp. 65, 68 (E.D.N.Y. 1974) (dismissing trade secret claims on basis of laches after eight years of inaction), vacated in part on other grounds, 387 F. Supp. 940, 184 U.S.P.Q. (BNA) 591 (E.D.N.Y. 1975), aff ’d without opinion, 526 F.2d 585 (2nd Cir. 1975). 193 See Anaconda Co. v. Metric Tool & Die Co., 485 F. Supp. 410, 425–31 (E.D. Pa. 1980) (laches applied to bar damages but not injunction). But see Sokol Crystal Prods., Inc. v. DSC Commc’ns, Corp., 15 F.3d 1427, 1430 (7th Cir. 1994) (defendant’s laches argument that plaintiff was required to mitigate its damages collapsed into the statute of limitations analysis). 194 See Alamar Biosciences, Inc. v. Difco Labs., Inc., No. Civ-S-941856, 1995 WL 912345, at *6 (E.D. Cal. Oct. 13, 1995).
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or justification may be asserted. The Restatement (Third) of Unfair Competition Section 40, comment c (1995), explains: [E]xistence of a privilege to disclose another’s trade secret depends upon the circumstances of the particular case, including the nature of the information, the purpose of the disclosure, and the means by which the actor acquired the information. A privilege is likely to be recognized, for example, in connection with the disclosure of information that is relevant to public health or safety, or to the commission of a crime or tort, or to other matters of substantial public concern.195
Thus, in Re v. Horstmann, the court recognized a privilege to disclose to law enforcement officials trade secrets relevant to a criminal fraud that had been revealed to the defendants in confidence.196 Likewise, in Lachman v. Sperry-Sun Well Surveying Co., a court refused to impose liability for the breach of a nondisclosure provision in a contract to survey an oil well when the survey company disclosed to the adjoining landowner that the well encroached on the landowner’s property.197 Another court noted in dictum that a state lottery director could disclose to the lottery ticket manufacturer trade secrets of a third party related to the testing and security of tickets.198 Still another court held that filing a litigation based on information obtained from confidential prelitigation settlement negotiations was not a “competitive use” and therefore not an act of misappropriation.199 There is, however, no absolute First Amendment privilege, even by the news media, to disclose truthful, confidential information.200 h. Anticompetitive Effects Like other forms of intellectual property, trade secrets can be misused. The anticompetitive effects of such misuse may sometimes offer a defense or counterclaim in a misappropriation case. The court must balance the interest of the trade secret holder in asserting its rights vis-à-vis infringers against the public interest in the licensing of trade secrets in a competitive market. In CVD, Inc. v. Raytheon Co.,201 the plaintiffs alleged that Raytheon had
195 196 197 198 199 200
Restatement (Third) of Unfair Competition § 40 cmt. c (1995). Re v. Horstmann, No. CA 83C-FE-82, 1987 WL 16710, at * 2 (Del. Super. Aug. 11, 1987). Lachman v. Sperry-Sun Well Surveying Co., 457 F.2d 850, 852 (10th Cir. 1972). Sys. Operations, Inc. v. Scientific Games Dev. Corp., 425 F. Supp. 130, 135–36 (D.N.J. 1977). S.W. Energy Co. v. Eickenhorst, 955 F. Supp. 1078, 1084 (W.D. Ark. 1997). Cohen v. Cowles Media Co., 501 U.S. 663, 669–71, 111 S. Ct. 2513, 2518–19, 115 L. Ed. 2d 586, 596–98 (1991); Seattle Times Co. v. Rhinehart, 467 U.S. 20, 31, 104 S. Ct. 2199, 2206–07, 81 L. Ed. 2d 17, 26 (1984). 201 CVD, Inc. v. Raytheon Co., 769 F.2d 842 (1st Cir. 1985).
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unlawfully used the threat of litigation to exact a licensing agreement from them. The First Circuit affirmed a verdict for the plaintiff, holding that “the threat of unfounded trade secrets litigation in bad faith is sufficient to constitute a cause of action under the antitrust laws.”202 What constitutes bad faith may be examined by looking to the more numerous cases at the intersection of patent and antitrust law addressing whether a patent holder has acted in bad faith in bringing litigation to enforce a patent.203
B. Effect of Arbitration Provision A defendant faced with a trade secret claim should examine whether the claim is subject to an agreement to arbitrate. Increasingly, contracts provide for mandatory, binding arbitration as a means of dispute resolution. Such arbitration provisions are ubiquitous in many industries, such as the securities business. Increasingly, mandatory arbitration provisions are found in employment agreements. Arbitration is also a common dispute resolution mechanism in international commercial agreements. Under the Federal Arbitration Act, agreements to arbitrate are “valid, irrevocable, and enforceable” unless there are grounds to revoke the contract.204 On a motion to enforce an arbitration provision, a court must decide whether the agreement is valid and whether the dispute falls within the scope of the arbitration provision. The first principle of arbitration law is that a party cannot be compelled to arbitrate a dispute unless that party has agreed to arbitration.205 However, federal policy favoring arbitration for dispute resolution “requires a liberal reading of arbitration agreements,” and doubts are resolved in favor of arbitration.206 The wording of the arbitration provision is critical. Language that calls for arbitration of all disputes “arising out of or relating to an agreement” is considered a broad arbitration clause and will be held to include tort claims for trade secret misappropriation and tortious interference.207 A broad arbitration
202 Id. at 851. 203 See, e.g., Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 174, 86 S. Ct. 347, 349, 15 L. Ed. 2d 247, 249–50 (1965) (enforcement of patent obtained by fraud may be basis of antitrust claim). 204 9 U.S.C. § 2 (2008). 205 See AT & T Techs., Inc. v. Commc’ns Workers, 475 U.S. 643, 648, 106 S. Ct. 1415, 1418, 89 L. Ed. 2d 648, 655 (1986). 206 See Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 23 n.27, 103 S.Ct. 927, 941 n.27, 74 L. Ed. 2d 765, 784 n.27 (1983); AT & T Techs., 475 U.S. at 650, 106 S. Ct. at 1419, 89 L. Ed. 2d at 656. 207 See, e.g., Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511, 1517–18 (10th Cir. 1995) (misappropriation claim related to contractual relationship); GATX Mgmt. Servs., L.L.C. v.
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clause also covers conduct that occurs after an employment contract terminates, provided that the claim “touches the contract.”208 However, an arbitration clause that covers only disputes that “arise under” an agreement, without mention of claims “relating to” an agreement, has been held not to cover such tort claims as trade secret misappropriation.209 The defenses to the enforcement of an arbitration agreement are limited. The most common defenses are that the agreement was procured by fraud or is unconscionable, and that a party has waived the right to invoke arbitration. Each of these defenses is difficult to establish. The defense that the contract as a whole was induced by fraud must be submitted to the arbitration panel for resolution. Only an assertion that the arbitration agreement itself was fraudulently procured may be determined by the court.210 To set aside an agreement as unconscionable, the party resisting arbitration must show that the agreement is both procedurally unconscionable (meaning that the process by which the agreement was reached was unconscionable) and substantively unconscionable (meaning that the arbitration provision favors one side). In Zimmer v. CooperNeff Advisors, Inc.,211 the district court refused to enforce an arbitration agreement against an employee accused of misappropriating a trading model he had developed while employed. An appellate court reversed the decision because the employee was a trained economist and had not attempted to renegotiate the employer’s agreement. Waiver requires proof of intentional conduct reflecting abandonment of the agreement to arbitrate and focuses on the timeliness of the motion to compel arbitration, the extent to which the parties have availed themselves of the litigation process, and prejudice to the nonmoving party.212
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211 212
Weakland, 171 F. Supp. 2d 1159, 1161 (D. Colo. 2001) (tortious interference and trade secret misappropriation held within scope of clause covering any dispute that “arises out of or related” to employment agreement); conTeyor Multibag Sys. N.V. v. Bradford Co., No. 1:05CV-613, 2006 U.S. Dist. LEXIS 55898, at *7 (W.D. Mich. Aug. 10, 2006) (compelling arbitration of trade secret misappropriation claims that “arise out of or are connected” to license agreement). Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 845 (2d Cir. 1987). Tracer Research Corp. v. Nat’l Envtl. Servs. Co., 42 F.3d 1292, 1295 (9th Cir. 1994); Strick Corp. v. Cravens Homalloy (Sheffield) Ltd., 352 F. Supp. 844, 848 (E.D. Pa. 1972) (licensing agreement). But see FCI USA, Inc. v. Tyco Elecs. Corp., No. 2:06-CV-128 (TJW), 2006 U.S. Dist. LEXIS 48432, at *6 (E.D. Tex. July 14, 2006) (distinguishing Tracer and Strick, and compelling arbitration because misappropriation of trade secrets claim arose from a “strategic relationship” as opposed to simply a licensing agreement). See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–04, 87 S. Ct. 1801, 1806, 18 L. Ed. 2d 1270, 1277 (1967) (holding that a claim of fraud in the inducement of the contract was arbitrable under a broad arbitration clause and that a court may adjudicate only a claim of fraudulent inducement of arbitration clause itself). Zimmer v. CooperNeff Advisors, Inc., 523 F.3d 224 (3d Cir. 2008). See, e.g., Zwitserse Maatschappij Van Levensverzekering En Lijfrente v. ABN Int’l Capital Mkts. Corp., 996 F.2d 1478, 1479–80 (2d Cir. 1993); S & H Contractors, Inc. v. A.J. Taft Coal
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A procedural conundrum occurs if the former employer (i) sues a former employee whose employment agreement with the former employer included an arbitration provision; and (ii) also sues the new employer, which naturally is not a party to the arbitration agreement. Can the plaintiff require the new employer to arbitrate? Assuming the former employee invokes the arbitration clause, can the new employer do so as well? The answer is that nonparties to the arbitration agreement may invoke the benefit of the provision if the claims involving nonparties are sufficiently interwoven with the claims that are required to be arbitrated.213 If only certain claims are submitted to arbitration, the court may stay the nonarbitrable claims until after the arbitration is completed.214 Defendants faced with these issues will need to consider carefully the relative advantages of an arbitration forum, such as the need for decision makers knowledgeable concerning the industry, the advantages of the broader discovery afforded by litigation, and the importance of a broader scope of appellate review. Arbitration provisions pose special challenges when trade secret litigation involves a request for immediate injunctive relief. There are generally two ways to proceed. First, a party may seek judicial intervention to prevent imminent harm while preserving the merits for ultimate determination by arbitration.215 Second, an increasing number of arbitral bodies provide a
Co., 906 F.2d 1507, 1514 (11th Cir. 1990). A summary of the doctrine of waiver of arbitration by litigation is found in Systran Fin. Servs. Corp. v. Giant Cement Holding, 252 F. Supp. 2d 500, 506 (N.D. Ohio 2003). 213 In GATX Mgmt. Servs., L.L.C. v. Weakland, 171 F. Supp. 2d 1159, 1165 (D. Colo. 2001), the former employer sued its former employee and his new employer, and sought a preliminary injunction prohibiting, inter alia, the alleged misappropriation of trade secrets. The court applied the equitable estoppel doctrine and permitted the new employer, who was not a party to the underlying employment, to assert and enforce the arbitration clause with respect to the claims plaintiff alleged against it. On the other hand, in Xantrex Tech., Inc. v. Advanced Energy Indus., No. 07-CV-02324-WYD-MEH, 2008 U.S. Dist. LEXIS 41206, at *23–25 (D. Colo. May 23, 2008), the court held that the new employer did not have a close relationship with employee at time of contract and therefore was not bound to arbitrate. These cases can be reconciled on the basis that in GATX the new employer was seeking to invoke the arbitration clause, whereas in Xantrex, the new employer was resisting arbitration. 214 See, e.g., RBC Dain Rauscher, Inc. v. Farmers State Bank, Inc., No. 05-6109-CV-SJ-HFS, 2006 U.S. Dist. LEXIS 40997, at *1, *13 (W.D. Mo. June 20, 2006) (staying trade secret litigation pending NASD arbitration). 215 For example, a party in a securities industry dispute may seek a temporary restraining order in court even if a request to arbitrate has already been filed, provided that the hearing on the request for permanent relief has not already commenced in front of the National Association of Securities Dealers (NASD), now the Financial Industry Regulatory Association (FINRA). See NASD Rule 10335 and new FINRA Rule 13804, applicable to cases filed after April 16, 2007. State procedural statutes may also permit a court to grant temporary or preliminary injunctive relief notwithstanding the pendency of an arbitration proceeding. See, e.g., Cal. Civ. Proc. Code § 1281.8(b)–(d), Ga. Code Ann. § 9-9-4, N.Y. C.P.L.R. 7502, R.I. Gen. Laws § 8-2-13.1, N.C. Gen. Stat. § 1-567.39, Ohio Rev. Code Ann. § 2712.15, Or. Rev.
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method for seeking expedited relief in arbitration. However, an order by an arbitration panel does not carry the force of law until confirmed by a court. When a trade secret claim is referred to arbitration, there may be disagreement whether discovery is permitted and, if so, what the permissible scope of discovery is. These issues generally are committed to the discretion of the arbitration panel unless the parties have specifically addressed them in the arbitration agreement. It is fairly well-established that arbitration panels have the right to enter confidentiality orders to protect documents and testimony obtained through an arbitration discovery process. On the other hand, the courts disagree concerning the ability of arbitrators to subpoena parties for deposition.216 Defending the merits of a trade secret claim in arbitration is not fundamentally different from litigating a case in court. Perhaps the most significant difference is that the formal rules of evidence are rarely imposed, thus allowing for the introduction and consideration of documents and testimony otherwise subject to exclusion. If an arbitrator is experienced in the industry, his or her own experience may be brought to bear in determining whether certain information is a trade secret and whether appropriate measures to preserve secrecy were undertaken. The drawbacks of arbitration include the lack of a requirement for the arbitration panel to make specific findings and issue an opinion, and the sharply limited bases for judicial review of an arbitration award. Parties entering into an arbitration agreement are essentially opting for a more knowledgeable trier of the case, and possibly a somewhat more expeditious process, in exchange for giving up the protection of appellate review. Under the Federal Arbitration Act, an arbitration decision will be vacated only if the arbitrators lacked jurisdiction to decide the dispute, failed to disclose important information concerning their partiality, were subject to fraudulent or other unlawful interference, or expressly disregarded the law in
Stat. § 36.470, and Tex. Civ. Prac. & Rem. Code Ann. § 172.175. In Georgia, injunctive relief is issued “only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief.” See Ga. Code Ann. 9-9-4(e). New York has a similar limitation. See N.Y. C.P.L.R. 7502(c). 216 Because the Federal Arbitration Act does not authorize the issuance of subpoenas for prehearing testimony, most courts deny motions to enforce subpoenas, issued in an arbitration, for depositions of nonparty witnesses. See, e.g., Nat’l Union Fire Ins. Co. v. Marsh USA, Inc. (In re Hawaiian Elec. Indus.), 2004 U.S. Dist. LEXIS 12716, at *7 (S.D.N.Y. May 25, 2004). The Fourth Circuit, for example, has held that “the Federal Arbitration Act, 9 U.S.C.A. §§ 1-307 (West 1999), does not authorize an arbitrator to subpoena third parties during prehearing discovery, absent a showing of special need or hardship.” COMSAT Corp. v. Nat’l Science Found., 190 F.3d 269, 271 (4th Cir. 1999). Section 7 of the Federal Arbitration Act, however, “unambiguously authorizes arbitrators to summon non-party witnesses to give testimony and provide material evidence before an arbitration panel.” Stolt-Nielsen Transp. Group, Inc. v. Celanese AG, 430 F.3d 567, 581 (2d Cir. 2005).
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their decision.217 Recently the California Supreme Court held that parties have the power to specify in their arbitration agreement a broader scope of judicial review of the arbitration decision.218 Once rendered, the preclusive effect of an arbitration decision depends on several factors, including most importantly whether the award was confirmed by a court. Unconfirmed arbitral awards are not judicial proceedings entitled to recognition under the Full Faith and Credit clause of the Constitution. 219 The courts may, however, afford res judicata effect to unconfirmed arbitration awards.220 Critical to determining whether an unconfirmed award may be given res judicata effect are whether (i) the arbitration award was a final award, (ii) the earlier decision would be used offensively or defensively, (iii) the issues decided by the arbiters can be sufficiently identified, (iv) identical issues are involved, (v) the arbitration involved the same parties or parties in privity, and (vi) the parties received a full and fair opportunity to have their issues and evidence considered.221
217 The Federal Arbitration Act provides that a court may vacate arbitration decisions only if (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators, or either of them; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior by which the rights of any party have been prejudiced; or (4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C. § 10 (2008). The Second Circuit has “interpreted section 10(a)(3) to mean that except where fundamental fairness is violated, arbitration determinations will not be opened up to evidentiary review.” Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16, 20 (2d Cir. 1997); see also Polin v. Kellwood Co., 103 F. Supp. 2d 238, 262 (S.D.N.Y. 2000) (holding that a party’s disagreement with an arbitral panel’s assessment of evidence and its conclusions was insufficient to vacate an arbitration award under § 10(a)(3) and the provision’s fundamental fairness requirement); Deiulemar Compagnia Di Navigazione, S.p.A. v. Transocean Coal Co., No. 03 Civ. 2038 (RCC), 2004 U.S. Dist. LEXIS 23948, at *16–17 (S.D.N.Y. Nov. 29, 2004). 218 See Cable Connection, Inc. v. DirectTV, Inc., No. S147767, 2008 Cal. LEXIS 10354, at *3 (Aug. 25, 2008) (upholding contractual provision stating that “[t]he arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error”). 219 U.S. Const. art. IV, § 1. See McDonald v. W. Branch, 466 U.S. 284, 287–88, 104 S. Ct. 1799, 1801–02, 80 L. Ed. 2d 302, 306–07 (1984), overruled in part as stated in Rosenberg v. Merrill Lynch, 965 F. Supp. 190 (D. Mass. 1997); Dean Witter Reynolds v. Byrd, 470 U.S. 213, 222-23, 105 S. Ct. 1238, 1243, 84 L. Ed. 2d 158, 166 (1985). 220 See, e.g., In re Robinson, 256 B.R. 482, 487–89 (Bankr. S.D. Ohio 2000), aff ’d, 265 B.R. 722 (B.A.P. 6th Cir. 2001). 221 For an example of the application of res judicata principles to an arbitration decision in a trade secret setting, see Asahi Glass Co. v. Toledo Engineering Co., 505 F. Supp. 2d 423 (N.D. Ohio 2007) (applying defensive collateral estoppel but not offensive collateral estoppel because third party did not have a full and fair opportunity to litigate the issues).
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C. Challenges to the Plaintiff ’s Trade Secret Identification As discussed in Chapter 2(D), some states and some courts require that a plaintiff identify its allegedly misappropriated trade secrets with “reasonable particularity” before commencing discovery. The requirement is said to be justified because it (1) promotes well-investigated claims and dissuades the filing of meritless trade secret complaints, (2) prevents plaintiffs from conducting “fishing expeditions” and using discovery as a means to obtain the defendant’s trade secrets, (3) assists the court in framing the appropriate scope of discovery, (4) enables defendants to form complete and wellreasoned defenses, and (5) ensures that defendants need not wait until the eve of trial to defend effectively against trade secret claims.222 Even when no statute or enunciated policy has required it, courts have sometimes obligated a plaintiff to identify its trade secrets at the outset of the litigation on the basis that doing so is consistent with notice pleading requirements.223 The argument that a plaintiff should always identify its allegedly misappropriated trade secrets with reasonable particularity at the outset may gain support from the Supreme Court decision in Bell Atlantic Corp. v. Twombly.224 In Twombly, the court noted that “a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”225 The Supreme Court concluded that to satisfy the requirements of Federal Rule of Civil Procedure 8(a)(2), a plaintiff’s statement of claims must “possess enough heft to ‘sho[w] that the pleader is entitled to relief.’”226 Twombly, of course, concerned the standard for granting motions to dismiss.227 Although Twombly is an antitrust case, its guidance on pleading requirements already is being applied in other areas. 228 Certain states also have
222 See, e.g., Computer Economics, Inc. v. Gartner Group, Inc., 50 F. Supp. 2d 980, 985 (S.D. Cal. 1999). 223 See Leucadia, Inc. v. Applied Extrusion Techs., Inc., 755 F. Supp. 635, 637 (D. Del. 1991); see also Porous Media Corp. v. Midland Brake, Inc., 187 F.R.D. 598, 599–600 (D. Minn. 1999); Diversified Tech. v. Dubin, 31 U.S.P.Q.2d (BNA) 1692, 1695 (S.D. Miss. Mar. 8, 1994), withdrawn without opinion by order of Court. 224 Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964–65, 167 L. Ed. 2d 929, 940 (2007). 225 Id. (citing Papasan v. Allain, 478 U.S. 265, 286, 106 S. Ct. 2932, 2944, 92 L. Ed. 2d 209, 232 (1986), for the proposition that on a motion to dismiss, courts “are not bound to accept as true a legal conclusion couched as a factual allegation”). 226 Bell Atl., 127 S. Ct. at 1966, 167 L. Ed. 2d at 941. 227 See Maloney v. Scottsdale Ins. Co., No. 05-16686, 2007 WL 3391334, at *1 (9th Cir. Nov. 14, 2007) (recognizing that Twombly raised the pleading standard required to survive a motion to dismiss). 228 “Under the new standard for ruling on a motion to dismiss, a complaint must plead ‘enough facts to state a claim to relief that is plausible on its face.’” T.D.I. Int’l, Inc. v. Golf Preservations,
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pleading requirements requiring more than conclusory legal pleading. 229 In certain jurisdictions, the pleading requirements extend beyond identifying the trade secrets with specificity and include a requirement to allege the steps taken to keep trade secrets confidential.230 Nevertheless, if a plaintiff that has arguably failed to identify its trade secrets with reasonable particularity seeks to commence discovery, a defendant may want to seek a protective order in addition to moving to dismiss. By seeking a protective order, the defendant will have the first opportunity to frame the issues for the court. In addition, if the plaintiff needs discovery to support a request for injunctive relief, seeking a protective order may derail that effort. Seeking a protective order will also likely result in the defendant gaining a considerable head start with its own discovery, thus conferring a significant litigation advantage.
D. Discovery Considerations At the outset of a trade secret misappropriation case, the plaintiff will invariably paint a remarkable picture of its trade secrets. They were developed by the plaintiff through an enormous investment of money, time, and brain power. They are subject to an extremely rigorous protection scheme that allows only a few persons access to the secrets and then only on a strict “needto-know” basis. The trade secrets are not just a small improvement over industry standards but represent a quantum leap forward. And, of course, the trade secrets confer an enormous economic advantage on the plaintiff. The plaintiff’s portrait of its achievements is almost always too good to be true and there is much that a creative defendant can do to attack it, in addition
Inc., No. 6: 07-313-DCR, 2008 U.S. Dist. LEXIS 7427, at *3 (E.D. Ky. Jan. 31, 2008) (trade secrets case) (quoting Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929, 949 (2007)). On the other hand, at least one court in the wake of Twombly, when deciding whether a plaintiff has properly pled a claim for misappropriation of trade secrets, has continued to apply the same notice pleading standard for misappropriation claims rather than to require greater specificity. See Givemepower Corp. v. Pace Compumetrics, Inc., No. 07CV157 WQH (RBB), 2007 U.S. Dist. LEXIS 59371, at *26 (S.D. Cal. Aug. 14, 2007). 229 See, e.g., Ginsberg v. Lennar Fla. Holdings, Inc., 645 So. 2d 490, 501 (Fla. Dist. Ct. App. 1994) (“A party does not properly allege a cause of action by alleging in conclusive form, which tracks the language of the statute, acts which lack factual allegations and merely state bare legal conclusions.”). 230 See, e.g., Greenberg v. Miami Children’s Hosp. Research Inst., Inc., 264 F. Supp. 2d 1064, 1076–77 (S.D. Fla. 2003) (dismissing claim for misappropriation of trade secrets because the plaintiff failed to allege steps taken “to keep the list confidential”); M.J. McPherson Servs., L.L.P. v. Sports Images, Inc., No. 5:06 CV 465, 2006 WL 2505925, at *3 (N.D. Ohio Aug. 28, 2006) (dismissing misappropriation claim for failure to allege facts showing steps taken to protect secrecy of customer list).
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to taking discovery of the trade secret, its development, its cost of development, the means employed to protect its secrecy, the basis for the plaintiff’s belief that it has been misappropriated, and the like. As an initial matter, a defendant should never concede that the plaintiff is entitled to trade secret protection. For example, the plaintiff may have knowingly disclosed its trade secrets through patents, published patent applications, and journal articles. These embarrassing facts are often not disclosed to litigation counsel even though they are hardly a remote possibility.
1. Potentially Patentable Trade Secrets Whenever the plaintiff’s claimed trade secret is potentially patentable,231 whether it be a “process, machine, manufacture, or composition of matter,”232 the defendant should search for patents, patent applications, and professional literature that disclose the trade secret. Since the U.S. Court of Appeals for the Federal Circuit was created in 1982, patents have frequently been held valid. As a consequence, corporations have come to view patents as valuable and have sought to patent virtually everything that can be patented, including processes and methods that cannot be reverse engineered. They have done so as a means of self-protection. Obtaining a patent eliminates the risk that another person might obtain a patent on a method or process a company has developed independently, thereby making it a patent infringer, and a company may build up a portfolio of patents that can be cross-licensed in the event another patent owner asserts a patent against it. Even when a company does not seek patent protection, it may well choose to hedge its bets by disclosing its trade secret in an obscure journal. It hopes that no competitor will discover the trade secret and, in the event another company later obtains a patent on the trade secret, it can point to the journal article as “prior art” to invalidate the patent. Of course, the risks of the potential discovery of the trade secret (and the requirement to identify such publication in subsequent litigation to enforce trade secrets) must be weighed against the advantages in setting up a torpedo for a rival’s potential patent application. A defendant should never rely solely on document requests directed to the plaintiff seeking patents, patent applications, and journal articles related to the trade secret in issue. If, as is sometimes the case when a plaintiff is a large corporation, a trade secret claim is brought because the division head who authorized the suit was unaware of the prior publication of the trade secret, the
231 Perhaps the best definition of “patentable subject matter” was provided by the Supreme Court in Diamond v. Chakrabarty, 447 U.S. 303, 309, 100 S. Ct. 2204, 2208, 65 L. Ed. 2d 144, 150 (1980): “anything under the sun that is made by man.” 232 35 U.S.C. § 101 (2000).
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plaintiff’s search for documents responsive to the document request might miss the persons with the critical information. Even when that is not true, a plaintiff may try to hide the fact of publication behind evasive discovery responses, objections, and assertions of privilege. For that reason, a defendant should conduct its own patent and literature search. The defendant should also conduct an early deposition of the inventors to ask whether they are aware of any patents, patent applications, or journal articles related to their invention. The “Eureka!” moment upon discovering evidence that the plaintiff has placed its trade secret in the public domain does not quite resolve the issue. At that point, the plaintiff can be expected to argue that the disclosure concerned simply a laboratory device or technique intended to demonstrate the concept and that what was misappropriated was the “production” version that incorporated “different geometries” and other changes. “In addition,” the plaintiff will argue, “the trade secret includes not just the patented invention but knowledge of how to use it in a production capacity.” These arguments can often be dealt with easily. The inventors may concede in deposition that the difference between a laboratory or experimental version of the invention and a production version is simply one of scale. In other words, the production version is simply bigger and anyone ordinarily skilled in the art who has studied the patent could make a production version. And, because the Patent Act requires that inventors disclose in a patent application “the best mode contemplated by the inventor of carrying out his invention,”233 the inventors will be quick to affirm that the patent application disclosed the best means to use their invention they knew at the time. Counsel for the defendant may then explore whether and to what extent the plaintiff’s method of using the invention has changed since the patent application was submitted. A defendant will also want to examine any “prior art” cited in a patent application. Doing so may allow it to argue that the plaintiff’s invention is not entitled to trade secret protection because it is readily ascertainable from public domain sources or represents only a minor improvement that would be obvious to others skilled in the technology.234
2. Trade Secrets Potentially Disclosed to the Government Under some circumstances, companies disclose their trade secrets to the government. They may do so because government regulations require it, the
233 35 U.S.C. § 112 (2000). 234 Restatement (Third) of Unfair Competition § 39 cmt. f (1995) (“[I]nformation readily ascertainable from an examination of a product on public sale or display is not a trade secret. Self-evident variations or modifications of known processes, procedures, or methods also lack the secrecy necessary for protection as a trade secret.”).
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trade secret was developed in whole or in part using government funds, or disclosure was required by the bid process to make a sale to the government. If disclosure to the government is a possibility, the defendant should make a Freedom of Information Act (FOIA) request of any agency to which the information may have been disclosed.235 Similarly, many states have public records acts that are at least as far reaching as FOIA in requiring the production of documents filed with state agencies.236
3. Other Trade Secret Disclosures by the Plaintiff The defendant will also want to look for the plaintiff’s deliberate disclosure of its trade secret in other contexts. Was the marketing department responsible for disclosing information concerning the trade secret at the company’s booth at an industry exposition? Was information concerning the trade secret provided to potential customers who were not subject to a strict nondisclosure agreement? Were potential customers given plant tours and allowed to observe the claimed trade secret? Did the plaintiff disclose the information to the government under conditions that would not preserve its confidentiality, either because disclosure was required by a regulation or because the plaintiff hoped to do business with the government?
4. Trade Secrets Incorporating Antecedent Works If the plaintiff’s claimed trade secret is a customer list, database, or computer code, it quite possibly was not created from scratch. In customer list cases, it is common to discover that the plaintiff has hired away from competitors employees who then added their customers’ names to the plaintiff’s list. In that event, the plaintiff will be seen as claiming trade secret protection in information it arguably misappropriated from others and will be seen as advancing a double standard in seeking to prevent departed employees from taking customer information with them. In addition, the defendant will want to find out whether the plaintiff has ever purchased or otherwise acquired customer lists from a third party. Customer lists may sometimes be developed
235 There is no magic to making a FOIA request. One need only send a letter to the appropriate agency, addressed to the attention of the FOIA Compliance Officer, requesting the specific types of records pursuant to the FOIA, 5 U.S.C. § 552. The letter should request that responsive records be made available by “computer telecommunications means,” if possible, and should set a dollar limit for any fees incurred in copying or searching for the records. 236 See, e.g., SePRO Corp. v. Fla. Dep’t of Envtl. Prot., 839 So. 2d 781, 783 (Fla. Dist. Ct. App. 2003) (the failure of the corporation to label its trade secrets as such upon delivery to a state agency precluded their exception from production under the public records law).
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through such simple expedients as performing Standard Industrial Classification (SIC) code searches. Computer programs are even less likely to be created from whole cloth. Programmers typically find an existing program that provides much of the functionality they seek, “port” it into their program, and write only whatever new code is required to modify the preexisting code for a particular application. If so, the plaintiff’s credibility may be questioned and the defendant may challenge whether the plaintiff’s information is entitled to trade secret protection on a number of bases.237
5. Plaintiff ’s Plan to Maintain Secrecy The reasonableness of the plaintiff’s efforts to protect the secrecy of its claimed trade secret can be explored in a number of ways. As discussed above, a defendant will want to discover what the plaintiff has disclosed concerning its claimed trade secret at trade shows, industry exhibitions, and in marketing materials. The defendant will also want the plaintiff to produce copies of any nondisclosure agreements signed by its customers or vendors who had access to the claimed trade secret; or by any third party involved in the development, manufacture, or installation of devices embodying the claimed trade secret. In deposition, a plaintiff’s employees are likely to recite the party line when asked about the plaintiff’s policies concerning the protection of trade secrets. However, the plaintiff’s employees may give very different answers when asked how they, personally, have treated the trade secrets. Notwithstanding that trade secret information stored on a computer is password-protected, employees may testify that they have downloaded the information to a personal computer for the purpose of working at home. The home computer may be shared with other family members. Further, the employees may have downloaded information that they had no strict need to know. They may also have printed out, and taken home, hard copies of trade secret information. The plaintiff’s employees may also have given a vendor, customer, or prospective new hire a plant tour without requiring that the visitor sign a nondisclosure agreement. Soon it may appear that the plaintiff’s trade secret protection policies are honored only in the breach. A defendant should always take discovery of the plaintiff’s internal system for designating trade secret information as such. Frequently, classifications such as “confidential,” “company proprietary,” and “highly confidential” are
237 If the plaintiff has also registered a claim of copyright in its program, the defendant should examine the plaintiff ’s application to determine whether the plaintiff disclosed that its program is a “derivative work.” If not, the defendant may seek dismissal of the copyright claim based on the plaintiff ’s fraud on the Copyright Office.
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used interchangeably. If so, the defendant may argue that the plaintiff’s employees could not reasonably be expected to differentiate between information the plaintiff viewed as a trade secret and information that was not a trade secret. Still, many companies overdesignate information. When sales and marketing materials are designated as “proprietary” or “confidential,” the defendant may argue that the plaintiff’s efforts to protect trade secrets were unreasonable because the plaintiff’s employees could not be expected to rely on the classification system as practiced by the plaintiff. This argument is strengthened if the plaintiff’s corporate designee concerning its trade secret protection plan attempts to explain any inconsistencies or omission in legending documents as “confidential” by claiming that the plaintiff’s documents are “all” trade secrets. At that point the defendant can illustrate the absurdity of that contention by asking whether press releases and S.E.C. filings are “trade secrets.”
6. Damages In addition to the usual discovery asking a plaintiff to explain, and provide back-up for, its damages calculations, a defendant will want to take discovery of the plaintiff’s assessments of its success in the marketplace vis-à-vis its competitors. If the plaintiff is not outperforming its competitors, the defendant may argue that the plaintiff derived no independent economic value from its claimed trade secret. A defendant should also seek discovery of any information that shows or tends to show that the plaintiff lost any sales as a consequence of the defendant’s misappropriation of its information or that the defendant gained any such sales. Similarly, the defendant should take discovery of the growth in the plaintiff’s business before and after the misappropriation and of external factors that might have affected the growth rate. To the extent that the plaintiffs have alleged the lack of a remedy at law in seeking injunctive relief, the tension between that position and the assertion of a claim for damages should be fully explored.
7. Equitable Relief The use of injunctions to remedy the unwarranted disclosure of trade secrets is well-established. Even if injunctive relief is appropriate, a defendant will want to contest its nature, scope, and duration. It is common for courts to order that trade secrets be destroyed or returned to the plaintiff. The propriety of an injunction against sale of products produced through the unlawful use of a trade secret is more debatable. Injunctions must be reasonable as to time. When there has been a lengthy period of misconduct, however, the court is more likely to conclude “that the
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past will be prologue” and order an indefinite injunction prohibiting the misappropriation or misuse of the plaintiff’s trade secrets. Courts may also impose monitors to supervise and report on the implementation of injunctive relief.238 They have inherent power to appoint an individual to assist it in imposing a remedy.239 Courts also have authority under Federal Rule Civil Procedure 5 to appoint a master. The mandate for the monitor or master and the master’s duration and authority are issues in the remedy phase. Defendants’ counsel need to be attuned to provisions that would interfere with their client’s ability to conduct business legitimately. A broad order may chill legitimate competitive activity by a defendant understandably concerned by the prospect of facing a contempt proceeding. A procedure for seeking clarification from the court in advance should be part of an order.
8. Attorneys’ Fees In some jurisdictions, defendants that successfully defend a trade secret misappropriation claim may be entitled to attorneys’ fees if the claim was brought without basis or in bad faith.240
E. Finding Experts If the defendant can demonstrate that it obtained the plaintiff’s claimed trade secret through reverse engineering or independent development, it will not need an expert. But if the defendant relied on the plaintiff’s information to develop its product or process, it will want to prove that the plaintiff’s information was not a trade secret. This is so even if the reliance consisted only of using the information as a means to double-check that the defendant’s development process was on the right track or as a checklist to discover publicly available sources for the plaintiff’s information.
238 See, e.g., Picker Int’l Corp. v. Imaging Equip. Servs., Inc., 931 F. Supp. 18, 44–47 (D. Mass. 1995) (appointing a monitor to assist in implementing injunctive relief), aff ’d, 94 F.3d 640 (1st Cir. Aug. 26, 1996). 239 See Ruiz v. Estelle, 679 F.2d 1115, 1161 (5th Cir. 1982), amended in part and vacated in part, 688 F.2d 266 (5th Cir. 1982). 240 See, e.g., CRST Van Expedited, Inc. v. Werner Enters., 479 F.3d 1099, 1112 (9th Cir. 2007) (affirming district court award of attorneys’ fees incurred defending a trade secret misappropriation claim); Gemini Aluminum Corp. v. Cal. Custom Shapes, Inc., 95 Cal. App. 4th 1249, 1262–63, 116 Cal. Rptr. 2d 358, 368–69 (2002) (attorneys’ fees awarded for defense of claim brought in bad faith).
Finding Experts
To defeat the plaintiff’s liability claim, a defendant will want to prove either that the plaintiff’s trade secret was generally known to others who could obtain economic value from its disclosure or use or, at a minimum, that it was readily ascertainable by them. In addition, the defendant will want to find someone to conduct a patent search and a review of published literature to look for disclosures by the plaintiff of its claimed trade secret information. The latter person need not testify and need not be independent of the defendant. Trade secret plaintiffs frequently think that their trade secrets are unique to them. In that belief, they are often mistaken. As the Supreme Court has noted, “[t]he ripeness-of-time concept of invention, developed from the study of the many independent multiple discoveries in history, predicts that if a particular individual had not made a particular discovery others would have, and in probably a relatively short period of time.”241 There may be a temptation, therefore, to retain a former employee of a competitor or other company using similar technology for a different application to testify that the plaintiff’s belief in the uniqueness of its information was misplaced. Such approach is seldom worth the candle because evidence that another company had the same information would not prove that it was “generally” known. And a former employee could well be subject to a confidentiality agreement with his or her former employer prohibiting the disclosure of confidential information, such as what technology the former employer in fact uses. Generally, a defendant will want to begin its search for an expert among the ranks of academia. Research institutions are frequently ahead of industry in the development of new technologies. If that is the case, a professor may be able to show (i) the plaintiff’s information is generally known because it is taught, (ii) the plaintiff’s information has been disclosed in publicly available literature, and (iii) the plaintiff’s information lacks independent economic value because a superior technology has been developed. In any event, a professor whose professional reputation or ability to earn tenure depends on being at the forefront of his or her area of expertise will be loath to concede that the plaintiff has developed a truly useful technology of which he or she was unaware. When a plaintiff claims trade secret protection in something more prosaic such as a customer list or information concerning customer buying habits, a defendant may want to retain an expert to attempt to re-create the plaintiff’s information from scratch, either to show that it was “readily ascertainable” or to show what a limited benefit the defendant derived from not developing the
241 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 490, 94 S. Ct. 1879, 1890, 40 L. Ed. 2d 315, 330 (1974).
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information itself. In that case, the defendant should be careful not to share any portion of the plaintiff’s trade secret with the expert. The expert should make do with no more information than would have been available to the defendant had the defendant not acquired any information improperly. A further discussion of the retention of trade secret experts and professional expert referral sources, including the possibility of reducing expert costs by relying on court-appointed experts or masters, is included in Chapter 2(F), supra.
CHAP T ER
4 Corporate Trade Secret Protection Plans and Practices
A. Legal Requirements and Policy Considerations
196
B. Trade Secret Audits
198
C. Trade Secret Protection Plans
202
1. Overview
202
2. Employee Education and Work Practices
204
3. Facilities Protection
206
4. Visitor Precautions
207
5. Document Security
207
6. Electronic Security
209
7. Manufacturing Security
212
8. Unsolicited Inventions and Ideas
213
9. Sample Forms
214
a. Sample Letter in Response to Unsolicited Invention or Idea
214
b. Sample Invention and Idea Submission Agreement
215
c. Sample Visitor’s Agreement
216
D. Protecting Information Disclosed to the Government
216
1. Rules of Thumb
216
2. Protecting Trade Secrets While Contracting with the Federal Government
221
a. Unlimited Rights
223
b. Limited Rights
224
c. Restricted Rights
225
d. “Government Purpose” Rights
227
e. “Specifically Negotiated License Rights”
229
f. “SBIR Data Rights”
229
g. Government Rights in Commercial Computer Software
230
195
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Chapter 4 Corporate Trade Secret Protection Plans and Practices 3. Preventing the Federal Government from Disclosing Trade Secret Information
231
a. Statutes Barring the Disclosure of Trade Secret Information
231
b. Challenging an Agency’s Preliminary Decision to Release Trade Secret Information
232
c. Judicial Challenge to an Agency’s Decision to Release Information
233
d. Freedom of Information Act Exemptions
233
(i) Exemption 4
234
(ii) Exemption 3
236
A. Legal Requirements and Policy Considerations A corporation should have an effective trade secret protection plan that protects its own trade secrets from misappropriation and protects itself from liability flowing from the improper acquisition of the trade secrets of others. There is no reason for a corporation to permit the loss of information from which it derives economic value or to suffer the disruption to its business and exposure to damages, punitive damages, and attorneys’ fees that can result from a misappropriation action. The common sense rationale for adopting a trade secret protection plan has recently been reinforced with various types of legal compulsion. Foremost among them is the Sarbanes-Oxley Act.1 Section 302 of the Sarbanes-Oxley Act requires that the chief executive officer and chief financial officer of public companies certify that their annual and quarterly reports contain no untrue or misleading statements of material fact or material omissions and certify that the financial information reported fairly presents the company’s financial condition. Section 404 requires that companies document and certify the scope, adequacy, and effectiveness of their internal control structure and procedures for financial reporting. Section 406 requires publicly traded companies to adopt a code of ethics applicable to their principal financial officer, comptroller, or principal accounting officer that incorporates standards reasonably necessary to promote, inter alia, “full, fair, accurate, timely, and understandable disclosure in the periodic reports required to be filed” by the company. Section 906 imposes both civil and criminal penalties for violations of the Sarbanes-Oxley Act.
1 Sarbanes-Oxley Act of 2002, Pub. L. No. 107–204, 116 Stat. 745 (July 30, 2002) (codified in various sections of 11, 15, 18, 28, and 29 U.S.C.).
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Because trade secrets are financial assets, the Sarbanes-Oxley Act requires adequate internal controls over the procedures used to value a company’s trade secrets and that their secrets’ value be reported publicly. The Sarbanes-Oxley Act does not define what a company must do to protect its trade secrets. However, the International Organization for Standardization (ISO), a network of the national standards institutes of 157 countries, has promulgated a standard for the management, protection, and classification of a company’s proprietary information consisting of “a comprehensive set of controls comprising best practices in information security.”2 The Federal Sentencing Guidelines provide an additional justification for adopting a trade secret protection plan. Chapter 8 of the Federal Sentencing Guidelines is employed widely by the government to decide whether to seek an indictment in an action under the Economic Espionage Act of 1996 (EEA).3 Because the EEA applies to the mere unauthorized possession of information, avoiding exposure to liability under the EEA (and under state criminal trade secret theft statutes) requires that businesses take a close look at all their procedures involving confidential information. The critical component in any strategy to avoid criminal prosecution is the creation of a “Compliance Plan and Ethics Plan,” discussed in Chapter 6(F). When a company has established and enforced a compliance plan well, the company and its management are much less likely than they would otherwise be to face criminal charges if an employee should bring unauthorized material into the organization. The Delaware Chancery Court has also made clear that individual directors may be liable if they fail to ensure compliance with applicable laws intended to protect shareholder value: [A] director’s obligation includes a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists, and that failure to do so under some circumstances, may, in theory at least, render a director liable for losses caused by non-compliance with applicable legal standards.4
The leading U.S. stock exchanges require publicly traded companies to have and enforce trade secret protection plans. To bolster investor confidence, the National Association of Securities Dealers (NASD) enacted Rule 4350(n), effective May 4, 2004, providing that the code of ethics described in
2 See Information technology—Security techniques—Code of practice for information security management No. 17799 (International Organization for Standardization 2005). 3 18 U.S.C. §§ 1831–1839 (2007). 4 In re Caremark Int’l, Inc. Derivative Litig., 698 A.2d 959, 970 (Del. Ch. 1996).
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Section 406 of the Sarbanes-Oxley Act applies to all directors, officers, and employees. Further, under Rule 4350(n), companies are required to adopt an appropriate enforcement mechanism. The New York Stock Exchange (NYSE) code of conduct and ethics applies to all companies listed on the exchange and imposes even broader responsibilities than either Section 406 of Sarbanes-Oxley or the NASD code of ethics. The NYSE now mandates that reasonable measures be taken to protect trade secret assets and third-party proprietary and customer information pursuant to compliance programs having features similar to those in plans compliant with the Federal Sentencing Guidelines. NYSE Rule 303.A10, effective October 31, 2004, seeks “to provide guidance to personnel to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and help to foster a culture of honesty and accountability.” The NYSE code of conduct and ethics thus applies to directors, officers, and all other employees, and any waivers of the code must be disclosed. The codes adopted by NYSE-listed companies must address, among other things, “confidentiality.” Rule 303.A10 defines “confidential” information as “all nonpublic information that might be of use to competitors, or harmful to the company or its customers, if disclosed.” The provision thus seeks to ensure that listed companies have in place programs to protect trade secrets. In addition to the foregoing, the Financial Accounting Standards Board (FASB) declared in connection with its issuance of Statement 142 in 2001 that, although goodwill is an intangible asset, “the term intangible asset is used in this Statement to refer to an intangible asset other than goodwill,”5 and that “all intangible assets [must] be aggregated and presented as a separate line item in the statement of financial position.”6 It additionally required that each entity must “evaluate the remaining useful life of an intangible asset that is being amortized each reporting period.”7 As reflected in Statement 142, the FASB believes that requiring companies to re-evaluate their intangible property annually will lead to financial reporting that better reflects the underlying economics of the company. Accordingly, companies must now understand and place a value on their proprietary information.
B. Trade Secret Audits As explained in section A of this chapter, there are compelling policy reasons why all companies, public or private, should want to identify and protect
5 Goodwill and other Intangible Assets, Statement of Financial Accounting Standards No. 142, ¶ 4 (Financial Accounting Standards Bd. 2001). 6 Id. ¶ 42. 7 Id. ¶ 14.
Trade Secret Audits
their trade secrets. Also, publicly traded companies may be legally obligated to identify and value all their intellectual properties, including trade secrets. Conducting periodic audits of a company’s patents, copyrights, trademarks, and trade secrets will allow a company to achieve the foregoing objectives. In addition, the audits may have a significant effect on any trade secret litigation the company may become involved in. The mere fact that a company conducts audits of its trade secrets will assist the company in showing that it has undertaken reasonable measures both to protect the secrecy of its proprietary information and to prevent the improper use of trade secret information brought to the company by new employees, vendors, or others. There are risks, however, associated with conducting an audit, including the risk that weaknesses in the company’s treatment of trade secrets may be exposed. For this reason, audits should be conducted under the supervision of counsel and shared only with persons who must act on their findings. What should be included in the trade secret component of an audit will vary from company to company depending on the company’s size, rate of growth, type of ownership, competitive situation, and type of business. Information that confers a competitive advantage may potentially be found in any part of the company’s business and may include patentable inventions, manufacturing processes, data compilations, marketing and sales plans, financial information, business expansion plans, employee salary and bonus structures, and identities of suppliers or subcontractors. It may also include such technical information as the object and source code of software that a company sells or uses; the program logic, file structure, and algorithms used in such software; systems design and architecture; data structures, including input or output formats; system documentation, user and design manuals, and training instructions; software development tools, drawings, and product sketches; information storage devices, including magnetic tapes and disks, microforms, films, photographs, and negatives; technical information and know-how related to unannounced company products; and strategic information concerning the company’s products. Also included may be financial information such as sales data, cost and pricing information, pre-announcement quarterly financial results, profit and loss information below the revenue line, and customer purchase or royalty information. Additionally, it may include marketing information, including customer and prospect lists; mailing lists for company announcements; product acquisition candidates; product plans; planned release dates for new products; strategic relationships with other companies; marketing and product positioning strategies; dealer lists; dealer and distributor sales reports; and information related to product build rates. Because the scope of information that may provide a competitive advantage is so broad, the audit should not ignore any part of a company’s business. The audit team should include representatives of all parts of the organization, including the heads of every department and technology group as well as security and information technology personnel. It is especially important to include
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human relations staff in the audit because hiring practices and employee education are critical to the success of any trade secret protection plan.
Sample Initial Audit Checklist Nature of the Company’s Trade Secrets • • • •
• •
• • • • • • •
•
What gives the business a competitive advantage? What information would competitors like to gain? What is it about that information that confers a competitive advantage? How long is the information likely to remain secret, i.e., is it like the Coca-Cola formula that may be kept secret for decades in a safe or is it something a competitor is likely to discover in six months? What would competitors have to do to develop the same information through fair means? What is the economic value of the information? (What did the information cost to develop? What would it cost a competitor to develop the same information through fair means? How much does the information contribute to the company’s revenues and profits? How much would the information contribute to the company’s principal competitors’ revenues and profits? What might a competitor be willing to pay to license the information?) What other companies are believed to have the same or similar information? Which employees have access to the information? Can access to the information be further restricted without harming the company’s business operations? Have the employees with access to the information all been instructed concerning the importance of preserving its secrecy? Is the information protected by computer passwords or confidentiality legends? What other measures are used to protect the secrecy of the information? Given the value and importance of the information, what other measures could be employed to protect the secrecy of the information without adversely affecting the company’s business operations? Is evidence of the company’s independent discovery or lawful reverse engineering of its information preserved when documents are destroyed and e-mail records deleted pursuant to the company’s document retention policy?
Trade Secret Audits
Identifying Potential Security Holes • • •
• •
•
•
•
•
Identify all organizations and individuals with access to the company’s competitively valuable information and assess their need for access; Identify past losses of competitively valuable information; Assess whether competitively valuable information is disclosed through exhibits and presentations at industry conventions or through publication in technical journals or annual reports; Assess whether competitively valuable information is disclosed in sales presentations; Outside of California, are employees with access to valuable information asked to sign noncompete agreements that are enforceable under the laws of the state in which they are employed? Is everyone with access to competitively valuable information—including employees, prospective customers or licensees, vendors and suppliers, and visitors—required to sign nondisclosure agreements? Is it possible for persons other than employees to gain access to areas where such information is maintained or used, except with an escort and a badge identifying the visitor as an outsider? Could a competitor discover the company’s trade secrets by examining documents the company throws out or things that the company sells for scrap? Are there other threats to the security of the company’s secrets?
Hiring and Employment Practices8 •
•
• •
Are new employees examined during the hiring process to determine whether they have knowledge of proprietary information belonging to a former employer and, if so, whether that knowledge relates in any way to the employee’s prospective job duties with the company? Are prospective employees screened to determine whether they are subject to confidentiality and noncompete agreements with a former employer and, if so, when those obligations will terminate? Are new employees required to sign nondisclosure and invention assignment agreements? Are new and existing employees counseled concerning the types of information the company considers proprietary and what restrictions there are with respect to making copies of documents or files containing the information, taking the information home, or copying it for use off premises? Continued
8 Good hiring practices are discussed at length infra in Chapter 5(A).
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•
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• •
•
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Are departing employees counseled concerning their confidentiality obligations and asked to sign an undertaking not to use or disclose any of the company’s proprietary information in any new employment? Are departing employees examined concerning who their new employer will be and what their new duties and responsibilities will be? Is there follow-up to determine whether departing employees were truthful concerning their job plans? Are departing employees with access to trade secret information allowed to spend any unsupervised time cleaning their offices or work stations before the employment is terminated? Are departed employees’ telephone and e-mail records reviewed for evidence that the employees made preparations to compete before resigning? Are the laptop and desktop computers of departed employees examined for the presence of improper files or suspicious deletions?
Idea Submissions • •
Does the company have a policy concerning the receipt of unsolicited inventions and ideas from third parties? Does the company require persons submitting unsolicited inventions and ideas to sign an agreement delineating their rights?
When conducting a review audit, as opposed to an initial audit, a company should also consider whether it is properly declassifying information that no longer provides a competitive advantage; whether it has opened or acquired any new business location or line of business; whether there have been changes in its computer system that might affect the protection of business secrets; whether and the extent to which its security measures are followed and are successful; and whether new competitive threats have emerged.
C. Trade Secret Protection Plans 1. Overview James Pooley, the author of one of the best and best-known treatises on trade secret law, advises that any trade secret protection plan should be based on
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four principles: inventory, simplicity, responsibility, and review.9 Pooley defines “inventory” as “knowing what the company wants to protect” sufficiently well that the company can appreciate its value and assess the threat to its secrecy. Having that understanding will allow a company to perform a cost-benefit analysis of possible information security measures to adopt an information security plan that is reasonable under the circumstances to maintain the secrecy of any information that gives the company a competitive advantage.10 Simplicity is the hallmark of most successful programs. An information security program should not be unduly burdensome for employees, nor should it be so intricate that employees are likely to become confused by it or ignore it entirely. A company should not have so many levels of security classifications as the U.S. government uses. In general, a company should seek to classify its information in no more than three categories: an unclassified category for information that can be shared with persons outside the company even in the absence of a confidentiality obligation; a “CONFIDENTIAL” or “[COMPANY NAME] PROPRIETARY” category for information that may be disclosed to persons outside the company only if they are subject to a confidentiality obligation; and a “HIGHLY CONFIDENTIAL” or “RESTRICTED” category for information that may never be shared with anyone outside the company absent express approval from management.11 “Responsibility” means that there is a specific person accountable for the implementation of each aspect of the protection program. It is part of such person’s job responsibilities to encourage and measure compliance by everyone
9 james pooley, trade secrets § 9.02[2][b] (Supp. 2007). 10 See UTSA § 1(4)(ii) (amended 1985); Restatement (First) of Torts § 757 cmt. b (1939). 11 The use of short-form legends such as “CONFIDENTIAL” is perfectly acceptable. A longer form CONFIDENTIAL legend might provide: CONFIDENTIAL INFORMATION of [Company Name]. Any unauthorized access or use of this information may result in civil and criminal liability. This document is for internal distribution on a need-to-know basis and may not be otherwise disseminated except with management approval and subject to an appropriate nondisclosure agreement. © [year] [Company name]. All rights reserved. Similarly, a long-form RESTRICTED legend might provide: RESTRICTED—THIS DOCUMENT CONTAINS HIGHLY CONFIDENTIAL INFORMATION AND MAY NOT BE DISCLOSED, COPIED, PUBLISHED OR USED IN WHOLE OR IN PART, EXCEPT INTERNALLY AS EXPRESSLY AUTHORIZED BY MANAGEMENT. Note that the first legend contains a copyright notice because the lower confidentiality level contemplates that a limited publication of the document could occur. The addition of a copyright notice to the RESTRICTED legend would be at odds with the notion that a RESTRICTED document ordinarily should never circulate outside the company.
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involved, to report back on compliance and effectiveness, and to suggest improvements. “Review” means scrutinizing the effectiveness of the trade secret protection program on a regular basis to ensure that it is functioning as intended. Having a well-thought-out protection program is important to demonstrating that a company has made reasonable efforts to protect the secrecy of its information, but ensuring that there is substantial compliance with that program is equally, if not more, important. At trial, a jury will have no yardstick by which to measure whether a company’s efforts to protect its trade secrets were reasonable and will, therefore, use the company’s own plan as the standard by which to judge reasonableness. For this reason, a company should adopt a plan simple enough that it can be implemented successfully and should periodically assess whether there is substantial compliance with the plan. Various measures that companies have taken to protect trade secrets will be enumerated here. In many cases it will not be necessary to implement most of the measures described. What is important is that a trade secret protection plan be reasonable in light of the value and importance of the information being protected. A company need not adopt such strict measures that it loses agility12 and courts never expect that a plaintiff’s trade secret protections will be foolproof—otherwise there would never be trade secret misappropriation litigation. As one treatise writer explains, although whether or not any particular information qualifies for trade secret protection is a question of fact, “installing and implementing adequate safeguards is an important part of the ‘gestalt’ a court looks at in answering that question.”13
2. Employee Education and Work Practices Any meaningful trade secret protection plan must begin with a company’s employees. The hiring process (discussed in Chapter 5(A)), affords the first opportunity to educate employees that the employer takes the protection of trade secret seriously. After all, bonuses, pay increases, and even the continued existence of the employees’ jobs depends on the company’s profitability—which, in turn, requires the company to maintain any competitive advantage it has achieved. Various measures may re-enforce the message that trade secrets must be protected.
12 In Novell Inc. v. Timpanogos Research Group, Inc., 46 U.S.P.Q.2d (BNA) 1197, 1207 (D. Utah Jan. 30, 1998), for example, the plaintiff software developer was held to have protectable trade secrets even though it permitted key employees to work at home with materials taken from the office. 13 4 Roger M. Milgrim, Milgrim on Trade Secrets § 18.01, at 18–3 (2006).
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Employee Education Checklist • •
•
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•
• • • •
• • •
•
Ask employees outside California to sign a noncompete agreement; In case the noncompete agreement is held unenforceable for any reason, ask employees to sign a separate invention disclosure and assignment agreement and/or confidentiality agreement; Require employees to get approval from both a supervisor and inhouse counsel before publishing any work-related article or making any work-related public presentation; Place restrictions on what materials employees may take home or download to computers that are used offsite; Require employees to protect all sensitive data they work with by keeping it under lock and key or protected by a computer password; Require employees to have similar password and automatic timeout protections in place for their home and laptop computers, as well as Blackberrys and other PDAs; Require employees to erase white boards when finished; Require employees to make sure that all documents they generate, whether paper or digital, are properly legended on each page; Prohibit any unauthorized photocopying or scanning on the premises; Ask employees to notify a supervisor if a fellow employee’s excessive copying, scanning, or requests for information raise serious concerns; Insist that employees not take sensitive documents home; Ask employees to sign a periodic certification that they are abiding by the company’s information security policies, Ask new employees to covenant and warrant that they will not use or disclose confidential information belonging to any previous employer; and Ask key employees who are highly knowledgeable concerning a company’s trade secrets to conduct training sessions from time to time addressing the importance of protecting those secrets.14
14 Apart from the obvious benefit that such training confers, it may well estop the employees who conducted the training from later challenging the existence of the trade secrets should they terminate their employment with the company. See, e.g., Sperry Rand Corp. v. Pentronix, Inc., 311 F. Supp. 910, 918 (E.D. Pa. 1970); Dionne v. S.E. Foam Converting & Packaging, Inc., 17 U.S.P.Q.2d (BNA) 1565, 240 Va. 297, 397 S.E.2d 110, 112–13 (1990); Whittaker Corp. v. Mockus, 187 U.S.P.Q. (BNA) 317, 319 (Cal. Ct. App. June 4, 1975).
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3. Facilities Protection Providing facilities security is an easy way to impress a jury with a company’s efforts to protect the secrecy of its information. Such measures include the use of fencing around a company’s premises, the use of a guard gate to restrict access to the parking lot, and use of security guards and cameras. In addition, access to any areas where the company keeps especially sensitive information should be denied to all but those who have a need to be there. The doors or elevators to such areas should be kept locked at all times; persons with reason to be there may be issued key cards allowing them access. By monitoring the use of the key cards, a company can create an audit trail and may learn whether employees who are otherwise authorized to be there are entering at odd hours. Visitors should only rarely be allowed into highly restricted areas and then only when wearing an easily visible visitor identification badge and when escorted. If a company maintains different types of highly sensitive information within a single building or campus, it should code any key card so that persons with access to one area do not automatically gain access to another.
Facilities Protection Checklist •
•
•
•
Restrict access to facilities with perimeter fencing, post no-trespassing signs on either side of every gate or entrance,15 use a guard gate to restrict access to the parking lot, employ security guards, and use video surveillance cameras; Restrict employee access to interior areas where especially sensitive information is kept by keeping those areas locked at all times—access may be permitted through the use of key cards and a system to monitor who has access to which area and when; Further restrict employee access to areas where sensitive information is kept by requiring the use of color-coded employee badges or by providing key card access to specific areas only on a need-to-know basis; Allow nonemployees access to sensitive areas only upon the written approval of management and the legal department, and then only subject to the visitor precautions subscribed below.
15 The applicable local municipal ordinance may impose legal requirements for enforceability, such as that the lettering be a certain size, that the signs include a specific reference to the local no-trespassing ordinance, and that signs be located within a particular distance of any opening to the premises.
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4. Visitor Precautions Protecting trade secrets from visitors is an important element of any trade secret protection plan but should be approached in a nuanced manner. “Visitors” may include directors, stockholders, financiers, vendors, licensees and prospective licensees, consultants, contract employees, student interns, employees of business partners, reporters, visiting school children, employees’ family members, and maintenance and janitorial personnel, among others. Given the diversity of knowledge and interests among visitors to a typical corporate facility, a “one-size-fits-all” approach to visitor security will not work. In general, however, a company should take the following precautions with respect to most visitors: Visitor Precautions Checklist • • • • • • • •
Require visitors to sign a nondisclosure agreement as a quid pro quo for being given access to the premises; Do not ask visitors to sign a logbook (to prevent competitors from discovering what vendors and job applicants have recently visited); Require visitors to wear identification badges at all times; Use color coding on the identification badges to indicate which area(s) of the facility the wearer is permitted to visit; Identify on the badge which employee the wearer is there to visit; Print the date of authorized access prominently on each identification badge; Assign an escort to accompany each visitor; and Do not give public tours of any part of the premises containing confidential information and say nothing about the company’s business plans that the company would not want a competitor to discover (this may require creating a nonsecure area where a company might have a mock-up of its basic manufacturing process, display samples of its products, and locate a company store selling merchandise with the company logo).
5. Document Security Providing security for documents containing sensitive information is an important part of any trade secret protection plan. The first step is to identify and mark them as containing “confidential” or “restricted” information.16
16 In some classification schemes, information is “confidential” if it may be disclosed to third parties subject to a nondisclosure agreement or other safeguards to maintain its confidentiality; information that ordinarily is never shared with anyone outside the company is “restricted.”
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Courts may view the use of legends as powerful evidence that a trade secret protection plan is adequate17 and even as evidence that a legended document contains trade secrets.18 The use of legends is important to prevent the inadvertent disclosure of documents containing confidential information. Like the boy who cried “wolf” too often, a company should not reflexively mark all its documents “confidential” or “restricted.” When it does so, the legending system loses credibility and employees may come to view the legends as meaningless. From a litigation perspective, errors in legending are usually of little consequence. Courts have been known to excuse excesses as attributable to a company’s zealousness in attempting to protect its trade secrets.19 Although the failure to mark documents is sometimes considered in evaluating the reasonableness of a trade secret projection or plan,20 if it is obvious that a document does contain confidential information, a court may excuse a company’s failure to mark it confidential.21 Document Security Checklist •
•
•
Require each area of the company that keeps confidential information to establish a system for classifying and marking documents as “RESTRICTED” or “CONFIDENTIAL”; Prohibit employees from discarding documents marked “RESTRICTED” or “CONFIDENTIAL” and require, instead, that such documents be shredded;22 Require that work areas be clean at night and that documents be placed in locked desks or cabinets;
17 See Ecolaire, Inc. v. Crissman, 542 F. Supp. 196, 209–10 (E.D. Pa. 1982). 18 See Drill Parts & Serv. Co. v. Joy Mfg. Co., 439 So. 2d 43, 223 U.S.P.Q. (BNA) 521, 522 (Ala. 1983). 19 Rockwell Graphic Sys., Inc. v. DEV Indus., 925 F.2d 174, 176 (7th Cir. 1991) (noting that there is no “misuse” doctrine with respect to legends). 20 See, e.g., Pixion, Inc. v. Placeware, Inc., 421 F. Supp. 2d 1233, 1242 (N.D. Cal. 2005), aff ’d, 177 Fed. Appx. 85 (Fed. Cir. 2006). 21 See A.H. Emery Co. v. Marcan Prods. Corp., 389 F.2d 11, 16 (2d Cir. 1968) (“[I]t is well settled that detailed manufacturing drawings and tolerance data are prima facie trade secrets. Educated employees, such as these, fully conversant with the importance of the data in the plaintiff ’s manufacturing process, should be aware that the information is not meant to be revealed to outsiders or used to the disadvantage of its owner.”) (citation omitted). 22 There is no reasonable expectation of privacy in trash left for collection in a public place. See Cal. v. Greenwood, 486 U.S. 35, 39–40, 100 L. Ed. 2d 30, 36–37, 108 S. Ct. 1625, 1628–29 (1988). A trade secret owner therefore fails to take reasonable precautions to maintain the secrecy of trade secret information left in waste containers accessible to the public. See Soap Co. v. Ecolab, Inc., 646 So. 2d 1366, 1372 (Ala. 1994) (Houston, J., dissenting); Cadillac Gage Co. v. Verne Eng’g Corp., 203 U.S.P.Q. (BNA) 473, 477 (Mich. Cir. Ct. Aug. 17, 1978).
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• • •
•
•
• • • • • •
Require that photocopiers and scanners be placed far from areas where highly sensitive materials are kept; Keep an audit trail of photocopier and scanner use by requiring that users input an identification number; Print confidential documents on red or pink paper (or other paper that does not allow xerographic reproduction), number each copy, and keep a record of who receives each copy; Require that all contracts that may result in the disclosure of confidential information to others contain an appropriate nondisclosure provision approved by counsel; Require that blank laboratory notebooks be “checked out” to a particular person and that a record be kept of the date and identity of any other person who reviews the notebooks; Require that laboratory notebooks and batch records be kept under lock and key; Require that laboratory notebooks be permanently bound, be numbered, and have numbered pages; Prohibit the removal of any page from a laboratory notebook and erasure of any erroneous entry; Require that each laboratory notebook be signed and dated, and that entries made in the notebook be initialed and dated; Require that descriptions of important discoveries or test results be signed and dated by a witness as well as by the notebook’s owner; and Require secure disposal (such as in burn bags or shredders) of sensitive documents.
6. Electronic Security In many ways, protecting information kept in digital form is similar to protecting paper documents. Unauthorized persons should not be given access to a company’s computer system, information stored in the system should be protected, and disks containing sensitive information should not be discarded or reused. Electronic Security Checklist • •
Require that sensitive information stored in the computer system be protected by passwords and that computers be protected by firewalls; Require that information stored digitally be legended as if it were kept in hard copy and that appropriate legends be used on disks or other media containing sensitive information;
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• •
Require that e-mail messages be encrypted or fragmented within the system; Monitor external e-mail communications;23
23 No federal statute currently prohibits the monitoring of employee e-mail communications made using an employer’s equipment and the courts have generally permitted it. The Stored Wire and Electronic Communications and Transactional Records Access Act, 18 U.S.C. §§ 2701–2711 (2007), addresses unauthorized access to stored e-mail messages. Through the Stored Wire and Electronic Communications provisions of 18 U.S.C. § 2702(a)(1), the Act arguably applies to private networks such as those found in most workplaces. However, the Act contains both a provider exception and a user exception. See id. § 2701(c)(1), (2). The provider exception exempts “the person or entity providing a wire or electronic communications service” from the Act’s prohibitions. The user exception extends both to authorized users and to anyone who has expressly or impliedly given authorization to access the user’s stored e-mail communications. Further, a “business-interest” exception allows a business to monitor equipment that it furnishes in the ordinary course of business if monitoring is a “necessary incident . . . to the protection of the rights and property” of the employer. 18 U.S.C. §§ 2510(5)(a)(i), 2511(2)(a)(i) (2007). In Quon v. Arch Wireless Operating Co., No. 07-55282, 2008 WL 2440559, at *13 (9th Cir. June 18, 2008), the Ninth Circuit court held, however, that in some circumstances, an employee may have a constitutional expectation of privacy in text and e-mail messages sent or received using employer-provided devices, especially when there is no reservation of right by the employer to inspect such messages. The Federal Wiretap Act, 18 U.S.C. §§ 2510–2521 (2007), generally prohibits the interception of e-mail messages. However, the term “intercept” has usually been interpreted narrowly to require that the review of electronic communications occur during the actual transmission of the message. See Steve Jackson Games, Inc. v. U.S. Secret Serv., 36 F.3d 457, 461–62 (5th Cir. 1994); Borinski v. Williamson, No. 3:02CV1014-L, 2005 WL 1206872, at *10 (N.D. Tex. May 17, 2005); Thompson v. Thompson, No. 02-91-M, 2002 WL 1072342 (D.N.H. May 30, 2002); Wesley College v. Pitts, 974 F. Supp. 375 (D. Del. 1997), aff ’d, 172 F.3d 861 (3rd Cir. 1998); Bohach v. City of Reno, 932 F. Supp. 1232 (D. Nev. 1996). The courts have thus far held that employers are privileged to monitor an employee’s stored e-mail messages. See, e.g., Fraser v. Nationwide Mut. Ins. Co., 135 F. Supp. 2d 623, 633 (E.D. Pa. 2001), aff ’d in part and vacated in part, 352 F.3d 107 (3d Cir. 2003); Eagle Inv. Sys. Corp. v. Tamm, 146 F. Supp. 2d 105 (D. Mass. 2001); McLaren v. Microsoft Corp., No. 05-97-008824-CV, 1999 WL 339015 (Tex. App. May 28, 1999). Bills to regulate or prohibit the monitoring of employee e-mail communications without the employee’s knowledge or consent have been proposed in several states. Accordingly, employers should consider including e-mail policies in employment agreements or employee handbooks. Such policies should provide that (i) employer-provided computers and Internet accounts are to be used for business purposes only; (ii) employees should have no expectation of privacy in anything they create, store, send, receive or delete on or from their employerprovided computers or Internet accounts; (iii) the requirement that a password be used to access the system will not prevent the employer from monitoring computer usage; (iv) computer files and communications are subject to review and will be monitored to ensure the security of information stored on the network and for other legitimate business purposes; and (v) employees are prohibited from viewing, transmitting, or storing on employer-provided computers inappropriate or unlawful content.
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• • • •
• • • • •
Monitor employee voice mail messages;24 Prohibit employees from posting passwords in visible areas or sharing them with others except on a need-to-know basis. Require that computers be turned off at night and whenever they are unattended; Require that all e-mail messages be destroyed on a consistent basis pursuant to the company’s records retention policy, excepting only messages that have been placed in a separate file for a specific purpose; Do not allow discs that have contained confidential information to be re-used or discarded; Do not discard or sell used computers unless the hard drives have been erased;25 Do not permit confidential information to be downloaded to personal accounts or home computers; Prohibit employees from allowing family members or friends to use company-provided laptop computers; Encourage employees to protect laptop computers by imposing fines for their loss or theft;
24 At least two courts have held that it is possible to “intercept” a stored voice mail message. In Fraser v. Nationwide Mut. Ins. Co., 135 F. Supp. 2d 623, 634–35 (E.D. Pa. 2001), aff ’d in part and vacated in part, 352 F.3d 107 (3d Cir. 2003), the court held that a third party who accesses the intended recipient’s voice mail and retrieves a message before it has been heard by the intended recipient commits an interception. The court concluded, however, that there is no “interception” if the intended recipient has already listened to the message. In United States v. Smith, 155 F.3d 1051, 1056–59 (9th Cir. 1998), the Ninth Circuit concluded that a third-party “intercepts” a voicemail message by accessing it at any time, without regard to whether the recipient has already heard it. Nevertheless, the courts have held that when the employer supplies an employee’s telephone equipment, it is privileged to monitor stored voicemail messages. See Freedom Calls Found. v. Bukstel, No. 05CV5460(SJ)(VVP), 2006 WL 845509, at *27 (E.D.N.Y. Mar. 03, 2006); Borinski v. Williamson, No. 3:02CV1014-L, 2005 WL 1206872, at *11–12 (N.D. Tex. May 17, 2005); Bohach v. City of Reno, 932 F. Supp. 1232, 1236–37 (D. Nev. 1996); (see also Noel v. Hall, No. 99-649-AS, 2006 WL 2129799, at *11 (D. Or. July 28, 2006) (noting that the Wiretap Act was amended by the USA Patriot Act to exclude “electronic storage” of wire communications from its applicability, thus “reduc[ing] protection of voice mail messages to the lower level of protection provided other electronically stored communications”) (quoting Konop v. Hawaiian Airlines, Inc., 302 F.3d 868, 878 (9th Cir. 2002). Nevertheless, employers would be prudent to include a telephone and voice mail policy in employment agreements or employee handbooks similar to the e-mail policy proposed in footnote 23 above. 25 See Defiance Button Mach. Co. v. C&C Metal Prods. Corp., 759 F.2d 1053 (2d Cir. 1985) (sale of computer without erasing memory was sufficient to deny protection to customer list).
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•
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Do not allow outside service technicians access to the computer system until their identification has been verified and they have signed nondisclosure agreements; and In cases of exceptional concern, consider monitoring employee telephone conversations.26
7. Manufacturing Security Companies have adopted a wide variety of stratagems to protect the secrecy of their manufacturing processes and the composition of their products. Coca-Cola, for example, keeps its famous formula, “Merchandise 7-X,” in a bank vault that may be opened only upon resolution of its board of directors. Only two employees are ever permitted to know the full formula. The company is nonetheless able to manufacture its flagship product globally because different ingredients are mixed in different proportions in various subformulas. The subformulas, when combined, make Coca-Cola syrup. However, different sets of employees are responsible for making different subformulas and, as a result, no one is able to re-create the entire formula. Manufacturing Protection Checklist •
•
Do not allow employees without a need to know to visit either the manufacturing area or laboratory areas where manufacturing techniques are perfected; Require that any third parties having knowledge of the manufacturing equipment (including equipment manufacturers and maintenance persons) sign nondisclosure agreements;
26 The Federal Wiretap Act, 18 U.S.C. §§ 2510–2521 (2007), generally prohibits the interception of telephone calls. 18 U.S.C. § 2511(2)(d) exempts from liability service providers who intercept an electronic communication “where one of the parties to the communication has given prior consent to such interception.” Employers should therefore consider including a provision in the employment agreements of persons who will have access to highly valuable information explaining that calls may be monitored without notice for business-related purposes. Even if an employer has not placed its employees on notice that telephone calls may be monitored, unauthorized monitoring may be permissible in some circumstances. In Watkins v. L.M. Berry & Co., 704 F.2d 577, 584 (11th Cir. 1983), the court held that an employer could eavesdrop on a telephone conversation to the extent necessary to determine the nature of the call but not to the extent of discovering the contents of the call. In United States v. McLaren, 957 F. Supp. 215, 219 (M.D. Fla. 1997), the court held that it was proper for AT&T to record telephone calls of persons suspected of cloning telephone numbers because there was a “substantial nexus between the use of the telephone instrument to be monitored and the specific fraudulent activity being investigated.”
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• • •
If the identity of a particular supplier is important, ask the supplier to ship its product in unmarked containers; If the types or grades of the chemicals or minerals used are important, ask that they be mislabeled or, at a minimum, legended; and If possible, perform different steps in the manufacturing process at different locations.
8. Unsolicited Inventions and Ideas Although not related to the protection of a company’s own trade secrets, a company should nonetheless have a practice to respond to the receipt of unsolicited inventions and ideas. Merely glancing at or listening to such a presentation can lead to a suit for trade secret misappropriation or idea theft. The circumstances related to the receipt of an unsolicited invention or idea submission may raise an implied obligation of confidentiality, thus establishing an element of misappropriation.27 The absence of an intention to misappropriate does not dispel that risk. In that circumstance, many courts will put the burden on the company to show independent development.28 Agreements disclaiming any implied confidential relationship have, however, been held effective to avoid the implication of a duty to maintain confidentiality.29 An agreement that waives all claims, including future claims, may be held to be overbroad.30 Merely agreeing to look at an unsolicited proposal in the absence of any kind of agreement can lead to litigation. In one case, an inventor approached NASA with an offer to design gauges to measure stress and strain inside rocket nozzles during and following launch. NASA referred him to Lockheed, which was already under contract with NASA to do just that and had a team of engineers well along in the design work. Because its customer had referred the inventor to it, Lockheed agreed as a courtesy to allow the inventor present his ideas. As one might expect, Lockheed was already exploring the same general design approach but found the inventor’s specific proposals to be unworkable. Predictably, the inventor sued Lockheed because the gauges Lockheed ultimately designed allegedly misappropriated the inventor’s “approach” to the problem.31
27 See Thermo Trim, Inc. v. Mobil Oil Corp., 194 U.S.P.Q. (BNA) 450, 455 (W.D.N.Y. 1977). 28 See Goldberg v. Medtronic, Inc., 686 F.2d 1219, 1227–28 (7th Cir. 1982); Droeger v. Welsh Sporting Goods Corp., 541 F.2d 790, 793 (9th Cir. 1976); Sargent Fletcher, Inc. v. Able Corp., 110 Cal. App. 4th 1658, 1669, 3 Cal. Rptr. 3d 279, 286 (2003). 29 See Kearns v. Ford Motor Co., 203 U.S.P.Q. (BNA) 884, 887–88 (E.D. Mich. 1978); Crown Indus. v. Kawneer Co., 335 F. Supp. 749, 762 (N.D. Ill. 1971). 30 See FASA Corp. v. Playmates Toys, Inc., 892 F. Supp. 1061, 1066 (N.D. Ill. 1995). 31 Granville v. Lockheed Corp., No. B 101437 (Cal. Ct. App. 1997).
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Just as motion picture studios routinely return unsolicited scripts unopened, a company might choose not to consider unsolicited ideas at all. Alternatively, it might enter into an agreement allowing it to evaluate ideas but limiting its exposure in the event it chooses not to license them. Regardless of whether a company decides to accept or reject unsolicited invention and idea submissions, specific individuals should be authorized to receive and respond to all such submissions, whether sent by postal or electronic mail, and all employees should be made aware of this restriction. The individuals designated to receive the submissions should be administrative personnel whose work is unrelated to the company’s research and marketing activities and who therefore would be unlikely to use the submitted ideas or communicate them to others who could make use of them.
9. Sample Forms Sample Letter in Response to Unsolicited Invention or Idea Dear [Mr./Ms. Name]: We are writing in response to your letter dated ______ concerning an invention or business idea that you wish our company to consider. Our policy with respect to the unsolicited submissions of business ideas or proposals requires that you execute and return the enclosed agreement before we review any material you have sent or may send to us. Please feel free to consult an attorney before executing the agreement because it sets forth the parties’ legal rights and provides that our review will be on a nonconfidential basis. We acknowledge that we have no monopoly on good ideas and appreciate the many unsolicited idea submissions we receive from members of the public interested in our business and our products. The ideas we receive are often creative and sent by persons who are well-meaning. In our experience, however, the ideas we receive often exist in the public domain already or are similar to projects or ideas we are already exploring. For that reason, we simply cannot accept any submission for review except in those instances where we first obtain an Invention and Idea Submission Agreement. We will hold any material you have already sent for 30 days pending our receipt of an executed Invention and Idea Submission Agreement from you. If you do not wish to execute the enclosed agreement, please let us know within 30 days and we will return the materials you provided. Thank you for your interest in our business. Very truly yours, ______________
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Sample Invention and Idea Submission Agreement In consideration of the examination and evaluation of any inventions, ideas, or information submitted heretofore, herewith, or hereafter to [name] Corporation (together with its parent, affiliate and subsidiary corporations, the “Company”), the undersigned agrees to the following conditions: (a) No confidential relationship will be deemed or implied from such submission or from the consideration by the Company of the submitted material, whether or not the material is submitted “in confidence.” (b) The Company makes no commitment that any idea or materials submitted to it will be maintained in confidence or kept secret. (c) The reception and consideration by the Company of any invention or idea shall not in any way impair the Company’s right to contest the validity or infringement of any patent related thereto, whether obtained previously or thereafter. My sole remedy if I believe that the Company is infringing a patent I own shall be to enforce my rights under the applicable patent laws. (d) The Company shall give each submitted invention or idea only such consideration as, in its judgment, the invention or idea merits, and shall be under no obligation to return any material to me or to reveal its acts in connection with the submitted invention or idea. (e) The Company shall be under no obligation to reveal any information concerning its activities in either the general or the specific field to which the submitted invention or idea pertains. (f) If the Company decides not to offer compensation for an invention or idea I submit, it agrees to communicate that decision to me but assumes no obligation to give any reason for its decision. (g) The Company’s decision to enter into a negotiation to purchase or license any invention or idea I submit, or to make an offer for such purchase or license, shall not in any way prejudice the Company, nor shall it be deemed an admission by the Company of the novelty of the invention or idea, or of priority or originality on my part or on the part of any other person. (h) This agreement shall also apply to any supplemental information I may provide. My signature below acknowledges my agreement to the foregoing terms. _______________________ [Name]
Dated:_______________________
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Sample Visitor’s Agreement I, [name], understand and agree to abide by the following Confidentiality and Nondisclosure Agreement in consideration of being permitted to visit your premises. I agree that I will use your Proprietary Information (consisting of technical and business information describing or related to your activities that has either been generated at your expense and that you hold in confidence or that you have received from third parties under an obligation to maintain it as confidential) only for purposes expressly authorized in writing by [name of company]. I further agree that I will not disclose the Proprietary Information to any third parties; remove any document, equipment, or other materials from the premises; record by photograph, tape, or other means any Proprietary Information that I may observe or receive; or use any Proprietary Information for my own purposes. In addition, I agree not to expose [name of company] to confidential information belonging to me, my employer, or any third party without a separate agreement signed an authorized representative of [name of company]. To the extent my employer or I have previously entered into any confidentiality, non-disclosure or similar agreement, I will continue to be bound by such agreement. _______________________ [Printed Name]
Dated:_______________________
D. Protecting Information Disclosed to the Government 1. Rules of Thumb Companies frequently disclose trade secret information to both state and federal governments for a variety of reasons. Secrets are sometimes disclosed when a company is seeking, or pursuant to, a government contract. At other times, the government exercises its “police powers” to compel disclosure for regulatory reasons. At still other times, a company may disclose trade secrets when registering a claim of copyright or applying for patent protection. Finally, a company may disclose trade secrets in litigation, either as a party responding to discovery or as a third party responding to a subpoena.
Protecting Information Disclosed to the Government
With the exception of a patent application or a properly prepared claim of copyright protection, little good can come of a disclosure made to the government. The federal Freedom of Information Act (FOIA)32 and its state law counterparts exist to facilitate the disclosure of information by the government to third parties.33 Although the disclosure of trade secret information is generally prohibited, there is a significant risk of inadvertent disclosure, especially because government agencies and departments are encouraged to share information with one another pursuant to the Paperwork Reduction Act.34 The effects of inadvertent disclosure by the government may be severe. In one case, the Environmental Protection Agency released the half-billion dollar formula for Monsanto’s “Roundup” herbicide in response to a FOIA request.35 Information submitted in confidence to one agency can wind up being used by other parts of the government for very different purposes. There is little to prevent information from being disclosed to Congress, and Congress need not agree to meaningful safeguards in acquiring information.36 Similarly, data gathered by the Federal Energy Administration has been shared by the Federal Trade Commission and the Department of Justice for use in an antitrust investigation.37 Worse still, when the government discloses trade secret information, it can usually be counted upon to deny liability. When the government inadvertently discloses trade secret information that has been marked as such by the owner, the government may nonetheless avoid liability if the confidentiality notice was placed only on the face page rather than on every page of a document containing trade secret information.38 The federal government, and often state governments as well, also take a narrow view of what is protectable. FOIA contains exemptions that allow the government discretion to decline to disclose trade secret information. The District of Columbia Circuit, however, has limited the most important
32 5 U.S.C. § 552 (2007). 33 See Dep’t of the Air Force v. Rose, 425 U.S. 352, 361, 96 S. Ct. 1592, 1599, 48 L. Ed. 2d 11, 21 (1976) (holding that “disclosure, not secrecy, is the dominant objective of the Act” and that exemptions “must be narrowly construed”); Cal-Almond, Inc. v. U.S. Dep’t of Agric., 960 F.2d 105, 107–08 (9th Cir. 1992) (same). 34 44 U.S.C. §§ 3501–3520 (2007). 35 See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1006–07, 104 S. Ct. 2862, 2874–75, 81 L. Ed. 2d 815, 834–35 (1984) (holding that there was no taking of Monsanto’s trade secret property interest by internal governmental use, by use in connection with the application from another, or by the disclosure of the trade secret formula after ten years because all were allowed by the statute that was in effect when the data were submitted). 36 See, e.g., Ashland Oil, Inc. v. Federal Trade Comm’n, 409 F. Supp. 297, 308–09 (D.D.C.) (allowing information to be shared with Congressional subcommittee that refused to agree to hold the information in confidence), aff ’d, 548 F.2d 977 (D.C. Cir. 1976). 37 Shell Oil Co. v. Dep’t of Energy, 477 F. Supp. 413 (D. Del. 1979), aff ’d, 631 F.2d 231 (3d Cir. 1980). 38 See Xerxe Group, Inc. v. United States, 278 F.3d 1357, 1360 (Fed. Cir. 2002).
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exemption to the protection of manufacturing information, holding that the term “trade secrets” should be defined “in its narrower common law sense, which incorporates a direct relationship between the information at issue and the production process.”39 That definition of “trade secret,” of course, is narrower even than the definition found in the Restatement (First) of Torts Section 757, comment b. The D.C. Circuit’s limited interpretation now is generally accepted as authoritative in construing FOIA.40 Courts construing state law counterparts to FOIA have frequently given “trade secret” the Restatement definition.41 Sometimes, however, they have used the Restatement to define the maximum, rather than minimum, scope of protectability. Courts have sometimes applied the Restatement (First) of Torts Section 757, comment b definition to exclude “ephemeral” business information such as that relating to costs and pricing.42 Some state courts have also followed the Restatement in holding that information not in “continuous use” is not protectable as a trade secret.43 In another case, “non-commercial” scientific research and research designs submitted in grant applications were held not entitled to protection.44 The foregoing decisions might not all be followed today. Since the widespread adoption of the UTSA, the trend in state courts has been to allow a more expansive definition of “trade secrets,”45 although some states have continued to adhere to the Restatement definition.46 Different states follow different procedures with respect to protection of confidential information submitted to their agencies. In some states, agencies take the position that a party seeking to protect confidential information must file a judicial petition seeking a declaration that the information a third party has requested is exempt from disclosure. Even within a state, different agencies may adopt different practices for handling public record act requests,
39 Pub. Citizen Health Research Group v. FDA, 704 F.2d 1280, 1288–89 (D.C. Cir. 1983). 40 Anderson v. Dep’t of Health & Human Servs., 907 F.2d 936, 944 (10th Cir. 1990). (But see Union Oil Co. v. Fed. Power Comm’n, 542 F.2d 1036, 1044 (9th Cir. 1976) (relying on Restatement (First) of Torts definition); Chevron Chem. Co. v. Costle, 443 F. Supp. 1024, 1032 (N.D. Cal. 1978) (same). 41 To the extent that state statutes and FOIA have similar provisions, courts may interpret the state statutes by reference to decisions construing FOIA. See Providence Journal Co. v. Convention Ctr. Auth., 774 A.2d 40, 46 (R.I. 2001). 42 See, e.g., Wis. Elec. Power Co. v. Pub. Serv. Comm’n, 110 Wis. 2d 530, 536, 329 N.W.2d 178, 181–82 (1983). 43 See Uribe v. Howie, 19 Cal. App. 3d 194, 208–09, 96 Cal. Rptr. 493, 501–02 (1971). 44 See Wash. Research Project, Inc. v. Dep’t of Health, Educ. & Welfare, 504 F.2d 238, 244–45 (D.C. Cir. 1974). 45 See, e.g., State ex rel. Plain Dealer v. Ohio Dep’t of Ins., 80 Ohio St. 3d 513, 524, 687 N.E.2d 661, 672 (Ohio 1997). 46 See, e.g., 69 Op. Att’y Gen. Cal. 129, 135, 1986 Cal. AG LEXIS 22, at *5–6 (1986) (relying on pre-UTSA cases to determine what information could be withheld from public inspection under the California Public Records Act, Cal. Gov’t Code §§ 6250–6265).
Protecting Information Disclosed to the Government
notifying the information supplier that such a request has been made, and delaying disclosure of the information for a period sufficient to allow the supplier to file a court petition if necessary. Needless to say, all confidential or trade secret information submitted should be clearly labeled as such and the information supplier should investigate at the front end what procedures the agency will follow if a public records act request is made. In some instances, it may be desirable to show the agency certain information without providing a copy that can then be discovered by competitors or others in the ordinary course of the agency’s work. Indeed, the Supreme Court has held that a loss of secrecy can sometimes be a necessary, noncompensable incident of proper government regulation.47 When, however, the government does disclose information that is inarguably trade secret and that has been properly labeled as such, the result is not necessarily unmitigated disaster. In such circumstances, the courts will usually hold that the information, although released, remains protectable as a trade secret.48 For that reason, a recipient of trade secret information that is aware that the disclosure was made by mistake may be liable for its further disclosure or use.49 If a statute forces the disclosure of trade secret formulas as a condition for permitting the sale of product, the takings clause of the Fifth Amendment may be triggered.50 An improper disclosure of trade secret information under FOIA may also be compensable under the Fifth Amendment, at least if the government acts pursuant to its authority.51 If government employees exceed their authority in disclosing information, the owner’s loss will not be compensable.52 Additionally, a disclosure of trade secret information in violation of an implied or expressed contract of confidentiality is sometimes compensable pursuant to the Tucker Act.53
47 See, e.g., Corn Prods. Ref. Co. v. Eddy, 249 U.S. 427, 431–32, 39 S. Ct. 325, 327, 63 L. Ed. 689, 693 (1919) (manufacturers of syrup compounds could be required to disclose the relevant percentages of each ingredient). 48 See Williams v. Curtiss-Wright Corp., 681 F.2d 161, 162 (3d Cir. 1982) (Navy disclosed secret production drawings for a jet engine); Masonite Corp. v. County of Mendocino Air Quality Mgmt. Dist., 42 Cal. App. 4th 436, 450, 49 Cal. Rptr. 2d 639, 648 (1996) (emissions data were subjected to separate accidental releases, once by the EPA and once by a state employee). 49 Williams, 681 F.2d at 164. 50 See Philip Morris, Inc. v. Reilly, 312 F.3d 24, 31 (1st Cir. 2002) (affirming preliminary injunction against Massachusetts statute requiring cigarette manufacturers to disclose additives). 51 See Jerome Stevens Pharms., Inc. v. FDA, 402 F.3d 1249, 1252–53 (D.C. Cir. 2005). 52 See PI Elecs. Corp. v. United States, 55 Fed. Cl. 279, 281 (2003) (release of information in violation of nondisclosure agreement was ultra vires act for which the government was not liable). 53 28 U.S.C. § 1491 (2007). Tucker Act suits may be brought against any government agency that is allowed to pay a judgment out of its own budget, rather than directly from the United States Treasury. Tucker Act claims may be brought in the United States Court of Federal Claims in Washington, D.C. If the plaintiff seeks less than $10,000 in damages, federal district courts have concurrent jurisdiction. Tucker Act claims are subject to a six-year statute of limitations.
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Checklist of General Precautions • • •
•
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•
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Consider carefully making any voluntary disclosure of trade secret information to the government; If the government will allow it, enter into a nondisclosure agreement first54; Make sure any proposed nondisclosure agreement spells out in detail what specific measures the government must take to protect the secrecy of the information; If the government proposes to release trade secret information to a third party pursuant to a nondisclosure agreement, enter into a nondisclosure agreement directly with the third party (to allow ease of enforcement); When the disclosure of trade secret information is required by a regulatory agency, determine whether the agency will accept a summary of the information; Never disclose more information to a regulatory agency than is required55; Stamp every page of documents containing confidential or trade secret information as such56; Stamp government bid documents as “FOR GOVERNMENT INTERNAL EVALUATION ONLY”; Before disclosing information to any state or federal agency, determine whether that agency has specific requirements for the submission of confidential or trade secret information; When disclosing trade secret information pursuant to a government contract, consider whether a “LIMITED RIGHTS” or “RESTRICTED RIGHTS” legend is required to be used57; Designate technology as “commercial” when appropriate; When providing information to the government, separate trade secret and confidential information from nonproprietary information to the extent possible;
54 A form nondisclosure agreement acceptable to the federal government may be found at 48 C.F.R. § 227.7103-7(c) (2008). 55 See Boyette v. L.W. Looney & Son, Inc., 932 F. Supp. 1344, 1348 (D. Utah 1996) (manufacturer was permitted to withhold secret chemical information from a “Material Safety Data Sheet” as permitted under Occupational Safety and Health Administration regulations and, as a bonus, was shielded from a claim of recklessness in causing injuries that might have been prevented by a more complete warning). 56 See Xerxe Group, Inc. v. United States, 278 F.3d 1357, 1360 (Fed. Cir. 2002). 57 See, e.g., 48 C.F.R. § 52.227-14 (2008).
Protecting Information Disclosed to the Government
• •
•
Do not deposit trade secret information with the Copyright Office except pursuant to a “special relief” application58; If restricted computer software is delivered to the government with a copyright notice, the notice must be accompanied by the disclaimer “Unpublished—Rights Reserved Under the Copyright Laws of the United States”; and In responding to a subpoena or other discovery request, consider whether a state law evidentiary privilege applies.59
2. Protecting Trade Secrets While Contracting with the Federal Government Information disclosed to the federal government in the process of doing business with it can be classified in a number of ways. The classifications include “Unlimited,” “Government Purpose,” “Limited,” “Restricted,” “Specifically Negotiated License Rights,” “Small Business Innovation and Research (SBIR) Data Rights,” and “Government Rights in Commercial Software.” Information disclosed to the government will generally fall into one of the first four classifications. Of those, the first two provide the least protection to trade secret owners. The actual classification will depend upon which data-rights regulations are applicable to the contract. The data-rights regulations respecting commercial, nondefense contracts are set forth in the Federal Acquisition Regulations (FAR) and the regulations respecting military procurement contracts can be found in the Department of Defense FAR Supplement (DFARS). Within the FAR, the intellectual property provisions are set forth in Title 48 of the Code of Federal Regulations in part 27 (including, in particular, subpart 27.4 relating to technical data) and part 52 (specifying contract provisions). The corresponding DFARS provisions are largely set forth in 48 C.F.R. subparts 227.71 (technical data) and 227.72 (software). Defense contract issues are addressed at 48 C.F.R. subparts 252.227-7013 (technical data) and 252.2277014 (software). The FAR and DFARS govern the treatment of trade secret or copyrightable material such as a company’s technical data, including schematics, diagrams,
58 See 37 C.F.R. § 202.20(d) (2008); see also supra Chapter 2(C)(2)(a). 59 See, e.g., Cal. Evid. Code § 1060 (2007): If he or his agent or employee claims the privilege, the owner of a trade secret has a privilege to refuse to disclose the secret, and to prevent another from disclosing it, if the allowance of the privilege will not tend to conceal fraud or otherwise work injustice.
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designs or drawings, or processes, as well as computer software. Under the DFARS, the scope of the government’s license is primarily determined by “following the money,” i.e., determining who bore the cost to develop the information. The DFARS also distinguish between “commercial” and “noncommercial” data, with the scope of the government’s rights varying based on that distinction and provide a broad array of licensing options. Under the FAR, the scope of the license is determined not just by the source of the funding for the technical data but the classification of the data as trade secret or confidential and the restrictive legend used on the data when submitted to the government. There are fewer licensing options available than under the DFARS. In practice, however, the classification rules can be subject to a variety of interpretations because the regulations nowhere define either “trade secret” or “developed at private expense.” The DFARS generally operate in a manner similar to the FAR. There are, however, some important differences. They provide a presumption that commercial items are developed at private expense.60 Thus, the defense contractor need not prove the source of funding unless the contention that information is commercial is challenged by the government. And, when the development costs of noncommercial technology are not allocated directly to a government contract within the contractor’s accounting system, the technology is considered to have been developed at “private expense” even when the expense is reimbursed by the government as an indirect cost.61 In general, companies own all material created by their employees in the course of performing government contracts, including both “technical data” and computer software, but the government may successfully claim it has received a paid-up nonexclusive license, depending on the development source of funds. A company may claim ownership in computer software it develops pursuant to a government contract as a “work made for hire” under the Copyright Act.62 In government contracts, the term “computer software” includes “computer programs, source code, source code listings, object code listings, design details . . . and related material that . . . enable the software to be reproduced, recreated, or recompiled.”63 “Technical data” is defined as recorded information, regardless of the form or method of the recording, of a scientific or technical nature (including software documentation). It does not, however, include computer software itself or data incidental to contract administration, such as financial, administrative, cost or pricing, or management information.64
60 61 62 63 64
10 U.S.C. § 2320(b)(1) (2006). 48 C.F.R. § 252.227-7013(a)(7) (2008). 17 U.S.C. § 201(b) (2008). 48 C.F.R. § 252.227-7013(a)(3). See id. § 52.227-14(a)(2) (FAR); id. § 252.227-7013(a)(14) (DFARS).
Protecting Information Disclosed to the Government
a. Unlimited Rights “Unlimited Rights” are obtained by the government if technical data is developed exclusively with government funds.65 Having unlimited rights allows the government to “use, disclose, reproduce, prepare derivative works, distribute copies to the public, and perform publicly and display publicly, in any manner and for any purpose, and to have or permit others to do so.”66 Accordingly, when the government has unlimited rights, it may freely provide a company’s technical data or computer software to anyone, including competitors. Under the DFARS, the government also receives an unrestricted license in commercial technical data that (1) have been submitted without restrictions on use; (2) are form, fit, and function data;67 (3) are a correction or change to previously submitted data; (4) constitute data that “is necessary for operation, maintenance, installation or training;” or (5) constitute data submitted under a prior contract in which the government had unlimited rights.68 For all other data, the government receives a limited rights license.69 Pursuant to the DFARS, if a company wishes to give the government less than unlimited rights, it must provide notice to the government in advance of entering into any contract.70 That information must be specifically laid out in one of the restrictive legends provided for in the FAR or DFARS. Alternatively, the contractor may withhold the data after identifying it and furnishing form, fit, and function data. The failure to adhere strictly to the notice requirements in the FAR or DFARS may result in a grant of unlimited rights to the government.71
65 See id. §§ 227.7103-5(a) (technical data), 227.7203-5 (software). 66 Id. § 52.227-14(a). But see id. § 52.227-14(b)(2)(ii) (allowing contractors to place restrictions on the government’s license to use or disclose certain data). 67 “Form, fit, and function data means data relating to items, components, or processes that are sufficient to enable physical and functional interchangeability, and data identifying source, size, configuration, mating and attachment characteristics, functional characteristics, and performance requirements. For computer software it means data identifying source, functional characteristics, and performance requirements but specifically excludes the source code, algorithms, processes, formulas, and flow charts of the software.” Id. § 52.227-14(a)(2). 68 Id. § 252.227-7015(b)(1). 69 See id. § 252.227-7015(b)(2). 70 See id. § 252.227-7013(e)(2). The requirement is, however, inapplicable to restrictions based on copyright ownership. See id. § 252.227-7013(e)(1). 71 See Ervin & Assoc., Inc. v. United States, 59 Fed. Cl. 267 (2004) (holding that oral statements, letters, and e-mail messages providing “limited rights” notice fail to comply with the notice requirements of the FAR, thus giving the government unlimited rights in all technical data and computer software delivered under the contract), aff ’d, 120 Fed. Appx. 353 (Fed. Cir. 2005).
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b. Limited Rights “Limited Rights” are acquired by the government if technical data are developed at a company’s own expense and embody trade secret, commercial, financial and confidential, or privileged information.72 Such rights allow the government “to use, modify, reproduce, release, perform, display, or disclose technical data, in whole or in part, [but only] within the Government.”73 Having only limited rights prevents the government from using the data for manufacturing purposes and disclosing the data outside the government. The following notice may be used under the FAR to designate limited rights data:
Limited Rights Notice (Dec. 2007) (a) These data are submitted with limited rights under Government Contract No. ________ (and subcontract ________, if appropriate). These data may be reproduced and used by the Government with the express limitation that they will not, without written permission of the Contractor, be used for purposes of manufacture nor disclosed outside the Government; except that the Government may disclose these data outside the Government for the following purposes, if any; provided that the Government makes such disclosure subject to prohibition against further use and disclosure: [Agencies may list additional purposes as set forth in 27.404-2(c)(1) or if none, so state.] (b) This notice shall be marked on any reproduction of these data, in whole or in part.74
When used in connection with software subject to limited rights, the following clause should be substituted for the corresponding portion of paragraph (a) as prescribed in 48 C.F.R. § 27.409(b)(4): (g)(4)(i) Notwithstanding paragraph (g)(1) of this clause, the contract may identify and specify the delivery of restricted computer software, or the Contracting Officer may require by written request the delivery of restricted computer software that has been withheld or would otherwise be entitled to be withheld. If delivery of that computer software is required, the Contractor shall affix the following “Restricted Rights Notice” to the computer software and the
72 See 48 C.F.R. § 52.227-14(a). 73 Id. § 252.227-7013(a)(13). 74 Id. § 52.227-14(i).
Protecting Information Disclosed to the Government Government will treat the computer software, subject to paragraphs (e) and (f) of this clause, in accordance with the notice:75
Under the DFARS, the following limited rights legend may be used:
Limited Rights Contract No. ________________________________________ Contractor Name ____________________________________ Contractor Address ___________________________________ ____________________________________________________ The Government’s rights to use, modify, reproduce, release, perform, display, or disclose these technical data are restricted by paragraph (b)(3) of the Rights in Technical Data-Noncommercial Items clause contained in the above identified contract. Any reproduction of technical data or portions thereof marked with this legend must also reproduce the markings. Any person, other than the Government, who has been provided access to such data must promptly notify the above named Contractor.76
c. Restricted Rights “Restricted Rights” allow the government to “[u]se a computer program with one computer at a time. The program may not be accessed by more than one terminal or central processing unit or time shared.”77 Pursuant to its restricted rights, the government may “[t]ransfer a computer program to another Government agency without the further permission of the Contractor if the transferor destroys all copies of the program and related computer software documentation in its possession and notifies the licensor of the transfer.”78 Having restricted rights also allows the government to make copies of computer software for safekeeping, backup, and modification purposes and allows the government to “[p]ermit contractors or subcontractors performing service contracts . . . to use [the] software to diagnose and correct deficiencies in a computer program, to modify [the] software to enable a computer program
75 76 77 78
Id. Id. § 252.227-7013(f)(3). Id. § 252.227-7014(a)(14)(i). Id. § 252.227-7014(a)(14)(ii).
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to be combined with, adapted to, or merged with other computer programs or when necessary to respond to urgent tactical situations.”79 To qualify for restricted rights, computer software must be a trade secret and developed at private expense, commercial or financial and confidential or privileged, or published and subject to copyright protection.80 The following long and short forms of restricted rights notices may be used under the FAR:
Restricted Rights Notice (Dec. 2007) (a) This computer software is submitted with restricted rights under Government Contract No. ________ (and subcontract _________, if appropriate). It may not be used, reproduced, or disclosed by the Government except as provided in paragraph (b) of this notice or as otherwise expressly stated in the contract. (b) This computer software may be– (1) Used or copied for use with the computer(s) for which it was acquired, including use at any Government installation to which the computer(s) may be transferred; (2) Used or copied for use with a backup computer if any computer for which it was acquired is inoperative; (3) Reproduced for safekeeping (archives) or backup purposes; (4) Modified, adapted, or combined with other computer software, provided that the modified, adapted, or combined portions of the derivative software incorporating any of the delivered, restricted computer software shall be subject to the same restricted rights; (5) Disclosed to and reproduced for use by support service Contractors or their subcontractors in accordance with paragraphs (b)(1) through (4) of this notice; and (6) Used or copied for use with a replacement computer. (c) Notwithstanding the foregoing, if this computer software is copyrighted computer software, it is licensed to the Government with the minimum rights set forth in paragraph (b) of this notice. (d) Any other rights or limitations regarding the use, duplication or disclosure of this computer software are to be expressly stated in, or incorporated in, the contract. (e) This notice shall be marked on any reproduction of this computer software, in whole or in part.
79 Id. §§ 252.227-7014(a)(14)(iv), (v). 80 See id. § 52.227-14(a)(2).
Protecting Information Disclosed to the Government
If it is impractical to use the long-form Restricted Rights Notice on restricted computer software, the following short-form notice may be used:
Restricted Rights Notice Short Form (June 1987) Use, reproduction, or disclosure is subject to restrictions set forth in Contract No. ___________ (and subcontract ___________, if appropriate) with ________ ______________ (name of Contractor and subcontractor).81
Under the DFARS, the following Restricted Rights legend may be used on software:
Restricted Rights Contract No. ________________________________________ Contractor Name ____________________________________ Contractor Address ___________________________________ ____________________________________________________ The Government’s rights to use, modify, reproduce, release, perform, display, or disclose this software are restricted by paragraph (b)(3) of the Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation clause contained in the above identified contract. Any reproduction of computer software or portions thereof marked with this legend must also reproduce the markings. Any person, other than the Government, who has been provided access to such software must promptly notify the above named Contractor.82
d. “Government Purpose” Rights “Government Purpose” rights are granted when technical data is developed using a mixture of the government’s and the company’s funds. Government purpose rights allow the government to use or disclose technical data or computer software, either within the government or outside the government but only for government purposes.83 Such purposes may include obtaining
81 Id. § 52.227-14(i). 82 Id. § 252.227-7014(f)(3). 83 See id. § 227.7103-5(b)(4).
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competitive procurements, but they do not include the right to use, modify, or disclose technical data or computer software for commercial purposes.84 Under the DFARS, the following government purpose rights legend may be used for technical data:
Government Purpose Rights Contract No. ________________________________________ Contractor Name ____________________________________ Contractor Address __________________________________ ___________________________________________________ Expiration Date _____________________________________ The Government’s rights to use, modify, reproduce, release, perform, display, or disclose these technical data are restricted by paragraph (b)(2) of the Rights in Technical Data-Noncommercial Items clause contained in the above identified contract. No restrictions apply after the expiration date shown above. Any reproduction of technical data or portions thereof marked with this legend must also reproduce the markings.85
Computer software delivered or furnished to the government subject to government purpose rights must be marked as follows:
Government Purpose Rights Contract No. ________________________________________ Contractor Name ____________________________________ Contractor Address __________________________________ ___________________________________________________ Expiration Date _____________________________________ The Government’s rights to use, modify, reproduce, release, perform, display, or disclose this software are restricted by paragraph (b)(2) of the Rights in
84 See id. 85 Id. § 252.227-7013(f)(2).
Protecting Information Disclosed to the Government Noncommercial Computer Software and Noncommercial Computer Software Documentation clause contained in the above identified contract. No restrictions apply after the expiration date shown above. Any reproduction of software or portions thereof marked with this legend must also reproduce the markings.86
e. “Specifically Negotiated License Rights” “Specifically Negotiated License Rights” allow a company to negotiate a license with the government tailored to fit the particular circumstances.87 One important limitation is that specifically negotiated license rights may not provide the government with less than limited or restricted rights, depending on whether technical data or software is at issue. Data provided to the government under a specifically negotiated license may be marked with the following legend:
Special License Rights The Government’s rights to use, modify, reproduce, release, perform, display, or disclose these data are restricted by Contract No. _____ (insert contract number) _____, License No. _____ (insert license identifier) _____. Any reproduction of technical data or portions thereof marked with this legend must also reproduce the markings.88
If software is provided to the government pursuant to a specifically negotiated license, the following legend should be used:
Special License Rights The Government’s rights to use, modify, reproduce, release, perform, display, or disclose this software are restricted by Contract No. _____ (insert contract number) _____, License No. _____ (insert license identifier) _____. Any reproduction of computer software, computer software documentation, or portions thereof marked with this legend must also reproduce the markings.89
f. “SBIR Data Rights” “SBIR Data Rights” apply only to contracts awarded under the Small Business Innovation and Research Program (SBIR).90 SBIR data rights generally allow
86 87 88 89 90
Id. § 252.227-7014(f)(2). See id. § 227.7103-5(d). Id. § 252.227-7013(f)(4). Id. § 252.227-7014(f)(4). See id. § 227.7104.
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a small business to obtain rights more favorable than could be obtained by larger businesses. Significantly, even when development is funded by the government, the SBIR program allows businesses to impose restrictions for a period of five years under the DFARS and four years under the FAR on the unlimited rights the government would otherwise obtain. During that period, the government has a royalty-free license to use any technical data marked with an SBIR legend but may use it only for government purposes. Following the four- or five-year period, the government receives unlimited rights to the data or software.91 Technical data or computer software generated under an SBIR contract should ordinarily be marked with the following legend:
SBIR Data Rights Contract No. __________________________________________ Contractor Name ______________________________________ Contractor Address _____________________________________ ______________________________________________________ Expiration of SBIR Data Rights ___________________________ The Government’s rights to use, modify, reproduce, release, perform, display, or disclose technical data or computer software marked with this legend are restricted during the period shown as provided in paragraph (b)(4) of the Rights in Noncommercial Technical Data and Computer Software-Small Business Innovative Research (SBIR) Program clause contained in the above identified contract. No restrictions apply after the expiration date shown above. Any reproduction of technical data, computer software, or portions thereof marked with this legend must also reproduce the markings.92
g. Government Rights in Commercial Computer Software Government “rights in commercial computer software” allow the government to receive only those rights contained in the contractor’s standard commercial software license agreement.93
91 See id. § 227.7104(b). 92 Id. § 252.227-7018(f)(4). 93 Id. § 227.7202-3(a).
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3. Preventing the Federal Government from Disclosing Trade Secret Information a. Statutes Barring the Disclosure of Trade Secret Information At the federal level, two statutes seemingly bar the disclosure of trade secret information. The first is the Trade Secrets Act94: Whoever, being an officer or employee of the United States or of any department or agency thereof . . . or being an employee of a private sector organization who is or was assigned to an agency . . . publishes, divulges, discloses, or makes known in any manner or to any extent not authorized by law any information coming to him in the course of his employment or official duties or by reason of any examination or investigation made by, or return, report or record made to or filed with, such department or agency or officer or employee thereof, which information concerns or relates to the trade secrets, processes, operations, style of work, or apparatus, or to the identity, confidential statistical data, amount or source of any income, profits, losses, or expenditures of any person, firm, partnership, corporation, or association; or permits any income return or copy thereof or any book containing any abstract or particulars thereof to be seen or examined by any person except as provided by law; shall be fined under this title, or imprisoned not more than one year, or both; and shall be removed from office or employment.
Although the Trade Secrets Act is a strong deterrent to the improper disclosure of trade secret information, it does not confer any substantive right on trade secret owners. Specifically, it does not create a private right of action.95 It also does not limit in any manner the scope of information that may permissibly be disclosed under FOIA.96 The Trade Secrets Act additionally cannot bar the disclosure of information discoverable in a civil suit under the Federal Rules of Civil Procedure.97 This is true even if information would otherwise be exempt from disclosure under FOIA.98 Nevertheless, when a trade secret owner is notified by an agency of the intended release of trade secret or confidential information, the owner is well-advised to place the agency on notice of its claim that the information is trade secret or confidential
94 18 U.S.C. § 1905 (2007). 95 See Chrysler Corp. v. Brown, 441 U.S. 281, 316, 99 S. Ct. 1705, 1725, 60 L. Ed. 2d 208, 234 (1979). 96 See 9 to 5 Org. for Women Office Workers v. Bd. of Governors, 721 F.2d 1, 12 (1st Cir. 1983) (holding that if disclosure is not prohibited under FOIA, disclosure will also not violate the Trade Secrets Act). But see CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1151–52 (D.C. Cir. 1987) (holding that the Trade Secrets Act “is at least co-extensive with. [FOIA] Exemption 4”). 97 See Exch. Nat’l Bank v. Abramson, 295 F. Supp. 87, 92 (D. Minn. 1969). 98 See Pleasant Hill Bank v. United States, 58 F.R.D. 97, 98 n.1 (W.D. Mo. 1973).
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pursuant to the Trade Secrets Act. Doing so will likely cause the agency to be cautious in releasing the owner’s information. The Privacy Act of 197499 was enacted to ensure the privacy of personal and financial information. It prohibits federal agencies from disclosing any records without a written request by, or the prior written consent of, the person to whom the records pertain.100 Like the Trade Secrets Act, though, it does not extend protection to any information that is otherwise subject to disclosure under FOIA.101 b. Challenging an Agency’s Preliminary Decision to Release Trade Secret Information Under Executive Order No. 12600,102 “Predisclosure Notification Procedures for Confidential Commercial Information,” federal agencies subject to FOIA are generally required to give reasonable notice to the owner before disclosing confidential commercial information.103 The order defines “confidential commercial information” as records provided to the government that “arguably contain material exempt from release under Exemption 4” of FOIA, “the disclosure of which “could reasonably be expected to cause competitive harm.”104 Pursuant to Section 3(b) of the order, each agency is required to establish procedures to permit owners of confidential, commercial information to designate as such information that could reasonably be expected to cause substantial competitive harm if disclosed. Also, the procedures may allow the agency to designate specific classes of information for confidential treatment. Subject to certain exceptions, an agency is required to provide notice to the owner if it determines that it may be required to disclose records designated pursuant to Section 3 or that the agency “has reason to believe could reasonably be expected to cause substantial competitive harm” if disclosed.105 Pursuant to Section 6, an agency is also required to notify the owner of
99 100 101 102 103
5 U.S.C. § 552a (2008). See id. § 552a(b). See Grove v. CIA, 752 F. Supp. 28, 30 (D.D.C. 1990). 52 Fed. Reg. 23,781 (June 23, 1987). There is also authority requiring that notification be given to the owner when a request for information provided to a state government is made under a state FOIA counterpart. See Seta Corp., Inc. v. Fla., 756 So. 2d 1093, 1094 (Fla. Dist. Ct. App. 2000). 104 52 Fed. Reg. 23,781 § 2(a). 105 Under Section 8, notice is not required in various situations, including if the information has been previously published or officially made available to the public; disclosure of the information is required by law; the owner failed to identify properly the information as “confidential commercial information”; or when the “confidential commercial information” designation “appears obviously frivolous.”
Protecting Information Disclosed to the Government
confidential, commercial information if a third party has filed suit seeking to compel its disclosure.106 Under Section 4 of the order, an agency must afford the owner “a reasonable period of time” in which the owner or its designee “may object to the disclosure of any specified portion of the information and to state all grounds upon which disclosure is opposed.” Typically the process moves very quickly and the owner may have to submit its opposition within a matter of days after receiving notice. In responding, the owner will need to need to show how each particular bit of information falls within the exemptions to disclosure under FOIA. c. Judicial Challenge to an Agency’s Decision to Release Information If the owner is unsuccessful in persuading the agency to withhold disclosure of its information, the owner’s remedy is to bring an action pursuant to the Administrative Procedure Act (APA)107 or to file a tort claim after the fact. Under the APA, a reviewing court may overturn an agency action if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”108 A court will not, however, block the disclosure of confidential commercial information as long as the agency’s “predictive judgment” as to the existence or extent of competitive harm likely to result from the disclosure appears reasonable.109 In Chrysler Corp. v. Brown, the Supreme Court ruled that “any disclosure that violates [the federal Trade Secrets Act] is ‘not in accordance with law.’”110 Accordingly, the owner will have the burden of showing that under FOIA, the release of information would be arbitrary, capricious, or an abuse of discretion, or would otherwise violate the Trade Secrets Act. Such cases have been labeled “reverse FOIA” actions. d. Freedom of Information Act Exemptions What information may be disclosed by the government is determined under FOIA. FOIA is intended to facilitate the disclosure of information to the
106 When a third party brings an action to obtain information under FOIA, the owner may intervene as of right to protect its data. See Appleton v. FDA, 310 F. Supp. 2d 194, 197 (D.D.C. 2004). 107 5 U.S.C. § 702 (2008); see also Campaign for Family Farms v. Glickman, 200 F.3d 1180, 1184 (8th Cir. 2000); Conax Fla. Corp. v. United States, 824 F.2d 1124, 1125, 1128 (D.C. Cir. 1987); McDonnell Douglas Corp. v. EEOC, 922 F. Supp. 235, 240–41 (E.D. Mo. 1996). 108 5 U.S.C. § 706 (2008). 109 See CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1155 (D.C. Cir. 1987). However, if the agency’s action is “adjudicatory” and its fact-finding procedures are deemed inadequate, a de novo standard of review is used. RSR Corp. v. Browner, No. 96-6186, 1997 U.S. App. LEXIS 5523, at *8 (2d Cir. Mar. 26, 1997), vacated, 1997 U.S. App. LEXIS 41414 (2d Cir. Apr. 17, 1997). 110 Chrysler Corp. v. Brown, 441 U.S. 281, 318, 99 S. Ct. 1705, 1726, 60 L. Ed. 2d 208, 235 (1979).
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public.111 Under FOIA, the identity of the requestor is not relevant and therefore a company’s trade secret information may be requested by competitors and even foreign governments.112 Various “exemptions” from disclosure are set forth in Section 552(b). The exemptions, however, are permissive rather than mandatory in that they provide a government agency with a basis not to disclose information but nonetheless afford the agency the discretion to do so.113 (i) Exemption 4 Only two exemptions—Numbers 3 and 4—potentially benefit trade secret owners. Of those, No. 4 is the more useful. With respect to required disclosures made to the federal government, it provides an exemption for: trade secrets and commercial or financial information obtained from a person and privileged or confidential.114
The terms “commercial” and “financial” are undefined in the statute.115 “Privileged,” as used in Exemption 4, refers to the privileges ordinarily recognized in the law, such as the attorney-client and work product privileges.116 The courts are divided concerning the meaning of “trade secrets” as used in the statute, at least as applied to information required to be disclosed to the government. The Tenth Circuit has rejected the Restatement (First) of Torts definition in favor of a narrower, common-law definition: [A trade secret is a] commercially valuable plan, formula, process, or device that is used for the making, preparing, compounding, or processing of trade
111 See 5 U.S.C. § 552(a)(3)(A) (2007) (“[E]ach agency, upon any request for records which (i) reasonably describes such records and (ii) is made in accordance with published rules stating the time, place, fees (if any), and procedures to be followed, shall make the records promptly available to any person.”). State law counterparts to FOIA are also construed to favor the disclosure of information. See, e.g., San Gabriel Tribune v. Super. Ct., 143 Cal. App. 3d 762, 772–73, 192 Cal. Rptr. 415, 420 (1983) (holding that the California Public Records Act, Cal. Gov’t Code §§ 6250–6276.48, “like the FOIA, reflects a general policy of disclosure that can only be accomplished by narrow construction of the statutory exemptions”). 112 See Frazee v. U.S. Forest Serv., 97 F.3d 367, 371 (9th Cir. 1996). 113 See Chrysler Corp. v. Brown, 441 U.S. 281, 293, 99 S. Ct. 1705, 1713, 60 L. Ed. 2d 208, 219 (1979) (“We. . . hold here that Congress did not design the FOIA exemptions to be mandatory bars to disclosure.”); Avondale Indus. v. NLRB, 90 F.3d 955, 958 (5th Cir. 1996). 114 5 U.S.C. § 552(b)(4) (2007). 115 See Pub. Citizen Health Research Group v. FDA, 704 F.2d 1280, 1290 (D.C. Cir. 1983) (holding that the terms should be given their “ordinary meanings” and that, accordingly, information may be deemed commercial if it is of commercial interest); see also Am. Airlines, Inc. v. Nat’l Mediation Bd., 588 F.2d 863, 867–68 (2d Cir. 1978); Burnside-Ott Aviation Training Ctr. v. United States, 617 F. Supp. 279, 285–86 (S.D. Fla. 1985). 116 See Anderson v. Dep’t of Health & Human Servs., 907 F.2d 936, 945 (10th Cir. 1990).
Protecting Information Disclosed to the Government commodities and that can be said to be the end product of either innovation or substantial effort.117
That definition is now applied by the majority of courts.118 In contrast, the Ninth Circuit has given the exemption the broader Restatement definition.119 Information voluntarily disclosed to the government can be subject to greater protection. Courts in the District of Columbia hold that information provided voluntarily should be protected from disclosure under Exemption 4 if it “would not customarily be released to the public by the person from whom it was obtained.”120 In other circuits, however, voluntarily disclosed information may be treated the same as information required to be disclosed to the government.121 If information does not qualify under the “trade secrets” prong of the exemption, the owner may attempt to qualify it under the second prong. To do so, the owner must demonstrate that the information is (1) commercial or financial, (2) obtained from a “person” (defined to include both legal and natural persons), and (3) privileged or confidential.122 Information contained in mandatory disclosures made to a government agency qualifies as “confidential” if its disclosure is likely either to impair the government’s ability to obtain necessary information in the future or to cause substantial harm to the competitive position of the person or business from whom the information was obtained.123 Impairment of the government’s ability to obtain information will not be found if the agency is willing to disclose the information.124 In evaluating whether the disclosure of information would cause “substantial harm to the competitive position of the person or business from whom the information was obtained,” a court will consider not only the value of the information to a competitor and the damage to the submitting party, but also (i) whether government disclosure is the only means by which the competitor could obtain the information and (ii) the cost to the competitor to
117 Id. at 944 (citing Pub. Citizen Health Research Group., 704 F.2d at 1288). 118 See Anderson, 907 F.2d at 944. 119 See Union Oil Co. v. Fed. Power Comm’n, 542 F.2d 1036, 1044 (9th Cir. 1976); see also Chevron Chem. Co. v. Costle, 443 F. Supp. 1024, 1032 (N.D. Cal. 1978) (adopting the Restatement definition). 120 Critical Mass Energy Project v. Nuclear Regulatory Comm’n, 975 F.2d 871, 878 (D.C. Cir. 1992) (en banc). 121 See N.Y. Pub. Interest Research Group v. U.S. EPA, 249 F. Supp. 2d 327, 336 (S.D.N.Y. 2003); Dow Jones Co. v. Fed. Energy Regulatory Comm’n, 219 F.R.D. 167, 177–78 (C.D. Cal. 2002); Comdisco, Inc. v. Gen. Servs. Admin., 864 F. Supp. 510, 516–17 (E.D. Va. 1994). 122 See Nat’l Parks & Conservation Ass’n v. Morton, 498 F.2d 765, 766 (D.C. Cir. 1974). 123 See id. at 770. 124 See Burroughs Corp. v. Schlessinger, 403 F. Supp. 633, 637 (E.D. Va. 1975).
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acquire it by other means.125 To succeed under this exemption, the owner should adduce evidence showing actual competition and the likelihood of substantial competitive injury.126 It is sometimes possible to prove actual competition simply by showing that similar companies have requested the release of the information under FOIA.127 To show a likelihood of substantial competitive injury, general allegations of harm are insufficient128 as are allegations that disclosure will result in bad publicity or the loss of work or morale.129 Also, each piece of commercial information must be specifically addressed; broad characterizations generally are not permitted. Agencies usually will release redacted versions of the requested information. (ii) Exemption 3 If information cannot be protected from disclosure under Exemption 4, the owner’s last line of defense is to seek protection under Exemption 3, which applies to matters that are: [S]pecifically exempted from disclosure by statute . . . provided that such statute (A) requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue, or (B) establishes particular criteria for withholding or refers to particular types of matters to be withheld.130
Exemption 3 is intended to have narrow applicability. The legislative history “make[s] clear that Congress did not want the exemption to be triggered by every statute that in any way gives administrators discretion to withhold documents from the public.”131 Accordingly, Exemption 3 will not impede the disclosure of information unless (i) the statute being invoked qualifies as an exemption statute and (ii) the information requested falls within the statute.132 A statute qualifies as an “exemption statute” if it incorporates “a congressional mandate of confidentiality that, however general, is ‘absolute and without exception,’”133 and “incorporate[s] a formula whereby the
125 See Cont’l Oil Co. v. Fed. Power Comm’n, 519 F.2d 31, 36 (5th Cir. 1975); Worthington Compressors, Inc. v. Costle, 662 F.2d 45, 51 (D.C. Cir. 1981). 126 See GC Micro Corp. v. Defense Logistics Agency, 33 F.3d 1109, 1115 (9th Cir. 1994) (citing Pub. Citizen Health Research Group v. FDA, 704 F.2d 1280, 1290 (D.C. Cir. 1983)). 127 See AT&T Info. Sys., Inc. v. Gen. Servs. Admin., 627 F. Supp. 1396, 1402 (D.D.C. 1986), rev’d on other grounds, 810 F.2d 1233 (D.C. Cir. 1987). 128 See id. 129 See CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1154 (D.C. Cir. 1987). 130 5 U.S.C. § 552(b)(3) (2007). 131 Church of Scientology v. U.S. Postal Serv., 633 F.2d. 1327, 1329 (9th Cir. 1980) (quoting Irons & Sears v. Dann, 606 F.2d 1215, 1220 (D.C. Cir. 1979)). 132 See CIA v. Sims, 471 U.S. 159, 167, 105 S. Ct. 1881, 1886–87, 85 L. Ed. 2d 173, 182 (1985). 133 CNA Fin. Corp., 830 F.2d at 1138.
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administrator may determine precisely whether disclosure in any instance would pose the hazards that Congress foresaw.”134 Statutes that have been held to qualify as exemption statutes include 35 U.S.C. § 1122 (providing that pending and abandoned patent applications must be kept secret),135 15 U.S.C. § 2055(b)(1) (regulating the public disclosure of information by the Consumer Products Safety Commission),136 and the Archeological Resources Protection Act, 16 U.S.C. §§ 470aa–470mm.137 Significantly, the Federal Trade Secrets Act does not qualify as an exemption statute because it does not guide the agency in determining when disclosure would be harmful.138
134 Id. at 1139 (quoting Am. Jewish Congress v. Kreps, 187 U.S. App. D.C. 413, 417–18, 574 F.2d 624, 628–29 (D.C. Cir. 1978)). 135 See Irons & Sears v. Dann, 606 F.2d 1215, 1220 (D.C. Cir. 1979). 136 See Consumer Prod. Safety Comm’n v. GTE Sylvania, Inc., 447 U.S. 102, 122, 100 S. Ct. 2051, 2063, 64 L. Ed. 2d 766, 781 (1980). 137 See Starkey v. U.S. Dep’t of Interior, 238 F. Supp. 2d 1188, 1192 (S.D. Cal. 2002). 138 See CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1141 (D.C. Cir. 1987); Nat’l Parks & Conservation Ass’n v. Kleppe, 547 F.2d 673, 686 (D.C. Cir. 1976).
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CHAP T ER
5 Hiring and Terminating Employees
A. Hiring Employees
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1. Hiring Concerns
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2. Document Collection
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3. Employment Interview
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4. Post-Interview Precautions
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5. Sample Employee Confidentiality and Invention Assignment Agreement
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6. Restrictive Covenants
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B. Terminating Employees
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1. Conducting Exit Interviews
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2. Conducting a Post-Termination Investigation
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3. Post-Departure Precautions
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4. Sample New Employee Proprietary Information Protection Letter
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5. Sample Termination Certificate
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6. Sample Reminder Letter to Former Employee
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7. Sample Compliance Request Letter to New Employer
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8. Sample Employer “Compliance Request Letter” Response
263
When a company fails to follow proper hiring procedures, it can find itself named as a defendant in an expensive and disruptive trade secret litigation. Three scenarios typically give rise to such suits. First, the company may give a new employee job responsibilities so similar to the duties the employee fulfilled for a former employer that the new employee cannot help but rely on his or her knowledge of the former employer’s trade secrets. Second, the company may hire a dishonest employee who plans to succeed in his or her new employment by secretly relying on a former employer’s trade secrets. Third, the circumstances of the hiring may lead the former employer to file
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suit simply to find out whether a misappropriation is occurring, especially when its suspicions have been heightened as a result of the hiring process. A company’s practices when an employee resigns or is terminated may also affect the likelihood that it will find itself in trade secret litigation, although this time as a plaintiff. Further, its practices may both uncover evidence of wrongdoing before harm has occurred and position the company to obtain immediate injunctive relief.
A. Hiring Employees 1. Hiring Concerns Trade secret protection—and litigation avoidance—begins with the company’s employees. The hiring process affords an employer its first opportunity to inform employees of the types of information it considers to be proprietary and what practices should be followed to protect them. At the same time, the hiring process may allow an employer to head off claims based on its new hires’ knowledge of trade secrets learned through prior work experiences. Even fundamentally honest employees may put a company at risk of a misappropriation claim if assigned to the wrong job. The reason why is obvious. Any good employee will want to do his or her best work and will unavoidably rely on his or her knowledge of a former employer’s trade secrets if those secrets are relevant to the employee’s new job duties.1 For example, if a person responsible for marketing sports and isotonic beverages for one company is hired by a second company to market similar beverages, misappropriation may be inevitable.2 Similarly, misappropriation may be inevitable if a company’s customer list is a trade secret and a competitor hires away a salesperson to work in the same geographic and product markets. Even if the former employer’s customers are well-known, misappropriation may still be inevitable if the salesperson has knowledge of special pricing or terms that the former employer offers to its customers. It would be overly simplistic, however, to conclude that a company should never hire away a competitor’s employee or that a new employer should never give an employee the same job responsibilities the employee had with the previous employer if the employee knows the former employer’s trade secrets. If both the new and former employer are attempting to develop a better widget, choosing a member of the former employer’s development team to head the new employer’s
1 See AMP, Inc. v. Fleischhacker, 823 F.2d 1199, 1205 (7th Cir. 1987) (noting that “a departing employee [cannot] perform a prefrontal lobotomy on himself or herself ”). 2 See PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995).
Hiring Employees
widget project might or might not lead to a trade secret misappropriation. The critical question is whether the two companies are trying to develop the same type of widget. If so, the risk of misappropriation is clear. After all, the new employee will not want to pursue possible development approaches that were found by the prior employer to be unsuccessful and, instead, would likely focus on approaches the former employer found promising. But on the other hand, if one company is developing a heat-activated widget and the other is developing a computerized widget, there might be little risk of misappropriation because the former employer’s secrets would be of little use to the new employer. Dishonest employees who plan to succeed at their new jobs by secretly using a former employer’s trade secrets pose a similar risk. Many companies have come to regret that a new star salesperson succeeded by relying on a misappropriated customer list or knowledge of a competitor’s special pricing terms offered to preferred customers. Such employees have also “developed” manufacturing methods already in use by prior employers or “developed” specialized tools they learned of while working for a former employer. In these instances, a misappropriation may occur even though the new and former employers are not competitors. For example, a vast array of products have coatings of one sort or another, including photographic films, recording tapes, paper products, window treatments, adhesive products, metal products, and many more. A tool capable of allowing the high-speed application of a uniform coating layer could thus have wide applicability. A new employer, therefore, cannot satisfy itself that it need not fear trade secret misappropriation by a new employee hired away from a firm in a different industry unless it assures itself that the former employer used no proprietary tooling, manufacturing processes, chemicals, components, and the like that would be of potential benefit to the new employer.
2. Document Collection For the foregoing reasons, an employer will want to find out as much as it can concerning a prospective employee while taking care not to ask the applicant to provide any nonpublic information related to a prior employer. This process should begin with the collection and review of documents reflecting nonconfidential aspects of the applicant’s prior work history. The types of documents a prospective employer should request from an applicant will now be identified. Document Collection Checklist •
Any written employment agreement the prospective employee may be subject to and any other agreement containing a noncompete or nonsolicitation provision or other confidentiality agreement potentially binding on the employee;
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Any invention disclosure or assignment agreement the prospective employee is subject to3; Any termination agreement the prospective employee entered into; Any acknowledgment the prospective employee signed regarding another employer’s trade secrets, or confidential or proprietary information; Any patents and published patent applications that identify the prospective employee as an inventor; All professional articles authored or co-authored by the prospective employee; All publicly distributed materials related to any products the prospective employee has worked on; and Any nonprivileged documents related to any trade secret litigation the prospective employee has been a party to or involved in.
3. Employment Interview After gathering and considering all documents gathered from the applicant, the employer should review with him or her the legal obligations the applicant owes to prior employers. This review should include both the express contractual obligations to which the employee may be subject as well as duties implied by law, including the duty not to use or disclose a prior employer’s trade secrets. The applicant should then be given a detailed description of his or her proposed job duties. If providing a meaningful description requires that the employer disclose any of its own trade secrets, the applicant should
3 Several states have enacted laws that limit the scope of employee invention assignment agreements. A California statute provides: Any provision in an employment agreement which provides that an employee shall assign or offer to assign any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or (2) Result from any work performed by the employee for the employer. Cal. Lab. Code § 2870(a) (2008); see also id. §§ 2860, 2871–2872; Cal. Civ. Code §§ 654, 655, 657, 663, 980–985 (2008); 765 Ill. Comp. Stat. Ann. 1060/1 to 1060/3 (2008); Minn. Stat. Ann. § 181.78 (2007); Mont. Code Ann. § 39-2-102 (2007); N.C. Gen. Stat. §§ 66-57.1 to 66-57.2 (2007); Wash. Rev. Code §§ 49.44.140 to 49.44.150 (2008).
Hiring Employees
be asked to sign a nondisclosure agreement.4 Following the discussion of the applicant’s obligations to the former employer and his or her proposed job duties, the applicant should be asked to confirm in writing that he or she does not believe that the performance of those job duties would entail any reliance upon a former employer’s proprietary information. An employment agreement with a new employee should of course include an acknowledgment by the employee that the new employer has valuable trade secrets and confidential or proprietary information to which the employee will have access. It should also include a covenant by the employee not to use or disclose such information outside of or following his or her employment. Such a provision may be included in an invention assignment agreement. Another helpful provision is one that requires the employee, upon the termination of employment, to advise the employer of the identity of the subsequent employer and the proposed activity that the employee will perform for the subsequent employer. Outside California, noncompete agreements are usually enforced if they are “reasonable.” A “reasonable” agreement should, inter alia, limit the employee’s right to engage in competitive activities as opposed to limiting the employee’s right to work for competitors. To maximize the likelihood that a noncompete agreement will be found reasonable, the noncompete period should be short as is necessary to protect any trade secrets to which the employee had access and should be limited to particular geographic and product areas if possible.5 Another factor that sometimes contributes to a finding of reasonableness is a provision obligating the employer to pay a base salary or other compensation to a departed employee during the noncompete period if the employer invokes the agreement to prevent a departing employee from accepting a specific job offer with a competitor. In California, where noncompete agreements are usually unenforceable, an employer might want to offer to compensate a departed employee as a “consultant” for a specified period on the condition that the employee is not engaged in competitive employment. An employee cannot be forced, however, to accept consultant compensation. The employer can hope only that
4 Nondisclosure agreements should be written to cover broad categories of information as opposed to specific secrets. Doing so prevents the inadvertent disclosure of secrets and prevents the specific enumeration of trade secrets from being interpreted as a limitation. Of course, a nondisclosure agreement should expressly exclude the employee’s general knowledge, skills and experience, as well as any knowledge the employee gained from sources other than the employment relationship. “[A] man’s . . . skill, his dexterity, his manual or mental ability . . . ought not to be relinquished by a servant. . . . [T]hey are his own property; they are himself.” Herbert Morris, Ltd. v. Saxelby, 1 App. Cas. 688, 714 (Mass. 1916). 5 Some states provide a detailed guide to the length a noncompete may last. In Florida, for example, a restriction of two years is presumed reasonable in general, and a restraint of up to five years is presumed acceptable if trade secrets are implicated See Fla. Stat. Ann. § 542.33 (2008).
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the employee chooses to forego engaging in competitive activity in exchange for additional compensation. An employer may also want to consider whether the law of the state where the contract is entered into and is to be performed allows benefit forfeiture provisions or liquidated damages clauses in the event that a departing employee accepts competitive employment. To encourage employee loyalty, an employer may also want to consider including deferred compensation, stock option, and bonus plans under which the employee enjoys significantly greater financial benefits by remaining with the employer than by leaving, especially if the employee’s new work is competitive. Any such plan should be vetted for compliance with the Employee Retirement Income Security ACT (ERISA), the Fair Labor Standards Act, and the securities laws. At the same time, the new employer should assure itself that the employee’s new salary is not so much higher than the employee’s prior salary, and that the bonus and stock option components are not so structured, as to make it appear that the employee is being hired in the expectation that the new employer will receive the benefit of more than just the employee’s general skills and experience.
4. Post-Interview Precautions If the applicant is uncertain whether he or she can provide written assurance that the performance of his or her new job duties will not lead to the use or disclosure of a former employer’s trade secret or confidential information, the employer might want to refer the matter to outside counsel for further investigation. Counsel will be able to ask the applicant to describe the scope of his or her job duties for a former employer without risking disclosure of the former employer’s trade secrets to the new employer. Asking about the scope or type of work is important because there may be little risk of trade secret misappropriation even if the two companies are working on competitive products. Using the prior example, if one company pursuing a specific approach to developing a new product and its competitor is pursuing a very different approach to developing a product to accomplish the same purpose, an employee going from one company to the other might well have no knowledge of trade secrets potentially useful to the second company. Because intent is not an element of trade secret misappropriation, the use of outside counsel to conduct the investigation will not provide the new employer with an “advice of counsel” defense in the event the investigation fails to prevent the disclosure and use of a former employer’s trade secret. The use of outside counsel, however, will likely prevent a finding of willfulness and concomitant trebling of damages in the event a trade secret misappropriation does occur.
Hiring Employees
If there appears to be any possibility that the new employee could use or disclose a former employer’s trade secrets, the employee should be asked to sign an undertaking agreeing not to do so. Further, the employee should be offered the sole discretion to decline work assignments without explanation if he or she perceives a risk of inadvertent use or disclosure of a former employer’s trade secret. In addition to considering the risk that a new employee might actually use or disclose trade secrets, a company should consider the risk that a former employer might file suit, either as a prophylactic measure to prevent a trade secret misappropriation or as an harassment tool to disrupt the company’s business. A number of factors are likely to increase the risk a former employer might file suit, including any history of enmity between the two companies; a lack of candor by the new employee in disclosing his or her plans and failure to return company property upon the termination of his or her prior employment; the active recruitment of the employee by the new employer, as opposed to extending a job offer in response to a job availability notice or the unsolicited receipt of a resume from a “headhunter”; the active recruitment or recent hiring by the new employer of other persons from the prior employer; the offer of a substantial pay increase to the new employee; the new employer’s repeated failure to develop a technology or product that the prior employer has discovered; giving the new employee discretion in performing his or her job as opposed to asking the new employee simply to participate in fulfilling a plan or working on a project that is already in place; any practice by the new and former employers of reacting quickly to one another’s plans and to changes in the marketplace; the extent of the new employee’s knowledge of the prior employer’s intellectual property “crown jewels”; and entrusting the new employee with similar responsibilities with respect to similar technologies or products to those with which he or she was entrusted by the prior employer. After assessing these factors, the new employer should consider whether there might be a benefit in contacting the former employer. In doing so, the new employer should disclose its intent to hire the applicant, provide a general description of the applicant’s contemplated job duties, and provide assurances that the applicant has signed an undertaking agreeing not to use or disclose any trade secret, confidential, or proprietary information of the former employer. Upon pushback from the former employer, the new employer could offer to require the applicant to provide periodic declarations of compliance with the undertaking and even agree to allow the former employer to retain an independent auditor to visit the new employer’s premises to audit the employee’s job activities. If the prior employer discloses an intention to enforce a noncompete agreement, the new employer may want to initiate a declaratory relief action in an attempt to have the noncompete agreement declared invalid or unenforceable. This strategy works particularly well in California, where virtually
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all noncompete agreements are considered void as against public policy,6 and in Louisiana, where noncompete agreements must be particularized by parish or municipality.7 A company can take number of precautions to avoid arousing suspicion that it might be engaged in a trade secret misappropriation. Here are some of them. Checklist of Good Hiring Precautions Protecting the Company’s Trade Secrets •
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Require that job applicants sign an agreement containing (i) an acknowledgment that the company has trade secret, confidential, and proprietary information that provides it with a competitive advantage; (ii) a provision obligating the job applicant not to use or disclose any trade secret, confidential, or proprietary information learned through the interview process; and (iii) a provision that the applicant will not disclose to the company any trade secret, confidential or proprietary information of any former employer or other entity; Confirm that the job applicant has provided to the company all employment, invention disclosure and patent assignment, nondisclosure, confidentiality, and nonsolicitation agreements to which the employee may be subject; Be satisfied that the applicant appears genuinely to be seeking the job and therefore is not a “mole” sent by a competitor to acquire information concerning the company; Discuss with the employee what obligations may be owed to prior employers and third-parties concerning the use or disclosure of trade secret, confidential or proprietary information; Discuss any contractual limitations to which the applicant may be subject concerning the scope or nature of the applicant’s work for a new employer;
6 In Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881, 72 Cal. Rptr. 2d 73 (1998), an employee living in Maryland entered into a noncompete agreement with her Maryland employer. The agreement, signed in Maryland, contained a Maryland forum-selection clause and a Maryland choice-of-law clause. The employee later was hired by a California company that allowed her to telecommute to work from Maryland. After the former employer expressed its intention to enforce the noncompete agreement, the California employer brought an action in California seeking to have the noncompete agreement declared unenforceable. Because California has a strong public policy prohibiting the enforcement of most noncompete agreements, the court disregarded the forum-selection and choice-of-law provisions, applied California law, and declared the noncompete agreement void as contrary to California’s public policy. 7 See La. Rev. Stat. Ann. § 23:921(C) (2007); Dixie Parking Serv., Inc. v. Hargrove, 691 So. 2d 1316, 1320 (La. Ct. App. 1997); Sentilles Optical Servs. v. Phillips, 651 So. 2d 395, 399 (La. Ct. App. 1995).
Hiring Employees
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Discuss in general terms the nature of the position for which the applicant is being considered and, asking only for a “yes” or “no” answer, inquire whether the applicant has any confidential or proprietary information of a prior employer or a third party that would be relevant to the applicant’s performance of the proposed job; If the answer is “yes,” confirm that the applicant is referring to something more than the type of knowledge, skill, or experience that anyone who performs similar duties for any of the prior employer’s principal competitors would likely also have; If the answer is “yes,” ask the applicant whether, based on the company’s description of its job opening, there would be a logical way to limit or restrict the job duties so that, if hired, the applicant would not even unintentionally use or disclose the confidential information of another; If the applicant is subject to a noncompete agreement, consider whether (i) to notify the prior employer that the applicant is being hired and to offer assurances that the prior employer’s confidential information will be respected,8 or (ii) to file an action seeking to have the noncompete agreement declared invalid or unenforceable;9 Where lawful, ask a job applicant to enter into a noncompete agreement as a condition of obtaining employment;10
8 An advantage of this procedure is that the new employer will learn immediately whether the prior employer wishes to file suit to enforce the noncompete agreement, thus avoiding any exposure to damages and the disruption of its business that would occur if litigation were commenced after the new employee had begun work. A potential disadvantage is that if the new and prior employers are in different states, the prior employer would likely file suit in a venue more favorable to it. 9 This strategy is particularly effective when the new employer is in California, where noncompete agreements are likely to be declared void as against public policy. To create a justiciable controversy to support the filing of such an action, the employee should receive some indication from the former employer that it intends to enforce the noncompete agreement. California employers should note that, for this strategy to work, they must be the first to file suit. California courts will not restrain a party that has filed suit elsewhere seeking to enforce a noncompete agreement. See Advanced Bionics Corp. v. Medtronic, Inc., 29 Cal. 4th 697, 707–08, 128 Cal. Rptr. 2d 172, 179–80 (2002). 10 In some jurisdictions, if part of a noncompete is considered unreasonable, the court will redraw or “blue-pencil” the agreement so that it comports with the law. If a state does not follow that procedure, the employer should consider whether to use a freestanding noncompete agreement. Placing the noncompete provision in a separate document is a reasonable precaution against the possibility that the entire employment agreement could be invalidated in jurisdictions whose courts will not blue-pencil a restrictive covenant. Businesses regularly seek to combine restrictive covenants with an employment agreement or a stock option award to maximize the acceptance of the restriction. To provide consideration, such agreements ordinarily should be entered into at or prior to the commencement of employment.
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Ask new hires to enter into a separate confidentiality agreement obligating them to protect trade secret, confidential, or proprietary information of the new employer and not to use or disclose any trade secret or confidential or proprietary information of any prior employer or third party; As part of the latter agreement, the employee should be asked to agree not to solicit the new employer’s employees or customers for a reasonable period following the termination of employment and to notify the new employer upon termination and for a reasonable time thereafter of any new employment plans.
Avoiding Suits by a Prior Employer •
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Seek to hire employees with particular skill sets as opposed to advertising for, or directing headhunters to find, employees with work experience at particular companies; Do not expressly direct “headhunter” or recruitment services to look for persons with the desired skill sets among the company’s principal competitors;11 Do not advertise available positions where the advertisements will likely be seen only by a particular competitor’s employees;12 Avoid the widespread hiring of employees from a single competitor;13 To allay any suspicion that job interviews are an exercise in competitive intelligence gathering intended to elicit information concerning a competitor’s plans, never interview job applicants for any purpose other than to fill a vacant position; Instruct a new hire to be candid with the prior employer concerning the new employer and job; Instruct a new hire not to take anything from a prior employer other than personal records related to compensation, bonuses, pensions, health insurance, and the like;
11 Employee “raiding” cases are frequently unsuccessful. Nevertheless, a court may find unfair competition when a company hires a competitor’s employees out of improper motives (such as to undermine a competitor’s ability to compete or to cripple its research and development capability) rather than an interest simply in gaining good employees. See e.g., Hi-Tek Consultant Servs., Inc. v. Bar-Nahum, 218 Ill. App. 3d 836, 841–42 (1991). 12 See E.I. duPont de Nemours & Co. v. Am. Potash & Chem. Corp., 200 A.2d 428, 431 (Del. Ch. 1964) (localized advertising found to be targeted at the plaintiff ). 13 Even if there is no improper motive that would support an employee “raiding” claim, hiring numerous employees from the same competitor may give rise to either of two inferences: that the employees will continue working together and, in doing so, will simply proceed with the work they were doing for their former employer; or that the new employer is seeking to acquire the former employer’s trade secrets.
Hiring Employees
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Do not offer a new hire substantially greater compensation or performance bonuses that might seem to reward the theft of a prior employer’s proprietary information;14 Require that for a year or other reasonable time the new employee have job duties markedly different from his or her duties with the former employer so that the new employer cannot gain a “head start” through inadvertent use or disclosure by the new employee of trade secret or confidential or proprietary information belonging to the prior employer; Require that, during the first year of employment, a new employee with knowledge of a competitor’s trade secrets document a public domain source for any new invention, method, or process he or she proposes; Require the new employee to decline any work assignment for a reasonable period if, in the employee’s sole judgment, undertaking the work assignment could lead to the use or disclosure of a former employer’s trade secret or confidential or proprietary information; Notify the former employer that the company has hired one of the former employer’s employees but has assured itself that there is little likelihood that the employee could inadvertently use or disclose the prior employer’s confidential or proprietary information in the course of his or her new job duties; Require the new employee to affirm in writing that he or she will not use or disclose the prior employer’s trade secret, confidential or proprietary information, and provide a copy of that undertaking to the former employer; Offer to require the new employee to sign periodic statements under oath affirming that he or she has not used or disclosed the former employer’s confidential or proprietary information; and Offer to allow an independent auditor to review the new employee’s work periodically for a reasonable time at the former employer’s expense.
14 See In re Innovative Constr. Sys., Inc., 793 F.2d 875, 878 (7th Cir. 1986) (40 percent raise); Rohm & Haas Co. v. Adco Chem. Co., 689 F.2d 424, 428 n.3 (3d Cir. 1982) (25 percent raise); Telex Corp. v. IBM Corp., 367 F. Supp. 258, 321–22 (N.D. Okla. 1973) ($500,000 contingent bonus and stock option), aff ’d in part and rev’d in part, 510 F.2d 894 (10th Cir. 1975); Sperry Rand Corp. v. Pentronix, Inc., 311 F. Supp. 910, 916 (E.D. Pa. 1970) (projected profit sharing of up to 400 percent of former salary).
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5. Sample Employee Confidentiality and Invention Assignment Agreement The following is a sample Employee Confidentiality Assignment Agreement that may be adapted for use with new hire. In consideration of my employment by _________________ (together with its parent, affiliate, and subsidiary corporations, the “Company”), I hereby covenant and agree as follows: 1. Company Business. I acknowledge that the Company is engaged in numerous fields of business and activities, including research and development in the various existing and projected fields of the Company’s business, and that the Company seeks to make new discoveries and improvements, including without limitation patentable inventions, and to extend its business into new areas. I further understand that, as an essential part of my employment by the Company, I may be expected to contribute to the making of such discoveries and improvements. I acknowledge that I owe a duty of loyalty to the Company and agree that during the period of my employment, I will not engage in any research or business activity for any other person or entity without the Company’s prior written consent. 2. Company Records. I understand that all documents (including computer records, facsimile transmissions, and e-mail messages) and all materials created, received, or transmitted in connection with my work or while using Company-provided equipment or facilities are Company property and subject to inspection by the Company at any time, with or without notice to me. Upon the termination of my employment with the Company, and at any other time when so requested by the Company, I will promptly deliver to the Company all documents and materials of any nature and kept in any form or medium, containing information pertaining to my work with the Company or other Confidential Information (as defined below) and will provide written certification of my compliance with this Agreement. All records pertaining to the above information, whether developed by me or others, are and shall remain the property of the Company. 3. Duty to Protect the Company’s Confidential Information. I acknowledge that during my employment by the Company, I will have access to competitively valuable trade secret, confidential or proprietary information concerning one or more of the Company’s activities or the activities of another person or entity to whom the company owes a confidentiality obligation, and that such information may include, without limitation, research and development work, plant design, construction and operation of plants and equipment, manufacturing processes and techniques, formulas, algorithms, custom or customized software, inventions and improvements, marketing plans, product plans and compositions, business strategies, financial information, personnel information, customer list and customer preferences, and other competitively valuable
Hiring Employees information including but not limited to information that I myself may originate (collectively, “Confidential Information”). During and after my employment, I will keep and hold all such Confidential Information in strict confidence and trust, and I will not use or disclose any such Confidential Information without the Company’s prior written consent, except as may be necessary to perform my duties as an employee of the Company. 4. Duty to Protect Confidential Information Belonging to Others. I understand that the Company respects the intellectual property rights of others and will not tolerate the use or disclosure of confidential, proprietary, or trade secret information owned by another person or entity without such person’s or entity’s prior written consent. I represent that my performance of this Agreement and my duties as an employee of the Company will not breach any invention assignment agreement, nondisclosure, or confidentiality agreement, or any similar agreement with any other entity, including any former employer. I further represent that I will not bring with me to the Company or use in the performance of my duties for the Company any information, documents or materials of a former employee that are not generally available to the public or that have not been legally transferred to the Company, nor will I induce any other person to perform such acts. I finally represent that I have provided the Company with copies of all noncompete, nonsolicitation, nondisclosure, confidentiality and invention disclosure, and assignment agreements to which I am or have been subject. I understand that any violation of my obligation to protect the intellectual property rights of others may result in the termination of my employment by the Company or other serious disciplinary consequences. 5. Duty to Disclose Inventions. During my employment by the Company and for ___ months thereafter, I will promptly disclose in confidence to the Company all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, and other valuable information (“Inventions”), whether or not patentable or protectable under the intellectual property laws, that are made, conceived, first reduced to practice, or created by me, either acting alone or in concert with others. I acknowledge that all such Inventions are the sole property of the Company and that, to the extent any contain copyrightable subject matter, they are “works made for hire” under the Copyright Act and thus owned by the Company but, if so requested for any reason, I will sign an assignment of them to the Company. [In California, Illinois, Minnesota, Montana, North Dakota, and Washington, add: “I understand that no assignment to the Company is required concerning any Invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on my own time and (1) does not relate (a) directly to the business of the Company or (b) to the Company’s actual demonstrably anticipated research or development, or (2) which does not result from any work I perform for the Company.”].
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252 Chapter 5 Hiring and Terminating Employees 6. Duty to Assign Inventions. I agree to assign to the Company any discoveries or improvements that the Company may deem to be patentable Inventions, whether or not they are reduced to practice during the period of my employment, and to execute all patent applications, assignments, and other documents necessary to vest in the Company the entire right, title, and interest in and to said Inventions and in and to any patents obtainable therefore in the United States and foreign countries. I hereby appoint the Secretary of the Company to act as my attorney-in-fact to execute documents on my behalf for this limited purpose. My agreement to assign such discoveries and improvements extends to all Inventions that (a) are developed using the Company’s equipment, supplies, facilities or Confidential Information; (b) result from work I performed for the Company; or (c) relate to the Company’s business or current or anticipated research and development. I understand that I shall not be obligated to assign any Invention that I may wholly conceive after I leave the employment of the Company unless such Invention involves the utilization of the Company’s Confidential Information. 7. Duty to Assist Company. I agree to assist the Company in obtaining and enforcing, as applicable, patents, copyrights, mask work rights, trade secrets, and other legal protections for the Company’s Inventions. I understand that my obligation under this paragraph will continue beyond the termination of my employment with Company, provided that I am compensated for any postemployment work I perform at a rate that is reasonable given the time and expenses I incur in rendering such assistance. 8. Prior Inventions. Attached as Exhibit A is a complete list of all Inventions that I claim belong to me or that I conceived, created, or reduced to practice before the commencement of my employment with the Company. I have not disclosed any Invention on Exhibit A with such specificity as would violate any prior confidentiality obligation to which I am subject. Instead, I have described any such Invention only in general terms or by reference to the entity that owns it. If I have not identified any Inventions in Exhibit A, that is because I have not conceived, created, or reduced any to practice. 9. Duty Not to Solicit. During, and for a period of one year following, my employment with the Company, I will not solicit or take away any suppliers, customers, employees, or consultants of the Company. [In California, a nonsolicitation provision should be limited to “confidential” suppliers, customers, etc.;15 in Georgia, the phrase “or take away” should be omitted.16]
15 See, e.g., Thompson v. Impaxx, Inc., 113 Cal. App. 4th 1425, 1430, 7 Cal. Rptr. 3d 427, 430 (2003) (prohibition on communicating with nonsecret customers held to restrain trade improperly). 16 See, e.g., Waldeck v. Curtis 1000, Inc., 261 Ga. App. 590, 592, 583 S.E.2d 266, 268 (2003).
Hiring Employees 10. Duty to Inform upon Termination. Upon the termination of my employment with the Company for any reason, I shall immediately notify the Company of any future employment plans I may then have, including the name, address, and telephone number of any successor employer, together with my anticipated job title and a description of my anticipated duties. I agree that for a period of one year following the termination of my employment by the Company for any reason, I will have a continuing duty to inform the Company immediately of any change in my employment plans or duties. 11. Injunctive Relief. I acknowledge that my breach of this Agreement would cause the Company irreparable harm and I therefore agree that the Company is entitled to immediate injunctive relief if necessary to enforce the terms of this Agreement. 12. No Duty to Employ. I understand that this Agreement does not obligate the Company to employ me for any set term and that my employment by the Company will be in the Company’s sole discretion. 13. Waiver and Partial Enforcement. Any waiver of a breach of any provision of this Agreement shall not operate or be construed as waiver of any other or subsequent breach. If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall continue in full force and effect. If any restrictive provision this Agreement is found to be unenforceable as written, it shall nevertheless be enforced to the maximum extent permitted by law. 14. Modification. This Agreement may be modified only by a writing executed both by me and by the Company. 15. Governing Law. This Agreement will be governed and interpreted in accordance with the laws of the State of ________, excluding that state’s law governing conflicts of law, and the courts of said state shall have exclusive jurisdiction to enforce this Agreement and to resolve any dispute arising hereunder. 16. Legal Advice. I understand that this Agreement affects and determines legal rights I may have and that I have been given an opportunity to discuss this Agreement with my personal legal adviser. I acknowledge that I did not sign this Agreement when it was presented to me and that I waited three or more business days to execute it so that I could obtain independent legal advice if I so chose. This Agreement shall be effective as of the commencement of my employment by Company. [Name of Company]
[Name] [Employee]
Its: _________________
By: _________________
Dated: ______________
Dated: ______________
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6. Restrictive Covenants Perhaps the strongest protection against a former employee making use of trade secrets at a new job is a restrictive covenant that prevents the employee from taking the job in the first place. Most states, aside from California, enforce such agreements but vary considerably in the handling of them. States vary as to the showing an employer must make to justify enforcement of a postemployment restriction; whether additional consideration is needed beyond continuation of employment for entry into a restrictive covenant; and the extent to which the courts will “blue-pencil” or modify provisions that are deemed unreasonable.17 Employers should assess a number of legal and business factors in deciding whether to ask employees not to compete upon leaving their current employment. Clearly, the standard for enforcing a noncompete agreement under the applicable state law is paramount. Whether requiring a restrictive covenant as a condition of employment will deter good workers from accepting employment is also a relevant consideration. Certain industries and certain persons holding positions in them are more accustomed to such restrictions. Employees in similar positions with similar access to confidential information should be treated the same lest the restriction be viewed as unfair at the workplace and unjustified by the courts. If a restrictive covenant is sought, ideally the employee will be presented with the restriction at the outset of employment. Some companies, however, have sought to obtain restrictive covenants by agreement with current employees by combining the restriction with a stock option grant or other consideration. Because restrictions on future employment are in derogation of the common law, courts generally interpret restrictive covenants narrowly.18
B. Terminating Employees As respects trade secrets, a company’s practices when an employee resigns or is terminated should focus on three things. First, the employer should seek to prevent a misappropriation by using the exit interview to advise the departing employee of its expectations concerning confidentiality and by attempting to make sure that the employee does not leave with trade secret information in tangible or electronic form. Second, the employer should prepare for possible litigation by using the exit interview to gather statements and information that could be helpful in the event the company needs to file suit. Third, the employer should conduct its own examination of the evidence available to it to determine whether a misappropriation may be occurring.
17 See generally Restatement (Second) of Contracts § 188 (1981); Am. Jur. 2d Monopolies, Restraints of Trade, Unfair Trade Practices § 891 (2007). 18 See, e.g., Frumkes v. Beasley-Reed Broad., Inc., 533 So. 2d 942, 943 (Fla. Dist. Ct. App. 1988).
Terminating Employees
1. Conducting Exit Interviews When an employee having knowledge of a company’s trade secrets resigns or is terminated, the employer should assign someone to accompany the departing employee until he or she has left the premises. The assigned companion should escort the departing employee to an exit interview and assist the departing employee in removing personal items from his or her office or work area, while leaving all other materials behind. Typically, employees are asked to leave the day their departures become known to eliminate the temptation to gather materials that might give them a leg up in a new job and to prevent them from either soliciting other employees to join them or sowing seeds of discord. Exit Interview Checklist •
•
• •
Conduct the departure interview in front of two or three employees who can testify concerning what the departing employee said. Ideally, the employees present should be an in-house counsel (who conducts the interview), the employee’s supervisor (who can remind the employee what areas of information known to the employee are competitively valuable and held confidential, and whose presence puts the employee at ease when talking to the lawyer); and someone from human resources (who can answer the employee’s questions concerning health insurance, pension contributions, and other benefits); Include a review of any nondisclosure, confidentiality, noncompete, nonsolicitation, and invention disclosure or assignment agreements to which the departing employee is subject; the employee should be provided with copies of those agreements and told that the company expects the employee to continue to honor them; Remind the employee what types of information the company views as trade secret, confidential, or proprietary; Ask the employee to sign a termination certificate acknowledging that the company has reviewed with him or her the types of information it considers trade secret, confidential, or proprietary and has reviewed and provided to him or her any agreements that the company believes impose continuing obligations on the departing employee;19
19 It is sufficient that the departing employee acknowledge that the company has explained its view to him or her. The employee should not be asked to agree to the company’s characterization of either its business information or the employee’s continuing obligations. The employee could properly object that whether the company has correctly characterized his or her obligations requires a legal judgment the employee is not qualified to give. If the employee does sign an acknowledgment that the company explained its position, any subsequent misappropriation will likely be viewed as willful. On the other hand, an employee’s failure to acknowledge
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•
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• •
•
• • •
Ask the departing employee to return all company materials (other than personal documents reflecting the employee’s compensation, insurance, pension benefits, and the like); Ask the employee whether he or she has any company materials at home, either in tangible form (such as manuals, documents, disks, tapes, etc.), or in digital form (such as information stored on home or laptop computers, Blackberrys, and PDAs); Make an inventory of all returned materials; Ask the employee to sign an acknowledgment that all company materials have been returned and that all company information on personal electronic devices has been erased; Ask the employee to permit the company to inspect any personal electronic device that had company information to verify that all such information has been erased; Collect from the employee any security materials, including keys, key cards, badges, and computer passwords the employee has created; Verify that the employee no longer has access to on- or off-site computer systems; Ask the employee very specific questions concerning future employment plans, including the name and location of any new employer, what the employee’s new job title and duties will be, when the employee expects to commence work, when and how the employee was recruited by the new employer, and whether other employees are also being recruited.20
even that the company has explained its position will be viewed by a court as troublesome. A sample termination certificate is provided in Section 5(B)(4) of this chapter. 20 Asking such questions is obviously important to determine whether misappropriation of the company’s trade secrets may occur. In UTSA states that do not recognize the “inevitable disclosure” doctrine, asking such questions can be critical to obtaining injunctive relief on the basis that a misappropriation is “threatened.” Courts often will find that a misappropriation is “threatened” if a departing employee is shown to be dishonest and the employee’s new job duties make it likely or inevitable that a misappropriation will occur. See Merck & Co. v. Lyon, 941 F. Supp. 1443, 1460 (M.D.N.C. 1996) (“In finding a likelihood of disclosure, other courts . . . have considered the degree of competition between the former and new employer, and the new employer’s efforts to safeguard the former employer’s trade secrets, and the former employee’s ‘lack of forthrightness both in his activities before accepting his job . . . and in his testimony,’ as well as the degree of similarity between the employee’s former and current position.”) (citing cases); PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1270 (7th Cir. 1995) (“Redmond’s lack of forthrightness on some occasions, and out and out lies on others, in the period between the time he accepted the position with defendant Quaker and when he informed plaintiff that he had accepted that position leads the court to conclude that defendant Redmond could not be trusted to act with the necessary sensitivity and good faith under the circumstances in which the only practical verification that he was not using plaintiff ’s secrets would be defendant Redmond’s word to that effect.”); W.L. Gore & Assocs., Inc. v. Wu, No. 263-N, 2006 WL
Terminating Employees
2. Conducting a Post-Termination Investigation When an employee with knowledge of significant trade secrets departs, the employer should launch an immediate investigation to determine whether the employee has acted dishonestly. The investigation should seek to uncover various types of dishonesty, including the theft of trade secrets, preparations to compete made prior to the termination of employment,21 and less-than-truthful answers given during the exit interview. In conducting such an investigation, an employer should consider the following measures:
Post-Departure Checklist •
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•
•
Interview the departed employee’s workplace friends to find out what they were told concerning the employee’s recruitment and new employment; Ask the employee’s workplace colleagues whether he or she recently worked unusual hours or was seen copying things; Interview clerical personnel with whom the employee had contact to determine whether the employee made unusual requests for copies of sensitive documents or data shortly before the termination of employment; Examine the employee’s e-mail messages for the past several months for evidence that the employee downloaded proprietary information to a personal account, communicated with a new employer, solicited clients or customers, or communicated with vendors; Examine the employee’s telephone logs for calls to competitors;
2692584, at *17 (Del. Ch. Sept. 15, 2006) (defendant’s “lack of trustworthiness and the serious risk of inevitable disclosure of [plaintiff ’s] trade secrets” justified injunction prohibiting defendant from participating in certain polymer research), aff ’d, 918 A.2d 1171 (Del. 2007), cert. denied, 128 S. Ct. 379, 169 L. Ed. 2d 262 (2007). “Threatened misappropriation” may also be demonstrated by showing a likelihood of “inevitable disclosure” combined with an unwillingness to preserve confidentiality. See Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1326, 1338 (S.D. Fla. 2001); H & R Block E. Tax Servs., Inc. v. Enchura, 122 F. Supp. 2d 1067, 2075 (W.D. Mo. 2000). 21 In some states, “at-will“ employees may prepare to compete while still employed. See, e.g., Augat. Inc. v. Aegis, Inc., 409 Mass. 165, 169, 565 N.E.2d 415, 419 (1991). In other states, making active preparations to compete might contitute a breach of the duty of loyalty. In all states, however, employees are not permitted to solicit a current employer’s customers or to use its trade secrets for personal purpose.
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Examine the employee’s computer for the presence of trade secret information the employee did not need to perform his or her job and for evidence that files were deleted or written over;22 and Ask the employee to permit a similar forensic examination of the hard drive of any personal computer that may have been used for company business.
3. Post-Departure Precautions Following the departure of an employee with knowledge of significant trade secrets, a company should send a reminder letter to the former employee enclosing a copy of any agreements that address the employee’s continuing obligation to preserve and protect the company’s trade secret and confidential or proprietary information, as well as any agreements containing noncompete and nonsolicitation obligations. The letter should expressly remind the employee of his or her continuing obligations. It should adopt a polite and friendly tone and be written in a way that reflects that the company believes that the departed employee will act ethically. The letter should also be short and easy to understand.23 Sending such a letter may cause a fundamentally honest employee to act with greater circumspection while working for a new employer. In the event of litigation, the letter will also be tangible evidence for a jury to consider in evaluating whether a company’s trade secret protection practices were reasonable as required by the UTSA. Finally, the letter will be useful evidence for the jury to consider in evaluating whether a departed employee’s misconduct was unintentional or whether it was willful. The jury, of course, may also consider evidence of what was said to the employee during the exit interview, but evidence of an ephemeral communication typically carries little weight and, in any event, is subject to a “he said-she said” debate. In contrast, a letter will be with the jurors in the jury room as they deliberate. A sample of a reminder letter is in Section (B)(6) of this chapter. For the same reasons that a company should send a reminder letter to an employee having knowledge of its significant trade secrets, a company should
22 Computer forensic experts can usually recover deleted files, as Oliver North once learned to his dismay 23 Such a letter should never adopt an aggressive or threatening tone. Not only will an aggressive letter likely cause a jury to view the company as a “heavy,” but it may also give rise to a claim by the employee that the company tortiously interfered with the employee’s right to earn a livelihood and may trigger the running of the statute of limitations.
Terminating Employees
also send a compliance request letter to the employee’s new employer. Such a letter should likewise be written in a friendly tone suggesting that the company believes the new employer will act ethically. A sample compliance request letter is set forth below in Section (B)(6), and a sample response to a compliance request letter is shown in Section (B)(7).
4. Sample New Employee Proprietary Information Protection Letter Included here is a draft letter to be sent to a new employee confirming that the new employee will not use or disclose another employer’s trade secret, confidential, or proprietary information in the course of his or her new employment. Dear [new employee]: We are writing to confirm our understandings with respect to any confidential information related to your prior employment. Just as we want other companies to respect our intellectual property rights, we require that our employees respect the intellectual property rights of others. By signing and returning this letter, you represent to us that you have no materials concerning any trade secret, confidential, or proprietary information belonging to any prior employer. You also represent that you will not use or disclose any confidential information related to your prior employment in performing your job duties in your new position. You further represent that you will abide by your ethical and legal obligations of confidentiality arising from your prior employment and that you can perform your new job duties without compromising any of those obligations. If you have any questions or concerns now or in the future regarding your responsibilities, you should contact our in-house counsel. Sincerely, [new employer] _______________________ [new employee]
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5. Sample Termination Certificate The following is a sample termination certificate to be tailored for signature by departing employees who have knowledge of a company’s trade secrets. An employee’s refusal to sign the certificate or to be truthful in doing so can be important evidence in seeking preliminary injunctive relief. I agree that [name of Company] (i) has reviewed with me the categories of information that it believes are competitively valuable and holds confidential of which I have knowledge; (ii) has reviewed with me any nondisclosure, confidentiality, noncompete, nonsolicitation, and invention disclosure or assignment agreements that I signed and has explained to me its understanding of my obligations thereunder; and (iii) has provided me with copies of the foregoing documents and has requested that I continue to honor my obligations thereunder. I hereby certify that I have complied with and will continue to comply with all the terms of the [Employment Agreement/Confidentiality and Invention Assignment Agreement/Nondisclosure Agreement/Nonsolicitation Agreement] (the “Agreement”), that I signed dated _______________. I hereby certify that I do not have in my possession or control any Confidential Information (as defined in the Agreement) or copies of such information. I further certify that I do not have in my possession or control any documents, equipment, materials, or other property belonging to [name of Company], its clients, or its customers. I agree that, in compliance with the Agreement, I will preserve as confidential and not use any Confidential Information, Inventions, or other information that has or could have commercial value to [name of Company] or that bestows or could potentially bestow any competitive advantage on [name of Company]. I agree that I will not participate in any unauthorized disclosure of any information that could be detrimental to the interests of [name of Company], its clients, or its customers, whether or not such information has been identified to me as Confidential Information by [name of Company], its clients, or its customers. Following the termination of my employment with [name of Company], I shall be employed by _______________ in its _______________division.
Terminating Employees I understand that I will be assigned to work on the following projects: _______ _____________________. I understand that my job duties will generally consist of _______________. _______________ Dated:
_______________ [Typed name]
6. Sample Reminder Letter to Former Employee Next is a sample letter that may be tailored and sent to a former employee reminding the employee of his or her continuing obligations owed to the former employer. The use of such a letter will support a contention that any subsequent misappropriation was willful and malicious. Dear _______________: Because your employment with [name of Company] has terminated, we wish to remind you that during your employment you learned and discovered information concerning our business and the businesses of our clients or customers that we hold confidential to protect its competitive value. [Name of Company] considers such information to be Confidential Information within the meaning of the [Employment Agreement/Confidentiality and Invention Assignment Agreement/Nondisclosure Agreement/Nonsolicitation Agreement] (the “Agreement”) that you signed dated _______________. A copy of that Agreement is enclosed for your reference. Your continuing obligations to protect such Confidential Information, and all other proprietary information of [name of Company] and its clients and customers are defined in the Agreement. Although you were provided with a copy of the Agreement upon your departure, we are enclosing another copy for your convenience. Without limiting in any way your obligations under the Agreement, we wish to remind you that our products, formulas, customer lists and knowledge of preferences, cost and pricing information, revenue and profit information, marketing forecasts and analyses, engineering data, proprietary software, product designs and specifications, patent applications and disclosures, facilities, manufacturing processes and techniques, proprietary tooling, personnel data, marketing strategies for new products, growth plans, and research and development objectives all constitute, without limitation, types of Confidential Information that you are obligated to protect from disclosure or use.
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262 Chapter 5 Hiring and Terminating Employees You may not use any of [name of Company]’s Confidential Information for any purpose, including in the course of the performance of your job duties for your new employer. Please feel free to contact me or your personal attorney should you have any questions concerning your continuing obligations under the Agreement. Very truly yours, _______________24
7. Sample Compliance Request Letter to New Employer The following is a letter that may be sent to a new employer to place it on notice that it should not allow the Company’s departed employee to use or disclose trade secrets. Dear _______________: We understand that our former employee, [Name], has accepted employment with your company. While [Name] was employed by us, [he/she] signed an [Employment Agreement/Confidentiality and Invention Assignment Agreement/ Nondisclosure Agreement/ Nonsolicitation Agreement] (the “Agreement”) that imposed a continuing obligation on [Name] not to use or disclose any Confidential Information as provided in the Agreement. A copy is enclosed for your reference. We have advised [Name] of [his/her] continuing obligations under the Agreement, but to make sure that your company does not inadvertently assign [Name] to perform any job duties that might lead to the use or disclosure of our Confidential Information, we are providing you with a copy of both the Agreement and our letter to [Name] dated ____________reminding [him/her] of the continuing obligations owed to our company. Please confirm that your company will not assign [Name] to perform any job duties that might lead to the use or disclosure of our Confidential Information. Very truly yours, _______________
24 A letter sent to a departed employee should not convey any threat, lest the former employer be accused of tortiously interfering with the employee’s right to seek new employment. Nor should such a letter imply that a departed employee has, in fact, engaged in wrongdoing, lest the statute of limitations for bringing legal action be triggered inadvertently.
Terminating Employees
8. Sample Employer “Compliance Request Letter” Response What follows is a sample letter that a new employer may send to an employee’s former employer in response to a compliance letter request. The purpose is to assure the former employer that litigation will be unnecessary to protect its trade secrets. An employee may send a similar letter upon receipt of a reminder letter from a former employer. Dear _______________: We are in receipt of your letter dated _______________ concerning [name of employee]. Please be assured that our company, like yours, values its intellectual properties and seeks to protect them. Just as we would want other companies to respect our intellectual property rights, we require that all our employees respect the intellectual property rights of others. Consistent with our policy, [name of employee] has represented to us that [he/she] has no materials concerning any trade secret, confidential, or proprietary information belonging to any former employer, including your company, and that [he/she] will abide by [his/her] ethical and legal obligations of confidentiality and can perform [his/her] new job duties without compromising any of those obligations. We have explained our policy to [name of employee] and have reminded the persons [he/she] will be working with of the importance that our company places on this issue. Thank you for communicating your concerns to us. Should we learn of anything that we believe warrants a further discussion, we will contact you. By the same token, if anything occurs that gives rise to a more specific concern on your part, we hope that you will not hesitate to contact us immediately. Very truly yours, _______________
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CHAP T ER
6 Criminal Prosecution of Trade Secret Misappropriation
A. Whether to Seek Criminal Prosecution
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1. Benefits
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2. Drawbacks
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B. Persuading the Government to Prosecute
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C. Federal Economic Espionage Act of 1996
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1. Overview
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2. Protection of the Victim’s Trade Secrets
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3. Elements of an EEA Violation
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4. Remedies
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5. Defenses
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D. Other Potentially Applicable Federal Criminal Statutes
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1. Mail Fraud and Wire Fraud
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2. Deprivation of Honest Services
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3. National Stolen Property Act
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4. Unlawfully Accessing or Attempting to Access a Protected Computer
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5. Copyright Infringement
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6. RICO
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7. Disclosure by a Federal Employee
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E. State Criminal Statutes
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1. California
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2. New Jersey
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3. New York
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F. Creating a Compliance and Ethics Program to Reduce Criminal Exposure
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A. Whether to Seek Criminal Prosecution 1. Benefits A variety of federal and state criminal statutes potentially apply to any trade secret misappropriation. In some instances it is worthwhile to persuade a prosecutor to bring criminal charges. Criminal prosecution should be sought when the government is more likely than the misappropriation victim to obtain the evidence of misappropriation. This results from the extreme pressure the government can bring to bear on potential witnesses, its extraterritorial reach through Mutual Legal Assistance Treaties (MLATs) that allow the exchange of information with foreign prosecutors and its greater financial resources. A further advantage of criminal prosecution is that a civil defendant can “free ride” on the government’s efforts. Not only can the victim test its case by allowing the government to try it first, it may rely on the government to develop the evidence. The government can deploy the resources of the FBI, postal inspectors (who have wide-ranging jurisdiction over anything involving the use of the U.S. mail), the Customs Service, and the police, to investigate the wrongdoing. The government has significant investigative powers that are usually not available to civil litigants, including use of comprehensive search warrants, wiretaps, videotaped surveillance, and subpoenas to obtain telephone and bank records. Because the government does not advise a defendant when it has decided to prosecute, the initial discovery is conducted without notice to the defendant, who will have no warning to hide or destroy evidence. The government may also be able to confront potential witnesses with evidence of their misconduct and thereby bargain a reduced sentence in exchange for full cooperation in the government’s pursuit of claims against the target defendant. Additionally, at the federal level, the prosecutors tend to be among the best and the brightest of trial lawyers. Criminal prosecution allows two bites at the apple because a trade secret misappropriation victim may, subject to the three-year statute of limitations, bring (or proceed with) a civil suit following a criminal prosecution. Because the government must prove guilt “beyond a reasonable doubt,” a successful criminal prosecution sometimes ensures that a misappropriation victim will meet its burden to show liability under the much lower “preponderance of the evidence” test applicable to civil trials. Success at civil trial is not, however, a certainty because the government has ways to control witnesses that simply are not available to civil litigants. The threat of criminal prosecution can make witnesses testify with much more certainty than a civil subpoena will elicit. When a trade secret misappropriation victim initiates a civil litigation, the mere possibility that a criminal prosecution may follow can create a litigation nightmare for the defendant. Should the defendant choose to testify, the
Whether to Seek Criminal Prosecution
testimony will be admissible in any subsequent criminal proceeding and will likely result in a complete waiver of the defendant’s Fifth Amendment right to avoid self-incrimination. On the other hand, if the defendant chooses to assert the Fifth Amendment in the civil litigation, the jury will be permitted to draw inferences adverse to the defendant in some jurisdictions. Usually the government is very slow to initiate prosecution of trade secret misappropriation cases. For the purpose of executing the “nightmare” strategy, such delay is desirable because it allows the plaintiff to commence its case first and conduct discovery first. When the government does initiate prosecution of a trade secret misappropriation, it typically seeks to stay any concurrent civil litigation. For that reason, the plaintiff should conduct as much discovery as it can quickly, before the action is stayed. In prosecuting a criminal case, the government has another advantage not available to a civil litigant: a criminal defendant may not examine the government’s witnesses in advance of trial.1 Thus, a criminal defendant may be less able to contest the validity of the purported trade secrets at trial than a civil defendant. Further, evidence introduced in a criminal trial will usually be admissible in the civil trial and, if civil counsel reach agreement with the prosecutor, civil counsel may have access to much or all the evidence obtained by the prosecutors except evidence obtained pursuant to grand jury subpoenas (unless such evidence is used in the criminal trial). When the government executes comprehensive search warrants against the defendant, all the victim’s trade secrets, together with related records, documents, and information stored in digital form that may be evidence of the crime, will likely be removed from the defendant’s premises. That can result in the interruption or shutdown of the defendant’s business. Also, the government may want to share the items seized with the victim in exchange for help in identifying the misappropriated trade secrets. The criminal statutes typically make broad remedies available to the prosecutor. A prosecutor may be able to obtain forfeiture of any property constituting or derived from the proceeds of the violation and obtain substantial fines against persons and organizations culpable of criminal conduct, as well as incarceration of guilty individuals. Restitution is available in any federal prosecution and is frequently available in state prosecution. A restitution order requires that the defendant return any of the victim’s property. In addition, the government will go before a judge to determine what monetary restitution should be paid to the victim. After a restitution order issues, the government will enforce it. In contrast, a victorious civil litigant will receive little help in enforcing a judgment.
1 However, pursuant to the Jencks Act, 18 U.S.C. § 3500 (2000), a defendant is routinely given access to any statements made by the government’s witnesses (known as “3500 materials”), either shortly before trial or shortly before the defendant testifies.
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Additionally, notwithstanding that protection of a victim’s trade secrets is out of the victim’s hands, in a criminal prosecution the government may provide greater protection for the trade secrets then the victim could obtain in a civil prosecution. A prosecutor can typically obtain an order to preserve the confidentiality of the victim’s trade secrets including, on occasion, an order requiring that evidence concerning the trade secrets be given in camera, outside the view of the public or competitors.2 Finally, a criminal prosecution can dramatically affect the attorneys’ fees the victim and perpetrator incur. Providing assistance to a prosecutor is much less expensive than investigating and prosecuting a civil case, which includes conducting discovery and retaining experts. If criminal misappropriation is proved, a plaintiff in a subsequent civil suit will likely receive its attorneys’ fees under Section 4 of the UTSA, which provides for the discretionary award of reasonable attorneys’ fees if “willful or malicious misappropriation exists.” Conversely, although the “advertising injury” clause of a defendant’s commercial general liability policy might allow payment of a defendant’s attorneys’ fees in a civil action (regardless of its outcome), it will not provide coverage for a criminal defense.3 If a defendant is convicted of criminal trade secret misappropriation, any insurance coverage that might have defrayed the defendant’s attorneys’ fees in a civil trial will be lost as a result of the finding that the defendant acted willfully.
2 See, e.g., Stamicarbon, N.V. v. Am. Cyanamid Co., 506 F.2d 532, 542 (2d Cir. 1974) (recognizing a right in “the most exceptional circumstances” to close limited portions of a criminal trial if the failure to do so might risk disclosure of significant trade secrets and “the full benefit of a public trial” could nonetheless be secured to the defendant by placing limited restrictions on access); State ex rel. Ampco Metal, Inc. v. O’Neill, 273 Wis. 530, 539–40, 78 N.W.2d 921, 926–27 (1956) (state constitutional provision guaranteeing a “public trial” did not apply to prevent a trial court from hearing evidence in camera and having the records sealed). By contrast, the Sixth Amendment requires that civil trials be open to the public. The only concessions to the protection of trade secrets typically allowed by a civil trial judge are to permit video screens and other displays to be positioned so that they can be seen by the jury but not by the courtroom audience and to grant in limine motions limiting what may be said aloud concerning the trade secrets, such as referring to them only as “Topic A” and “Topic B.” From a trial perspective, such precautions will likely impress upon the jury the importance of the plaintiff ’s information and may, therefore, contribute to a substantial verdict. 3 The duty to defend attaches if, based on the allegations of the complaint, it appears possible that the defendant could be found liable for a negligent act within the policy’s coverage. Thus, there can well be a duty to defend even if there is ultimately no duty to indemnify. This raises a strategic question for a civil plaintiff: whether to frame the complaint in a manner calculated to trigger any coverage, thus involving an insurer that could contribute to a settlement, or to allege willful conduct not in the nature of an advertising inquiry to place maximum financial pressure on the defendant.
Whether to Seek Criminal Prosecution
2. Drawbacks The most significant disadvantage to criminal prosecution is that the trade secret owner has no control over the proceedings. Principally, this means that the misappropriation victim cannot control the timing of the criminal prosecution. A prosecutor may let an investigative file sit for years or may choose not to file charges at all. Prosecutors frequently decline to proceed unless the value of the theft is substantial, the case otherwise appears important, or the case is “sexy” or newsworthy. Also, the government will bring the case that it wants to bring, meaning that it will decide what statutes to charge the defendant under, whether to accept a plea agreement, what amount of restitution to seek, and the like. Regardless of whether there is a strong prima facie case of trade secret theft, the government may want to bring the simplest case possible. It may rely on the mail or wire fraud statutes, 18 U.S.C. §§ 1341 or 1343, either exclusively or as the lead charge because a jury can easily understand lying, cheating, and stealing. The government may thus shy away from relying on more complex theft of trade secret statutes. Another disadvantage is that the owner will have to trust that valuable trade secrets are not disclosed to the public during the course of prosecution. The interest of the prosecutor in securing a victory and of the defendant in obtaining a fair trial may make protecting sensitive documents difficult even if a legal privilege is invoked or the issues are narrowed for trial. Also, the trade secret owner will likely not be able to negotiate a settlement of its claims with the defendant. Closely related to the victim’s inability to control the prosecution of a criminal case is the victim’s inability to control who handles the enforcement activity. In a civil litigation, the victim selects its legal team. During a criminal proceeding, however, the prosecutor may move on to another assignment or leave the office altogether. Additionally, the FBI or local law enforcement agency may re-assign personnel to complete an investigation. If a criminal action is initiated while a civil action is pending, the defendant is likely to invoke the Fifth Amendment privilege against self-incrimination during discovery (unless the civil action is stayed pending resolution of the criminal proceeding). That may diminish the likelihood of recovering damages. When criminal and civil actions are pending concurrently, however, the civil action is likely to be stayed pending resolution of the criminal case. If the defendant does not seek a stay, the prosecutor likely will. Either way, the stay may interfere with the trade secret owner’s interest in obtaining injunctive relief to protect its rights and may delay any award of damages. Section 1836 of the Economic Espionage Act of 1996 (EEA), 18 U.S.C. §§ 1831–1839, allows a federal prosecutor to institute a separate civil action to enjoin violations of the EEA. However, a trade secret misappropriation victim should not place a great deal of hope on the possibility that a U.S. Attorney will promptly seek a civil injunction. The government is not likely to bring charges or seek any judicial involvement until the case has been thoroughly investigated.
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After that, the government’s goal will be to develop a strong case that will persuade the defendant to plead guilty. It is unclear to what extent the U.S. Attorney would have to disclose its evidence or investigative process to obtain a civil injunction. As a rule, a prosecutor will be strongly inclined to protect the confidentiality of the investigation and sources of information and, therefore, may be reluctant to seek an injunctive remedy at the outset. One strategy for a trade secret misappropriation plaintiff is to file a civil action, simultaneously request expedited discovery (if discovery is necessary to obtain immediate injunctive relief), and seek a temporary restraining order and order to show cause re preliminary injunction. Only then should the plaintiff attempt to persuade the government to prosecute the defendants. It is possible, of course, that such a strategy could backfire. The government is often unwilling to initiate a criminal prosecution unless the victim forgoes pursuit of civil relief because of the belief that a simultaneous civil proceeding will interfere with the prosecution. There is likely to be substantial overlap of evidence and witnesses. Defendants in the civil action could conduct discovery that would be unavailable in the criminal prosecution, thereby negating one advantage that the prosecution typically has. Simultaneous civil litigation could also clash with a prosecutor’s desire to control the timing of the prosecution and the development of the evidence. If the prosecutor is interested in the case and wants to proceed, the prosecutor will likely intervene to stay the civil action. If a misappropriation victim does not bring a civil suit at the outset, the victim should pay attention to the civil statute of limitations. Although criminal defendants are entitled to a speedy trial once charged, the government may spend months conducting its investigation before charging anyone. Thereafter the defendant may thereafter seek postponements of the trial for various reasons. Even though it is likely that a prosecution will be completed within the three-year limitations period, that is not guaranteed because the victim cannot control the timing or the speed of the prosecution. Finally, it is usually both difficult and time-consuming to persuade the government to prosecute a misappropriation case. After all, a trade secret owner can typically afford to retain top-flight attorneys to protect its interests while the government understandably wishes to use its resources to prosecute other serious crimes. For that reason, it is usually a waste of time to seek criminal prosecution unless the monetary loss is great, the misappropriated trade secrets relate to national defense or an industry of national importance, or a foreign government is involved. If the likelihood that the government will prosecute is not high, a victim should initiate a civil suit without delay.
B. Persuading the Government to Prosecute A misappropriation victim should exercise caution when attempting to persuade the government to prosecute a misappropriation case. Because
Persuading the Government to Prosecute
prosecutors represent “the people” and not private parties, they want to avoid the appearance that their work is in aid of a civil litigant. Thus, the victim should emphasize the crime that occurred and downplay discussion of how a prosecution might assist the victim in a civil suit. A trade secret theft victim may present a criminal case simultaneously to both state and federal prosecutors to find out whether either is interested in conducting a prosecution. At the federal level, both the U.S. Attorney’s offices in each judicial district and the Department of Justice in Washington, D.C. have concurrent jurisdiction to prosecute violations of federal statutes. However, a request should be made of the Department of Justice only if the U.S. Attorney’s office in the judicial district where the crime occurred has declined to prosecute. Ordinarily, a victim does not attempt to make a presentation directly to the U.S. Attorney. Rather, protocol provides that a victim approach the unit chief of the unit of the U.S. Attorney’s office specializing in major crimes (or the unit specializing in computer crimes if a computer was used in the theft) within the U.S. Attorney’s office located within the judicial district where the crime occurred. In smaller U.S. Attorney’s offices, a victim might instead approach the Assistant U.S. Attorney heading the Criminal Division. The government prefers to follow these procedures even if the misappropriation is ongoing. In such cases, the U.S. Attorney’s office may involve the FBI and attempt to coordinate a “sting” to catch the defendants in flagrante delicto. If, however, the victim is uncertain whether the government will prosecute, the victim may be better served by approaching the FBI or postal inspectors first. If an agent takes an interest in the case, the agent will refer it to the Assistant U.S. Attorney most likely to prosecute, and will lobby the U.S. Attorney’s office to prosecute. Indeed, many former prosecutors have said that if they did not know anyone in the prosecutor’s office, they would take a case to the FBI first. At the state level, the Attorney General’s office and the local District Attorney’s office typically have concurrent jurisdiction to enforce state criminal statutes. As at the federal level, the first approach should be to the local prosecutor’s office. There, the victim typically presents its case to the charging attorney. In less populous counties with small District Attorney offices, there may not be anyone with expertise prosecuting white collar crimes. If so, the District Attorney might prefer that the Attorney General be asked to prosecute. Before approaching any prosecutor, the victim should prepare an evidence notebook for the prosecutor. The notebook should contain (i) copies of the criminal statutes that were violated; (ii) an analysis of the evidence supporting each statutory element of the crime; (iii) an analysis of the value of the trade secrets that the defendant stole or attempted to steal (an attempt or conspiracy to misappropriate trade secrets is punishable; however, the mere likelihood or inevitability that trade secrets will improperly be used or disclosed by a defendant is not punishable); (iv) a list of the witnesses, including their names,
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addresses, and telephone numbers; and (v) detailed information concerning the defendants, including their names, addresses, and telephone numbers.4 The evidence notebook should clearly identify the nature of the loss suffered by the victim. The size of the crime is often a principal consideration for the prosecutor in evaluating the case. Many U.S. Attorney’s offices will not prosecute a trade secret theft valued at less than $100,000 or a wire or mail fraud valued at less than $300,000 to $400,000. Thus, the dollar value of the trade secrets involved must be clearly identified. That value can be quantified by the amount of research and the development expenses incurred to create the trade secret, which sum presumably reflects the cost savings realized by the defendant in stealing it. Alternatively, the value can be measured by the victim’s sales of products that incorporate the secret.5 One important purpose of the criminal statutes is to protect U.S. companies from the steady erosion of their competitive position by the theft of trade secrets.6 Thus, the evidence notebook should further emphasize the importance of the trade secrets to the victim’s business. It should also address the scope of criminal activity (including the existence of foreign actors). Additionally, the importance of the trade secrets involved can factor into a decision whether to prosecute. The government is much more likely to prosecute a theft of trade secrets with military or defense implications than to prosecute a theft involving a customer list or bidding calculations. The notebook should also lay out the procedures the victim followed to protect its trade secrets.7 Finally, the evidence notebook should highlight any reasons why civil litigation would fail to provide adequate remedies and highlight the potential deterrent value of a prosecution. In presenting a case to a prosecutor, the victim should be upfront about its expectations and attempt to agree on ground rules with the prosecutor. Many prosecutors will not consent to the imposition of any ground rules, but if the prosecutor can be persuaded to consent, this is the time to try. Rule 6 of the Federal Rules of Criminal Procedure provides, inter alia, that an attorney for
4 Virtually all jurisdictions provide an absolute privilege to communicate with prosecutors, thus immunizing complainants from the possibility that a defendant could bring malicious prosecution, defamation, or other tort claims in the event that a complaint does not result in a successful criminal prosecution. See Forro Precision, Inc. v. IBM Corp., 745 F.2d 1283, 1284 (9th Cir. 1984). The privilege is not defeated even if the complainant has an ulterior motive. Id. at 1285. 5 See United States v. Yang, 281 F.3d 534 (6th Cir. 2002) (value of patent application measured by sale of products made using the invention disclosed therein). 6 See 142 Cong. Rec. S12209 (daily ed. Oct. 2, 1996) (statement of Sen. Specter). 7 Such procedures might include prohibiting employees from taking trade secret materials home or from sending copies to any computer outside the office, legending the material as confidential, restricting access to it on a “need-to-know” basis, requiring that visitors be accompanied, locking the material up at night, protecting it with passwords, requiring anyone viewing it to sign a nondisclosure agreement, and the like.
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the government “must not disclose a matter occurring before the grand jury.” That blanket requirement is, however, subject to the exception enumerated in Rule 6(e)(3), which authorizes the disclosure “of a grand-jury matter preliminarily to or in connection with a judicial proceeding.” Rule 6(e) of the Federal Rules of Criminal Procedure has been interpreted in several circuits as inapplicable to a request for subpoenaed documents sought only for the information they contain if they do not reveal the grand jury’s deliberative process. Typically, however, the prosecutor will need the victim’s ongoing support to understand both the technical aspects of the trade secrets and the context of the defendant’s unlawful misappropriation or use. That need gives the victim leverage to request access to fruits of the government’s investigation that may aid it in a civil litigation. The usual practice of federal prosecutors is not to share “302s” (interview notes made by FBI agents on a form numbered “302”) with victims, at least until after the prosecution is complete. The victim may, however, request oral reports concerning the 302s and other communications reflecting the information obtained by the government. A prosecutor may be reluctant to turn over hard copies of seized materials to avoid engaging in conduct constituting an inappropriate use of criminal prosecution, namely, enabling civil litigation. A compromise position, however, is to request that the government permit turning over or copying of the seized materials after the defendants have pleaded guilty or the prosecution otherwise has been substantially completed.
C. Federal Economic Espionage Act of 1996 1. Overview The Economic Espionage Act (EEA) of 1996, 18 U.S.C. §§ 1831–1839, criminalizes two types of trade secret misappropriation and provides extraterritorial jurisdiction if (i) the offender is a U.S. corporation or business entity, citizen, or resident alien; or (ii) an act in furtherance of the offense was committed in the United States.8 The EEA’s definition of a trade secret is based on the UTSA definition,9 but is even broader once the nexus to interstate or foreign commerce requirement is met: (3) the term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns,
8 See 18 U.S.C. § 1837 (2000). 9 See H.R. Rep. No. 104-788, at 12 (1996), reprinted in 1996 U.S.C.C.A.N. 4021, 4031. Accordingly, UTSA cases addressing trade secrets are relevant in EEA prosecutions.
274 Chapter 6 Criminal Prosecution of Trade Secret Misappropriation plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, 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, the public. . . . 10
The Computer Crime & Intellectual Property Section of the Department of Justice takes the position that misappropriation based on the memorization of a trade secret is criminal. In practice, however, courts tend to distinguish between the intentional memorization of trade secret information (which may give rise to a prosecution) and the use or disclosure of information that has been only casually remembered (which is sometimes not considered to be wrongful).11 Activities of foreign governments, instrumentalities, and agents are addressed by Section 1831, which states in relevant part: (a) In general.—Whoever, intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent, knowingly— (1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains a trade secret; (2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret; (3) receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtain, or converted without authorization; (4) attempts to commit any offense described in any of paragraphs (1) through (3); or (5) conspires with one or more other persons to commit any offense described in any of paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy, shall, except as provided in subsection (b), be fined not more than $500,000 or imprisoned not more than 15 years, or both.
A “foreign instrumentality” is “any agency, bureau, ministry, component, institution, association, or any legal, commercial, or business organization,
10 18 U.S.C. § 1839(3) (2000). 11 See Tactica Int’l, Inc. v. Atl. Horizon Int’l, Inc., 154 F. Supp. 2d 586, 606 (S.D.N.Y. 2001) (“[R]emembered information as to specific needs and business habits of particular customers is not confidential.”).
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corporation, firm, or entity that is substantially owned, controlled, sponsored, commanded, managed, or dominated by a foreign government.”12 A “foreign agent” is “any officer, employee, proxy, servant, delegate, or representative of a foreign government.”13 Thus, to secure a conviction under Section 1831, the government must show that the defendant believed the misappropriation would benefit an entity tied to a foreign government. The “benefit” to the foreign entity is interpreted broadly. It is not limited to an economic benefit but also includes a “reputational, strategic, or tactical benefit.”14 As a side note, whenever the elements of Section 1831 may be present, a misappropriation victim should consider whether to file a complaint with the U.S. International Trade Commission pursuant to Section 337 of the Antidumping Act of 1921.15 As discussed in Chapter 2(C)(3), the Commission is empowered to eliminate unfair acts and unfair methods of competition, including trade secret misappropriation, that tend to injure an industry in the United States. Any company engaged in business in the United States, whether U.S.-owned or not, may bring a Section 337 action to prevent the importation of goods produced as a result of the misappropriation of trade secrets. Such actions are typically concluded within 12 to 15 months. The commercial theft of trade secrets carried out for economic advantage, whether or not for the benefit of a foreign government, instrumentality, or agent, is prohibited by Section 1832: (a) Whoever, with intent to convert a trade secret, that is related to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will injure any owner of that trade secret, knowingly— (1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information; (2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information; (3) receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or converted without authorization; (4) attempts to commit any offense described in paragraphs (1) through (3); or (5) conspires with one or more other persons to commit any offense described in paragraphs (1) through (3), and one or more of such persons do any
12 13 14 15
18 U.S.C. § 1839(1) (2000). Id. § 1839(2). H.R. Rep. No. 104-788, at 11 (1996), reprinted in 1996 U.S.C.C.A.N. 4021, 4030. 19 U.S.C. § 1337 (2000).
276 Chapter 6 Criminal Prosecution of Trade Secret Misappropriation act to effect the object of the conspiracy, shall, except as provided in subsection (b), be fined under this title or imprisoned not more than 10 years, or both.16
2. Protection of the Victim’s Trade Secrets The EEA also provides significant protection from further disclosure of trade secrets. Section 1835 of the EEA requires that a court “enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets, consisting of those rules and laws.” If any decision or order made by a trial court authorizes or directs the disclosure of any trade secret, the government is automatically afforded an interlocutory appeal of that decision. In addition, pursuant to Section 1836, the Attorney General may initiate a civil action to “obtain appropriate injunctive relief against any violation” of the EEA.
3. Elements of an EEA Violation Each of Section 1831 and Section 1832 requires the government to prove beyond a reasonable doubt that (1) the defendant misappropriated information (or conspired or attempted to do so), (2) the defendant knew or believed the information was a trade secret, and (3) the information was in fact a trade secret (unless the crime charged is a conspiracy or an attempt). Such section criminalizes not only the misappropriation of a trade secret but also the knowing receipt, purchase, destruction, or possession of the stolen trade secret. To prove a violation of Section 1831, the government must also prove that the defendant knew the offense would benefit, or was intended to benefit, a foreign government or foreign government instrumentality or agent. If there is no foreign connection, the government may prove a violation of Section 1832 by proving, in addition to the three elements described above, that (4) the defendant intended to convert the trade secret for the economic benefit of someone other than the owner, (5) the defendant knew or intended that the owner of the trade secret would be injured, and (6) the trade secret was related to or included in a product that was either produced or placed in interstate or foreign commerce. The first mens rea element in an EEA case is that the defendant misappropriated the trade secret “knowingly.”17 “A knowing state of mind with respect
16 The EEA is subject to a five-year statute of limitations. See 18 U.S.C. § 3282 (2000). 17 Section 1831(a) applies to anyone who misappropriates a trade secret “knowingly.” Section 1832(a) applies to “[w]hoever, with intent to convert a trade secret,” engages in misappropriation.
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to an element of the offense is (1) an awareness of the nature of one’s conduct, and (2) an awareness of or a firm belief in or knowledge to a substantial certainty of the existence of a relevant circumstance, such as whether the information is proprietary economic information. . . .”18 Because the government must prove that the defendant knew he stole property “that he [had] no lawful right to convert for his personal use,” the government generally must show that the defendant believed that the stolen information was a trade secret.19 However, the government need not prove that the defendant knew that the stolen information fit the legal definition of a “trade secret.” Instead, the government can meet the mens rea requirement by showing that the defendant was aware the information was protected by proprietary markings, security measures, and confidentiality agreements, the defendant believed the information was valuable to its owner because it was not known to the public, and the owner had taken measures to protect it.20 The Computer Crime and Intellectual Property Section of the Department of Justice advises U.S. Attorneys to consider the following factors in determining the value of a misappropriated trade secret: (i) whether the defendant paid anything for the secret; (ii) whether the defendant was paid anything for the secret; (iii) whether the defendant used the secret; (iv) whether the defendant used the secret and made money from its use; and (v) whether the victim’s sales decreased, increased, or increased at a lower rate than they would have had the misappropriation not occurred.21
18 19
20 21
This is a distinction without a difference because a knowing misappropriation is equivalent to an intent to convert. S. Rep. No. 104-359, at 16 (1996), reprinted in 1996 U.S.C.C.A.N. 142 Cong. Rec. 27,117 (1996); See United States v. Genovese, 409 F. Supp. 2d 253, 258 (S.D.N.Y. 2005) (discussing circumstances that would show that a defendant knew that the misappropriated information was a trade secret). Genovese, 409 F. Supp. at 258. Only a few federal criminal decisions have addressed how to value a trade secret. Those cases have largely focused on the trade secret’s research and development costs. In United States v. Wilson, 900 F.2d 1350 (9th Cir. 1990), a research associate offered to sell financial and research data from his employer, a biotechnology and pharmaceutical firm, to a competitor. The defendant argued that the documents containing the data were worth the $100,000– $200,000 the competitor said it would have paid for them. Id. at 1356. The Ninth Circuit refused to require “a strict market value approach in determining the value of stolen goods” because that approach would have measured “only the gain to the defendant while virtually ignoring the harm suffered by the victim.” Id. Although it acknowledged that the buyer’s and seller’s prices were relevant, it held that the trial court was entitled to value the documents at the victim’s research and development costs. Id. at 1355. Similarly, in United States v. Ameri, 412 F.3d 893, 900 (8th Cir. 2005), an employee stole his employer’s proprietary software, which was at the heart of a $10 million contract. Conflicting evidence suggested that the software had no verifiable fair market value because it was not sold separately, had a fair market value of $1 million per copy, and was developed for $700,000. Faced with those figures, the Eighth Circuit affirmed the trial court’s loss estimate of $1.4 million, which appears to have been the research and development costs multiplied by the number of copies the defendant
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Under Section 1832, the government must prove that the defendant’s misappropriation was intended for the “economic benefit of anyone other than the owner thereof.” The recipient of the intended benefit can be the defendant, a competitor of the victim, or some other person or entity who intends to gain economically from the theft. This requirement differs from foreign government economic espionage, for which the economic or noneconomic nature of the misappropriation is immaterial. The government must also prove that the defendant intended to “injure” the owner of the trade secret. This does not require proof of malice or evil intent, “but merely that the actor knew or was aware to a practical certainty that his conduct would cause some disadvantage to the rightful owner.”22 This may be shown by demonstrating that the defendant understood that the misappropriation would injure the victim once the victim lost exclusive control of the trade secret. Pursuant to Section 1832, the government must additionally prove that the trade secret was “related to or included in a product that is produced for or placed in interstate or foreign commerce.” However, the defendant need not have knowledge of this. Rather, the nexus to interstate or foreign commerce merely serves to allow federal jurisdiction. The defendant might argue that theft of information related to a product still in the research and development stage is not covered by Section 1832 because no product is yet being “produced” for sale. The Computer Crime and Intellectual Property Section of the Department of Justice takes the position that the nexus to interstate or foreign commerce can be based on the victim’s intent to distribute the product or utilize the process under development for a product to be sold in interstate or foreign commerce.23 When an attempt or conspiracy to misappropriate trade secrets is charged, the defendant must (1) have the intent needed to commit a crime defined by
made. Id. at 900–01; (see also United States v. Kwan, No. 02 CR 241(DAB), 2003 WL 22973515, at *9 & n.12 (S.D.N.Y. Dec. 17, 2003), (valuing stolen documents based on their cost of production, which was estimated by multiplying the salaries of the persons who created the documents by the time they likely spent creating the documents). However, in United States v. Pemberton, 904 F.2d 515 (9th Cir. 1990), the buyer’s price was selected as the value for stolen technical landscape and irrigation design drawings for a large commercial development. Id. at 517. The different approach employed is explained by the fact that the price came from a legitimate market transaction rather than a black-market transaction that would have undervalued the property, the buyer’s price was higher than the development cost, and the drawings could likely have been used for one project only. 22 H.R. Rep. No. 104-788, at 11–12 (1996), reprinted in 1996 U.S.C.C.A.N. 4021, 4030. 23 See United States v. Yang, 281 F.3d 534, 551 & n.4 (6th Cir. 2002) (holding that a patent application had a sufficient nexus to interstate commerce because it involved a product that generated millions of dollars in sales the previous year, it was related to products produced and sold in both the United States and Canada, and the victim had sought patents for the product in Europe).
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the EEA and (2) have performed an act amounting to a “substantial step” toward the commission of that crime.24 For a conspiracy to exist, the defendant must have agreed with one or more other persons to commit a violation, and one or more of the coconspirators must have committed an overt act to effect the object of the conspiracy.25 Significantly, it is not necessary to prove that the information the defendants attempted or conspired to misappropriate was, in fact, a trade secret. It is sufficient that they believed that it was a trade secret.26
4. Remedies Under Section 1832, the theft of a trade secret is punishable by a fine of up to $250,000 and imprisonment for ten years against individuals and a fine of up to $5 million against corporations. Under Section 1831, the crime is punishable by a fine of up to $500,000 and imprisonment for 15 years for individuals and a fine of up to $10 million for corporations. Alternatively, a defendant may be fined twice the amount of the value of the loss to the victim or the gain to the defendant.27 Restitution is also available under the EEA (and other intellectual property crime statutes included both in Title 18 of the U.S. Code and under many state criminal codes). The Mandatory Victims Restitution Act of 1996 (MVRA), codified in part at 18 U.S.C. § 3663A, provides that restitution is
24 United States v. Hsu, 155 F.3d 189, 202 (3d Cir. 1998). 25 18 U.S.C. §§ 1831(a)(5), 1832(a)(5) (2000). 26 Hsu, 155 F.3d at 203–04. The court noted that if legal impossibility were “a defense to the attempted theft of trade secrets, the government would be compelled to use actual trade secrets during undercover operations.” Id. at 202. That would “have the bizarre effect of forcing the government to disclose trade secrets to the very person suspected of trying to steal them, thus gutting enforcement efforts under the EEA.” Id. Although legal impossibility has been rejected as a defense to most crimes for more than 25 years, the broad holding in Hsu was called into question in dictum in United States v. Lange, 312 F.3d 263 (7th Cir. 2002). In Lange, the court held that one may be convicted of an attempted theft of trade secrets even if the victim intervenes by substituting harmless information for the trade secret information because, but for the intervention, the defendant would have had “a good chance of success.” Id. at 268. Similarly, a defendant’s mistake in stealing obsolete data, believing it to be current, will support a conviction. Id. However: [I]t is far less clear that sale of information already known to the public could be deemed a substantial step toward the offense, just because the defendant is deluded and does not understand what a trade secret is. Selling a copy of Zen and the Art of Motorcycle Maintenance is not attempted economic espionage, even if the defendant thinks that the tips in the book are trade secrets; nor is sticking pins in voodoo dolls attempted murder. Id. at 269. 27 18 U.S.C. § 3571(d) (2000).
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mandatory following any “offense against property under [Title 18] . . . including any offense committed by fraud or deceit . . . in which an identifiable victim . . . suffered a pecuniary loss.”28 A restitution order must require the defendant return any of the victim’s property that it took.29 In addition, the government must determine how monetary restitution should be calculated. The most important principle is that restitution should make the victims whole by compensating them for their losses, including their cost to investigate the defendant’s conduct.30 Victims have an important role in helping to determine the appropriate amount of restitution. The government must consult with witnesses and the court to consider the victims’ evidence.31 A restitution order provides a significant benefit to the victim because the government will enforce the restitution order. The restitution determination is not, however, binding on the victim, who remains free to seek additional or other damages through civil litigation. In addition to the foregoing remedies, a court may order a forfeiture pursuant to 18 U.S.C. § 1834, which states in relevant part: (a) The court, in imposing sentence on a person for a violation of this chapter, shall order, in addition to any other sentence imposed, that the person forfeit to the United States (1) any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation; and (2) any of the person’s property used, or intended to be used, in any manner or part, to commit or facilitate the commission of such violation, if the court in its discretion so determines, taking into consideration the nature, scope, and proportionality of the use of the property in the offense.
5. Defenses It is a fundamental principle that patent protection confers a monopoly, but trade secret protection does not. A company has the right to discover the information underlying a competitor’s trade secret through its own research
28 Id. § 3663A(c)(1)(A)(ii), (B). 29 Id. §§ 3663(b)(1)(A), 3663A(b)(1)(A), 3664(f)(4)(A). 30 Id. §§ 3663(b)(4), 3663A(b)(4); United States v. Brown, 150 Fed. Appx. 575 (8th Cir. 2005) (per curiam) (awarding restitution to a victim for staff investigation costs); United States v. Beaird, 145 Fed. Appx. 853 (5th Cir. 2005) (per curiam) (affirming award of restitution for attorneys’ fees and litigation expenses associated with assisting FBI investigation; United States v. Gordon, 393 F.3d 1044, 1049, 1056–57 (9th Cir. 2004) (affirming notice of $1,038,477 in restitution costs for internal investigation responses to grand jury subpoenas). 31 See Attorney General Guidelines for Victim and Witness Assistance, art. IV.B.2.b(4), 42 U.S.C. § 10607(c)(3) (2005); see also 18 U.S.C. §§ 2319(d), 2319A(d), 2319B(e), 2320(d) (2000).
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and hard work. Thus, “reverse engineering,” defined as “the practice of taking something apart to determine how it works or how it was made or manufactured,” provides a defense to a claim of trade secret misappropriation.32 However, the mere fact that a particular trade secret could have been reverse engineered through a time-consuming and expensive process does not provide a defense for someone who avoided that time and effort by stealing the secret.33 On the other hand, if the purported trade secret could have been reverse engineered quickly and inexpensively, it was “readily ascertainable through proper means” and, hence, not a trade secret at all. A good faith belief that one has the right to use a competitor’s proprietary information may negate the mens rea requirement, thus providing a defense. This situation typically arises when parties jointly develop the technology at issue and lack a clear understanding of the legal rights involved or when there is a dispute concerning a license agreement or its termination. There is no “advice of counsel” defense per se.34 However, “if a criminal statute requires proof that the defendant knew he was violating the statute in order to be criminally liable for the violation and it is unclear whether the statute forbade his conduct, whether he was acting on the advice of counsel is relevant because it bears on whether he knew he was violating the statute.”35 Thus, advice of counsel is a defense only to the extent that it negates the mens rea requirement. To rely on an advice of counsel defense, a defendant must adduce “independent evidence showing (1) the defendant made full disclosure of all material facts to his or her attorney before receiving the advice at issue; and (2) he or she relied in good faith on the counsel’s advice that his or her course of conduct was legal.”36 It is now generally accepted that legal impossibility does not provide a defense to a violation of the EEA. Thus, if the defendant believed that it was misappropriating trade secret information, it avails the defendant nothing to prove that its belief was mistaken.37
32 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974) (holding that the law does not protect trade secrets from “discovery by fair and honest means, such as by independent invention, accidental disclosure, or by so-called reverse engineering”). 33 Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772, 784–85 (5th Cir. 1999) (holding that the reverse engineering defense was unavailable to a competitor who unlawfully obtained a rival’s software and then used the copy to reverse engineer it); Pioneer Hi-Bred Int’l v. Holden Found. Seeds, Inc., 35 F.3d 1226, 1237 (8th Cir. 1994) (that one “‘could’ have obtained a trade secret lawfully is not a defense if one does not actually use proper means to acquire the information”). 34 United States v. Urfer, 287 F.3d 663, 666 (7th Cir. 2002). 35 Id. 36 Covey v. United States, 377 F.3d 903, 908 (8th Cir. 2004) (citations omitted). 37 United States v. Hsu, 155 F.3d 189, 203–04 (3d Cir. 1998); United States v. Yang, 281 F.3d 534, 542–45 (6th Cir. 2002), cert. denied, 537 U.S. 1170 (2003); United States v. Lange, 312 F.3d 263, 268–69 (7th Cir. 2002).
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The First Amendment provides no defense when the defendant’s speech is the crime.38 Although the First Amendment has not been expressly repudiated as a defense to a charge under the EEA, it has been held to provide no defense to an analogous claim related to stolen computer files.39 The EEA has also withstood arguments that it is void for vagueness or is otherwise unconstitutional.40
D. Other Potentially Applicable Federal Criminal Statutes Other federal statutes criminalize theft of a company’s proprietary information. Indeed, several of those statutes were used to prosecute trade secret thieves prior to the enactment of the EEA in 1996. Because their elements differ somewhat from those of the EEA, a company seeking a criminal prosecution for the misappropriation of its trade secrets should ask the government to charge the defendants under all potentially applicable statutes.
1. Mail Fraud and Wire Fraud Mail fraud includes using the U.S. Postal Service or other private or commercial interstate carrier in connection with a scheme to defraud or obtain money or property by false or fraudulent pretenses. Not only must an instrumentality of interstate commerce be used, but there must also be an interstate or foreign communication. This is not a significant hurdle; interstate communication is virtually certain when the internet is used. A scheme to defraud another of “property” includes intangible property, such as confidential, nonpublic, prepublication, and proprietary information.41 A court may impose a
38 See, e.g., United States v. Morison, 844 F.2d 1057, 1068 (4th Cir. 1988) (rejecting the defendant’s First Amendment defense to a charge of stealing secret government documents, noting that “[w]e do not think that the First Amendment offers asylum . . . merely because the transmittal was to a representative of the press”). 39 United States v. Riggs, 743 F. Supp. 556, 560–61 (N.D. Ill. 1990). 40 Yang, 281 F.3d at 544 n.2; United States v. Genovese, 409 F. Supp. 2d 253, 258 (S.D.N.Y. 2005); Hsu, 40 F. Supp. 2d at 623. 41 Carpenter v. United States, 484 U.S. 19, 26–27 (1987) (holding that trading on information gathered for a financial newspaper column defrauded the newspaper of its right to the exclusive use of the information); United States v. Seidlitz, 589 F.2d 152,160 (4th Cir. 1978) (holding that data downloaded from a former employer’s computer system qualified as “property” under the wire fraud statute and was a trade secret); United States v. Louderman, 576 F.2d 1383, 1387 (9th Cir. 1978) (upholding jury instruction that “property” encompasses “confidential and nonpublic commercial information such as customer lists, customer credit data, lists of services provided customers, and accounting data, as well as services of employees and
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fine on an individual for mail or wire fraud of up to $250,000 or twice the value of the victim’s loss or defendant’s gain.42 Mail fraud is actionable pursuant to 18 U.S.C. § 1341: Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.
Wire fraud is similar to mail fraud except that it involves the use of wire (i.e., the telephone or the Internet), radio or television communications, or writings, signs, signals, pictures, or sounds in a scheme to defraud. Wire fraud is governed by 18 U.S.C. § 1343: Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.
Additionally, “[a]ny person who attempts or conspires to commit [mail fraud or wire fraud] shall be subject to the same penalties as those prescribed
customers’ goodwill”); United States v. Wang, 898 F. Supp. 758, 760 (D. Colo. 1995) (holding that the wire fraud statute applies not just to physical goods, wares, or merchandise, but also to confidential computer files transmitted by wire). 42 See 18 U.S.C. §§ 3551, 3553, 3571 (2000).
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for the offense, the commission of which was the object of the attempt or conspiracy.”43 The statute of limitations for mail fraud and wire fraud is five years from the commission of the last offense.44 However, if the alleged fraud affects a financial institution, the limitations period is extended to ten years.45 The elements of a mail or wire fraud violation are (1) a scheme to defraud, (2) an intent to acquire money or property as the object of the scheme, and (3) the use of the mail or wires to further this scheme.46 Because the mail and wire fraud statutes proscribe and punish the fraudulent scheme rather than mere private damage associated with it, they do not require that the intended victim have been successfully defrauded or that any private injury or damage be proved.47
2. Deprivation of Honest Services Because “scheme or artifice to defraud” is defined in 18 U.S.C. § 1346 as including a scheme or artifice to deprive another “of the intangible right of honest services,” a defendant may be charged with breaching his fiduciary duty of loyalty to his employer by misappropriating proprietary information.48 In such a circumstance, the government need not prove that the defendant realized financial gain from the theft or attempted theft.49 Breach of a fiduciary duty alone will not constitute mail or wire fraud.50 There must have been a material concealment of information that the employee had a duty to disclose when nondisclosure would result in harm.51 The defendant must also have had an intent to defraud or deceive by affirmative misrepresentation or by silence.52 Thus, a former employee who misappropriates trade secrets after taking a new job is not guilty of depriving the former employer of the intangible right of honest services. A decision to misappropriate trade secrets before changing employment could therefore lead to such liability.53
43 44 45 46 47 48 49
50 51 52 53
Id. § 1349. Id. § 3282. Id. § 3293. Fountain v. United States, 357 F.3d 250 (2d Cir. 2004). United States v. Falkowitz, 214 F. Supp. 2d 365, 380 (S.D.N.Y. 2002). See, e.g., United States v. Martin, 228 F.3d 1, 17–18 (1st Cir. 2000) (employee in “pen pal” relationship was persuaded to disclose trade secrets by electronic mail). United States v. Kelly, 507 F. Supp. 495, 499 (E.D. Pa. 1981) (holding that a private employee may be convicted for failing to render honest and faithful services if he devises a scheme to deceive, mislead, or conceal material information). United States v. Lemire, 720 F.2d 1327, 1335 (D.C. Cir. 1983). Id. at 1135, 1337. Id. Celpaco, Inc. v. MD Papierfabriken, 686 F. Supp. 983, 993 (D. Conn. 1988).
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This theory is not presently settled, however, and is generally disfavored when applied to private perpetrators as opposed to public figures who have a clear and broad duty of honest services. In the private context, some courts have gone out of their way to dismiss charges brought pursuant to Section 1346 unless there has been clear financial harm.
3. National Stolen Property Act Prior to the enactment of the EEA, criminal trade secret misappropriation cases were often prosecuted under the National Stolen Property Act, 18 U.S.C. §§ 2311–2322, under the theory that the stolen secrets were “goods, wares, [or] merchandise valued at more than $5,000” and moved in interstate commerce. As with mail or wire fraud, a convicted defendant may be fined up to $250,000 or double the defendant’s gain or the victim’s loss.54 The National Stolen Property Act is of somewhat limited usefulness in trade secret misappropriation cases because certain courts require that the information misappropriated be in tangible form,55 or even that the trade secret information be contained in “things that are bought and sold in the market place.”56 However, other courts are not as strict and continue to apply the statute to information transmitted across state lines or even by e-mail.57
54 See 18 U.S.C. §§ 3551, 3553, 3571 (2000). 55 United States v. Brown, 925 F.2d 1301, 1308–09 (10th Cir. 1991) (holding that the interstate transportation of disks containing trade secret information could trigger application of the statute, but downloading the same information onto a computer located across state lines could not). 56 United States v. Kwan, No. 02 CR 241 (DAB), 2003 WL 22973515, at *1, *6 (S.D.N.Y. Dec. 17, 2003) (vacating conviction based on the defendant’s theft of proprietary information included in “hotel contact lists, hotel rate sheets, travel consortium contact lists, travel consortium rate sheets, and cruise operator rate sheets” because such items were not the type of goods, wares or merchandise that are ever bought, sold, or traded in a market, “legal or otherwise”). 57 See, e.g., United States v. Martin, 228 F.3d 1, 14–15 (1st Cir. 2000) (affirming conviction under EEA and wire and mail fraud statutes of a scientist who solicited a competitor’s employee to disclose confidential information to him by electronic mail and Priority Mail); Brown, 925 F.2d at 1308 n.14 (declaring that Section 2314 would apply to theft of a piece of paper bearing a chemical formula, even if the paper’s intrinsic value was insignificant); United States v. Lester, 282 F.2d 750, 755 (3d Cir. 1960) (copies of geophysical maps made by defendants on the victim’s own copying equipment were covered under Section 2314). Courts are divided as to whether the Act applies to transfers of intangible property through intangible means, such as electronic data transmission. However, recent cases have generally held that the Act applies even in such circumstances. See, e.g., United States v. Kwan, No. 02 CR 241 (DAB), 2003 WL 21180401, at *3 (S.D.N.Y. May 20, 2003) (denying the defendant’s motion to dismiss because the Second Circuit had “long considered stolen items’ commercial nature to be more significant than their tangibility”); United States v. Farraj, 142 F. Supp. 2d 484, 488 (S.D.N.Y. 2001) (“The text of § 2314 makes no distinction between tangible and intangible property, or between electronic and other matter of transfer across state lines.”); United States v. Riggs, 739 F. Supp. 414, 420–21 (N.D. Ill. 1990) (rejecting the defendant’s “disingenuous
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Several portions of the Act are potentially applicable to the theft of trade secret information. Section 2314 criminalizes the interstate transportation of stolen property and explains: Whoever transports, transmits or transfers in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud; or Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretences, representations, or promises, transports or causes to be transported, or induces any person or persons to travel in, or to be transported in interstate or foreign commerce in the execution or concealment of a scheme or artifice to defraud that person or those persons of money or property having a value of $5,000 or more; [] ... Shall be fined under this title or imprisoned not more than ten years, or both.
Section 2315 criminalizes receiving or selling stolen property and provides, in relevant part, that: Whoever receives, possesses, conceals, stores, barters, sells, or disposes of any goods, wares, or merchandise, securities, or money of the value of $5,000 or more, or pledges or accepts as security for a loan any goods, wares, or merchandise, or securities, of the value of $500 or more, which have crossed a State or United States boundary after being stolen, unlawfully converted, or taken, knowing the same to have been stolen, unlawfully converted, or taken; [] ... Shall be fined under this title or imprisoned not more than ten years, or both.
Assuming that the particular items stolen qualify as “goods, wares, or merchandise,” courts usually find that Sections 2314 and 2315 apply when a defendant steals any tangible object—even a piece of paper—that contains intellectual property.58
argument that he merely transferred electronic impulses [albeit impulses containing computerized text files belonging to Bell South] across state lines. . . . This court sees no reason to hold differently simply because [defendant] stored the information inside computers instead of printing it out on paper. In either case, the information is in a transferable, accessible, even salable form.”); United States v. Wirtz, 357 F. Supp. 2d 1164, 1168 (D. Minn. 2005) (holding statute applicable to pricing information that was secret before release to customers). 58 See supra note 57.
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4. Unlawfully Accessing or Attempting to Access a Protected Computer It is unlawful to access a protected computer to obtain information. “‘[O]btaining information’ includes merely reading it. There is no requirement that the information be copied or transported.”59 A violation is a misdemeanor unless the value of the information exceeds $5,000. The crime is governed by 18 U.S.C. § 1030: (a) Whoever— ... (2) intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains— (A) information contained in a financial record of a financial institution, or of a card issuer as defined in Section 1602(n) of title 15, or contained in a file of a consumer reporting agency on a consumer, as such terms are defined in the Fair Reporting Act (15 U.S.C. 1681 et seq.); ... (C) information from any protected computer if the conduct involved an interstate or foreign communication; ... (4) knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer and the value of such use is not more than $5,000 in any 1-year period; (5) (A)(i) knowingly causes the transmission of a program, information, code, or command, and as a result of such conduct, intentionally causes damage without authorization, to a protected computer; (ii) intentionally accesses a protected computer without authorization, and as a result of such conduct, recklessly causes damage; or (iii) intentionally accesses a protected computer without authorization, and as a result of such conduct, causes damage; and (B) by conduct described in clause (i), (ii), or (iii) of subparagraph (A) cause (or, in the case of an attempted offense, would, if completed, have caused)— (i) loss to 1 or more persons during any 1-year period (and, for purposes of an investigation, prosecution, or other proceeding brought by the United States only, loss resulting from a related
59 S. Rep. No. 104-357, pt. IV(1)(b), at 7 (1996), reprinted in 1996 U.S.C.C.A.N.
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Chapter 6 Criminal Prosecution of Trade Secret Misappropriation course of conduct affecting 1 or more other protected computers) aggregating at least $5,000 in value; ... (6) knowingly and with intent to defraud traffics (as defined in section 1029) in any password or similar information through which a computer may be accessed without authorization, if— (A) such trafficking affects interstate or foreign commerce; [] ... (7) with intent to extort from any person any money or other thing of value, transmits an interstate or foreign commerce any communication containing any threat to cause damage to a protected computer; shall be punished as provided in subsection (c) of this section.
“Fraud” under Section 1030(a)(4) is defined broadly.60 Economic Espionage Act charges, which generally involve some level of deception, will often qualify as fraud. The requirement that a defendant have obtained something of “value” can be satisfied by proving harm to the victim’s goodwill and reputation.61 The required “loss” “has consistently meant a cost of investigating or remedying damage to a computer or a cost incurred because the computer’s service was interrupted.”62 The use of proprietary information to compete unfairly after that information has been extracted from a computer is not a cognizable “loss.”63
5. Copyright Infringement Copyright infringement is often overlooked as a potential remedy for trade secret misappropriation due to the widespread, but mistaken, belief that a work must be “copyrighted” before an infringement can occur. In fact, copyright protection inures from the moment a work is “fixed in any tangible medium of expression . . . from which [it] can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.”64 Since the
60 See 132 Cong. Rec. 7, 189 (1986) (“[T]he acts of ‘fraud’ that we are addressing in proposed section 1030(a)(4) are essentially thefts in which someone uses a [protected computer] to wrongly obtain something of value from another.”); Shurgard Storage Centers, Inc. v. Safeguard Self Storage, Inc., 119 F. Supp. 2d 1121, 1126 (W.D. Wash. 2000) (holding that “fraud” as used in Section 1030(a)(4) means “wrongdoing” and does not require proof of a common-law fraud). 61 See, e.g., In re Am. Online, Inc., 168 F. Supp. 2d 1359, 1380 (S.D. Fla. 2001). 62 Nexans Wires S.A. v. Sark-USA, Inc., 319 F. Supp 2d 468, 475 (S.D.N.Y. 2004). 63 Id. at 477–78. 64 17 U.S.C. § 102(a) (2000).
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United States’ accession to the Berne Convention, the use of a copyright notice has not been required.65 Copyright protection “for an original work of authorship [does not] extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, [or] illustrated.”66 However, it does extend to “compilations.”67 Accordingly, copyright protection may extend to customer lists and databases. It also extends to literary works which may include manuals, business directories, and computer software, among others.68 Pictorial, graphic, and architectural works protected under the Copyright Act include maps and architectural drawings.69 Criminal copyright infringement is defined in 17 U.S.C. § 506: (a) Criminal Infringement— (1) In general.—Any person who willfully infringes a copyright shall be punished as provided under section 2319a of title 18, if the infringement was committed— (A) for purposes of commercial advantage or private financial gain; (B) by the reproduction or distribution, including by electronic means, during any 180-day period, of 1 or more copies or phonorecords of 1 or more copyrighted works, which have a total retail value of more than $1,000; or (C) by the distribution of a work being prepared for commercial distribution, by making it available on a computer network accessible to members of the public, if such person knew or should have known that the work was intended for commercial distribution.
To the extent a trade secret misappropriation has included the theft of materials subject to copyright protection, a victim should consider bringing a civil copyright infringement suit. All works fixed in a tangible form are subject to copyright protection if they are otherwise qualified by their content. However, “United States works”—but not other works—must be registered (and usually deposited) with the Copyright Office before filing suit. Copyright Office regulations permit the deletion of material constituting trade secrets
65 Id. § 401. However, registration is a jurisdictional prerequisite before bringing a civil action for copyright infringement of a “United States work,” defined in the case of an unpublished work as a work all of whose authors are nationals, domiciliaries, or habitual residents of the United States. Id. § 411. 66 Id. § 102(b). 67 Id. § 103(a). 68 Id. § 102(a)(1). 69 Id. § 102(a)(5), (8).
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from deposits of computer programs and authorize the granting of special relief from the normal deposit requirements in other cases.70 Provided that registration with the Copyright Office is effected “not later than the earlier of 3 months after the first publication of the work or 1 month after the copyright owner has learned of the infringement,” a successful plaintiff will be entitled to the full panoply of remedies provided by the Copyright Act.71 The remedies available to a successful copyright infringement plaintiff include “the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages,” or, in the alternative, statutory damages of up to $150,000 per work infringed if the infringement was willful.72 In addition, a court has discretion to award costs and attorneys’ fees.73 Because copyright jurisdiction is exclusively federal, including a copyright misappropriation claim in a civil trade secret misappropriation action will ensure that the action is heard by a federal court.74
6. RICO The government may also bring criminal proceedings under the Racketeer Influenced and Corrupt Organizations Act (RICO), codified at 18 U.S.C. §§ 1961–1968. Typically, the government alleges that the defendants formed an “enterprise” that engaged in a “pattern of racketeering activity” by stealing trade secrets in violation of 18 U.S.C. §§ 1961–1962(c)-(d) and 1963(a).75 The “pattern” factor requires a continuity of the illegal activity. A “pattern” of trade secret misappropriation can be established by multiple acts within a “single scheme.” A RICO claim was sufficiently pleaded based on allegations that the defendants conspired to steal trade secrets from an automobile manufacturer, obtained proprietary documents that were not needed in the ordinary course of their job duties, removed boxes of proprietary documents from the automobile manufacturer for transportation abroad, and uploaded the documents onto a competitor’s computer.76 Recently, the Supreme Court held
70 See Chapter 2(C)(2)(a), n.148, supra. 71 17 U.S.C. § 412 (2000). The date of registration is the date the Copyright Office receives a registration application. The process for registering a copyright is both easy and inexpensive. Upon payment of an additional fee, the registration process will be expedited to allow the registrant to proceed with litigation. 72 Id. § 504. 73 Id. § 505. 74 28 U.S.C. § 1338(a) (2000). 75 See Rockwell Graphic Sys. Inc. v. DEV Indus., Inc., 925 F.2d 174, 175 (7th Cir. 1991). 76 See Gen. Motors Corp. v. Ignacio Lopez de Arriortua, 948 F. Supp. 670, 676 (E.D. Mich. 1996). But see, Celpaco Inc. v. MD Papierfabriken, 686 F. Supp. 983 (D. Conn. 1988) (no RICO violation found when alleged scheme to put plaintiff out of business lasted no longer than the time
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that a plaintiff need not establish that it relied on a fraudulent statement to bring a RICO claim.77 A criminal RICO violation is punishable by a fine of up to $25,000 and imprisonment of up to 20 years, or both, as well as forfeiture of all interests, rights, claims, and proceeds of the racketeering activity.78 The real advantage of a criminal RICO prosecution is that in a follow-on civil RICO action, the plaintiff may recover treble damages, attorneys’ fees, and costs.79 Also, the usual judicial antipathy toward alleging a RICO violation as part of a civil suit may be vitiated if the trial judge understands that an actual RICO violation has been proved in the criminal context. The allegation of a RICO violation will also permit a civil suit to be heard in federal court pursuant to federal question jurisdiction.
7. Disclosure by a Federal Employee It is also a crime for federal employees and certain of their contractors to disclose a company’s trade secret information. Although such disclosures can occur for a number of reasons, they usually arise from a careless response to a Freedom of Information Act (FOIA) request.80 Such requests are not infrequently made by companies seeking information concerning their competitors. Unsurprisingly, convictions are rare. The unauthorized disclosure of private trade secret information is prohibited by 18 U.S.C. § 1905: Whoever, being an officer or employee of the United States . . . or being an employee of a private sector organization who is or was assigned to an agency . . . publishes, divulges, discloses, or makes known in any manner or to any extent not authorized by law any information coming to him in the course of his employment or official duties or by reason of any examination or investigation made by, or return, report or record made to or filed with, such department or agency . . . which information concerns or relates to the trade secrets, processes, operations, style of work, or apparatus, or to the identity, confidential statistical data, amount or source of any income, profits, losses, or expenditures of any person, firm, partnership, corporation, or association; or permits any income return or copy thereof or any book containing any abstract or particulars thereof to be seen or examined by any person except as provided by law; shall be fined
77 78 79 80
needed to steal the plaintiff ’s customer list because the defendants’ scheme lacked the requisite continuity). Bridge v. Phoenix Bond & Indem. Co., No. 07-210, 2008 U.S. LEXIS 4703, at *38–39 (June 9, 2008). 18 U.S.C. § 1963 (2000). Id. § 1964. 5 U.S.C. § 552 (2000).
292 Chapter 6 Criminal Prosecution of Trade Secret Misappropriation under this title, or imprisoned not more than one year, or both; and shall be removed from office or employment.
The statute does not afford a private right of action.81 At best, it can be construed to create a federal law of right of nondisclosure.82 The remedy for disclosure of trade secret information by the federal government is to bring a contract action in the Court of Claims.83
E. State Criminal Statutes The majority of states have enacted criminal laws specifically targeting trade secret theft.84 State criminal statutes vary greatly. California has a suite of laws that roughly parallel those available at the federal level; other states, beginning with New Jersey in 1965, have targeted the theft of physical embodiments of technical knowledge; still other states, such as New York, have redefined larceny to include the theft of records or documents constituting a secret “scientific or technical process, invention or formula.” Regardless of
81 Chrysler Corp. v. Brown, 441 U.S. 281, 285, 99 S. Ct. 1705, 1709, 60 L. Ed. 2d 208, 215 (1979). 82 Chevron Chem. Co. v. Costle, 641 F.2d 104 (3d Cir. 1981). 83 Airborne Data, Inc. v. United States, 216 U.S.P.Q. (BNA) 887, 30 Cont. Cas. Fed. (CCH) ¶ 70,108, 1982 WL 36734 (Ct. Cl. 1982), aff ’d, 702 F.2d 1350, 1352–53 (Fed. Cir. 1983) (finding breach of implied-in-fact contract that government would not disclose trade secret data contained in an “unsolicited proposal” that bore restrictive legend). 84 Alabama: Ala. Code § 13(a)-8-10.4 (2007); Alaska: Alaska Stat. Ann. § 11.46.740 (2007); Arizona: Ariz. Rev. Stat. Ann. §§ 13-1801 to 13-1802 (2007); Arkansas: Ark. Code. Ann. § 5-36-107 (2007); California: Cal. Penal Code §§ 499(c), 502 (2007); Colorado: Colo. Rev. Stat. Ann. § 18-4-408 (2007); Delaware: Del. Code Ann. tit. 11, § 857 (2007); District of Columbia: D.C. Code § 22-3201 (2001); Florida: Fla. Stat. Ann. §§ 812.012, 812.081 (2007); Georgia: Ga. Code Ann. § 16-8-13 (2007); Idaho: Idaho Code Ann. § 18-2402 (2007); Illinois: 720 Ill. Comp. Stat. Ann. 5/15-1, 16-1 (2007), 820 Ill. Comp. Stat. Ann 225/22 (2007); Indiana: Ind. Code Ann. §§ 35-41-1-23, 35-43-4-2 (2007); Iowa: Iowa Code Ann. § 716.6B (2007); Louisiana: La. Rev. Stat. Ann. §§ 73.1, 73.2 (2007); Maine: Me. Rev. Stat. Ann. tit. 17-A §§ 352, 353 (2007); Maryland: Md. Code Ann., Crim. Law §§ 7-101, 7-104 (2007); Massachusetts: Mass. Gen. Laws. Ann. ch. 266, §§ 30, 60A (2007); Minnesota: Minn. Stat. Ann. § 609.52 (2007); Mississippi: Miss. Code Ann. §§ 97-45-1, 97-45-9 (2007); Missouri: Mo. Ann. Stat. § 569.095 (2007); Montana: Mont. Code Ann. § 45-2-101 (2007); New Hampshire: N.H. Rev. Stat. Ann. § 637:2 (2007); New Jersey: N.J. Stat. Ann. § 2C:20-3 (2007); New York: N.Y. Penal Law § 165.07 (2007); North Carolina: N.C. Gen. Stat. Ann. § 14-75.1 (2007); Ohio: Ohio Rev. Code Ann. §§ 2901.01–2901.02 (2007); Oklahoma: Okla. Stat. Ann. tit. 21, § 1732 (2007); Pennsylvania: 18 Pa. Cons. Stat. Ann. § 3930 (2007); South Carolina: S.C. Code Ann. § 39-8-90 (2007); Tennessee: Tenn. Code Ann. § 39-14-138 (2007); Texas: Tex. Penal Code Ann. §§ 31.01, 31.03, 31.05 (2007); Utah: Utah Code Ann. §§ 76-6-401, 76-6-404 (2007); Washington: Wash. Rev. Code. Ann. §§ 9A.56.010–9A.56.020 (2007); Wisconsin: Wis. Stat. Ann. § 943.205 (2007); Wyoming: Wyo. Stat. Ann. §§ 6-3-501 to 6-3-502 (2007).
State Criminal Statutes
whether a state has a specific statute targeted to the theft of trade secret information, a victim should always consider determining whether the state’s larceny, bribery, and embezzlement statutes apply. Frequently, such statutes are “wobblers,” meaning that a prosecutor has discretion to charge a violation as either a misdemeanor or a felony. Therefore, it is important to provide the prosecutor with strong evidence of the full value of the trade secret information that was misappropriated.
1. California The basic California criminal statute related to the misappropriation of a trade secret is Cal. Penal Code Section 499c. It defines “trade secret” to mirror the UTSA definition and, thus, defines it somewhat more narrowly than the EEA (except that there is no requirement to show a nexus to interstate or foreign commerce). To establish a violation, the prosecutor must prove that the defendant acted “with intent to bribe or withhold the control of a trade secret from its owner, or [with] an intent to appropriate a trade secret to his or her own use or to the use of another.” So, a crime is committed even if the deprivation is temporary. Indeed, it is no defense that the thief “returned or intended to return” the article. As a general matter, if the value of the misappropriated property exceeds $400, the offense will be charged as a felony.85 In determining the value of the property obtained, the “reasonable and fair market value” is the test.86 Expert testimony is often utilized to determine the value of trade secrets. The statute also imposes misdemeanor penalties upon those who bribe or otherwise induce present or former employees to disclose their employer’s trade secrets and upon those who accept such bribes or inducements.87 Criminal sentences under Section 499c can be consecutive and may include sentences for related criminal offenses such as conspiring to commit a crime, offering a bribe to acquire a trade secret, receiving stolen property, and possessing stolen property.88 The statute of limitations is three years if the offense is charged as a felony and one year if it is found to be a misdemeanor.89 Also, the victim has a right to restitution under the California constitution.90 Section 499c states: § 499c. Trade secrets; theft; solicitation or bribery to acquire; punishment; defenses
85 86 87 88 89 90
Cal. Penal Code § 486 (2007). Id. § 484(a). Id. § 499c(c). People v. Gopal, 171 Cal. App. 3d 524, 549, 217 Cal. Rptr. 487, 503 (1985). Cal. Penal Code §§ 801, 802 (2007). Cal. Const. art. I, § 28(a)–(b); see also Cal. Penal Code §§ 1202.4, 1203.1(a)(3) (2007).
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294 Chapter 6 Criminal Prosecution of Trade Secret Misappropriation (a) As used in this section: (1) ”Access” means to approach, a way or means of approaching, nearing, admittance to, including to instruct, communicate with, store information in, or retrieve information from a computer system or computer network. (2) ”Article” means any object, material, device, or substance or copy thereof, including any writing, record, recording, drawing, sample, specimen, prototype, model, photograph, micro-organism, blueprint, map, or tangible representation of a computer program or information, including both human and computer readable information and information while in transit. (3) ”Benefit” means gain or advantage, or anything regarded by the beneficiary as gain or advantage, including benefit to any other person or entity in whose welfare he or she is interested. (4) “Computer system” means a machine or collection of machines, one or more of which contain computer programs and information, that performs functions, including, but not limited to, logic, arithmetic, information storage and retrieval, communications, and control. (5) “Computer network” means an interconnection of two or more computer systems. (6) “Computer program” means an ordered set of instructions or statements, and related information that, when automatically executed in actual or modified form in a computer system, causes it to perform specified functions. (7) “Copy” means any facsimile, replica, photograph or other reproduction of an article, and any note, drawing or sketch made of or from an article. (8) “Representing” means describing, depicting, containing, constituting, reflecting or recording. (9) “Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (A) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. (b) Every person is guilty of theft who, with intent to deprive or withhold the control of a trade secret from its owner, or with an intent to appropriate a trade secret to his or her own use or to the use of another, does any of the following: (1) Steals, takes, carries away, or uses without authorization, a trade secret. (2) Fraudulently appropriates any article representing a trade secret entrusted to him or her.
State Criminal Statutes (3) Having unlawfully obtained access to the article, without authority makes or causes to be made a copy of any article representing a trade secret. (4) Having obtained access to the article through a relationship of trust and confidence, without authority and in breach of the obligations created by that relationship, makes or causes to be made, directly from and in the presence of the article, a copy of any article representing a trade secret. (c) Every person who promises, offers or gives, or conspires to promise or offer to give, to any present or former agent, employee or servant of another, a benefit as an inducement, bribe or reward for conveying, delivering or otherwise making available an article representing a trade secret owned by his or her present or former principal, employer or master, to any person not authorized by the owner to receive or acquire the trade secret and every present or former agent, employee, or servant, who solicits, accepts, receives or takes a benefit as an inducement, bribe or reward for conveying, delivering or otherwise making available an article representing a trade secret owned by his or her present or former principal, employer or master, to any person not authorized by the owner to receive or acquire the trade secret, shall be punished by imprisonment in the state prison, or in a county jail not exceeding one year, or by a fine not exceeding five thousand dollars ($5,000), or by both that fine and imprisonment. (d) In a prosecution for a violation of this section, it shall be no defense that the person returned or intended to return the article.
The receipt of stolen property is governed by Cal. Penal Code Section 496. That section requires proof that the defendant received or concealed property that “has been obtained in any manner constituting theft.” The prosecutor must also prove that the defendant knew that the property was obtained through theft. Significantly, there is no requirement to prove that the stolen property constituted a trade secret. The elements of the crime are (i) the property was stolen, (ii) the defendant knew the property was stolen, and (iii) the defendant had possession of the stolen property (which possession need not be exclusive).91 Consequently, the statute can be used to prosecute competitors who buy or receive trade secrets (or copies of trade secrets): § 496. Receiving stolen property; punishment; swap meet vendors and others dealing in or collecting merchandise or personal property; damages and costs; attempted offenses; penalties
91 People v. Land, 30 Cal. App. 4th 220, 223, 35 Cal. Rptr. 2d 544, 546 (1994).
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Chapter 6 Criminal Prosecution of Trade Secret Misappropriation (a) Every person who buys or receives any property that has been stolen or that has been obtained in any manner constituting theft or extortion, knowing the property to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained, shall be punished by imprisonment in a state prison, or in a county jail for not more than one year. However, if the district attorney or the grand jury determines that this action would be in the interests of justice, the district attorney or the grand jury, as the case may be, may, if the value of the property does not exceed four hundred dollars ($400), specify in the accusatory pleading that the offense shall be a misdemeanor, punishable only by imprisonment in a county jail not exceeding one year. A principal in the actual theft of the property may be convicted pursuant to this section. However, no person may be convicted both pursuant to this section and of the theft of the same property. (b) Every swap meet vendor, as defined in Section 21661 of the Business and Professions Code, and every person whose principal business is dealing in, or collecting, merchandise or personal property, and every agent, employee, or representative of that person, who buys or receives any property of a value in excess of four hundred dollars ($400) that has been stolen or obtained in any manner constituting theft or extortion, under circumstances that should cause the person, agent, employee, or representative to make reasonable inquiry to ascertain that the person from whom the property was bought or received had the legal right to sell or deliver it, without making a reasonable inquiry, shall be punished by imprisonment in a state prison, or in a county jail for not more than one year. Every swap meet vendor, as defined in Section 21661 of the Business and Professions Code, and every person whose principal business is dealing in, or collecting, merchandise or personal property, and every agent, employee, or representative of that person, who buys or receives any property of a value of four hundred dollars ($400) or less that has been stolen or obtained in any manner constituting theft or extortion, under circumstances that should cause the person, agent, employee, or representative to make reasonable inquiry to ascertain that the person from whom the property was bought or received had the legal right to sell or deliver it, without making a reasonable inquiry, shall be guilty of a misdemeanor. (c) Any person who has been injured by a violation of subdivision (a) or (b) may bring an action for three times the amount of actual damages, if any, sustained by the plaintiff, costs of suit, and reasonable attorney’s fees. (d) Notwithstanding Section 664, any attempt to commit any act prohibited by this section, except an offense specified in the accusatory pleading as a misdemeanor, is punishable by imprisonment in the state prison, or in a county jail for not more than one year.
State Criminal Statutes
To the extent that a misappropriation or attempted misappropriation of a trade secret involved unauthorized access to a computer or computer system, a violation may be charged under California’s computer tampering statute, Cal. Penal Code Section 502. However, there need be no trade secret involved to bring a charge. A violation of Section 502(c) may be punished by a fine of up to $10,000 and imprisoned for up to three years, or both.92 In addition, any hardware or software used in violating the statute is subject to forfeiture.93 The statute of limitations is three years when charged as a felony and one year when charged as a misdemeanor.94 A victim may also bring a civil action for compensatory damages and attorneys’ fees in addition to other remedies.95 Section 502(c) provides, in relevant part: (c) Except as provided in subdivision (h), any person who commits any of the following acts is guilty of a public offense: (1) Knowingly accesses and without permission alters, damages, deletes, destroys, or otherwise uses any data, computer, computer system, or computer network in order either (A) devise or execute any scheme or artifice to defraud, deceive, or extort, or (B) wrongfully control or obtain money, property, or data. (2) Knowingly accesses and without permission takes, copies, or makes use of any data from a computer, computer system, or a computer network, or takes or copies any supporting documentation, whether existing or residing internal or external to a computer, computer system, or computer network. (3) Knowingly and without permission uses or causes to be used computer services. (4) Knowingly accesses and without permission adds, alters, damages, deletes or destroys any data, computer software, or computer programs which reside or exist internal or external to a computer, computer system, or computer network. (5) Knowingly and without permission disrupts or causes the disruption of computer services or denies or causes the denial of computer services
92 93 94 95
Cal. Penal Code § 502(d) (2007). Id. §§ 502(g), 502.01. Id. §§ 801–802. Id. § 502(e). Other states also provide a private right of action for the unauthorized access to computers. See, e.g., Ark. Code § 5-41-106 (2007); Conn. Gen. Stat. § 52-570b (2007); Del. Code Ann. tit. 11, § 941 (2008); Fla. Stat. Ann. § 815.06 (2008); Ga. Code Ann. § 16-9-93 (2007); 720 Ill. Comp. Stat. Ann. 5/16D-3 (2008); N.J. Stat. § 2A:38A-3 (2007); N.D. Cent. Code § 12.1-06.1-08 (2007); Okla. Stat. Ann. tit. 21, § 1955 (2008); R.I. Gen. Laws § 11-52-6 (2007); S.C. Code Ann § 16-16-25 (2007); Tenn. Code Ann. § 39-14-604 (2008); Vt. Stat. Ann. tit. 13, § 4106 (2008); Va. Code Ann. § 18.2-152.12 (2008); W. Va. Code Ann. § 61-3C-16 (2007).
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(6)
(7) (8) (9)
to an authorized user of a computer, computer system, or computer network. Knowingly and without permission provides or assists in providing a means of accessing a computer, computer system or computer network in violation of this section. Knowingly and without permission accesses or causes to be accessed any computer, computer system, or computer network. Knowingly introduces any computer contaminant into any computer, computer system, or computer network. Knowingly and without permission uses the Internet domain name of another individual, corporation, or entity in connection with the sending of one or more electronic mail messages, and thereby damages or causes damage to a computer, computer system, or computer network.
2. New Jersey New Jersey was the first state to enact a criminal statute specifically directed to the misappropriation of trade secret information. It did so in response to a complaint from the American Cyanamid Co. that New Jersey’s larceny statutes were inadequate to address a theft of its “microbiological cultures.” Today at least 15 other states have statutes substantially similar to New Jersey’s. New Jersey Revised Statutes Section 2C:20-1 states: 2C:20-1. Definitions. (a) “Deprive” means: (1) to withhold or cause to be withheld property
of another permanently or for so extended a period as to appropriate a substantial portion of its economic value, or with purpose to restore only upon payment of reward or other compensation; or (2) to dispose or cause disposal of the property so as to make it unlikely that the owner will recover it. (b) “Fiduciary” means an executor, general administrator of an intestate, administrator with the will annexed, substituted administrator, guardian, substituted guardian, trustee under any trust, express, implied, resulting or constructive, substituted trustee, executor, conservator, curator, receiver, trustee in bankruptcy, assignee for the benefit of creditors, partner, agent or officer of a corporation, public or private, temporary administrator, administrator, administrator pendente lite, administrator ad prosequendum, administrator ad litem or other person acting in a similar capacity. (c) “Financial institution” means a bank, insurance company, credit union, savings and loan association, investment trust or other organization held out to the public as a place of deposit of funds or medium of savings or collective investment.
State Criminal Statutes (d) “Government” means the United States, any state, county, munici-
pality, or other political unit, or any department, agency or subdivision of any of the foregoing, or any corporation or other association carrying out the functions of government. (e) “Movable property” means property the location of which can be changed, including things growing on, affixed to, or found in land, and documents, although the rights represented thereby have no physical location. “Immovable property” is all other property. (f) “Obtain” means: (1) in relation to property, to bring about a transfer or purported transfer of a legal interest in the property, whether to the obtainer or another; or (2) in relation to labor or service, to secure performance thereof. (g) “Property” means anything of value, including real estate, tangible and intangible personal property, trade secrets, contract rights, choses in action and other interests in or claims to wealth, admission or transportation tickets, captured or domestic animals, food and drink, electric, gas, steam or other power, financial instruments, information, data, and computer software, in either human readable or computer readable form, copies or originals. (h) “Property of another” includes property in which any person other than the actor has an interest which the actor is not privileged to infringe, regardless of the fact that the actor also has an interest in the property and regardless of the fact that the other person might be precluded from civil recovery because the property was used in an unlawful transaction or was subject to forfeiture as contraband. Property in possession of the actor shall not be deemed property of another who has only a security interest therein, even if legal title is in the creditor pursuant to a conditional sales contract or other security agreement. (i) “Trade secret” means the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula or improvement which is secret and of value. A trade secret shall be presumed to be secret when the owner thereof takes measures to prevent it from becoming available to persons other than those selected by the owner to have access thereto for limited purposes.
3. New York The New York Penal Law states: § 155.30 Grand Larceny in the Fourth Degree A person of guilty of grand larceny in the fourth degree when he steals property and when: . . .
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300 Chapter 6 Criminal Prosecution of Trade Secret Misappropriation 3. The property consists of secret scientific material. . . . § 165.07 Unlawful use of secret scientific material. A person is guilty of unlawful use of secret scientific material when, with intent to appropriate to himself or another the use of secret scientific material, and having no right to do so and no reasonable ground to believe that he has such right, he makes a tangible reproduction or representation of such secret scientific material by means of writing, photographing, drawing, mechanically or electronically reproducing or recording such secret scientific material.
Pursuant to New York Penal Law Section 155, “property” is defined to include personal property and “any article, substance or thing of value.” To “appropriate” property means “to exercise control over it, or to aid a third person to exercise control over it, permanently or for so extended a period or under such circumstances as to acquire the major portion of its economic value or benefit, or . . . to dispose of the property for the benefit of one’s self or a third person.” Additionally, “secret scientific material” is defined to mean “a sample, culture, microorganism, specimen, record, recording, document, drawing or any other article, material, device or a substance which constitutes, represents, evidences, reflects, or records a scientific or technical process, invention or formula or any part or phase thereof, and which is not, and is not intended to be, available to anyone other than the person or persons rightly in possession thereof or selected persons having access thereto with his or their consent, and when it accords or may accord such rightful possessors an advantage over competitors or others who do not have knowledge or the benefit thereof.” The phrase “secret scientific material” has been interpreted broadly by the courts.96 Therefore, under the New York legislation, once a tangible object in which secret scientific material is embodied has been unlawfully copied, a larceny has been committed. It is therefore unnecessary under the statute to make use of the misappropriated secret scientific material. Although the New York statute insists that secret scientific material be embodied in tangible property, it does not require that such tangible property have any minimum value by itself. An otherwise worthless sheet of paper will qualify if secret scientific material is written on it. However, in contrast to the EEA, the New York statute does not criminalize the misappropriation of a trade secret committed through the use of one’s memory.
96 See, e.g., People v. Russo, 131 Misc. 2d 677, 501 N.Y.S.2d 276, 277–80 (1986) (holding that commonly accepted definitions of a computer program easily fall within the statutory definition).
Creating a Compliance and Ethics Program to Reduce Criminal Exposure
F. Creating a Compliance and Ethics Program to Reduce Criminal Exposure When a company hires workers with previous experience, it may unknowingly acquire trade secrets. That can happen whether the new employee has deliberately stolen trade secrets from a previous employer or merely relies on his knowledge of a prior employer’s secrets in performing his job duties for the new employer. Either way, the prior employer’s trade secrets can easily become part of the new employer’s products or processes. Because the EEA applies to the mere unauthorized possession of information, avoiding exposure to liability under the EEA (or state criminal trade secret theft statutes) requires businesses take a close look at all their procedures involving confidential information. The critical component in any strategy to avoid criminal exposure is the creation of a “Compliance Plan and Ethics Plan.” The government regularly consults Chapter 8 of the Federal Sentencing Guidelines to decide whether to seek an indictment in an EEA action. The Sentencing Guidelines provide a means to measure an organization’s culpability and rely on such criteria as the value of the property stolen, management’s knowledge of the theft, speed of reporting, and cooperation in investigating a misappropriation. Significantly, the Guidelines also stress the importance of implementing a compliance plan. If a company has successfully established and enforced a compliance plan, the company and its management are much less likely to face criminal charges if an employee brings unauthorized material into the organization. Following the passage of the Sarbanes-Oxley Act of 2002, the Sentencing Guidelines were made more specific concerning the content of an effective plan: § 8B2.1. Effective Compliance and Ethics Program (a) To have an effective compliance and ethics program, for purposes of subsection (f) of § 8C2.5 (Culpability Score) and subsection (c)(1) of § 8D1.4 (Recommended Conditions of Probation—Organizations), an organization shall— (1) exercise due diligence to prevent and detect criminal conduct; and (2) otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. Such compliance and ethics program shall be reasonably designed, implemented, and enforced so that the program is generally effective in preventing and detecting criminal conduct. The failure to prevent or detect the instant offense does not necessarily mean that the program is not generally effective in preventing and detecting criminal conduct. (b) Due diligence and the promotion of an organizational culture that encourages ethical conduct and a commitment to compliance with the
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302 Chapter 6 Criminal Prosecution of Trade Secret Misappropriation law within the meaning of subsection (a) minimally require the following: (1) The organization shall establish standards and procedures to prevent and detect criminal conduct. (2) (A) The organization’s governing authority shall be knowledgeable about the content and operation of the compliance and ethics program and shall exercise reasonable oversight with respect to the implementation and effectiveness of the compliance and ethics program. (B) High-level personnel of the organization shall ensure that the organization has an effective compliance and ethics program, as described in this guideline. Specific individual(s) within high-level personnel shall be assigned overall responsibility for the compliance and ethics program. (C) Specific individual(s) within the organization shall be delegated day-to-day operational responsibility for the compliance and ethics program. Individual(s) with operational responsibility shall report periodically to high-level personnel and, as appropriate, to the governing authority, or an appropriate subgroup of the governing authority, on the effectiveness of the compliance and ethics program. To carry out such operational responsibility, such individual(s) shall be given adequate resources, appropriate authority, and direct access to the governing authority or an appropriate subgroup of the governing authority. (3) The organization shall use reasonable efforts not to include within the substantial authority personnel of the organization any individual whom the organization knew, or should have known through the exercise of due diligence, has engaged in illegal activities or other conduct inconsistent with an effective compliance and ethics program. (4) (A) The organization shall take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to the individuals referred to in subdivision (B) by conducting effective training programs and otherwise disseminating information appropriate to such individuals’ respective roles and responsibilities. (B) The individuals referred to in subdivision (A) are the members of the governing authority, high-level personnel, substantial authority personnel, the organization’s employees, and, as appropriate, the organization’s agents. (5) The organization shall take reasonable steps— (A) to ensure that the organization’s compliance and ethics program is followed, including monitoring and auditing to detect criminal conduct;
Creating a Compliance and Ethics Program to Reduce Criminal Exposure (B) to evaluate periodically the effectiveness of the organization’s compliance and ethics program; and (C) to have and publicize a system, which may include mechanisms that allow for anonymity or confidentiality, whereby the organization’s employees and agents may report or seek guidance regarding potential or actual criminal conduct without fear of retaliation. (6) The organization’s compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program; and (B) appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct. (7) After criminal conduct has been detected, the organization shall take reasonable steps to respond appropriately to the criminal conduct and to prevent further similar criminal conduct, including making any necessary modifications to the organization’s compliance and ethics program. (c) In implementing subsection (b), the organization shall periodically assess the risk of criminal conduct and shall take appropriate steps to design, implement, or modify each requirement set forth in subsection (b) to reduce the risk of criminal conduct identified through this process.
A compliance and ethics program should therefore include “standards and procedures to prevent and detect criminal conduct,” including “internal controls that are reasonably capable of reducing the likelihood of criminal conduct.” Such a plan should be designed for the specific company and the real world risks that it faces, taking into consideration the size of the organization, the extent to which it hires foreign facilities or has foreign affiliates or venture partners, the rate at which it is hiring new employees, the extent to which it is a government contractor, the extent to which it outsources any of its development work, the value of its technology, the aggressiveness of its competitors, and whether the company has had past problems involving trade secret theft and its exposure to third-party trade secrets. Separate but coordinated programs should be established for foreign subsidiaries and larger companies should use their economic influence to persuade vendors and “business partners” to adopt appropriate compliance plans. A company may not rely on a general policy statement articulating its respect for the intellectual property of others. Instead it must “establish standards and procedures to prevent and detect criminal conduct.” Such standards should be sufficiently specific to provide meaningful guidance to all employees in the performance of their jobs. In addition, the plan should set forth a procedure to follow when a problem is discovered, including who should be notified and what sort of investigation should be conducted.
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The board of directors and senior management must be knowledgeable concerning the compliance program and should oversee its enforcement. Overall responsibility for the plan must be assigned to a board member, executive officer, or manager of a major business unit. However, the day-to-day responsibility for managing the plan may be delegated but only to someone who reports regularly to a high-level manager. The person responsible for day-to-day management must have both adequate resources and direct access to the board. Because the board must be “knowledgeable about the content and operation” of the program and must “exercise reasonable oversight” with respect to its implementation, the board should require status reports at least annually. Obviously, the individuals responsible for managing the program should be free of any relevant history of criminal behavior. Further, the plan must provide for “appropriate disciplinary measures” for persons found to have engaged in prohibited behavior or who fail to act reasonably to prevent or detect such behavior. However, the punishment for violations may be determined on a case-by-case basis. In addition to disciplinary measures, the plan must include “appropriate incentives” to encourage compliance. Unfortunately, the guidelines do not provide any guidance in determining what would qualify as an “appropriate incentive.” The plan must require that everyone in the organization, including the board of directors and senior management, as well as employees and agents, receive “effective training” concerning the plan. The effort should place special emphasis on the screening and initiation of new employees but must be ongoing. The plan must also include auditing and monitoring systems and must guarantee that individuals may report transgressions without fear of retribution. Obviously a company should keep records of all steps it takes to detect activity that might indicate a misappropriation of trade secrets and all steps that it takes to ensure that its employees are trained in and comply with the plan. The company must also “evaluate periodically the effectiveness” of the program. Once criminal conduct has been detected, the company must take reasonable steps to respond to it and prevent similar conduct. Responding to apparent criminal conduct requires that a company perform an investigation to confirm that a violation has probably occurred, notify the owner of the trade secret information involved, and possibly report the employee to a prosecutorial authority. Management should also prohibit any further use of the data involved and require that any evidence related to the incident be preserved. In addition, the company must act to prevent further similar conduct. In reviewing a compliance and ethics program, the authorities will look at the sufficiency of the plan itself. Ultimately, however, what matters is the company’s effort to implement it.
APPENDIX
Overview of Trade Secrets Laws of Selected States
A. Arizona
306
B. California
307
C. Delaware
317
D. Florida
321
E. Georgia
325
F. Illinois
328
G. Indiana
335
H. Maryland
338
I. Massachusetts
340
J. Michigan
345
K. Minnesota
349
L. Missouri
353
M. New Jersey
357
N. New York
360
O. North Carolina
366
P. Ohio
369
Q. Pennsylvania
373
R. Tennessee
376
S. Texas
378
T. Virginia
383
U. Washington
387
V. Wisconsin
390
305
306
Appendix
A. Arizona The UTSA as amended in 1985 took effect in Arizona in 1990.1 Arizona adopted it in toto except for Section 8, which requires that each state’s act be “construed to effectuate its general purpose to make uniform the law with respect to the subject of this [Act] among states enacting it.” In Arizona, as in most UTSA states, a trade secret misappropriation claim must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence, should have been discovered.2 In Enterprise Leasing Co. v. Ehmke,3 an Arizona appellate court construed the UTSA. The court viewed it as codifying the common law of trade secrets, noting that the Restatement (First) of Torts would be recognized as authoritative in the absence of any controlling authority under the UTSA. Its interpretation of the UTSA was consistent with the view of courts in the majority of UTSA states. It held that to be protectable, information must be sufficiently novel that it is not easily ascertainable to competitors but need not rise to the level of novelty required in patent law. It further held that a trade secret may consist of a combination of public domain elements and that a trade secret owner need only prove that it made reasonable, not extraordinary, measures to protect the secrecy of its information. In the past, Arizona courts have held that keeping trade secret information in locked drawers or file cabinets constituted reasonable security precautions4 and that an unexercised right to assign a trade secret to another will not vitiate its legal protection.5 If a claim of trade secret misappropriation is dependent on an agreement with the defendant requiring the arbitration of disputes, the misappropriation claim will be subject to arbitration.6 Arizona allows the recovery of attorneys’ fees only if a trade secret claim was made in bad faith or the opposing party was guilty of willful and malicious misappropriation.7 Arizona has not yet considered whether the “inevitable disclosure” doctrine applies in any form. Based on the treatment of noncompete agreements in Arizona, it appears likely that Arizona would recognize the doctrine as a basis to enforce a restrictive covenant but perhaps would decline to apply it to enjoin a former employee from taking a competitive position in the absence of a contractual restriction against doing so. Arizona courts hold
1 2 3 4
See ARIZ. REV. STAT. §§ 44-401 to 44-407 (1990). See id. § 44-406. Enter. Leasing Co. v. Ehmke, 55 U.S.P.Q.2d (BNA) 1303 (Ariz. Ct. App. Dec. 2, 1999). See Prudential Ins. Co. v. Pochiro, 153 Ariz. 368, 736 P.2d 1180 (Ariz. Ct. App. 1987); Morton v. Rogers, 20 Ariz. App. 581, 514 P.2d 752 (1973). 5 See Morton, 20 Ariz. App. at 585–86, 514 P.2d at 756–57. 6 See Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 725 (9th Cir. 1999). 7 See True Ctr. Gate Leasing, Inc. v. Gate, L.L.C., 427 F. Supp. 2d 946, 951 (D. Ariz. 2006).
California that noncompete agreements are disfavored and that only reasonable restraints no broader than necessary to protect the employer’s legitimate interests are enforceable.8 Noncompete agreements that seek to prevent an employee from using his or her general knowledge, skills, and expertise have been held to be unenforceable.9 Because Arizona courts are allowed to “blue-pencil” agreements to strike out overly broad or unreasonable provisions that are grammatically severable, Arizona’s noncompete agreements are written with “step down” or alternative provisions so that a court may strike any provisions that it deems unreasonable.10
B. California The California UTSA took effect in 1985.11 Under the California statute, any claim of trade secret misappropriation must be brought within three years following its accrual, subject to the discovery rule.12 A continuing misappropriation is a single claim.13 Even a period of nonuse of a trade secret does not toll the running of the statute of limitations.14 A cause of action against a second defendant, however, may arise after the initial misappropriation of a trade secret by one party.15 A defendant may be liable for misappropriation if it
8 See Amex Distrib. Co. v. Mascari, 150 Ariz. 510, 514–15, 724 P.2d 596, 600–01 (Ariz. Ct. App. 1986). 9 See Lessner Dental Labs., Inc. v. Kidney, 16 Ariz. App. 159, 162, 492 P.2d 39, 42 (1971). 10 See Compass Bank v. Hartley, 430 F. Supp. 2d 973, 981 (2006) (holding that a restrictive covenant with “step down” provisions was enforceable). 11 CAL. CIV. CODE §§ 3426–3426.11 (2008). 12 See id. § 3426.6; see also Alamar Biosciences, Inc. v. Difco Labs., Inc., No. CIV-S-941856 DFL PAN, 1995 U.S. Dist. LEXIS 21342, at *9, 40 U.S.P.Q.2d (BNA) 1437, 1439–40 (E.D. Cal. Feb. 27, 1996) (claim barred because plaintiff failed to conduct investigation for four years even though its president was “concerned and suspicious” that a former employee had misappropriated trade secrets—and attorneys’ fees assessed against the plaintiff for proceeding in bad faith); HiRel Connectors, Inc. v. United States, 465 F. Supp. 2d 984, 987 (C.D. Cal. 2005) (holding that claim was barred three years after military specification revision sheet was posted on government web site and noting that “[w]hen a plaintiff brings suit against an individual defendant for separate misappropriations of related trade secrets, or for multiple misappropriations of a single secret, the date of accrual is the date of the initial misappropriation”). 13 See Ashton-Tate Corp. v. Ross, 728 F. Supp. 597, 603, (N.D. Cal. 1989), aff’d, 916 F.2d 516, 16 U.S.P.Q.2d (BNA) 1541 (9th Cir. 1990); Cadence Design Sys. Inc. v. Avant! Corp., 29 Cal. 4th 215, 223, 127 Cal. Rptr. 2d 169, 174, 57 P.3d 647, 651 (2002). 14 See Glue-Fold, Inc. v. Slautterback Corp., 82 Cal. App. 4th 1018, 1021, 98 Cal. Rtpr. 2d 661, 662 (2000). 15 See Cadence Design Sys., 29 Cal. 4th at 224–25, 127 Cal. Rptr. 2d at 175, 57 P.3d at 652; Cypress Semiconductor Corp. v. Super. Ct., 163 Cal. App. 4th 575, 584, 77 Cal. Rptr. 3d 685, 691 (2008).
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308 Appendix acquires a company already using misappropriated secrets and the use continues following the acquisition.16 In adopting the UTSA, California modified it in a few respects. To start, the definition of “improper means” was modified to provide expressly that reverse engineering is exempted.17 This modification is meaningless because, in adopting the UTSA, California adopted the Commissioners’ Comments along with it. They provide that “proper” means include “[d]iscovery by ‘reverse engineering,’ that is, by starting with the known product and working backward to find the method by which it was developed. The acquisition of the known product must of course, also be a by a fair and honest means, such as purchase of the item on the open market for reverse engineering to be lawful. . . .”18 California also modified the definition of “trade secret,” striking the requirement that information claimed to be trade secret “not be[] readily ascertainable by proper means by” another person who could obtain economic value from its disclosure or use.19 The California definition provides, instead, that a trade secret must derive independent economic value from not being generally known “to the public” or to other persons who could obtain economic value from its disclosure or use.20 Again, there is less to this modification than meets the eye. California modified the definition in response to an Indiana decision that denied trade secret protection to a customer list and related information on the ostensible grounds that the data could have been properly acquired from the customers themselves.21 The official comments to the California statute made clear that the “readily ascertainable” standard remains available as an affirmative defense.22 The modification, therefore, shifts the burden to the defendant to prove that a claimed trade secret is “readily ascertainable.” Another effect of California’s modification of the “trade secret” definition is to place greater emphasis on the requirement that claimed trade secret information actually be secret and less on the requirement the plaintiff have undertaken reasonable efforts to maintain its secrecy. In California, information may be
16 See PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368, 1372, 1379, 93 Cal. Rptr. 2d 663, 665, 670 (2000). 17 See CAL. CIV. CODE § 3426.1(a) (2008). 18 UTSA § 1 (1985) (Commissioners’ cmt.) (2005). 19 CAL. CIV. CODE § 3426.2(d). 20 See id. 21 See Steenhoven v. College Life Ins. Co., 460 N.E.2d 973, 975 n.6 (Ind. Ct. App. 1984). 22 See Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514, 1521–22, 66 Cal. Rptr. 2d 731, 735–36 (1997) (whether information is “readily ascertainable” is still relevant to determining whether a UTSA violation has occurred). But see ABBA Rubber Co. v. Seaquist, 235 Cal. App. 3d 1, 21, 286 Cal. Rptr. 518, 529 (1991) (readily ascertainable information held protectable so long as it had not actually been ascertained by others in the industry).
California protectable as a trade secret even if it is posted on a company “bulletin board,” as long as it has not, in fact, been ascertained by others in the industry.23 The emphasis on secrecy, however, has not been applied consistently with respect to the Internet. In DVD Copy Control Ass’n v. Bunner, the defendant knowingly posted a stolen software program on its Web site that allowed users to copy encryption-protected DVD movies unlawfully.24 The court found that the posting of the information on the Internet did not defeat its trade secret status. Another court concluded that determining whether and when an Internet posting caused the loss of trade secret protection requires a review of the circumstances surrounding the posting and consideration of various interests including those of the trade secret owner, the policies favoring competition, and the First Amendment rights of third parties who acquire the information from the Internet.25 The improper posting of trade secret information on the Internet, however, is not without consequences. When unknown persons posted trade secret information concerning Apple products that had not yet been introduced, Apple was entitled to enforce a subpoena requiring the Internet service provider to identify the posters.26 The UTSA’s attorneys’ fee recovery provision has been modified in California to include costs, which “shall include a reasonable sum to cover the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the prevailing party.”27 In California, attorneys’ fees and costs may be awarded against the plaintiff based upon its subjective misconduct and the objective speciousness of its claim.28 In a case in
23 See Devon Indus., Inc. v. Am. Med. Int’l, Inc., 61 F.3d 910, 1995 U.S. App. LEXIS 20719, at *8 (9th Cir. 1995), amended by Nos. 94-55074, 94-55211, 1995 U.S. App. LEXIS 31528 (9th Cir. Nov. 7, 1995) (citing ABBA Rubber Co. v. Seaquist, 235 Cal. App. 3d 1, 21, 286 Cal. Rptr. 518, 529 (1991)). But see Pixion, Inc. v. Placeware, Inc., 421 F. Supp. 2d 1233, 1242 (N.D. Cal. 2005) (disclosure without confidentiality restrictions in publication to potential investors automatically divested information of protection), aff’d, 177 Fed. Appx. 85 (Fed. Cir. 2006). 24 See DVD Copy Control Ass’n v. Bunner, 31 Cal. 4th 864, 871–72, 4 Cal. Rptr. 3d 69, 76 (2003). 25 See Religious Tech. Ctr. v. Netcom On-Line Commc’n Servs., Inc., 907 F. Supp. 1361 (N.D. Cal. 1995). 26 See Apple Computer, Inc. v. Doe, No. 1-04-CV-032178, 2005 WL 578641, at *7 74 U. S.P.Q.2d (BNA) 1191, 1197 (Cal. Super. Ct. Mar. 11, 2005). 27 CAL. CIV. CODE § 3426.4 (2008). 28 See Stilwell Dev., Inc. v. Chen, 11 U.S.P.Q.2d (BNA) 1328, 1331 (C.D. Cal. Apr. 25, 1989) (inferring subjective misconduct from the plaintiff’s knowledge of the lack of evidence); VSL Corp. v. Gen. Techs., Inc., 46 U.S.P.Q.2d (BNA) 1356, 1360 (N.D. Cal. Jan. 5, 1998) (plaintiff’s president knew that the information could not be a trade secret); Meissner Filtration Prods., Inc. v. Herrington, No. CIV212103, 2004 WL 2189249, at *1 (Cal. Ct. App. Sept. 30, 2004) (plaintiff maintained trade secret suit based on the inevitable disclosure doctrine even though the doctrine had been rejected
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Appendix which the plaintiff had confidence in its trade secret misappropriation claim, an award of attorneys’ fees was denied.29 The preemption provision of the California UTSA was also modified to state that “except as otherwise expressly provided, this title does not supersede any statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secrets.”30 Various courts have interpreted this to mean that common-law theories for trade secret relief are no longer available.31 That makes sense. Otherwise, the plaintiff could avoid the procedural requirement that it identify any allegedly misappropriated trade secrets with “reasonable particularity” before commencing discovery through the artifice of alleging common-law claims. As explained in Accuimage Diagnostics Corp. v. Terarecon, Inc., claims “that are not based on misappropriation of a trade secret” are not preempted.32 Certain claims related to the theft of information thus survive preemption by the California UTSA. A plaintiff may, for example, state a claim for common-law misappropriation alleging that (1) the plaintiff invested substantial time and money to develop its property, (2) the defendant appropriated the property at little or no cost, and (3) the plaintiff suffered injury.33 California also recognizes a tort for “breach of confidence” to protect an idea, whether protectable or not, offered to another in confidence and used without permission.34 A breach of confidence may
29 30 31
32 33
34
in California); Gemini Aluminum Corp. v. Cal. Custom Shapes, Inc., 95 Cal. App. 4th 1249, 1263, 116 Cal. Rptr. 2d 358, 368–69 (2002). See Forcier v. Microsoft Corp., 123 F. Supp. 2d 520, 529 (N.D. Cal. 2000). CAL. CIV. CODE § 3426.7(a). See, e.g., Monolithic Power Sys., Inc. v. O2 Micro Int’l, Ltd., No. C 04-2000 CW, 6 062929 CW, 2007 WL 801886, at *6 (N.D. Cal. Mar. 14, 2007); Digital Envoy, Inc. v. Google, Inc., 370 F. Supp. 2d 1025, 1035 (N.D. Cal. 2005) (unfair competition claim based on same nucleus of facts as trade secret claim held preempted under California UTSA); Callaway Golf Co. v. Dunlop Slazenger Group Ams., Inc., 318 F. Supp. 2d 205, 219 (D. Del. 2004) (applying California law to preempt negligence, conversion, and unjust enrichment counterclaims); PostX Corp. v. Secure Data in Motion, Inc., No. C 02-04483 SI, 2004 U.S. Dist. LEXIS 24260, at *12–13 (N.D. Cal. Nov. 20, 2004) (unfair competition claim not preempted because based on an alternate theory of liability as well as on new facts); Samsung Elecs. Am., Inc. v. Bilbruck, No. 06 CC 08239, 2006 WL 3012875, at *1 (Cal. Super. Ct. Oct. 19, 2006) (same). Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F. Supp. 2d 941, 953 (N.D. Cal. 2003) (quoting CAL. CIV. CODE § 3426.7(b)). See, e.g., U.S. Golf Ass’n v. Arroyo Software Corp., 40 U.S.P.Q.2d (BNA) 1840, 1843 (Cal. App. Dep’t Super. Ct. Oct. 25, 1996) (protecting formula for calculating golf handicaps), aff’d, 69 Cal. App. 4th 607, 81 Cal. Rptr. 2d 708 (Ct. App. 1999); see also James v. Childtime Childcare, Inc., No. S-06-2676 DFL DAD, 2007 WL 1589543, at *3 n.5 (E.D. Cal. June 1, 2007). See Faris v. Enberg, 97 Cal. App. 3d 309, 158 Cal. Rptr. 704 (1979); Tele-Count Eng’rs, Inc. v. Pac. Tel. & Tel. Co., 168 Cal. App. 3d 455, 214 Cal. Rptr. 276 (1985).
California also give rise to a claim for breach of an implied-in-fact contract.35 California will enforce a contract limiting the use of information that may not be a trade secret.36 The legislative history to California’s enactment of the UTSA reflects that California wanted to foster competition and innovation and worried that established companies might misuse trade secret suits to stifle competition from former employees. To act as a check on the initiation of such suits and to limit their scope, a separate California statute states: In any action alleging the misappropriation of a trade secret under the Uniform Trade Secrets Act . . . , before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject to any orders that may appropriate under Section 3426.5 of the Civil Code.37
The requirement that trade secrets be identified with reasonable particularity is not limited to claims under the UTSA but extends to any cause of action that relates to the trade secret.38 Because defendants tend to challenge a plaintiff’s identification of its alleged trade secrets as lacking in “reasonable particularity,” a California plaintiff may be delayed several months in initiating trade secret discovery while the sufficiency of its trade secret identification is adjudicated.39 A plaintiff usually cannot avoid the problem by proceeding in federal court under diversity jurisdiction. Federal courts have almost always required plaintiffs alleging violation of the California UTSA to satisfy the reasonable particularity requirement, either on the basis that it is a substantive protection for defendants or that to fail to do so would encourage forum shopping.40 In just one case has
35 See, e.g., Thompson v. Cal. Brewing Co., 150 Cal. App. 2d 469, 310 P.2d 436 (1957); see also Landsberg v. Scrabble Crossword Game Players, Inc., 802 F.2d 1193 (9th Cir. 1986). 36 See Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1246 (Fed. Cir. 1989) (promise to hold information confidential following the expiration of contract option); Universal Gym Equip., Inc. v. ERWA Exercise Equip., Ltd., 827 F.2d 1542, 1545 (Fed. Cir. 1987) (license restricted the use of the features and designs of licensed products following the termination of the license). 37 CAL. CIV. PROC. CODE § 2019.210 (2008). 38 See Advanced Modular Sputtering, Inc. v. Super. Ct., 132 Cal. App. 4th 826, 830, 33 Cal. Rptr. 3d 901, 903 (2005). 39 Notwithstanding that it pre-dates the statute, Diodes, Inc. v. Franzen, 260 Cal. App. 2d 244, 67 Cal. Rptr. 19 (1968), which held that it is sufficient to identify the “bounds” within which the trade secret may be found, is usually cited in any discussion of what it means to identify a trade secret with “reasonable particularity.” In Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 125 Cal. Rptr. 2d 277 (2002), a California appellate court approved various highly general trade secret identifications, thus suggesting that the “bounds” within which a trade secret may be found need not be defined narrowly. See also Advanced Modular Sputtering, 132 Cal. App. 4th at 830, 33 Cal. Rptr. 3d at 903 (trial court held to have adopted an inappropriately strict construction of “reasonable particularity”). 40 See, e.g., Vermont Microsys., Inc. v. Autodesk, Inc., 88 F.3d 142, 147 (2d Cir. 1996) (“To assert a cause of action for trade secret misappropriation under California law, VMI was
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Appendix a federal court declined to apply the requirement, viewing it as nothing more than an element of state procedural practice.41 Although it is sufficient for a plaintiff to identify the claim to trade secrets with “reasonable particularity” before commencing discovery, a plaintiff may be required to state what, exactly, the alleged trade secret is before proceeding to trial.42 Consistent with its policy of encouraging employee mobility and competition, California has also firmly rejected the “inevitable disclosure” doctrine.43
required to ‘identify the trade secret with reasonable particularity.’”); Neothermia Corp. v. Rubicor Med., Inc., 345 F. Supp. 2d 1042, 1043 (N.D. Cal. 2004); Excelligence Learning Corp. v. Oriental Trading Co., No. 5:03-CV-4947 JF (RS), 2004 WL 2452834, at *3 (N.D. Cal. June 14, 2004); Callaway Golf Co. v. Dunlop Slazenger Group Ams., Inc., 318 F. Supp. 2d 205, 216 (D. Del. 2004) (applying California law); PostX Corp. v. Secure Data in Motion, Inc., No. C 02-04483 SI, 2004 WL 2663518, at *3 (N.D. Cal. Nov. 20, 2004) (failure to identify trade secrets with particularity before commencing discovery may result in grant of summary judgment against the plaintiff); Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1322, 1323 (S.D. Fla. 2001) (applying California law); Computer Econ., Inc. v. Gartner Group, 50 F. Supp. 2d 980, 992 (S.D. Cal. 1999); Advanced Modular Sputtering, 132 Cal. App. 4th at 833–34, 33 Cal. Rptr. 3d at 906; Canter v. W. Publ’g Co., No. C 96-20440 PVT, 1999 WL 11701, at *8 (N.D. Cal. Jan. 6, 1999); Cal. Micro Devices Corp. v. Universal Semiconductor, Inc., No. C93-20476 JW (PVT), 1995 WL 705144, at *1 (N.D. Cal. Nov. 21, 1995). 41 See Funcat Leisure Craft, Inc. v. Johnson Outdoors, Inc., No. S-06-0533GEBGGH, 2007 WL 273949, at *3 (E.D. Cal. Jan. 29, 2007) (“Section 2019.210 clearly addresses procedure and not substance. The California statute simply sets out a procedural pleading or identification threshold prior to the initiation of discovery—both purely procedural matters. Rule 26, et seq., without question regulates the procedure for discovery.”); cf. Upjohn Co. v. Hygieia Biological Labs., 151 F.R.D. 355, 359 (E.D. Cal. 1993) (declining request to order identification of trade secrets but implying that order might have issued if more than one vaccine had been at issue). 42 See IMAX Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1165–68 (9th Cir. 1998). 43 See Continental Car-Na-Var Corp. v. Moseley, 24 Cal. 2d 104, 107, 148 P.2d 9, 11 (1944); Lam Research Corp. v. Deshmukh, 157 Fed. Appx. 26, 28 (9th Cir. 2005); GlobeSpan, Inc. v. O’Neill, 151 F. Supp. 2d 1229, 1235 (C.D. Cal. 2001) (doctrine conflicts with public policy favoring employee mobility); Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1326, 1336–37 (S.D. Fla. 2001) (under either California or Florida law, inevitable disclosure doctrine should not be applied to create a noncompete agreement absent actual or threatened disclosure); Bayer Corp. v. Roche Molecular Sys., Inc., 72 F. Supp. 2d 1111, 1120 (N.D. Cal. 1999); Danjaq, L.L.C. v. Sony Corp., No. CV 97-8414-ER (MCX), 1999 WL 317629, at *1 n.1, 50 U.S.P.Q.2d (BNA) 1638, 1640 n.1 (C.D. Cal. Mar 11, 1999) (“PepsiCo is not the law of the State of California or the Ninth Circuit.”); Universal Analytics, Inc. v. MacNeal-Schwendler Corp., 707 F. Supp. 1170, 1177 (C.D. Cal. 1989), aff’d, 914 F.2d 1256 (9th Cir. 1990); Meissner Filtration Prods., Inc. v. Harrington, No. B170707, 2004 WL 2189249, at *4 (Cal. Ct. App. Sept. 30, 2004); Whyte v. Schlage Lock Co., 101 Cal. App. 4th at 1462, 125 Cal. Rptr. 2d at 292 (“[T]he doctrine of inevitable disclosure ‘creates a de facto covenant not to compete’ and ‘runs[s] counter to the strong public policy in California favoring employee mobility.’”) (quoting Bayer Corp., 72 F. Supp 2d at 1120)); see also Gibson-Homans Co. v. Wall-Tite, Inc., No. 92 2750 JGD, 1992 WL 512411, at *5, 26 U.S.P.Q.2d (BNA) 1867, 1871 (C.D. Cal. Oct. 27, 1992) (holding that employee’s possession of a personal
California As in all other UTSA states, however, California will per-mit injunctive relief to protect against “actual or threatened” misappropriation.44 Also in keeping with California’s policy of encouraging employee mobility is its near total refusal to enforce noncompete agreements unrelated to the sale of a business.45 In Edwards v. Arthur Andersen, the California Supreme Court held unanimously that a provision in an employment agreement that restricted competition with a former employer or solicitation of former clients was unenforceable.46 The Court, rejecting a “narrow restraint” exception recognized by certain federal cases, found the only exceptions to the invalidity of noncompete agreements were those recognized by statute (although it did reserve ruling on the judicially created “trade secrets” exception to California’s Section 16600).47 Indeed, in one case a California court invalidated a noncompete agreement entered into between a Maryland employee and a Maryland employer that contained both Maryland choice-of-law and Maryland forum-selection clauses because the employee had begun telecommuting to work for a California employer.48 Under California law, a trade secret owner need not maintain a trade secret with absolute secrecy. Reasonable security precautions to maintain the relative secrecy of the information will suffice.49 Whether a sufficient degree of secrecy exists is a question of fact.50 The Ninth Circuit has interpreted California law as providing that the existence of a trade secret is a question of fact.51 On the other hand, at least two state cases have held that the existence of a trade secret is a question of law.52
44 45 46 47 48 49 50 51 52
notebook containing former employer’s trade secrets did not constitute a “threat” of misappropriation even though the former employee had taken competitive employment). The California Supreme Court’s reaction to a 1999 California Court of Appeal decision finding that the inevitable disclosure doctrine did apply in California serves to underscore California’s antipathy to the doctrine. See Electro Optical Indus., Inc. v. White, 90 Cal. Rptr. 2d 680, 684 (1999) (“Although no California court has yet adopted it, the inevitable disclosure rule is rooted in common sense and calls for a fact specific inquiry. We adopt the rule here.”). Electro Optical was subsequently ordered depublished by the California Supreme Court. See CAL. R. CT. 976, 977. Decisions of California appellate courts can be ordered depublished when the Supreme Court disagrees with them. See CAL. CIV. CODE § 3426.2(a) (2007). See CAL. BUS. & PROF. CODE § 16601 (2008). Edwards v. Arthur Andersen, 44 Cal. 4th 937, 948, 81 Cal. Rptr. 3d 282, 290, 189 P.3d 285, 292 (2008). Id. at 949–50, 81 Cal. Rptr. 3d at 291–92, 189 P.3d at 293. See Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881, 72 Cal. Rptr. 2d 73 (1998). See Digital Dev. Corp. v. Int’l Memory Sys., No. 72-55, 185 U.S.P.Q. (BNA) 136, 141, 1973 U.S. Dist. LEXIS 11388, at *19–20 (S.D. Cal. Oct. 24, 1973). See Clark v. Bunker, 453 F.2d 1006, 1010 (9th Cir. 1972). See, e.g., K-2 Ski Co. v. Head Ski Co., 506 F.2d 471, 477 (9th Cir. 1974). See Agric. Labor Relations Bd. v. Richard A. Glass Co., 175 Cal. App. 3d 703, 713, 221 Cal. Rptr. 63, 68 (1985); Uribe v. Howie, 19 Cal. App. 3d 194, 207, 96 Cal. Rptr. 493, 500 (1971).
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314 Appendix A trade secret misappropriation may be found even if the defendant’s device or process is not identical to the plaintiff’s device or process. In Vermont Microsystems, Inc. v. Autodesk, Inc., the defendant’s software was found to be a misappropriation of the plaintiff’s trade secret software because the architecture was virtually the same and it performed the same functions.53 If substantial similarity is demonstrated between the plaintiff’s and the defendant’s products, the burden shifts to the defendant to prove independent creation or reverse engineering of the product.54 In California, a person cannot be liable for trade secret misappropriation unless he or she unlawfully acquires, discloses, or uses information that is a trade secret.55 Thus, it is not a violation of the California UTSA if a former employee merely retains trade secret information obtained during the course of employment.56 The improper acquisition of a trade secret without more, however, does violate the California UTSA.57 Corporate shareholders, officers, and directors may be personally liable if, through the corporation, they use trade secrets and know or should know that the knowledge of the trade secrets was derived from or through a person who acquired it improperly, or the secrets were obtained by a person who owed a duty to maintain their secrecy.58 Because California does not recognize the “inevitable disclosure” doctrine, it cannot be used to fill in the gaps where the record is lacking in proof of actual or threatened use or disclosure of trade secrets.59 The courts have offered differing views concerning whether a plaintiff must demonstrate that the defendant benefited monetarily from the misappropriation. In MAI Systems Corp. v. Peak Computer, Inc., the Ninth Circuit held that to establish a violation under the California UTSA, the plaintiff must show that the defendant was unjustly enriched.60 In a case alleging unlawful disclosure
53 See Vermont Microsys., Inc. v. Autodesk, Inc., 88 F.3d 142, 148–49 (2d Cir. 1996) (applying California law). 54 See Callaway Golf Co. v. Dunlop Slazenger Group Ams., Inc., 318 F. Supp. 2d 205, 214 (D. Del. 2004) (applying California law). 55 See Fourcier v. Microsoft Corp., 123 F. Supp. 2d 520, 528 (N.D. Cal. 2000). 56 See Gibson-Homans Co. v. Wall-Tite, Inc., No. 92 2750 JGD, 1992 WL 512411, at *4 26 U.S.P.Q.2d (BNA) 1867, 1870 (C.D. Cal. Oct. 27, 1992) (employee developed trade secret adhesive formulas, recorded them in a personal notebook, and took the book with him when he left to found a competing adhesive company). 57 See Dealertrack, Inc. v. Huber, 460 F. Supp. 2d 1177, 1184 (C.D. Cal. 2006). 58 See PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368, 1383, 93 Cal. Rptr. 2d 663, 673 (2000); see also Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F. Supp. 2d 941, 952 (N.D. Cal. 2003) (even if shareholder did not overtly misappropriate trade secrets, the claim against him survived dismissal because he could be liable as a coconspirator if, pursuant to an agreement, he allowed an employee to keep his laptop computer and begin employment with a competitor). 59 See Danjaq, L.L.C. v. Sony Corp., No. CV 97-8414-ER (MCX), 1999 WL 317629, at *1 n.1, 50 U.S.P.Q.2d (BNA) 1638, 1640 n.1 (C.D. Cal. Mar. 11, 1999). 60 See MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 521 (9th Cir. 1993).
California of a trade secret, another court concluded that there was no requirement that the defendant have realized any profit.61 An injunction may issue to prevent the threatened or ongoing disclosure of trade secrets if the plaintiff also satisfies the traditional equitable requirements for injunctive relief, including showing (1) likelihood of success on the merits, (2) irreparable injury, (3) a balance of hardships tipping in the plaintiff’s favor, and (4) that the public interest favors the grant of injunctive relief.62 Recently, another court declared that it would be equally acceptable to show (1) a strong likelihood of success on the merits, (2) a possibility of irreparable injury to the plaintiff if the relief is not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of the public interest.63 California courts may issue “permanent” injunctions to restrain misappropriation.64 The defendant, of course, retains the right to seek termination of the injunction when the trade secret has ceased to exist, but an injunction may be continued for an additional period after a trade secret has become public to eliminate any commercial advantage that would otherwise be derived from misappropriation.65 One of the measures of damages is the plaintiff’s lost profits. A lost profits award is not limited to the plaintiff’s lost sales but may be measured by sales revenues less the cost of goods sold. California courts recognize that a trade secret owner may lose profits from sales diverted to the defendant, from increased expenses in connection with sales that it did not make, or because it had to cut prices to compete with the defendant. Further, the damages calculation may include an estimate of future lost profits.66 An award of restitution is also permissible.67 In measuring the plaintiff’s actual loss and the
61 See Religious Tech. Ctr. v. Netcom On-Line Commc’n Servs., Inc., 923 F. Supp 1231, 1257 n.31 (N.D. Cal. 1995). 62 See Posdata Co. v. Kim, No. C-07-02504RMW, 2007 WL 1848661, at *4 (N.D. Cal. June 27, 2007); Eldorado Stone, L.L.C. v. Renaissance Stone, Inc., No. 04CV2562 JM LSP, 2005 WL 5517732, at *3 (S.D. Cal. May 31, 2005). 63 See XFire, Inc. v. IGN Entm’t, Inc., No. C 06-6475 SI, 2006 WL 2990203, at *1 (N.D. Cal. Oct. 19, 2006). 64 See Cadence Design Sys., Inc. v. Avant! Corp., 29 Cal. 4th 215, 226, 127 Cal. Rptr. 2d 169, 177, 57 P.3d 647, 653 (2002) (an infringer should not be rewarded with a license to use the infringed technology, but rather, a successful trade secret plaintiff is entitled to the full panoply of remedies, including injunctive relief against further misappropriation). 65 See CAL. CIV. CODE § 3426.2(a) (2007). 66 See B. Braun Med., Inc. v. Rogers, 163 Fed. Appx. 500, 506 (9th Cir.), cert. denied, 127 S. Ct. 158, 166 L. Ed. 2d 40 (2006); Ajaxo, Inc. v. E*Trade Group, Inc., 135 Cal. App. 4th 21, 61, 37 Cal. Rptr. 3d 221, 252 (2005). 67 See Ajaxo., 135 Cal. App. 4th at 56–57, 37 Cal. Rptr. 3d at 248 (by breaching a nondisclosure agreement, a stock trading company gave a competitor vendor information that ultimately saved the trading company development costs and the cost it proposed to give a wireless vendor for its technology).
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316 Appendix defendant’s unjust enrichment (to the extent it has not been taken into account in computing the loss), a court may not award an enhancement to reflect the “cost of infringement” or to deter the defendant from electing to risk infringement instead of engaging in negotiations.68 In Morlife, Inc. v. Perry, the plaintiff was awarded unjust enrichment damages measured by the salary the defendants earned in their new employment from customers solicited using a purloined customer list.69 In doing so, the court rejected the defendants’ argument for a reasonable royalty assessment, noting that the imposition of a reasonable royalty is permissible only if neither actual damages nor unjust enrichment are provable.70 Accordingly, a California plaintiff will rarely obtain a reasonable royalty award. In O2 Micro International, Ltd. v. Monolithic Power Systems, Inc., the plaintiff was entitled to an award of a “paid-up” royalty based on the defendant’s use of the trade secrets while such use was prohibited.71 California imposes a fiduciary duty on an employee to protect the trade secrets of the employer even absent a written agreement.72 Fiduciary obligations to protect trade secrets are not limited to the employment relationship but may arise during any confidential relationship.73 Although noncompete agreements are, for the most part, unenforceable in California,74 an employer is not completely without contractual protection. The California policy against enforcing noncompete agreements does not extend to agreements to protect the confidentiality of trade secret information.75 Also, it
68 See Vermont Microsys., Inc. v. Autodesk, Inc., 138 F.3d 449, 451–52 (2d Cir. 1998) (applying California law). 69 See Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514, 1528, 66 Cal. Rptr. 2d 731, 740 (1997). 70 See id.; see also B. Braun Med., 163 Fed. Appx. at 506 (citing Cacique, Inc. v. Robert Reiser & Co., 169 F.3d 619, 623 (9th Cir. 1999)); Celeritas Techs. v. Rockwell Int’l Corp., 150 F.3d 1354, 1359–60 (Fed. Cir. 1998) (if neither damages nor unjust enrichment were provable, reasonable royalty could be awarded for period use could have been prohibited, but liability for breach of contract was not so limited). 71 See O2 Micro Int’l, Ltd. v. Monolithic Power Systems, Inc., 399 F. Supp. 2d 1064, 1068, 1079 (N.D. Cal. 2005) (also awarding exemplary damages based upon the jury’s finding of willfulness and maliciousness), aff’d, 221 Fed. Appx. 996 (Fed. Cir. 2007). 72 See Ernst & Ernst v. Carlson, 247 Cal. App. 2d 125, 128, 55 Cal. Rptr. 626, 628 (1966); Futurecraft Corp. v. Clary Corp., 205 Cal. App. 2d 279, 285–86, 23 Cal. Rptr. 198, 209–10 (1962). 73 See Digital Dev. Corp. v. Int’l Memory Sys., No. 72-55, 1973 U.S. Dist. LEXIS 11388, at *18, 185 U.S.P.Q. (BNA) 136, 141 (S.D. Cal. Oct. 24, 1973); Ungar Elec. Tools, Inc. v. Sid Ungar Co., 192 Cal. App. 2d 398, 402–04, 13 Cal. Rptr. 268, 271–72 (1961), overruled on other grounds by Nichols v. Hast, 62 Cal. 2d 598, 43 Cal. Rptr. 641, 400 P.2d 753 (1965). 74 See Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 942, 189 P.3d 285, 285 (2008) (California Business and Professions Code § 16600 prohibits employee noncompetition agreements unless they fall within a statutory exception). 75 See, e.g., Thompson v. Impaxx, Inc., 113 Cal. App. 4th 1425, 1429–30, 7 Cal. Rptr. 3d 427, 429–30 (2003); Metro Traffic Control, Inc. v. Shadow Traffic Network, 22 Cal.
Delaware 317 is lawful to prohibit the solicitation of an employer’s customers if the customer information is a trade secret.76 Even if an employee is subject to a nonsolicitation agreement, an employee may nonetheless make an announcement of a change of employment if no trade secrets are used.77 If the employer’s trade secrets are used to send out an announcement of new employment, an unlawful act of unfair competition will be found.78 California’s antipathy to noncompete agreements does not extend to agreements that restrain a former employee from “raiding” the employer’s current employees.79 On the other hand, a competitor may freely solicit another’s employees provided it does not use unlawful means or engage in acts of unfair competition.80 California has a number of statutes imposing criminal penalties for trade secret theft including California Penal Code Section 499(c), governing the theft of “scientific or technical information.” It has been applied in a number of cases.81
C. Delaware Delaware adopted the 1979 version of the UTSA, with modifications, in 1982.82 As in most UTSA states, there is a three-year statute of limitations
76
77
78 79 80 81
82
App. 4th 853, 859, 27 Cal. Rptr. 2d 573, 577 (1994); Loral Corp. v. Moyes, 174 Cal. App. 3d 268, 276, 219 Cal Rptr. 836, 841 (1985); Rigging Int’l Maint. Co. v. Gwin, 128 Cal. App. 3d 594, 614, 180 Cal. Rptr. 451, 463 (1982). See, e.g., Hair Club for Men, L.L.C. v. Elite Solutions Hair Alternatives, Inc., No. 2:07CV-546-GEB-KJM, 2007 U.S. Dist. LEXIS 30167, at *6 (E.D. Cal. Apr. 5, 2007); Gordon v. Landau, 49 Cal. 2d 690, 694, 321 P.2d 456, 459 (1958) (en banc); Alliance Payment Sys., Inc. v. Walczer, 152 Cal. App. 4th 620, 643–44, 61 Cal. Rptr. 3d 789, 808 (2007), superseded by grant of review, No. S155066, 2007 Cal. LEXIS 11659 (Cal. Oct. 17, 2007); Thompson, 113 Cal. App. 4th at 1429, 7 Cal. Rptr. 3d at 429. See, e.g., Aetna Bldg. Maint. Co. v. West, 39 Cal. 2d 198, 204, 246 P.2d 11, 15 (1952); Hilb, Rogal & Hamilton Ins. Servs. v. Robb, 33 Cal. App. 4th 1812, 1821, 39 Cal. Rptr. 2d 887, 892 (1995) (employee could notify clients of change of employment and comply with clients’ instructions to move accounts). See Moss, Adams & Co. v. Schilling, 179 Cal. App. 3d 124, 130, 224 Cal. Rptr. 456, 459 (1986). See Loral Corp., 174 Cal. App. 3d at 278–79, 219 Cal. Rptr. at 843. See VL Sys., Inc. v. Unisen, Inc., 152 Cal. App. 4th 708, 713, 61 Cal. Rptr. 3d 818, 822 (2007). See, e.g., People v. Serrata, 62 Cal. App. 3d 9, 133 Cal. Rptr. 144 (1976); People v. Gopal, 171 Cal. App. 3d 524, 217 Cal. Rptr. 487 (1985); People v. Pribich, 21 Cal. App. 4th 1844, 27 Cal. Rptr. 2d 113 (1994); People v. Moore, 104 Cal. App. 3d 1001, 163 Cal. Rptr. 906 (1980); People v. Seagraves, No. H021996, 2001 WL 1283781 (Cal. Ct. App. Oct. 23, 2001). DEL. CODE. ANN. tit. 6, §§ 2001–2009 (2007).
318
Appendix subject to the discovery rule.83 Delaware courts will scrutinize closely a claim filed more than three years after the facts complained of for evidence that the discovery rule does not apply. In one case, summary judgment was granted against a plaintiff transferee who failed to bring suit within three years following the expiration of confidentiality obligations under a license agreement that was allegedly breached. The court concluded that the misappropriation claim was the same as a contractual claim that had been asserted by the transferee and that the statute was not tolled by the absence of any pecuniary loss because the transferee could have sought injunctive relief.84 In another case, the discovery rule was held not to excuse the plaintiff’s delay in filing suit because its trade secrets were included in the defendant’s foreign patent applications. The plaintiff should therefore have known, or discovered, the unauthorized use of its trade secrets.85 A plaintiff may state a claim by alleging either acquisition by improper means or improper disclosure or use of a trade secret.86 A complaint is inadequate if it merely alleges that a violation of the UTSA has occurred; it must also set forth the theory of misappropriation.87 Even under the liberal notice pleading requirements, a complaint may be dismissed for a failure to state a claim upon which relief can be granted if the alleged trade secret is not sufficiently described.88 A plaintiff alleging trade secret misappropriation will ordinarily be required first to identify with reasonable particularity the matter that it claims constitutes its trade secret before it will be allowed, given a proper showing of need to compel discovery of its adversary’s trade secret or confidential information.89 Delaware courts determine liability under the UTSA by reference to four issues: (i) whether a trade secret exists based on a showing of commercial utility arising from secrecy and reasonable efforts to maintain secrecy; (ii) whether the trade secret was communicated by the plaintiff to the defendant; (iii) whether such communication was made pursuant to an express or implied understanding that the secrecy of the information would be maintained;
83 See id. § 2006. 84 See VLIW Tech., L.L.C. v. Hewlett-Packard Co., No. 20069, 2005 Del. Ch. LEXIS 59, at *52 (Del. Ch. May 4, 2005). 85 See Medtronic Vascular, Inc. v. Advanced Cardiovascular Sys., No. 98-80-SLR, 2005 U.S. Dist. LEXIS 1158, at *13 (D. Del. Jan. 5, 2005). 86 See Bell Helicopter Textron v. Tridair Helicopters, Inc., 982 F. Supp. 318, 321 (D. Del. 1997). 87 See J.E. Rhoads & Sons, Inc. v. Ammeraal, Inc., No. 83C-NO-98, 1988 WL 32012, at * 16 (Del. Super. Ct. Mar. 30, 1988). 88 See Savor, Inc. v. FMR Corp., No. 00C-10-249 JRS, 2002 Del. Super. LEXIS 137, at *3 (Del. Super. Ct. Mar. 14, 2002), rev’d, 812 A.2d 894, 897, 74 U.S.P.Q.2d (BNA) 1381 (Del. 2002) (holding that plaintiff had adequately stated a trade secrets misappropriation claim). 89 See Engelhard Corp. v. Savin Corp., 505 A.2d 30, 32–33 (Del. Ch. 1986).
Delaware 319 and (iv) whether the information was improperly used or disclosed by the defendant, thereby causing injury to the plaintiff.90 In addition, a plaintiff must prove that its alleged trade secret derived “independent economic value” by reason of its secrecy.91 Injunctive relief may be denied in the absence of separate proof of the independent economic value of the alleged trade secret.92 The Delaware UTSA provides for the issuance of an injunction to prevent the actual or threatened misappropriation of trade secrets.93 It does not, however, expand the traditional jurisdiction of the Delaware Court of Chancery and therefore restricts the issuance of injunctions to matters for which there is no adequate legal remedy.94 Delaware courts apply the “inevitable disclosure” doctrine to protect trade secrets. In several cases, the doctrine has been the basis for issuing a temporary restraining order.95 In another case, it was applied to grant a preliminary injunction after a temporary restraining order application was denied.96 It has also been invoked to deny a defendant’s summary judgment motion.97 In calculating damages under the Delaware UTSA, a plaintiff must establish its actual loss from the misappropriation and may then seek the defendant’s calculable unjust enrichment to the extent it falls outside the computation of actual losses.98 A federal court has opined that Delaware will not recognize
90 See Wilmington Trust Co. v. Consistent Asset Mgmt. Co., 13 Del. J. Corp. L. 403, 410, 1987 WL 8459, at *3 (Del. Ch. 1987); Total Care Physicians, P.A. v. O’Hara, No. 99C11-201-JRS, 2002 WL 31667901, at *4 (Del. Super. Ct. Oct. 29, 2002). 91 See Wilmington Trust, 13 Del. J. Corp. L. at 415, 1987 WL 8459, at * 7. 92 See Franklin Fibre-Lamitex Corp. v. Marvec Mfg., Inc., 23 Del. J. Corp. L. 199, 204, 1997 WL 153825, at *2 (Del. Ch. 1997); Pfizer, Inc. v. ICI Ams., Inc., 10 Del. J. Corp. L. 275, 285, 1984 WL 8262, at *8 (Del. Ch. 1984). 93 See DEL. CODE. ANN. tit. 6, § 2002 (2007); Am. Hoechst Corp. v. Nuodex, Inc., 11 Del. J. Corp. L. 187, 191, 1985 WL 11563, at *3 (Del. Ch. 1985). 94 See MAI Basic Four, Inc. v. Generic Bus. Solutions, Inc., No. 9908, 1990 WL 3665, at *1 (Del. Ch. Jan. 16, 1990). 95 See Dickinson Med. Group, P.A. v. Foote, 9 Del. J. Corp. L. 180, 184, 1984 WL 8208, at *2 (Del. Ch. 1984). 96 See Technicon Data Sys. Corp. v. Curtis 1000, Inc., 224 U.S.P.Q. (BNA) 286, 286–87, 293, 10 Del. J. Corp. L. 322, 325, 337 (Del. Ch. 1984). 97 See E.I. duPont de Nemours & Co. v. Am. Potash & Chem. Corp., 200 A.2d 428, 436 (Del. Ch. 1964); see also Am. Hoechst Corp., 11 Del. J. Corp. L. at 194, 1985 WL 11563, at *5 (suggesting in dictum that the doctrine should apply in Delaware); Am. Totalisator Co. v. Autotote, Ltd., No. 7268, 1983 WL 21374, at *5 (Del. Ch. Aug. 18, 1983) (granting injunctive relief for threatened misappropriation because court found it difficult to see how the secret information could not be used by former employee in the performance of his new job). 98 See Total Care Physicians, P.A. v. O’Hara, No. 99C-11-201-JRS, 2002 WL 31667901, at *10 (Del. Super. Ct. Oct. 29, 2002); see also Nucar Consulting, Inc. v. Doyle, 76 U. S.P.Q.2d (BNA) 1087, 1098–99, 2005 Del. Ch. LEXIS 43, at *40, *44 (Del. Ch. Apr. 5, 2005).
320 Appendix the “economic loss doctrine” that would allow recovery for all economic loss caused by a trade secret misappropriation.99 When a defendant has maliciously revealed trade secret information, an award of exemplary damages is appropriate.100 If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or a willful and malicious misappropriation exists, the court may award reasonable attorneys’ fees to the prevailing party.101 The Delaware UTSA preempts other tort claims founded on allegations of trade secret misappropriation.102 Preemption will be found when a claim is “grounded” in facts supporting a trade secret misappropriation claim.103 Delaware courts judge the validity of a noncompete agreement under the law of the place where the contract was made.104 Delaware courts hold noncompete agreements entered into in Delaware valid only if they reflect the mutual assent of all parties and are supported by consideration.105 Continued employment is deemed sufficient consideration to support a noncompete agreement.106 Noncompete agreements are enforceable, however, only if (i) they were entered into for a fair and reasonable purpose, (ii) enforcement will not injure the public, (iii) enforcement will not cause greater harm to the employee than good to the employer, and (iv) enforcement is necessary to protect the employer’s business.107 A noncompete agreement will not be enforced to prevent a former employee from using his or her general knowledge and skills for the benefit of a competitor.108
99 See Bell Helicopter Textron v. Tridair Helicopters, Inc., 982 F. Supp. 318, 321–22 (D. Del. 1997). 100 See Edix Media Group, Inc. v. Mahani, No. 2186-N, 2006 Del. Ch. LEXIS 207, at *22 (Del. Ch. Dec. 12, 2006). 101 See DEL. CODE. ANN. tit. 6, § 2004 (2007); Nucar Consulting, 76 U.S.P.Q.2d (BNA) at 1100, 2005 Del. Ch. LEXIS, at *53–54. 102 See DEL. CODE. ANN. tit. 6, § 2007; Ethypharm S.A. France v. Bentley Pharms., Inc., 388 F. Supp. 2d 426, 433 (D. Del. 2005); Leucadia, Inc. v. Applied Extrusion Techs., Inc., 755 F. Supp. 635, 637 (D. Del. 1991); Nutzz.com v. Vertrue, Inc., No. 1231-N, 2005 Del. Ch. LEXIS 101, at *21 (Del. Ch. July 6, 2005); Sanirab Corp. v. Sunroc Corp., No. OOC-02-191-SCD, 2002 Del. Super. LEXIS 350, at *13–14 (Del. Super. Ct. Apr. 29, 2002). 103 See Ethypharm, 388 F. Supp. 2d at 433–34 (intentional interference claim was not necessarily “grounded” in facts supporting the misappropriation claim). 104 See Bunnell Plastics, Inc. v. Gamble, 6 Del. J. Corp. L. 331, 334, 1980 WL 3041, at *3 (Del. Ch. 1980). 105 See Research & Trading Corp. v. Powell, 468 A.2d 1301, 1303 (Del. Ch. 1983). 106 See id.; E. Edgar Wood, Inc. v. Clark, No. 883-K, 1986 WL 1160, at *4 (Del. Ch. Jan. 21, 1986). 107 See Trinity Transport, Inc. v. Ryan, 12 Del. J. Corp. L. 1222, 1225, 1986 WL 11111, at *2 (Del. Ch. 1986). 108 See Peoples Security Life Ins. v. Fletcher, No. 913, 1988 WL 26791, at *3 (Del. Ch. Mar. 16, 1988); see also Pet World v. Walker, No. 13592, 1994 WL 384617, at *3
Florida
D. Florida In 1988, Florida adopted the UTSA with the 1985 amendments.109 As in most UTSA states, the statute of limitations for misappropriation claims is three years subject to the discovery rule.110 Claims that are not entirely dependent on proving a violation of the Florida UTSA and that are materially distinct from a misappropriation claim are not subject to preemption.111 Florida has a relatively extensive body of trade secret misappropriation case law. Florida courts have held that to be protectable, a trade secret need have only a modicum of originality sufficient to separate it from everyday knowledge.112 Information that is generally known or readily accessible to third parties cannot qualify for trade secret protection.113 Florida courts recognize that a trade secret may exist in a combination of characteristics and components, each of which is in the public domain, if the combination affords a competitive advantage.114 In addition, trade secret protection may be afforded to a plan or process, tool, mechanism, or compound, including a unique combination of otherwise known components if the combination differs materially from other methods known in the trade.115 A trade secret may exist even though several competitors have independently discovered it.116 Whether information constitutes a trade secret is a question of fact.117 A trade secret owner does not forfeit the right to protection by communicating the information to others in confidence or pursuant to a nondisclosure agreement.118 The failure to require employees to sign nondisclosure agreements is not fatal either to the existence of a reasonable trade secret protection plan or to a claim against a former employee who has misappropriated secrets.
109 110 111 112 113 114 115 116 117 118
(Del. Ch. July 18, 1994) (denying injunction because the plaintiff would not suffer competitive harm from the defendant’s change of employment). See FLA. STAT. ANN. §§ 688.001–688.009 (1988). See id. § 688.007. See Am. Honda Motor Co. v. Motorcycle Info. Network, Inc., 390 F. Supp. 2d 1170, 1180 (M.D. Fla. 2005). See SmokEnders, Inc. v. Smoke No More, Inc., 184 U.S.P.Q. (BNA) 309, 317, 1974 U.S. Dist. LEXIS 6183, at *27 (S.D. Fla. 1974). See Am. Red Cross v. Palm Beach Blood Bank, Inc., 143 F.3d 1407, 1410 (11th Cir. 1998) (applying Florida law). See Lee v. Cercoa, Inc., 433 So. 2d 1, 2 (Fla. Dist. Ct. App. 1983). See Sun Crete, Inc. v. Sundeck Prods., Inc., 452 So. 2d 973, 975 (Fla. Dist. Ct. App. 1984). See Bestechnologies, Inc. v. Trident Envtl. Sys., 681 So. 2d 1175, 1176 (Fla. Dist. Ct. App. 1996). See All Pro Sports Camp v. Walt Disney Co., 727 So. 2d 363, 368 (Fla. Dist. Ct. App. 1999). See SmokEnders, Inc. v. Smoke No More, Inc., 184 U.S.P.Q. (BNA) 309, 317, 1974 U.S. Dist. LEXIS 6183, at *28 (S.D. Fla. 1974) (citing Bd. of Trade v. Christie Grain & Stock Co., 198 U.S. 236, 250–51, 25 S. Ct. 637, 639–40 (1905)).
321
322 Appendix Florida law implies a prohibition against the use of a trade secret by employees for their own benefit or to the detriment of the employer to the extent the secret was acquired in the course of employment.119 The existence of a confidential relationship may also give rise to an implied obligation not to use or disclose trade secrets.120 Parties may also contract not to use or disclose confidential information even if the information does not qualify as a trade secret.121 The failure to identify information disclosed to the government as a trade secret will render the information unprotectable.122 Former employees are prohibited from using to their own advantage both customer lists obtained in confidence and customer lists containing trade secrets.123 Customer lists are considered to be trade secrets if they are compiled with great time and expense. However, the owner must substantiate its efforts to obtain client names and information from various sources.124 A customer list will not qualify as a trade secret if the identities of the customers can be discerned merely by following a delivery truck.125 Florida courts will not impute liability to a new employer for an employee’s misappropriation of trade secrets belonging to a former employer but instead require direct evidence of the new employer’s knowledge of the misappropriation.126 In litigation, a party may sometimes be prohibited from discovering the other party’s trade secrets. Florida law provides the trade secret owner with “a [qualified] privilege to refuse to disclose, and to prevent other persons from disclosing, a trade secret owned by him if the allowance of the privilege will not conceal fraud or otherwise work injustice.”127 The purpose of the privilege is to prohibit a party from obtaining information that could be used to its own
119 See Unistar Corp. v. Child, 415 So. 2d 733, 734 (Fla. Dist. Ct. App. 1982). 120 See Dotolo v. Schouten, 426 So. 2d 1013, 1015 (Fla. Dist. Ct. App. 1983). 121 See Concept, Inc. v. Thermotemp, Inc., 553 So. 2d 1325, 1327 (Fla. Dist. Ct. App. 1989). 122 See Cubic Transp. Sys. v. Miami-Dade County, 899 So. 2d 453, 454 (Fla. Dist. Ct. App. 2005); SePRO Corp. v. Fla. Dept. of Envtl. Protection, 839 So. 2d 781, 783 (Fla. Dist. Ct. App. 2003). 123 See Mittenzwei v. Indus. Waste Serv., Inc., 618 So. 2d 328, 329 (Fla. Dist. Ct. App. 1993); Braman Motors, Inc. v. Ward, 479 So. 2d 225, 226 (Fla. Dist. Ct. App. 1985); Sethscot Collection v. Drbul, 669 So. 2d 1076, 1078 (Fla. Dist. Ct. App. 1996); Unistar Corp., 415 So. 2d at 734; see also Four Seasons Hotels & Resorts B.V. v. Consorcio Barr, S.A., 267 F. Supp. 2d 1268, 1323, 1325 (S.D. Fla. 2003). 124 See Mittenzwei, 618 So. 2d at 329. 125 See Templeton v. Creative Loafing, Inc., 552 So. 2d 288, 290 (Fla. Dist. Ct. App. 1989) (citing Carl A. Colteryahn Dairy, Inc. v. Schneider Dairy, 203 A.2d 469 (1964)). 126 See Liberty Am. Ins. Group, Inc. v. WestPoint Underwriters, L.L.C., 199 F. Supp. 2d 1271, 1286 (M.D. Fla. 2001). 127 FLA. STAT. ANN. § 688.007 (Supp. 1988).
Florida advantage as a result of the duty of a witness to answer questions truthfully.128 The privilege may be overcome by a showing of sufficient need for the information.129 If disclosure is necessary, a court must protect the interests of the holder of the privilege and the interests of the parties.130 Rule 1.280(c)(7) of the Florida Rules of Civil Procedure states that, upon motion by a party from whom discovery is sought, the court may for a good cause order that a trade secret or other confidential research, development, or commercial information not be disclosed or be disclosed only in a designated manner.131 The party seeking trade secret protection must disclose its information to allow the court to determine whether the information is, in fact, a trade secret.132 Although Florida does not have a statewide requirement that a plaintiff must identify any allegedly misappropriated trade secrets with reasonable particularity before commencing discovery, at least one court has imposed such a requirement. In Del Monte Fresh Produce Co. v. Dole Food Co., a Florida federal court noted that, although no other state had codified rules similar to the identification requirement in California Civil Procedure Code Section 2019.210, “this does not mean, however, that Florida would not require Del Monte to identify with reasonable particularity the trade secrets it claims Dr. Funk has misappropriated. In fact, the opposite is true.”133 Temporary restraining orders and preliminary injunctions are granted sparingly and only after the moving party has proven facts entitling it to relief.134 To establish irreparable harm, “the moving party must show that the potential loss at stake is not compensable by money damages.”135 In exercising
128 See, e.g., Fortune Pers. Agency, Inc. v. Sun Tech., Inc., 423 So. 2d 545, 546 n.6 (Fla. Dist. Ct. App. 1982). 129 See Freedom Newspapers, Inc. v. Egly, 507 So. 2d 1180, 1184 (Fla. Dist. Ct. App. 1987). 130 See Becker Metals Corp. v. W. Fla. Scrap Metals, 407 So. 2d 380, 382 (Fla. Dist. Ct. App. 1981). 131 See Rare Coin-It, Inc. v. I.J.E., Inc., 625 So. 2d 1277 (Fla. Dist. Ct. App. 1993). 132 See Lovell Farms, Inc. v. Levy, 641 So. 2d 103, 104-05 (Fla. Dist. Ct. App. 1994). 133 Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1322, 1323 (S.D. Fla. 2001); cf. Levenger Co. v. Feldman, 516 F. Supp. 2d 1272, 1287 (S.D. Fla. 2007) (trade secrets were not identified with sufficient specificity to state claim under Florida UTSA). But see True Title, Inc. v. Blanchard, No. 6:06-CV-1871-Orl-19DAB, 2006 U.S. Dist. LEXIS 95069, at *6 (M.D. Fla. Feb. 5, 2006) (at motion to dismiss stage, plaintiff was not required to state exactly how its information constituted a trade secret). 134 See Langford v. Rotech Oxygen & Med. Equip., Inc., 541 So. 2d 1267, 1268 (Fla. Dist. Ct. App. 1989); Cordis Corp. v. Prooslin, 482 So. 2d 486, 489 (Fla. Dist. Ct. App. 1986). 135 Neel v. Williams Commc’n Serv., Inc., 638 So. 2d 1017, 1018 (Fla. Dist. Ct. App. 1994). See also Jefferies & Co. v. Int’l Assets Holding Corp., 830 So. 2d 256, 257 (Fla. Dist. Ct. App. 2002) (quashing temporary injunction issued against former employees of securities firm who started competing business based on the plaintiff’s failure to demonstrate irreparable harm).
323
324 Appendix its discretion to grant or deny interlocutory relief, a court must balance the possible beneficial results against the possible detrimental results and the threatened hardships associated with the issuance or denial of an injunction with the degree of likelihood of success on the merits.136 A preliminary injunction may not issue without the posting of a bond except in limited circumstances.137 The measure of damages for trade secret misappropriation is the lost profits sustained by the plaintiff due to the misappropriation or the profits earned by the defendant.138 Florida courts have computed damages using a number of methods.139 A reasonable royalty may be awarded if actual loss or unjust enrichment cannot be proved.140 Attorneys’ fees may also be awarded.141 Florida courts take a middle-of-the-road approach to noncompete agreements. A noncompete agreement must be facially reasonable142 and statutes require that for an agreement to be enforceable, the employer must also adduce evidence of irreparable injury premised on a protectable interest.143 If a restrictive covenant is facially reasonable, a defendant may nonetheless attempt to prove that it is unreasonable under the facts of the particular case.144 Noncompete agreements are, however, consistently upheld by the Florida courts when they are shown to be reasonable.145 Florida courts are also directed by statute to “modify” an overly broad covenant so as to provide “the relief reasonably necessary” to protect the employer’s legitimate interests.146
136 See Fla. Med. Ass’n v. U.S. Dept. of Health, Educ. & Welfare, 601 F.2d 199, 203 n.2 (5th Cir. 1979); Louis v. Meissner, 530 F. Supp. 924, 925 (S.D. Fla. 1981). 137 See La Gran Familia, Inc. v. Cuba Pharmacy, Inc., 349 So. 2d 769, 770 (Fla. Dist. Ct. App. 1977); Crow, Pope & Carter, Inc. v. James, 349 So. 2d 827, 828 (Fla. Dist. Ct. App. 1977). 138 See Erik Elec. Co. v. Elliot, 403 So. 2d 1041, 1042 (Fla. Dist. Ct. App. 1981). 139 See, e.g., Demit of Venez., C.A. v. Elec. Water Sys., Inc., 547 F. Supp. 850, 854 (S.D. Fla. 1982) (reasonable royalty), aff’d without opinion, 740 F.2d 977 (11th Cir. 1984); New World Fashions, Inc. v. Lieberman, 429 So. 2d 1276, 1277 (Fla. Dist. Ct. App. 1983) (accounting); Perdue Farms, Inc. v. Hook, 777 So. 2d 1047, 1053, 1055 (Fla. Dist. Ct. App. 2001) (allowing compensatory damages and unjust enrichment but denying punitive damages because the conduct was not egregious and denying prejudgment interest). 140 See Alphamed Pharms. Corp. v. Arriva Pharms., Inc., 432 F. Supp. 2d 1319, 1336 (S.D. Fla. 2006). 141 See Alston v. Sundeck Prods., Inc., 498 So. 2d 493, 494 (Fla. Dist. Ct. App. 1986). 142 See Silvers v. Dis-Com Sec., Inc., 403 So. 2d 1133, 1136 (Fla. Dist. Ct. App. 1981) (citing Tomasello, Inc. v. de Los Santos, 394 So. 2d 1069, 1072 (Fla. Dist. Ct. App. 1981)). 143 See FLA. STAT. ANN. §§ 542.33, 542.335(3) (2008). 144 See Silvers, 403 So. 2d at 1136. 145 See Miller Mech., Inc. v. Ruth, 300 So. 2d 11, 12 (Fla. 1974); Foster & Co. v. Snodgrass, 333 So. 2d 521, 522 (Fla. Dist. Ct. App. 1976). 146 See FLA. STAT. ANN. §§ 542.335(1) (2008).
Georgia 325 In the absence of a noncompete agreement, a former employee is free to compete against a former employer.147 The status of the inevitable disclosure doctrine in Florida is uncertain, with one federal court having refused to adopt it in the absence of a written noncompete and one intermediate state court having left the question open.148 A Florida court also held that “an employee does not violate his duty of loyalty when he merely organizes a corporation during his employment to carry on a rival business after the expiration of his employment.”149
E. Georgia The UTSA, as amended in 1985, became effective in Georgia in 1990.150 In adopting it, Georgia modified the UTSA in various respects. Georgia provides a five-year statute of limitations subject to the discovery rule.151 Under the discovery rule, the statute of limitations does not begin to run until the plaintiff has sufficient information to make a “meaningfully colorable” claim. The mere suspicion of misappropriation will not trigger the statute.152 If, however, the trade secret owner becomes aware of facts that would make a reasonably prudent person suspicious, the owner has a duty to investigate further and is charged with whatever information such investigation would have disclosed.153 The Georgia statute explains that the limitations period “shall be applied separately to the claim against each person who receives a trade secret from another person who misappropriated that trade secret.”154 In a case decided under the Restatement (First) of Torts, the Georgia Supreme Court held that “customer lists are not trade secrets.”155 In later
147 See Thomas v. Alloy Fasteners, Inc., 664 So. 2d 59, 61 (Fla. Dist. Ct. App. 1995) (“[C]ompetition for business is to be expected from former employees who are not bound by a non-compete contract. It is not actionable.”); Harllee v. Prof’l Serv. Indus., Inc., 619 So. 2d 298, 300 (Fla. Dist. Ct. App. 1992), amended by, No. 89-2650, 1993 Fla. App. LEXIS 6510 (Fla. Dist. Ct. App. June 8, 1993). 148 See Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 1326, 1337 (S.D. Fla. 2001), and Hatfield v. Autonation, Inc., 930 So.2d 155, 158 (Fla. Dist. Ct. App. 2006). 149 Harllee, 619 So. 2d at 300 (quoting Fish v. Adams, 401 So. 2d 843, 845 (Fla. Dist. Ct. App. 1981)). 150 See GA. CODE ANN. §§ 10-1-760 to 10-1-767 (1990). 151 See id. § 10-1-766. 152 See Porex Corp. v. Haldopoulos, 284 Ga. App. 510, 515, 644 S.E.2d 349, 353 (2007), cert. denied, No. S07C1154, 2007 Ga. LEXIS 498 (Ga. June 25, 2007). 153 See GA. CODE ANN. § 10-1-766. 154 Id. 155 Am. Photocopy Equip. Co. v. Henderson, 250 Ga. 114, 115, 296 S.E.2d 573, 575 (1982).
326 Appendix enacting the UTSA, the Georgia legislature sought to restore protection to customer lists and other nontechnical information. Accordingly, the Georgia UTSA defines the categories of information potentially eligible for trade secret protection as “including, but not limited to, technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers.”156 In applying the UTSA, the Georgia courts have held, however, that although a customer list is the employer’s property and is therefore protectable, a former employee’s knowledge of the contents of a customer list is not protectable.157 Georgia also modified the UTSA provision related to injunctive relief to clarify that an injunction may continue in effect beyond a trade secret’s loss of secrecy “due to the fault of the enjoined party or others by improper means.”158 The statute also specifies that “in no event” shall a contract be required to maintain an action for trade secret misappropriation or to obtain injunctive relief or damages for the misappropriation.159 Temporary injunctive relief will not issue if the amount of the plaintiff’s injury is calculable.160 Georgia further modified the UTSA as it relates to the award and computation of damages: In addition to or in lieu of the relief provided by Code Section 10-1-762 [injunctive relief], a person is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. If neither damages nor unjust enrichment caused by the misappropriation are proved by a preponderance of the evidence, the court may award damages caused by misappropriation measured in terms of a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret for no longer than the period of time for which use could have been prohibited.161
156 GA. CODE ANN. § 10-1-761(4). 157 See Manuel v. Convergys Corp., 430 F.3d 1132, 1140 (11th Cir. 2005); Diamond Power Int’l, Inc. v. Clyde Bergemann, Inc., No. 1:04-CV-1708-RWS, 2005 U.S. Dist. LEXIS 12493, at *7 (N.D. Ga. Jan. 5, 2005); AmeriGas Propane, L.P. v. T-Bo Propane, Inc., 972 F. Supp. 685, 697 (S.D. Ga. 1997); Hilb, Rogal & Hamilton Co. v. Holley, 284 Ga. App. 591, 597, 644 S.E.2d 862, 867 (2007) (tangible list entitled to protection); Tronitec, Inc. v. Shealy, 249 Ga. App. 442, 446, 547 S.E.2d 749, 754 (2001), overruled on other grounds by Williams Gen. Corp. v. Stone, 279 Ga. 428, 614 S.E.2d 758 (2005); Avnet v. Wyle Lab., Inc., 263 Ga. 615, 618, 437 S.E.2d 302, 304 (1993); Smith v. MidState Nurses, Inc., 261 Ga. 208, 209, 403 S.E.2d 789, 790 (1991). 158 GA. CODE ANN. § 10-1-762(a). 159 See id. §§ 10-1-762(d), 10-1-763(c). 160 See Morgan Stanley DW, Inc. v. Frisby, 163 F. Supp. 2d 1371, 1376 (N.D. Ga. 2001). 161 GA. CODE ANN. § 10-1-763(a). In Elec. Data Sys. Corp. v. Heinemann, 268 Ga. 755, 493 S.E.2d 132 (1997), the court awarded a royalty injunction based on the plaintiff’s delay and the public’s interest in competition.
Georgia 327 In adopting the UTSA, Georgia also omitted Section 8, which requires that each state’s act be “construed to effectuate its general purpose to make uniform the law with respect to the subject of this [Act] among states enacting it.” One Georgia court has purported to apply the “inevitable disclosure” doctrine after finding that the defendant “sought to obtain [the plaintiff’s trade secrets] by the simple act of hiring” the plaintiff’s employee.162 Under the facts, though, the court may simply have used loose language in enjoining a threatened misappropriation. In Smith v. Mid-State Nurses, Inc., the Georgia Supreme Court analyzed the scope of the Georgia UTSA.163 It denied protection to a customer list because the owner failed to use reasonable efforts to maintain the secrecy of the list. In Union Carbide Corp. v. Tarancon Corp., the court held that a process was protectable because it was not generally known in the trade.164 It further held that willfulness is not an element of misappropriation.165 All that is required is that the plaintiff has disclosed the information to the defendant in confidence.166 In Penalty Kick Management, Ltd. v. Coca-Cola Co., the court confirmed that Georgia will protect a unique combination of components that are individually well-known.167 The Georgia UTSA has also been applied in holding that hotel information concerning occupancy levels, average rates, discounting policies, marketing plans, and operating expenses can qualify for trade secret protection.168 A Georgia court has also held that the diversion of information acquired under legitimate circumstances, such as a license agreement limiting its use, could constitute a misappropriation.169 The Eleventh Circuit has concluded that the Georgia UTSA preempts claims for breach of confidence, conversion, and unjust enrichment.170 Another court concluded that because the “full extent” of the plaintiff’s tortious interference
162 163 164 165 166 167
Essex Group, Inc. v. Southwire Co., 269 Ga. 553, 557, 501 S.E.2d 501, 505 (1998). See Smith v. Mid-State Nurses, Inc., 261 Ga. 208, 403 S.E.2d 789 (1991). See Union Carbide Corp. v. Tarancon Corp., 742 F. Supp. 1565, 1579 (N.D. Ga. 1990). See id. at 1580 n.6. See id. Penalty Kick Mgmt., Ltd. v. Coca-Cola Co., 164 F. Supp. 2d 1376, 1379 (N.D. Ga. 2001), aff’d, 318 F.3d 1284 (11th Cir. 2003); accord AmeriGas Propane, L.P. v. T-Bo Propane, Inc., 972 F. Supp. 685, 699 (S.D. Ga. 1997). 168 See Camp Creek Hospitality Inns, Inc. v. Sheraton Franchise Corp., 139 F.3d 1396, 1410–11 (11th Cir. 1998). 169 See id. at 1412. 170 See Penalty Kick Mgmt., Ltd., 318 F.3d at 1298; Opteum Fin. Servs., L.L.C. v. Spain, 406 F. Supp. 2d 1378, 1381 (N.D. Ga. 2005) (conversion, common-law misappropriation, unjust enrichment, quantum meruit, and civil theft claims held preempted); Tidwell v. Wedgestone Fin. (In re Hercules Auto. Prods., Inc.), 245 B.R. 903, 913 (Bankr. M.D. Ga. 1999) (conversion claim held preempted).
328 Appendix claim was clearly “based” upon a trade secret, it was superseded by the Georgia UTSA.171 In Georgia, restrictive covenants will be enforced if they are reasonably limited in time and territory and are otherwise reasonable considering the business interests of the employer and the effect of the covenant on the employee.172 A noncompete agreement will be held overly broad if it prevents employment in an area in which the employee was not working at the time of termination173 or tries to prevent competition in an area in which the employer was not doing business.174 A covenant prohibiting a former employee from working for a competitor in “any” capacity would be held unreasonable.175 Georgia courts will not employ the “blue-pencil” rule to save an unreasonably restrictive covenant.176 A covenant barring the post-termination solicitation of former customers may be invalidated due to the absence of a territorial restriction.177 Covenants not to solicit customers are generally upheld if they are limited only to the customers the former employee served.178
F. Illinois Illinois adopted the UTSA as of January 1, 1988.179 Illinois provides a five-year statute of limitations on misappropriation claims. The limitations period is, as elsewhere, subject to the discovery rule.180 Prior to the adoption of the UTSA, trade secret protection in Illinois was haphazard, erratic, and irrational. It is therefore unsurprising that in adopting
171 See Diamond Power Int’l, Inc. v. Davidson, Nos. 1:04-CV-0091-RWS-CCH, 1:04-CV1708-RWS-CCH, 2007 WL 2904119, at *19 (N.D. Ga. Oct. 1, 2007). 172 See Orkin Exterminating Co. v. Walker, 251 Ga. 536, 537, 307 S.E.2d 914, 916 (1983) (citing Singer v. Habif, Arogeti & Wynne, P.C., 250 Ga. 376, 377, 297 S.E.2d 473, 475 (1982)); White v. Fletcher/Mayo/Assocs., 251 Ga. 203, 204, 303 S.E.2d 746, 748 (1983). 173 See Orkin Exterminating, 251 Ga. at 539, 307 S.E.2d at 917. 174 See Jenkins v. Jenkins Irrigation, Inc., 244 Ga. 95, 99, 259 S.E.2d 47, 50 (1979). 175 See Stein Steel & Supply Co. v. Tucker, 219 Ga. 844, 846, 136 S.E.2d 355, 356–57 (1964); Dixie Bearings, Inc. v. Walker, 219 Ga. 353, 357, 133 S.E.2d 338, 341 (1963). 176 See Rita Personnel Servs. Int’l, Inc. v. Kot, 229 Ga. 314, 317, 191 S.E.2d 79, 81 (1972). But see Jenkins, 244 Ga. 95, 99–00, 259 S.E.2d 47, 51 (1979) (allowing bluepencil rule in situations involving a covenant not to compete ancillary to the sale of a business). 177 See Guffey v. Shelnut & Assocs., 247 Ga. 667, 670, 278 S.E.2d 371, 373 (1981). 178 See id.; Palmer & Cay, Inc. v. Lockton Cos., 284 Ga. App. 196, 199–200, 643 S.E.2d 746, 749 (2007), cert. denied, No. S07C1074, 2007 Ga. LEXIS 503 (Ga. June 25, 2007). 179 See 765 ILL. COMP. STAT. 1065/1 to 1065/9 (1988). 180 Id. 1065/7.
Illinois the UTSA, the Illinois legislature modified it in numerous respects. The modifications were largely made in response to anomalous decisions by courts in other states interpreting the UTSA as adopted elsewhere to ensure that Illinois courts do not deviate from the spirit and intent of the UTSA in construing it. To avoid erratic decisions of courts in other states, Illinois chose not to adopt Section 8 of the UTSA which requires that the UTSA “be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this [Act] among states enacting it.” Illinois modified the definition of “improper means” to clarify that such means may include the “breach or inducement of a breach of a confidential relationship,” but exclude “[r]everse engineering [and] independent development.”181 The definition of a “person” who can own or misappropriate a trade secret was broadened to encompass expressly any “for-profit or not-for-profit legal entity.”182 Because pre-UTSA judicial decisions had viewed nontechnical business information as less valuable than technical information, the Illinois Act defined “trade secret” as “including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers.”183 Such information can be misappropriated through memorization.184 The Illinois legislature viewed the requirement that a trade secret must derive “independent” economic value from not being generally known as susceptible to being misconstrued as the principal criterion for a trade secret. Under the common law, Illinois courts had required that to be protectable, information had to be “relatively secret.” In that spirit, Illinois modified the secrecy requirement to state that information must be “sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use.”185 Under the Illinois UTSA, secrecy is now examined in light of the ease with which the information can be readily duplicated and whether the information is readily ascertainable from a public source.186
181 Id. 1065/2(a). 182 Id. 1065/2(c). 183 Id. 1065/2(d). See Roton Barrier, Inc. v. Stanley Works, 79 F.3d 1112, 1117–18 (Fed. Cir. 1996) (applying the Illinois UTSA to protect a host of nontechnical information including gross margins, sales data, mark of analysis information, customer lists, and capitalization requirements); Elmer Miller, Inc. v. Landis, 253 Ill. App. 3d 129, 133–34, 625 N.E.2d 338, 341–42 (1993) (holding that customer lists that are not readily ascertainable are protectable). 184 See Stampede Tool Warehouse, Inc. v. May, 272 Ill. App. 3d 580, 590, 209 Ill. Dec. 281, 289, 651 N.E.2d 209, 217 (1995). 185 765 ILL. COMP. STAT. 1065/2(d)(1). 186 See X-IT Prods., L.L.C. v. Walter Kidde Portable Equip., Inc., 227 F. Supp. 2d 494, 532 (E.D. Va. 2002) (applying Illinois law).
329
330
Appendix The key to secrecy in Illinois appears to be the ease through which information can be developed through proper means.187 If it can be readily duplicated without considerable time, effort, or expense, it is presumably not a trade secret. Nonetheless, the language in the UTSA that information must derive economic value “from not being . . . readily ascertainable by proper means” by others was also deleted. The legislative history reflects that the exclusion was proposed in an effort to lend continuing vitality to the rule in Shellmar Products Co. v. Allen-Qualley Co. that it is no defense to trade secret theft that the accused could have obtained the information by fair and legitimate means.188 Illinois courts nevertheless hold that whether information is readily ascertainable by proper means is still a relevant inquiry in determining the existence of a trade secret.189 The Illinois UTSA states that trade secret information must be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality.”190 This provision has been construed to parallel the six-factor test set forth in Section 757 of the Restatement (First) of Torts for determining whether information is a trade secret.191 Keeping a customer list under lock and key, limiting computer access, and requiring confidentiality agreements constitute reasonable efforts to protect trade secrets.192 Illinois further changed the UTSA provision related to injunctive relief to clarify that an injunction may continue in effect beyond a trade secret’s loss of secrecy “due to the fault of the enjoined party or others by improper means.”193 The injunction provision states: Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction may be terminated when the trade secret has ceased to exist,
187 See Hamer Holding Group v. Elmore, 202 Ill. App. 3d 994, 1011, 148 Ill. Dec. 310, 321, 560 N.E.2d 907, 918 (1990). 188 See Shellmar Prods. Co. v. Allen-Qualley Co., 87 F.2d 104, 107–08 (7th Cir. 1936). 189 See, e.g., Hamer Holding Group, 202 Ill. App. 3d at 1011, 148 Ill. Dec. at 321, 560 N. E.2d at 918 (1990) (rejecting the argument that the defense that information is “readily ascertainable by proper means” is not available and explaining that such inquiry is relevant to the issue of “secrecy,” which is the key inquiry under the Illinois UTSA); see also Computer Care v. Serv. Sys. Enters., Inc., 982 F.2d 1063, 1073–74 (7th Cir. 1992) (applying Hamer in holding that the use of nonvehicle identification numbers to track cars was obvious and therefore not entitled to protection). But see Hexacomb Corp. v. GTW Enters., Inc., 875 F. Supp. 457, 467 (N.D. Ill. 1993) (availability of lawful means to acquire information is not a defense if those means were not used.) 190 765 ILL. COMP. STAT. 1065/2(d)(2). 191 See Roton Barrier, Inc. v. Stanley Works, 79 F.3d 1112, 1117 (Fed. Cir. 1996). 192 See Strata Mktg. v. Murphy, 317 Ill. App. 3d 1054, 1069, 251 Ill. Dec. 595, 606, 740 N.E.2d 1166, 1177 (2000). But see Arcor, Inc. v. Haas, 363 Ill. App. 3d 396, 402, 299 Ill. Dec. 526, 532, 842 N.E.2d 265, 271 (2005) (merely requiring employees to sign confidentiality agreement held unreasonable). 193 765 ILL. COMP. STAT. 1065/3(a).
Illinois provided that the injunction may be continued for an additional reasonable period of time in appropriate circumstances for reasons including, but not limited to an elimination of the commercial advantage that otherwise would be derived from the misappropriation, eterrence of willful and malicious misappropriation, or where the trade secret ceases to exist due to the fault of the enjoined party or others by improper means.194
The injunctive provisions of the Illinois UTSA also provide that if an “overriding public interest” is implicated, an injunction “may condition future use upon payment of a reasonable royalty for no longer than the period of time the use could have been prohibited.”195 The “inevitable disclosure” doctrine, which authorizes the issuance of a preliminary injunction based solely on a showing that an employee who could have gained trade secret information working for one employer has accepted a comparable job with a competitor, making it “inevitable” that the employee will use or disclose his former employer’s trade secrets, is commonly attributed to an Illinois case.196 Although the doctrine is commonly applied as a basis for granting preliminary injunctive relief, the Seventh Circuit concluded that “a plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.”197 Following that lead, the doctrine was later applied to support the entry of a permanent injunction against a trade secret misappropriation.198
194 Id. 195 Id. 1065/3(b). 196 See PepsiCo., Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995). In PepsiCo, the defendant manifested dishonesty. Illinois courts have tended to require a showing of dishonesty before concluding that a misappropriation is inevitable. See, e.g., Liebert Corp. v. Mazur, 357 Ill. App. 3d 265, 273, 293 Ill. Dec. 28, 38, 827 N.E.2d 909, 919 (2005) (defendant deleted applications file to hide that he downloaded pricing information hours before resigning); see also Computer Assocs. Int’l v. Quest Software, Inc., 333 F. Supp. 2d 688, 696–97 (N.D. Ill. 2004) (misappropriation held threatened when former employees with access to plaintiff’s source code developed competing program that shared many lines of code, functions, and characteristics with plaintiff’s program); Brunswick Corp. v. Outboard Marine Corp., 69 Ill. App. 3d 106, 107, 25 Ill. Dec. 570, 571, 387 N.E.2d 27, 28 (1979) (defendant secretly possessed plaintiff’s trade secrets for no legitimate purpose), aff’d, 79 Ill. 2d 475, 38 Ill. Dec. 781, 404 N.E.2d 205 (1980). 197 PepsiCo., 54 F.3d at 1269 (emphasis added). 198 See Lucini Italia Co. v. Grappolini, No. 01 C 6405, 2003 WL 1989605, at *18 (N.D. Ill. Apr. 28, 2003) (holding that there were no steps that the defendant had taken or could take to prevent use of the plaintiff’s trade secret information as the defendant fulfilled his duties to his new employer).
331
332 Appendix The inevitable disclosure doctrine is consistent with the long-time Illinois view that an employee may illegally misappropriate confidential information by memory: It should, moreover, make no difference whether the information contained in the blueprints, if it qualified as a trade secret (which in our judgment it does), has been pilfered by tracing the blueprints themselves . . . or has been memorized by someone with a photographic memory, or has been committed to memory by constant exposure to the prints while in the employ of plaintiffs.199
Illinois also modified the UTSA as it relates to the award and computation of damages: In addition to the relief provided for by Section 3 [injunctive relief], a person is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. If neither damages nor unjust enrichment caused by the misappropriation are proved by a preponderance of the evidence, the court may award damages caused by misappropriation measured in terms of a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret.200
The Illinois legislature disagreed with the UTSA provision allowing the award of damages “in addition to or in lieu of injunctive relief.” Under the Illinois UTSA, the trade secret owner is entitled to provable damages in addition to the appropriate injunctive relief.201 Damages may include lost profits on the plaintiff’s lost sales, historical price erosion, and future price erosion during the time needed for the plaintiff to reestablish its prices and margins.202 Damages may also include the unjust enrichment caused by the defendant’s misappropriation that is not taken into account in computing actual loss.203 If the defendant’s unlawful act kept a plaintiff out of a market, specificity in proving the actual loss is not required.204 Ordinarily, the victim of a trade secret misappropriation is entitled to damages based on the competitive value of the information stolen.205 However, no
199 Schulenburg v. Signatrol, Inc., 33 Ill. 2d 379, 387, 212 N.E.2d 865, 869, 147 U.S.P.Q. (BNA) 167, 171 (1965). 200 765 ILL. COMP. STAT. 1065/4(a). 201 See id. 202 See Roton Barrier, Inc. v. Stanley Works, 79 F.3d 1112, 1120 (Fed. Cir. 1996); Lucini Italia Co., 2003 WL 1989605, at *19. 203 See Mangren Research & Dev. Corp. v. Nat’l Chem. Co., 87 F.3d 937, 945 (7th Cir. 1996). 204 See Lucini Italia Co., 2003 WL 1989605, at *19. 205 See Schiller & Schmidt, Inc. v. Wallace Computer Servs., Inc., No. 85 C 4415, 19 U.S.P.Q.2d (BNA) 1942, 1947, 1991 WL 270170, at *8 (N.D. Ill. Apr. 26, 1991), aff’d
Illinois damages are awardable unless the defendant made actual use of the trade secret.206 The award of prejudgment interest lies within the sound discretion of a trial judge, based on equitable considerations. Prejudgment interest may therefore be awarded in a trade secret case if the misappropriation stems from a breach of confidence.207 Attorneys’ fees are awardable if there is “willful and malicious misappropriation” or if the plaintiff has asserted its claim in “bad faith.”208 The latter is judged by a “subjective” test under the Illinois UTSA but fees may also be awarded under the objective test used under Rule 11 of the Federal Rules of Civil Procedure.209 Interpreting the Illinois UTSA, the Seventh Circuit held that a misappropriation may be found even if the duplication of a trade secret is not exact. In Mangren Research & Development Corp. v. National Chemical Co., a defendant was found liable for using a modified version of the plaintiff’s release agent formula.210 An Illinois court has also held that, although a duty of confidentiality requiring the preservation of trade secrets may be implied from the circumstances surrounding the parties’ relationship, any implied duty may not be inconsistent with the terms of an express confidentiality agreement.211 The Illinois UTSA broadly preempts tort claims providing civil remedies for trade secret misappropriation. In Composite Marine Propellers v. Van Der Woude, the Seventh Circuit explained that “unless defendants misappropriated a (statutory) trade secret, they did no legal wrong.”212
206 207 208 209 210 211 212
in part and vacated in part, Schiller & Schmidt, Inc. v. Nordisco Corp., 969 F.2d 410, 23 U.S.P.Q.2d (BNA) 1762 (7th Cir. 1992). See Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1265–66 (7th Cir. 1992). See Roton Barrier, 79 F.3d at 1123. qad.inc. v. ALN Assocs., Inc., 18 U.S.P.Q.2d (BNA) 1122, 1123 (N.D. Ill. June 18, 1990). See id. at 1123–24. See Mangren Research & Dev. Corp. v. Nat’l Chem. Co., 87 F.3d 937, 944 (7th Cir. 1996). See Nilssen v. Motorola, Inc., 963 F. Supp. 664, 680 (N.D. Ill. 1997). Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1265 (7th Cir. 1992); accord PepsiCo., Inc. v. Redmond, 54 F.3d 1262, 1271 (7th Cir. 1995); U.S. Gypsum Co. v. LaFarge N. Am., Inc., 508 F. Supp. 2d 601, 638 (N.D. Ill. 2007) (unfair competition, conversion, and unjust enrichment claims were preempted to the extent they were based on trade secret misappropriation); Tax Track Sys. Corp. v. New Investor World, Inc., No. 01 C 6217, 2005 U.S. Dist. LEXIS 7241, at *30 (N.D. Ill. Mar. 24, 2005) (common-law misappropriation and quantum meruit claims held preempted), aff’d, 478 F.3d 783 (7th Cir. 2007); C.H. Robinson Worldwide, Inc. v. Command Transp. L.L.C., No. 05 C 3401, 2005 U.S. Dist. LEXIS 28063, at *20, *22 (N.D. Ill. Nov. 16, 2005) (unfair competition, fraud, conversion, and conspiracy claims held preempted); Do It Best Corp. v. Passport Software, Inc., No. 01 C 7674, 2004 U.S. Dist. LEXIS 14174, at *37, Copyright L. Rep. (CCH) ¶ 28,844 (N.D. Ill. July 23, 2004) (fraud claim
333
334 Appendix Illinois courts require more than mere notice pleading to state a misappropriation claim. In Teradyne, Inc. v. Clear Communications Corp., the court explained that a plaintiff cannot state a trade secret claim merely by listing general areas of information that contain unidentified trade secrets. Instead, the plaintiff must articulate protectable trade secrets with specificity or suffer dismissal of its claim.213 In addition, at least one Illinois federal court has followed the rule in Engelhard v. Savin214 that a “plaintiff will normally be required first to identify with reasonable particularity the matter which it claims constitutes a trade secret, before it will be allowed (given a proper showing of need) to compel discovery of its adversary’s trade secrets.”215
preempted); Fox Controls, Inc. v. Honeywell, Inc., No. 02 C 346, 2004 U.S. Dist. LEXIS 7231, at *5 (N.D. Ill. Apr. 23, 2004) (quasi-contract/unjust enrichment and quantum meruit claims held preempted); Master Tech Prods. v. Prism Enters., No. 00 C 4599, 2002 U.S. Dist. LEXIS 5481, at *9 (N.D. Ill. Mar. 26, 2002) (fraud, Illinois Consumer Fraud Act, and Illinois Antitrust Act claims held preempted); Leggett & Platt v. Hickory Springs Mfg. Co., 132 F. Supp. 2d 643, 648 (N.D. Ill. 2001) (tortious interference with contract claim held preempted), rev’d in part on other grounds, 285 F.3d 1353 (Fed Cir. 2002); Delta Med. Sys., Inc. v. Mid-Am. Med. Sys., Inc., 331 Ill. App. 3d 777, 796, 265 Ill. Dec. 397, 413, 772 N.E.2d 768, 784 (2002) (breach of duty of loyalty and tortious interference claims held preempted); Thomas & Betts Corp. v. Panduit Corp., 108 F. Supp. 2d 968, 975 (N.D. Ill. 2000) (civil conspiracy claim held preempted); AutoMed Techs., Inc. v. Eller, 160 F. Supp. 2d 915, 922 (N.D. Ill. 2001) (conversion claim held preempted); Seaga Mfg. v. Fortune Metal, Inc., No. 99 C 50332, 2001 U.S. Dist. LEXIS 16341, at *6 (N.D. Ill. Oct. 10, 2001) (unfair competition, fraud, and deceptive trade practices claims held preempted). But see Hecny Transp., Inc. v. Chu, 430 F.3d 402, 405 (7th Cir. 2005) (dismissal of trade secret misappropriation claim for failure to prove existence of trade secrets did not require dismissal of claims for theft, fraud, and breach of duty of loyalty); Abanco Int’l, Inc. v. Guestlogix, Inc., 486 F. Supp. 2d 779, 781–82 (N.D. Ill. 2007) (restitution/unjust enrichment and tortious interference with prospective economic advantage claims were not preempted because they were not restricted to trade secret misappropriation but conspiracy claim was preempted); BAB Sys. v. Pilatus Inv. Group, No. 05 C 3038, 2005 U.S. Dist. LEXIS 25737, at *14–15 (N.D. Ill. Oct. 27, 2005) (unfair competition claim held not preempted because trade secret theft was not the sole focus of the claim); Dick Corp. v. SNCLavalin Constructors, Inc., No. 04 C 1043, 2004 U.S. Dist. LEXIS 26767, at *32 (N.D. Ill. Nov. 23, 2004) (interference with contractual relations and conversion claims were not preempted to the extent other tortious conduct, such as the solicitation of employees, was alleged); Bagley v. Lumbermens Mut. Cas. Co., 100 F. Supp. 2d 879, 883–84 (N.D. Ill. 2000) (because business plan was not alleged to be trade secret, misappropriation claim was not preempted). 213 See Teradyne, Inc. v. Clear Commc’ns Corp., 707 F. Supp. 353, 354 (N.D. Ill. 1989); see also Nilssen, 963 F. Supp. at 672. 214 Engelhard Corp. v. Savin Corp., 505 A.2d 30, 32–33 (Del. Ch. 1986). 215 AutoMed Techs., Inc. v. Eller, 160 F. Supp. 2d 915, 926 (N.D. Ill. 2001) (quoting Engelhard, 505 A.2d at 33); see also Nilssen, 963 F. Supp. at 672 (plaintiff could not state a claim simply by producing long lists of general information that contained unidentified trade secrets).
Indiana Illinois has no statute governing noncompete agreements. It follows the majority rule that reasonable restrictive covenants will be upheld.216 An agreement by an employer to protect a third party’s trade secrets is not binding on the employer’s departing employees unless they have also signed such an agreement.217
G. Indiana Indiana adopted the UTSA effective September 1, 1982.218 The Indiana UTSA provides a three-year statute of limitations.219 Indiana intends that its UTSA be applied uniformly with other jurisdictions.220 In Indiana, whether information constitutes a trade secret is a question of law.221 A series of customer list cases established the proposition that information discoverable by reasonable means cannot qualify as a trade secret.222 Under that view, formulas and mixing instructions can qualify as trade secrets.223 Similarly, the Indiana Supreme Court held that information identifying potential oil well drilling sites was protectable even though many of the sources of the information were in the public domain.224 The information was protectable because the projection of oil well drilling sites was a unique compilation of information. Because the plaintiff had spent $150,000 over a long time to develop its projections, the court concluded that the information was not “readily ascertainable” and refused to require the plaintiffs to prove that it was “economically infeasible” for the defendant to gain the information through proper means.225 On the other hand, the design features and dimensions of an oxygen regulator were held not entitled to protection
216 217 218 219 220 221 222
223 224 225
See PCx Corp. v. Ross, 168 Ill. App. 3d 1047, 1056, 522 N.E.2d 1333, 1339 (1988). See Composite Marine Propellers, 962 F.2d at 1265. See IND. CODE §§ 24-2-3-1 to 24-2-3-8 (1982). See id. § 24-2-3-7. See Bridgestone Ams. Holding, Inc. v. Mayberry, 878 N.E.2d 189, 194, 2007 Ind. LEXIS 1154, at *11 (2007). See Coleman v. Vukovich, 825 N.E.2d 397, 405 (Ind. Ct. App. 2005). See, e.g., College Life Ins. Co. v. Austin, 466 N.E.2d 738, 743 (Ind. Ct. App. 1984); Steenhoven v. College Life Ins. Co., 460 N.E.2d 973, 975 n.6 (Ind. Ct. App. 1984); Fleming Sales Co. v. Bailey, 611 F. Supp. 507, 513 (N.D. Ill. 1985); Xpert Automation Sys. Corp. v. Vibromatic Co., 569 N.E.2d 351, 355 (Ind. Ct. App. 1991). See Michels v. Dyna-Kote Indus., Inc., 497 N.E.2d 586, 589 (Ind. Ct. App. 1986). See Amoco Prods. Co. v. Laird, 622 N.E.2d 912, 920, 30 U.S.P.Q. 2d (BNA) 1515, 1521 (Ind. 1993). See id. at 916, 30 U.S.P.Q.2d (BNA) at 1518; see also Xpert Automation Sys., 569 N.E.2d at 355.
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336 Appendix because they could be discovered through reverse engineering by a skilled person.226 A trade secret owner is required to take reasonable, but not extravagant, measures to protect the secrecy of information.227 The failure to take even elementary measures to protect trade secrets is, of course, fatal.228 Disclosure to others outside of a confidential relationship will destroy any legal protection.229 Protection was denied to information contained on a Web site because the site was accessible without restriction, without a paid subscription, and without a password.230 In Credentials Plus, L.L.C. v. Calderone, a federal district court held that information may derive “independent economic value” sufficient to qualify for protection under the Indiana UTSA even if it does not confer a competitive advantage on its owner.231 A misappropriation by a former employee is not attributable to a new employer under the doctrine of respondeat superior because the doctrine conflicts with the Indiana UTSA.232 It is unclear whether Indiana courts will apply the doctrine of “inevitable disclosure.” The few decisions to address the doctrine have expressed mixed views. In Bridgestone/Firestone, Inc. v. Lockhart, the court found the holding in PepsiCo, Inc. v. Redmond 233 instructive but found no inevitable disclosure on the facts because the former employee had not attempted to take confidential information.234 Two other decisions have appeared to embrace the doctrine, at least for the purpose of enforcing a restrictive covenant.235 The Supreme Court of Indiana approved the entry of a “permanent” injunction in Wolfe v. Tuthill Corp., but noted that a trial court maintains jurisdiction to modify or revoke an injunction as circumstances may require.236 At
226 See Flotec, Inc. v. S. Research, Inc., 16 F. Supp. 2d 992, 1009 (S.D. Ind. 1998). 227 See id. at 1000. 228 See Paramanandam v. Herrmann, 827 N.E.2d 1173, 1180 (Ind. Ct. App. 2005); Coleman v. Vukovich, 825 N.E.2d 397, 405–06 (Ind. Ct. App. 2005); Zemco Mfg. v. Navistar Int’l Transp. Corp., 759 N.E.2d 239, 247 (Ind. Ct. App. 2001). 229 See Coleman, 825 N.E. 2d at 405–06. 230 See Paramanandam v. Herrmann, 827 N.E.2d at 1180. 231 See Credentials Plus, L.L.C. v. Calderone, 230 F. Supp. 2d 890, 900 (N.D. Ind. 2002). But see Steenhoven v. College Life Ins. Co., 460 N.E.2d 973, 974 (Ind. Ct. App. 1984) (policyholder list was not trade secret because it had no value in the hands of another). 232 See Infinity Prods., Inc. v. Quandt, 810 N.E.2d 1028, 1034, 2004 Ind. LEXIS 603, at *16 (Ind. Ct. App. 2004). 233 PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995). 234 See Bridgestone/Firestone, Inc. v. Lockhart, 5 F. Supp. 2d 667, 682 (S.D. Ind. 1997). 235 See Schlumberger Well Servs. v. Blaker, 623 F. Supp. 1310, 1314, 1318 (S.D. Ind. 1985) (enjoining use of information but finding that noncompete agreement was not supported by adequate consideration), aff’d, 859 F.2d 512 (7th Cir. 1988); Ackerman v. Kimball Int’l, Inc., 652 N.E.2d 507, 510 (Ind. 1995). 236 See Wolfe v. Tuthill Corp., 532 N.E.2d 1, 3 (Ind. 1988).
Indiana the other end of the spectrum, the Supreme Court approved a one-year injunction to prevent a threatened trade secret misappropriation.237 In Indiana, the proper measure for a lost profits award is net profits, not gross profits. The courts reason that a plaintiff should not receive a windfall in the form of lost gross income that include operating expenses never incurred as a result of the misappropriation.238 A court may also hold an employer liable under the doctrine of respondeat superior for the unauthorized use of a trade secret by an employee, and both can be liable for punitive damages.239 Indiana courts have not defined the extent to which ancillary claims may be preempted by the Indiana UTSA. In one case, conversion and theft claims were held not preempted because they were not based solely on the misappropriation of a trade secret. However, a claim for tortious interference with prospective business advantage that depended solely on the misappropriation of trade secrets was held preempted.240 Indiana defines trade secrets as a type of property that can be subject to the crime of theft. Accordingly, a trade secret owner may seek criminal prosecution of a misappropriation under state laws.241 Indiana enforces noncompete agreements if they are reasonable, and reasonableness is a question of law.242 The courts apply “strict scrutiny” to evaluate restrictive covenants and find them reasonable only when the restraint is reasonably necessary to protect the employer without being unreasonable restrictive on the employee.243 An otherwise unenforceable covenant not to compete does not become enforceable solely because an employee is in possession of trade secrets.244 A noncompete agreement is proper to protect trade secrets or other legitimate interests of the employer and, when trade secrets are involved, may extend beyond the area of the former employee’s employment.245 The “blue-pencil” rule is applied only if a covenant is severable, allowing the reasonable parts to be enforced. A court will apply the terms
237 See Ackerman, 652 N.E.2d at 511. 238 See Infinity Prods., Inc. v. Quandt, 775 N.E.2d 1144, 1155 (Ind. Ct. App. 2002), vacated, 810 N.E.2d 1028 (Ind. 2004). 239 See id. at 1154. 240 See Patriot Homes, Inc. v. Forest River Housing Inc., 489 F. Supp. 2d 865, 873 (N.D. Ind. 2007), vacated in part, 512 F.3d 412 (7th Cir. 2008). 241 See Century Personnel, Inc. v. Brummett, 499 N.E.2d 1160, 1163 (Ind. Ct. App. 1986). 242 See Harvest Ins. Agency, Inc. v. Inter-Ocean Ins. Co., 492 N.E.2d 686, 688 (Ind. 1986); see also Press-A-Dent, Inc. v. Weigel, 849 N.E.2d 661, 669 (Ind. Ct. App. 2006). 243 See Harvest Ins. Agency, Inc., 492 N.E.2d at 689. 244 See Ackerman v. Kimball Int’l, 652 N.E.2d 507, 508 (Ind. 1995). 245 See Donahue v. Permacel Tape Corp., 127 N.E.2d 235, 238 (Ind. 1955); Raymundo v. Hammond Clinic Ass’n, 405 N.E.2d 65, 68–69 (Ind. Ct. App. 1980), vacated, 449 N.E.2d 276 (Ind. 1983).
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338 Appendix that exist in a contract but will not add new terms.246 Even if a noncompete clause is unenforceable, a court may enforce a covenant not to solicit an employer’s customers.247
H. Maryland In Maryland, the UTSA took effect without modification in 1989.248 Maryland provides a three-year statute of limitations subject to the discovery rule.249 The statute of limitations is tolled until the plaintiff knows or has reason to know of the wrongful conduct.250 Strict proof of ownership of a trade secret is not necessary to prosecute a misappropriation claim.251 Possession, as opposed to ownership or right to title, is all that is required. A plaintiff may show either that it developed a trade secret or that it is otherwise in lawful possession of it.252 A secret may be protectable even if it is shared with others. A plaintiff may prosecute a misappropriation action involving trade secrets that have been shared with the government subject to secrecy protections.253 For a misappropriation to occur, one must either acquire the trade secret by improper means or disclose it without consent.254 A trade secret owner must take reasonable steps to ensure the secrecy of its technology.255 Customized software and customer lists compiled over time and carefully guarded are protectable.256 The existence of a trade secret is a conclusion of law based upon the applicable facts.257 Maryland appears to reject the “inevitable disclosure” doctrine. A federal decision explained that the doctrine “has not been expressly adopted by the
246 See Dearborn v. Everett J. Prescott, Inc., 486 F. Supp. 2d 802, 810 (S.D. Ind. 2007); Licocci v. Cardinal Assocs. Inc., 445 N.E.2d 556, 561 (Ind. 1983). 247 See Dicen v. New Sesco, Inc., 839 N.E.2d 684, 688 (Ind. 2005). 248 See MD. CODE ANN., COM. LAW §§ 11-1201 to 11-1209 (1989). 249 See id. § 11-1206. 250 See Kardios Sys. Corp. v. Perkins-Elmer Corp., 645 F. Supp. 506, 510 (D. Md. 1986). 251 See DTM Research, L.L.C. v. AT&T Corp., 245 F.3d 327, 331–32 (4th Cir. 2001). 252 See id. at 331. 253 MD. CODE ANN., COM. LAW § 11-1205 (1989). 254 See Diamond v. T. Rowe Price Assocs., 852 F. Supp. 372, 412 (D. Md. 1994). 255 See Contract Materials Processing, Inc. v. KataLeuna GmbH Catalysts, 303 F. Supp. 2d 612, 616 (D. Md. 2003). 256 See NaturaLawn of Am., Inc. v. West Group, L.L.C., 484 F. Supp. 2d 392, 399 (D. Md. 2007) (granting injunctive relief). 257 See Home Paramount Pest Control Cos. v. FMC Corp., 107 F. Supp. 2d 684, 692 (D. Md. 2000).
Maryland Maryland state courts,”258 and a subsequent state decision viewed California law favorably.259 In Optic Graphics, Inc. v. Agee, a Maryland appellate court compared and contrasted the UTSA with Section 757 of the Restatement (First) of Torts.260 It concluded that although a trade secret need no longer be “used in one’s business” to be protectable, the Restatement nonetheless provides helpful guidance in applying the UTSA. The court construed the requirement that trade secret information derive “independent economic value” as requiring that the information potentially be valuable or useful to others.261 Under Maryland law, the plaintiff’s attorneys’ fees may not be considered in awarding actual damages, but the prevailing party’s fees may be considered by a jury in awarding punitive damages.262 Maryland classifies restrictive covenants in three ways: (1) covenants related to the sale of the goodwill of a business, (2) covenants in an employment agreement that seek to protect customer lists and customer contacts, and (3) covenants in an employment agreement that seek to protect trade secrets.263 In general, a covenant not to compete will be enforced if it is reasonably necessary to protect the business interests of the employer and is confined by temporal and geographic limits no greater than necessary to protect those interests.264 However, a covenant not to compete may not impose an undue hardship on the employee or disregard the public interest.265 In one case, a covenant that prohibited an insurance agent from soliciting former customers for one year was held to be unreasonable.266 Maryland law differs from that of many states in holding that an employer’s agreement not to terminate an existing employment relationship may provide sufficient consideration to render enforceable a noncompete agreement entered into by an employee during the
258 See Padco Advisors, Inc. v. Omdahl, 179 F. Supp. 2d 600, 611 (D. Md. 2002). 259 See LeJeune v. Coin Acceptors, Inc., 849 A.2d 451, 471 (Md. 2004) (“Maryland has a policy in favor of employee mobility similar to that of California.”). 260 See Optic Graphics, Inc. v. Agee, 87 Md. App. 770, 783, 591 A.2d 578, 584 (1991). 261 See id. at 783–84, 591 A.2d at 585. It further held that sanctions are not awardable for pursing an action in bad faith unless the action was pursued “without any color and taken for improper purposes.” Id. at 790, 591 A.2d at 588. 262 See St. Luke Evangelical Lutheran Church, Inc. v. Smith, 318 Md. 337, 346–47, 568 A.2d 35, 39 (1990). 263 See Tabs Assocs., Inc. v. Brohawn, 59 Md. App. 330, 336–37, 475 A.2d 1203, 1207 (1984). 264 See id. at 338–39, 475 A.2d at 1208; see also Nationwide Mut. Ins. Co. v. Hart, 73 Md. App. 406, 412, 534 A.2d 999, 1002 (1988); Budget Rent-A-Car, Inc. v. Raab, 268 Md. 478, 482, 302 A.2d 11, 13 (Ct. App. 1973). 265 See Tabs Assocs., 59 Md. App. at 340–41, 475 A.2d at 1209. 266 See Nationwide Mut. Ins., 73 Md. App. 406, 534 A.2d 999.
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I. Massachusetts Massachusetts trade secret law largely follows the Restatement (First) of Torts (1939), which explains in Section 757 that: One who discloses or uses another’s trade secret, without a privilege to do so, is liable to the other if (a) he discovered the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him, or (c) he learned the secret from a third person with notice of the facts that it was a secret and that the third person discovered it by improper means or that the third person’s disclosure of it was otherwise a breach of his duty to the other, or (d) he learned the secret with notice of the facts that it was a secret and that its disclosure was made to him by mistake.
Massachusetts has also adopted the definition of “trade secret” from comment (b) to Section 757: A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. It differs from other secret information in a business . . . in that it is not simply information as to single or ephemeral events in the conduct of the business, as, for example, the amount or other terms of a secret bid for a contract or the salary of certain employees, or the security investments made or contemplated, or the date fixed for the announcement of a new policy or for bringing out a new model or the like. A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article. It may, however, relate to the sale of goods or to other operations in the business, such as a code for determining discounts, rebates or other concessions in a price list or catalogue, or a list of specialized customers, or a method of bookkeeping or other office management.
267 See Simko, Inc. v. Graymar Co., 55 Md. App. 561, 464 A.2d 1104 (1983). 268 See Nationwide Mut. Ins. Co., 73 Md. App. at 413, 534 A.2d at 1002.
Massachusetts Massachusetts therefore allows common-law claims to be brought under the Restatement.269 In addition, Massachusetts has enacted specific trade secret statutes. One allows the award of double damages for a trade secret theft: Whoever embezzles, steals or unlawfully takes, carries away, conceals, or copies, or by fraud or deception obtains, from any person or corporation, with intent to convert to his own use, any trade secret, regardless or value, shall be liable in tort to such person or corporation for all damages resulting therefrom. Whether or not the case is tried by a jury, the court, in its discretion, may increase the damages up to double the amount found.270
The Massachusetts statute also provides for injunctive relief, notably authorizing the courts to enforce noncompete agreements to protect trade secrets after a misappropriation has occurred: Any aggrieved person may file a petition in equity in the supreme judicial court or in the superior court for the county in which either the petitioner or the respondent resides or transacts business, or in Suffolk County, to obtain appropriate injunctive relief including orders or decrees restraining and enjoining the respondent from taking, receiving, concealing, assigning, transferring, leasing, pledging, copying or otherwise using or disposing of a trade secret, regardless of value. . . . In an action by an employer against a former employee under the provisions of this section for the conversion of a trade secret and where such conversion is in violation of the terms of a written employment agreement between said employer and employee, said employer shall, upon petition, be granted a preliminary injunction if it is shown that said employee is working in a directly competitive capacity with his former employer in violation of the terms of such agreement and that in violation of the terms of such agreement said employee has used such trade secret in such competition.271
The foregoing civil statutes do not rely on the Restatement (First) of Torts definition of “trade secret” but rather incorporate the definition of “trade secret” taken from the Massachusetts larceny statute: The term “trade secret” as used in this paragraph means and includes anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement.272
269 See Burten v. Milton Bradley Co., 763 F.2d 461, 463 (1st Cir. 1985); J.T. Healy & Son, Inc. v. James A. Murphy & Son, Inc., 357 Mass. 728, 736, 260 N.E.2d 723, 729 (1970). 270 MASS. ANN. LAWS ch. 93, § 42 (1975). 271 Id. § 42A. 272 Id. ch. 266, § 30 (2007).
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Appendix Massachusetts courts also apply the six-factor test of secrecy of the Restatement (First) of Torts273: The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. Matters which are completely disclosed by the goods which one markets cannot be his secret. Substantially, a trade secret is known only in the particular business in which it is used. It is not requisite that only the proprietor of the business know it. He may, without losing his protection, communicate it to employees involved in its use. He may likewise communicate it to others pledged to secrecy. Others may also know of it independently, as, for example, when they have discovered the process or formula by independent invention and are keeping it secret. Nevertheless, a substantial element of secrecy must exist, so that, except by the use of improper means, there would be difficulty in acquiring the information. An exact definition of a trade secret is not possible. Some factors to be considered in determining whether given information is one’s trade secret are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; [and] (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.
As under the Restatement, in Massachusetts information must be in continuous use to be protectable.274 Massachusetts also imposes a strict obligation on owners to protect their trade secrets. A trade secret owner must provide constant warnings to all persons to whom the trade secret has become known; must obtain their agreement, preferably in writing, acknowledging the secrecy of the information and promising to respect it; and must have taken affirmative steps to preserve the secrecy of the information against any alleged misappropriator.275 To prove a claim for misappropriation, a plaintiff must ordinarily show that it shared a confidential relationship with the defendant, possessed a trade secret, disclosed it to the defendant, and that the defendant used the trade secret in breach of the confidence.276 An agreement attempting to prevent the
273 See Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 939, 466 N.E.2d 138, 140 (1984); Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840, 282 N.E.2d 921, 925 (1972). 274 See Trimless-Flashless Design, Inc. v. Thomas & Betts Corp., 34 Fed. Appx. 913, 915 (4th Cir. 2002). 275 See Incase, Inc. v. Timex Corp., 488 F.3d 46, 53 (1st Cir. 2007) (citing J.T. Healy & Son, Inc. v. James A. Murphy & Son, Inc., 357 Mass. 728, 737–39, 260 N.E.2d 723, 730–31 (1970)). 276 See Burten v. Milton Bradley Co., 763 F.2d 461, 463 (1st Cir. 1985).
Massachusetts establishment of a confidential relationship must specifically waive the confidentiality in express terms.277 In contrast to the general rule in UTSA states, Massachusetts allows trade secret misappropriation claims when the information at issue could have been, but was not, obtained by reverse engineering a product sold publicly.278 In such cases, any damages and injunctive relief are measured by the “head start” gained by the misappropriator.279 Otherwise, actual and punitive damages may be awarded and any defendants who mutually enjoy the benefits of a misappropriation may be held jointly liable.280 The damage award ordinarily reflects the unjust enrichment of the defendant because of its exploitation of the trade secret but may consist of the plaintiff’s losses or the defendant’s profits, whichever are greater.281 A reasonable royalty is the proper measure of damages only if the defendant has made no actual profit and the plaintiff is unable to prove a specific loss.282 In contrast to UTSA states, Massachusetts makes no provision for attorneys’ fees in trade secret cases.283 To obtain a preliminary injunction in Massachusetts, a plaintiff much demonstrate that (1) it has a reasonable likelihood of success on the merits, (2) it will suffer irreparable harm if the injunction is not granted, and (3) the harm to the plaintiff if the injunction is denied will outweigh the harm to the defendant if the injunction is granted.284 Only rights that are not capable of vindication by a final judgment, either at law or in equity, qualify as irreparably lost.285 Massachusetts courts are not inclined to grant preliminary injunctive relief based on the “inevitable disclosure” doctrine but will issue a protective order prohibiting the use or disclosure of trade secrets.286
277 See id. 278 See Analogic Corp. v. Data Translation, Inc., 371 Mass. 643, 647–48, 358 N.E.2d 804, 807 (1976). 279 See id. 280 See Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 844, 282 N.E.2d 921, 927 (1972). 281 See USM Corp. v. Marson Fastener Corp., 392 Mass. 334, 338–39, 467 N.E.2d 1271, 1276–77 (1984). 282 See Curtiss-Wright Corp. v. Edel-Brown Tool & Die Co., 381 Mass. 1, 12, 407 N.E.2d 319, 327 (1980). 283 See Data Gen. Corp. v. Grumman Sys. Support Corp., 825 F. Supp. 340, 345–46 (D. Mass. 1993) (allowing plaintiff to rely on the Copyright Act to seek award of attorneys’ fees and costs). 284 See Campbell Soup Co. v. Giles, 47 F.3d 467, 470 (1st Cir. 1995). 285 See id. 286 See Architext, Inc. v. Kikuchi, No. 0500600, 20 Mass. L. Rptr. 127, 2005 WL 2864244 (Mass. Super. Ct. May 19, 2005).
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Appendix Massachusetts courts sometimes have purported to apply the “inevitable disclosure” doctrine as a basis for enforcing a noncompete agreement, sometimes have refused to apply the doctrine, and sometimes have displayed agnosticism concerning its applicability.287 As in most UTSA states, Massachusetts applies a three-year statute of limitations subject to the “discovery rule,” in which the limitations period does not begin until the owner has had a reasonable opportunity to discover the trade secret misappropriation.288 Massachusetts, however, also applies the New York rule that if the trade secret is used but not converted totally or destroyed, each separate use will give rise to a separate cause of action.289 The same limitations period applies to claims for unjust enrichment resulting from the unlawful use of trade secrets.290 Massachusetts will enforce noncompete agreements that are no broader than necessary to protect an employer’s legitimate interests such as the protection of trade secrets or confidential information.291 An employee may be enjoined from using confidential information even if the information is merely memorized.292 Massachusetts courts are permitted to reform a covenant by reducing an unreasonable time or territorial limit, provided that the terms in the contract are reasonably divisible.293 Agreements to forfeit deferred compensation if an employee enters into competition with an employer are analyzed in the same manner as restrictive covenants. The amount and nature
287 See Campbell Soup Co., 47 F.3d at 468 (noting that under the circumstances of the case, inevitable disclosure was not likely); Safety-Kleen Sys., Inc. v. McGinn, 233 F. Supp. 2d 121, 124 (D. Mass. 2002) (rejecting any use of the doctrine absent a showing of actual disclosure); New Eng. Circuit Sale v. Randall, 1996 WL 1171929, at *3 (D. Mass. June 4, 1996) (relying on doctrine to prohibit employment during noncompete term when former employer proved existence of trade secret and irreparable harm); Marcam Corp. v. Orchard, 885 F. Supp. 294, 297 (D. Mass. 1995) (relying on doctrine to grant injunction in support of noncompete agreement); C.R. Bard, Inc. v. Intoccia, No. 94-11568-Z, 1994 WL 601944, at *3 (D. Mass. Oct. 13, 1994) (applying doctrine to enforce a noncompetition agreement); Architext, 20 Mass. L. Rptr. 127, 2005 WL 2864244, at *3 (noting that doctrine has not been adopted in Massachusetts). 288 See Prescott v. Morton Int’l, Inc., 769 F. Supp. 404, 408 (D. Mass. 1990). 289 See id. 290 See id. 291 See Scully Signal Co. v. Guay, No. 071740, 2007 WL 1977714, at *1 (Mass. Super. Ct. June 7, 2007); Speechworks Int’l, Inc. v. Cote, No. 024411BLS, 2002 WL 31480290, at *3 (Mass. Super. Ct. Oct. 11, 2002); Cereva Networks, Inc. v. Lieto, No. 01-3835, 13 Mass. L. Rptr. 694, 2001 WL 1228040, at *5 (Mass. Super. Ct. Oct. 12, 2001). 292 See Boch Toyota, Inc. v. Klimoski, No. 04966, 18 Mass. L. Rptr. 80, 2004 WL 1689770, at *3 (Super. Ct. June 28, 2004). 293 See Abramson v. Blackman, 340 Mass. 714, 716, 166 N.E.2d 729, 730 (1960).
Michigan 345 of the forfeiture are subject to modification so that the terms and conditions are reasonable.294
J. Michigan The UTSA became effective in Michigan as of October 1, 1998.295 Michigan provides a three-year statute of limitations for misappropriation claims, subject to the discovery rule.296 Michigan courts hold that a party alleging trade secret misappropriation must identify the allegedly misappropriated trade secrets with specificity.297 The description of the claimed trade secrets should not be vague or overly inclusive.298 If the allegations of trade secret misappropriation in the complaint are general in nature, the complaint may be subject to dismissal.299 Michigan courts view trade secrets as including a wide array of commercial and technical information. Trade secrets may include plans, processes, tools, mechanisms, and compounds.300 Michigan also protects nontechnical information.301 Michigan law has been applied to protect customer information belonging to a business as a trade secret and to enforce a noncompete agreement protecting such information over the objection that a customer should have the right to deal with whomever he or she chooses.302 The identities of customers on a delivery route cannot constitute a trade secret.303 Even in the absence of any contractual obligation, Michigan law imposes a duty on employees not to use or disclose confidential information acquired
294 See Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 313, 432 N.E.2d 566, 568 (1982); Cheney v. Automatic Sprinkler Corp., 377 Mass. App. 141, 148, 385 N.E.2d 961, 965 (1979). 295 See MICH. COMP. LAWS §§ 445.1901–445.1910 (1988); MICH. STAT. ANN. §§ 19.902– 19.910 (1984). 296 See MICH. COMP. LAWS § 445.1906. 297 See Utilase, Inc. v. Williamson, Nos. 98-1233, 98-1320, 1999 U.S. App. LEXIS 22452, at *18 (6th Cir. Sept. 10, 1999); Vector Envtl. Group, Inc. v. 3M Co., No. 06-CV11264, 2006 WL 3004086, at *2 (E.D. Mich. Oct. 20, 2006); Compuware v. IBM, No. 02-CV-70906, 2003 WL 23212863, at *6 (E.D. Mich. Dec. 19, 2003). 298 See Compuware, 2003 WL 23212863, at *6. 299 See Wedin v. Atherholt, 298 Mich. 142, 145–46, 298 N.W. 483, 485 (1941). 300 See Hayes-Albion Corp. v. Kuberski, 421 Mich. 170, 183, 364 N.W.2d 609, 615 (1984). 301 See Merrill Lynch v. Ran, 67 F. Supp. 2d 764, 775 (E.D. Mich. 1999). 302 See Hayes-Albion, 421 Mich. at 183–84, 364 N.W.2d at 615. 303 See Fed. Laundry Co. v. Zimmerman, 218 Mich. 211, 213–14, 187 N.W. 335, 336 (1922).
346 Appendix during the course of employment.304 Such information may include customer preferences, customer lists compiled with great effort and expense, market research, and analyses of customer needs.305 A Michigan court declined to impute liability to a new employer for its employee’s trade secret misappropriation after the employee twice represented that he had not misappropriated secrets from a former employer.306 A plaintiff must show that it has taken sufficient measures to protect the confidentiality of its trade secret information. Such measures may include an express agreement restricting disclosure to third parties, disclosures made only in confidence in the tacit understanding that the information shared is confidential, or security precautions that ensure that only a limited number of persons gain access to the information.307 An agreement to keep information confidential will not, however, entitle otherwise unprotectable information to trade secret protection.308 Absolute secrecy is not required and a court may forgive a limited improper disclosure of information provided that the information disclosed remains relatively secret. In one case, a company deposited an unredacted copy of computer software in the U.S. Copyright Office. The evidence showed that no one other than the plaintiff and its licensees had access to the software before the commencement of litigation and the court noted that a deposit copy in the Copyright Office is not really subject to duplication under Copyright Office regulations.309 In contrast, information that can readily be obtained under the Michigan Freedom of Information Act statute cannot be subject to trade secret protection.310 The Michigan UTSA has been interpreted as preempting claims for unjust enrichent and conspiracy based upon trade secret misappropriation but not a claim for “palming off.”311 It has also been held to preempt a claim for
304 See id. at 214, 187 N.W. at 336. 305 See Compuware v. IBM Corp., No. 02-CV-70906, 2003 WL 23212863, at *7 (E.D. Mich. Dec. 19, 2003); Merrill Lynch v. Ran, 67 F. Supp. 2d 764, 775 (E.D. Mich. 1999); see also Chem-Trend, Inc. v. McCarthy, 780 F. Supp. 458, 460 (E.D. Mich. 1991) (breach of fiduciary duty to use customer preference information). 306 See Integrated Bar Coding Sys. Co. v. Wemert, No. 04-60271, 2007 WL 496464, at *12 (E.D. Mich. Feb. 12, 2007). 307 See id; see also Glucol Mfg. Co. v. Schulist, 239 Mich. 70, 73, 214 N.W. 152, 153 (1927). 308 See Raymond James & Assocs. v. Leonard & Co., 411 F. Supp. 2d 689, 696 (E.D. Mich. 2006). 309 See Compuware Corp. v. Serena Software Int’l, Inc., 77 F. Supp. 2d 816, 821 (E.D. Mich. 1999). 310 See Blue Cross v. Ins. Bureau Hearing Officer, 104 Mich. App. 113, 133, 304 N.W.2d 499, 507 (1981). 311 See Wysong Corp. v. M.I. Indus., 412 F. Supp. 2d 612, 623 (E.D. Mich. 2005).
Michigan 347 tortious interference that was based solely on an alleged trade secret misappropriation.312 Michigan courts protect trade secrets through the issuance of temporary and permanent injunctions. In seeking an injunction, a plaintiff has the burden of establishing by a preponderance of the evidence an actual or threatened misappropriation. The mere showing of apprehension of injury is insufficient.313 Michigan courts hold that the grant of permanent injunctive relief is inappropriate if a trade secret has become available to members of the public even if the defendant acquired the trade secret unfairly through a breach of confidence.314 If a permanent injunction issues, it may be dissolved when the defendant demonstrates that the trade secret has become public knowledge.315 An injunction will not issue to prevent a third party from disclosing trade secrets.316 Michigan courts have generally, but not uniformly, been hostile to the “inevitable disclosure” doctrine. In CMI International, Inc. v. Intermet International Corp., a court implicitly rejected the doctrine: Even assuming that the concept of “threatened misappropriation” of trade secrets encompasses a concept of inevitable disclosure, that concept must not compromise the right of employees to change jobs. Accordingly, we hold that for a party to make a claim of threatened misappropriation, whether under a theory of inevitable disclosure or otherwise, the party must establish more than the existence of generalized trade secrets and a competitor’s employment of the party’s former employee who has knowledge of trade secrets.317
312 See Compuware v. IBM, No. 02-CV-70906, 2003 WL 23212863, at *8 (E.D. Mich. Dec. 19, 2003); see also Bliss Clearing Niagara, Inc. v. Midwest Brake Bond Co., 270 F. Supp. 2d 943, 949–50 (W.D. Mich. 2003) (tortious interference and unfair competition claims held preempted to the extent they were based on the theft or misuse of trade secrets.) 313 See Dutch Cookie Mach. Co. v. Vande Vrede, 289 Mich. 272, 280, 286 N.W. 612, 615 (1939). 314 See Kubik, Inc. v. Hull, 56 Mich. App. 335, 361–62, 224 N.W.2d 80, 93 (1974) (applying the rule of Conmar Prods. Corp. v. Universal Slide Fastener Co., 172 F.2d 150, 155– 56 (2d Cir. 1949)). 315 See Hayes-Albion, 421 Mich. at 190, 364 N.W.2d at 618. 316 See Ford Motor Co. v. Lane, 67 F. Supp. 2d 745, 746, 750 (E.D. Mich. 1999) (First Amendment prohibited prior restraint on third-party speech). 317 See CMI Int’l, Inc. v. Intermet Int’l Corp., 251 Mich. App. 125, 133–34, 649 N.W.2d 808, 813 (2002) (citation omitted); see also Degussa Admixtures, Inc. v. Burnett, 471 F. Supp. 2d 848, 856 (W.D. Mich. 2007) (citing CMI with approval and explaining that the “doctrine has never been adopted in Michigan and, even where it has been discussed, it has only been suggested to be applicable to high executives and key designers of the company’s strategic plans and operations”); Kelly Servs, Inc. v. Greene, 535 F. Supp. 2d 180, 188 (D. Me. 2008) (declining to apply “inevitable disclosure” doctrine in the absence of specific acts of actual or threatened misappropriation) (applying Michigan law).
348
Appendix Other Michigan courts have flatly rejected the doctrine318 or, in a few instances, seemingly accepted it.319 Michigan courts will compensate the owner of a trade secret for any loss caused by the secret’s unauthorized use or disclosure.320 In assessing damages, a court may consider the time, labor, and money expended by the owner to develop the trade secret and the profits lost as a result of the misappropriation. In addition, a plaintiff may be entitled to unjust enrichment damages.321 Michigan has always allowed the enforcement of covenants not to compete designed to protect trade secrets322 and covenants associated with the sale of the goodwill of a business.323 Michigan courts have also upheld covenants requiring that an employee consult with a company for a set number of years after termination of employment.324 Since 1985, a Michigan statute has provided that an employer may require an employee to enter into a covenant that protects an employer’s reasonable competitive business interests but that permits subsequent competitive employment on condition that the agreement is reasonable as to duration, geographic area, and type of employment or line of business being restrained.325 Michigan courts have upheld noncompete agreements with durations ranging from six months to three years.326
318 See Leach v. Ford Motor Co., 299 F. Supp. 2d 763, 775 (E.D. Mich. 2004) (rejecting application of the doctrine); Superior Consultant Co. v. Bailey, No. 00-CV-73439, 2000 U.S. Dist. LEXIS 13051, at *34, *37, 2000 WL 1279161, at *11–12 (E.D. Mich. Aug. 22, 2000) (distinguishing PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995), from the facts of the case and requiring “demonstrated inevitability” as mandated by PepsiCo to enjoin employment under the doctrine, but enforcing a covenant not to compete). 319 See United Rentals, Inc. v. Keizer, 202 F. Supp. 2d 727, 741 (W.D. Mich. 2002) (predicting in dictum that Michigan would adopt the doctrine but declining to apply it based on the facts of the case), aff’d, 355 F.3d 399 (6th Cir. 2004); Hoskins Mfg. Co. v. PMC Corp., 47 F. Supp. 2d 852, 856 (E.D. Mich. 1999) (recognizing the doctrine in dictum but finding it inapplicable because there was no “substantial threat” of trade secret disclosure); Allis-Chalmers Mfg. Co. v. Cont’l Aviation & Eng’g Corp., 255 F. Supp. 645, 654 (E.D. Mich. 1966) (applying the doctrine to enjoin an employee from engaging in the development of an injection pump); see also Kelly Servs. v. Noretto, 495 F. Supp. 2d 645, 659 (E.D. Mich. 2007) (granting preliminary injunction based on likelihood that trade secret owner would prove theft). 320 See Kubik, Inc. v. Hull, 56 Mich. App. 335, 369, 224 N.W.2d 80, 97 (1974). 321 See Hayes-Albion Corp. v. Kuberski, 421 Mich. 170, 187, 364 N.W.2d 609, 617 (1984). 322 See Fed. Screw Works v. Interface Sys., Inc., 569 F. Supp. 1562, 1564 (E.D. Mich. 1983). 323 See Follmer, Rudzewicz & Co.. v. Kosco, 420 Mich. 394, 402–03, 362 N.W.2d 676, 680–81 (1984). 324 See Good v. Modern Globe Inc., 346 Mich. 602, 609, 78 N.W.2d 199, 203 (1956). 325 See MICH. COMP. LAWS § 445.774a (1988). 326 See Whirlpool Corp. v. Burns, 457 F. Supp. 2d 806, 813 (W.D. Mich. 2006).
Minnesota
K. Minnesota Minnesota adopted the UTSA effective as of January 1, 1981.327 Minnesota law provides for a three-year statute of limitations subject to the discovery rule.328 The statute of limitations does not begin to run based solely on concerns or suspicions that a misappropriation may have occurred.329 In enacting the UTSA, Minnesota omitted Section 8 which states that the UTSA, “shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this [Act] among states enacting it.” The Minnesota Act was first construed in Electro-Craft Corp. v. Controlled Motion, Inc.330 The court held that the UTSA explained and clarified many of the common-law rules of trade secrets.331 The court also explained that information is “not generally known or readily ascertainable” if it cannot be readily or “quickly” reverse engineered332 and further explained that although the degree of novelty required for patentability is not a prerequisite to trade secret protection, some novelty is required in that new variations on widely used information cannot be protected.333 Whether information constitutes a protectable trade secret is considered a mixed question of law and fact.334 In Minnesota, a plaintiff should be prepared to identify the claimed trade secrets in issue at the outset of a litigation.335 Under the Minnesota UTSA, if the claimed trade secret is a process, it is the secrecy of the process as a whole, rather than the individual elements, that determines whether a trade secret exists.336 Accordingly, a unique combination of known features can be a trade secret,337 including generally known elements of a computer program.338
327 See MINN. STAT. ANN. §§ 325C.01–325C.08 (2007). 328 See id. § 325C.06. 329 See Wyeth v. Natural Biologics, Inc., No. Civ. 98-2469 (NJE/JGL), 2003 WL 22282371, at *21 (D. Minn. Oct. 2, 2003), aff’d, 395 F.3d 897 (8th Cir. 2005). 330 Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890 (Minn. 1983). 331 See id. at 898. 332 Id. at 899. 333 See id. 334 See Naterra Land, Inc. v. Dingmann, No. 27-CV-05-16624, 2006 WL 1767967, at *5 (Minn. Dist. Ct. June 26, 2006). 335 See Porous Media Corp. v. Midland Brake, Inc., 187 F.R.D. 598, 599–600 (D. Minn. 1999) (observing that “[o]rdering the listing of trade secrets at the outset of the litigation is a common requirement,” and noting that such a list is “a starting point for more particular discovery”). 336 See Wyeth v. Natural Biologics, Inc., No. Civ. 98-2469 (NJE/JGL), 2003 WL 22282371, at *19 (D. Minn. Oct. 2, 2003), aff’d, 395 F.3d 897 (8th Cir. 2005). 337 See Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 899 (Minn. 1983). 338 See Jostens, Inc. v. Nat’l Computer Sys., Inc., 318 N.W.2d 691, 699, 214 U.S.P.Q. (BNA) 918, 923 (Minn. 1982).
349
350 Appendix Electro-Craft explained that the secrecy requirement depends upon a continuing course of conduct by the plaintiff that creates a confidential relationship. It noted, however, that there is a reciprocal duty on the part of an employee to treat information confidentially.339 Electro-Craft also established that absolute secrecy is not required for trade secret protection. Only partial or qualified secrecy is needed, but the law requires more than a mere intent to keep the information secret. It is therefore insufficient to store trade secret information without any physical protection or to operate without a policy safeguarding the confidentiality of important information.340 It is reasonable to protect software by requiring the use of passwords to download it and by making its use subject to license agreements.341 A trade secret owner is not required to protect against unanticipated or unpreventable losses of trade secret information.342 The requirement that information derive “independent economic value” from being kept secret was interpreted in Electro-Craft as carrying over the commonlaw requirement that the information bestow a competitive advantage on its owner.343 The information need not give a competitive advantage over all competitors as long as it provides a competitive advantage over competitors lacking similar information.344 An owner of a trade secret need not be an exclusive owner. If several entities have independently developed a trade secret, they may each claim rights in that information.345 In one case, the “independent economic value” requirement was held satisfied by a software program based upon a showing that the program was generally unknown to others and had generated $2 million in sales during the preceding four years.346 An injunction normally issues for the time necessary to protect the plaintiff’s interests. In general, that is the time necessary to allow the independent development of the protected information.347 However, in some cases, a
339 See Electro-Craft, 332 N.W.2d at 901. 340 See Gordon Employment, Inc. v. Jewell, 356 N.W.2d 738, 741 (Minn. Ct. App. 1984). 341 See I-Sys., Inc. v. Softwares, Inc., No. 02-1951 (JRT/FLN), 2004 U.S. Dist. LEXIS 6001, at *46–47 (D. Minn. Mar. 29, 2004). 342 See Aries Info. Sys., Inc. v. Pac. Mgmt. Sys. Corp., 366 N.W.2d 366, 368, 226 U.S.P.Q. (BNA) 440, 442 (Minn. Ct. App. 1985). 343 See Electro-Craft, 332 N.W.2d at 900. 344 See id.; cf. State ex rel. Humphrey v. Philip Morris Inc., 606 N.W.2d 676, 695 (Minn. Ct. App. 2000) (information compiled for litigation purposes lacked “independent economic value”). 345 See Electro-Craft, 332 N.W.2d at 900. 346 See Aries Info. Sys., 366 N.W.2d at 368, 226 U.S.P.Q. (BNA) at 442. 347 See Wyeth v. Natural Biologics, Inc., No. Civ. 98-2469 (NJE/JGL), 2003 WL 22282371, at *27 (D. Minn. Oct. 2, 2003), aff’d, 395 F.3d 897 (8th Cir. 2005).
Minnenota 351 permanent injunction may be entered.348 In considering whether to award injunctive relief, a court will consider the (1) nature of the relationship between the parties before the suit; (2) harm to the moving party if the injunction is denied, compared to the harm to the enjoined party if granted; (3) likelihood of success on the merits; (4) public interest; and (5) administrative burdens in enforcing the decree.349 If an employer cannot specify the trade secrets allegedly misappropriated, it cannot show a likelihood of success on the merits.350 Because it is not generally foreseeable that employees will engage in misappropriation, a new employer will usually not be subject to the doctrine of respondeat superior.351 Minnesota allows a successful plaintiff to recover its actual loss caused by the misappropriation and, in addition, the defendant’s unjust enrichment. In one instance, employees who had entered into confidentiality agreements with their employer misappropriated computer software that carried proprietary notices and were unable to show how they had independently developed or acquired their competing software program.352 As a consequence, the employer was awarded both the revenues gained by the defendants and the revenues it lost. In addition, a 33 percent prospective royalty was awarded against the defendants and the plaintiff was awarded both punitive damages and attorneys’ fees. Minnesota courts view the UTSA as having limited preemptive effect. Because it is not a “catchall for industrial torts,”353 a plaintiff is free to allege other claims that are not based solely on the misappropriation of trade secrets. The Minnesota UTSA does not preempt claims for tortious interference with contractual relations.354 It also does not preempt claims alleging the misuse of confidential information or trade secrets in breach of a contractual or
348 See Gordon Employment, Inc. v. Jewell, 356 N.W.2d 738, 741 (Minn. Ct. App. 1984); Wyeth, 2003 WL 22282371, at *27. 349 See Unisource Worldwide, Inc. v. Schroeder, No. Civ. 06-4007 (RHK/AJB), 2006 WL 3030887, at *3 (D. Minn. Oct. 23, 2006); Vision-Ease Lens, Inc. v. Essilor Int’l SA, 322 F. Supp. 2d 991, 994 (D. Minn. 2004); Loxtercamp, Inc. v. Belgrade Coop. Ass’n, 368 N.W.2d 299, 301 (Minn. Ct. App. 1985); Saliterman v. Finney, 361 N.W.2d 175, 177 (Minn. Ct. App. 1985). 350 See Hypred S.A. v. Pochard, No. 04-2773 (JNE/JGL), 2004 U.S. Dist. LEXIS 11293, at *14–15, 71 U.S.P.Q.2d (BNA) 1625, 1629–30 (D. Minn. June 18, 2004). 351 See Hagen v. Burmeister & Assocs., 633 N.W.2d 497, 504 (Minn. 2001) (holding that vicarious liability is unavailable “unless there is some connection between the tort and the business such that the employer in essence assumed the risk when it chose to engage in the business”). 352 See Aries Info. Sys., 366 N.W.2d at 369, 226 U.S.P.Q. (BNA) at 443. 353 Saliterman, 361 N.W.2d at 178. 354 See Cardiac Pacemakers, Inc. v. Aspen II Holding Co., 413 F. Supp. 2d 1016, 1024 (D. Minn. 2006).
352 Appendix common-law duty.355 Minnesota courts are generally hostile to the inevitable disclosure doctrine, holding that it “should not act as an ex-post-facto covenant not to compete.”356 Some decisions, however, suggest that the doctrine may be applied in rare instances.357 Courts in Minnesota view noncompete agreements with disfavor.358 The Minnesota Supreme Court has declared: “Restrictive covenants that serve primarily to prevent an employee from working for others or for himself in the same competitive field . . . constitute a form of industrial peonage without redeeming virtue in the American enterprise system.”359 Nonetheless, Minnesota courts enforce covenants not to compete if the restraint (1) seeks to protect a legitimate interest, (2) is reasonable, and (3) is not injurious to the public.360 A noncompete agreement signed by an employee during the course of employment must be supported by independent consideration.361 Under certain circumstances, offering an employee continued employment after signing a
355 See Saliterman, 361 N.W.2d at 178–79; Cherne Indus., Inc. v. Grounds & Assocs., Inc., 278 N.W.2d 81, 92, 205 U.S.P.Q. (BNA) 854, 862 (Minn. 1979). 356 See IBM Corp. v. Seagate Tech., Inc., 941 F. Supp. 98, 101 & n.1 (D. Minn. 1992) (“Merely possessing trade secrets and holding a comparable position with a competitor does not justify an injunction.”); Equus Computer Sys., Inc. v. N. Computer Sys., Inc., No. 01-657 (DWF/AJB), 2001 WL 1636487, at *5 (D. Minn. May 4, 2001) (same, noting that the Eighth Circuit had never adopted PepsiCo); cf. Medtronic, Inc. v. Sun, Nos. C7-97-1185, C9-97-1186, 1997 WL 729168, at *4 (Minn. Ct. App. Nov. 25, 1997) (“Minnesota cases clearly establish a ‘reasonableness’ test for enforcement of covenants not to compete, not an ‘inevitable disclosure’ test.”). 357 See Surgidev Corp. v. Eye Tech., Inc., 648 F. Supp. 661, 695 (D. Minn. 1986) (moving party must show that “there is a ‘high degree of probability of inevitable disclosure’”), aff’d, 828 F.2d 452 (8th Cir. 1987); NewLeaf Designs, L.L.C. v. BestBins Corp., 168 F. Supp. 2d 1039, 1043 (D. Minn. 2001) (following Surgidev); United Prods. Corp. v. Cederstrom, No. A05-1688, 2006 WL 1529478, at *5, 2006 Minn. App. Unpub. LEXIS 594, at *14 (June 6, 2006) (requiring high degree of probability); Equus Computer Sys., Inc. v. N. Computer Sys., Inc., No. 01-657 (DWF/AJB), 2002 U.S. Dist. LEXIS 13539, at *13 (D. Minn. July 22, 2002) (mere threat of misappropriation warranted injunctive relief); Reliastar Life Ins. Co. v. KMG Am. Corp., No. A05-2079, 2006 WL 2529760, at *4, 2006 Minn. App. Unpub. LEXIS 1018, at *11 (Sept. 5, 2006) (same); cf. Lexis-Nexis v. Beer, 41 F. Supp. 2d 950, 958 (D. Minn. 1999) (recognizing doctrine in dictum, but finding no trade secrets on the facts); La Calhene, Inc. v. Spolyar, 938 F. Supp. 523, 530–31 (W.D. Wis. 1996) (applying Minn. law) (enjoining former employee from disclosing trade secrets and working in a competing industry). 358 See Sandstrom v. Douglas Mach. Corp., 372 N.W.2d 89, 91 (Minn. Ct. App. 1985). 359 Eutectic Welding Alloys Corp. v. West, 160 N.W.2d 566, 571 (Minn. 1968). 360 See County Materials Corp. v. Allan Block Corp., 431 F. Supp. 2d 937, 950 (W.D. Wis. 2006) (applying Minnesota law), aff’d, 502 F.3d 730, 84 U.S.P.Q.2d (BNA) 1420 (7th Cir. 2007), cert. denied, No. 07-959, 2008 WL 194357, 76 U.S.L.W. 3510 (Mar. 24, 2008). 361 See Satellite Indus., Inc. v. Keeling, 396 N.W.2d 635, 639 (Minn. Ct. App. 1986) (citing Freeman v. Duluth Clinic, Ltd., 334 N.W.2d 626, 630 (Minn. 1983)).
Missouri noncompete agreement can be used to uphold a restrictive covenant.362 A restrictive covenant must also be reasonable in time and territory.363 A Minnesota court has discretion to “blue-pencil” an otherwise unreasonable agreement.364
L. Missouri The Missouri version of the UTSA took effect in 1995.365 Missouri modified the UTSA to provide a five-year statute of limitations subject to the discovery rule.366 In enacting the UTSA, Missouri adopted other modifications as well. The definition of a “person” who can own or misappropriate trade secrets was expressly defined to include “for profit or not for profit” entities.367 The standard for awarding exemplary damages was also changed: If misappropriation is outrageous because of the misappropriator’s evil motive or reckless indifference to the rights of others, the court may award punitive damages.368
At the same time, however, Missouri omitted Section 4 of the UTSA, which allows the award of attorneys’ fees. Missouri has also enacted a special statute to protect the secrecy of trade secrets in litigation. It states that “[a]ny material which contains trade secrets shall not be presented before any court except with the approval of the court in which the action is pending after adequate notice to the person furnishing such material.”369 It further limits the disclosure of information sought pursuant to civil investigative demands to disclosure to an authorized employee of the attorney general “unless otherwise ordered by a court for good cause shown.”370
362 See Satellite Indus., 396 N.W.2d at 639 (holding that continued employment for 11 years was sufficient consideration). But see Jostens, Inc. v. Nat’l Computer Sys., Inc., 318 N.W.2d 691, 703 (Minn. 1982) (continued employment was insufficient consideration because it did not include real advantages to the employee). 363 See Bennett v. Storz Broad. Co., 270 Minn. 525, 534, 134 N.W.2d 892, 899 (1965); Larx Co. v. Nicol, 28 N.W.2d 705, 719 (Minn. 1947) (Magney, J., dissenting). 364 See Bellboy Seafood Corp. v. Nathanson, 410 N.W.2d 349, 352 (Minn. Ct. App. 1987); Klick v. Crosstown State Bank, 372 N.W.2d 85, 88 (Minn. Ct. App. 1985). 365 See MO. REV. STAT. §§ 417.450–417.467 (1995). 366 See id. § 417.461. 367 See id. § 417.453(3). 368 Id. § 417.457(2). 369 Id. § 407.060. 370 Id.
353
354 Appendix The Missouri UTSA was first construed in Carboline v. Lebeck.371 The court denied an application for a permanent injunction based on the theory that the defendant, a former employee, would inevitably disclose trade secrets to a competitor. Since then, other Missouri cases have rejected the “inevitable disclosure” doctrine. In H & R Block Eastern Tax Services, Inc. v. Enchura, the court explained that the doctrine requires not just a showing of inevitability but also a finding that “there is unwillingness to preserve confidentiality” by the defendant.372 In Conseco Financial Servicing Corp. v. Northern American Mortgage, another court concluded that “[g]ranting an inevitable disclosure injunction would essentially require the Court to judicially craft a covenant not to compete and apply it ex post facto, even though such a covenant never existed, and even though no former [] employee ever agreed to such a covenant.”373 Before Missouri’s adoption of the UTSA, however, some courts did apply the doctrine.374 As elsewhere, Missouri law has been construed to prohibit (1) improper acquisition of trade secrets, (2) improper disclosure of trade secrets, and (3) improper use of trade secrets.375 It is not improper to acquire documents containing trade secrets pursuant to Missouri’s Sunshine Law, Mo. Rev. Stat. Sections 610.010–610.032.376 Notwithstanding that the Missouri statute incorporated the UTSA definition of “trade secrets,” some courts continue to apply the definition given in the Restatement (First) of Torts Section 757, comment b.377 The elements of a trade secret misappropriation claim in Missouri have been summarized as (1) the existence of a trade secret, (2) communicated to the defendant, (3) while the defendant was in a position of trust and confidence, and (4) later use of the trade secret by the defendant to
371 Carboline Co. v. Lebeck, 990 Supp. 762, 45 U.S.P.Q.2d (BNA) 1922 (E.D. Mo. 1997). 372 H & R Block E. Tax Servs., Inc. v. Enchura, 122 F. Supp. 2d 1067, 1075 (W.D. Mo. 2000). 373 Conseco Fin. Servicing Corp. v. N. Am. Mortgage, No. 00CV1776, 2000 WL 33739340, at *12 (E.D. Mo. Dec. 6, 2000) (applying 8th Circuit Law), aff’d, 24 Fed. Appx. 655 (8th Cir. 2002). 374 See, e.g., Baxter Int’l, Inc. v. Morris, 976 F.2d 1189, 1194 (8th Cir. 1992) (affirming the issuance of a narrowly limited injunction prohibiting only disclosure of information even though it was “far from clear” that the employee’s new employer would seek to develop comparable products that would allow it to use the trade secret technology); Sigma Chem. Co. v. Harris, 586 F. Supp. 704, 711 (E.D. Mo. 1984); A.B. Chance Co. v. Schmidt, 719 S.W.2d 854, 857 (Mo. Ct. App. 1986). 375 See BP Chems. Ltd. v. Jiangsu Sopo Corp., 285 F.3d 677, 683 (8th Cir. 2002). 376 See N. Kan. City Hosp. Bd. of Trustees v. St. Luke’s Northland Hosp., 984 S.W.2d 113, 121 (Mo. Ct. App. 1998). 377 See, e.g., State ex rel. Coffman Group, L.L.C. v. Sweeney, 219 S.W.3d 763, 769 (Mo. Ct. App. 2005).
Missouri the injury of the plaintiff.378 Mere knowledge of a trade secret by a defendant without actual use or incorporation into a product is not actionable.379 The existence of a trade secret is a question of fact.380 In Missouri, the common-law duty to protect a trade secret disclosed in confidence arises even in the absence of an enforceable contract to protect trade secret information.381 A confidential relationship is implied and a duty not to disclose information is created through trade secret licensing negotiations or when a trade secret is sold.382 A confidential relationship is said to exist if the person to whom the disclosure is made knew, or should have known, that the disclosure was made in confidence.383 The existence of an employeremployee relationship does not ipso facto create a confidential relationship.384 In Merrill Lynch v. Zimmerman, however, a court held that confidential records and information taken by a financial consultant from his employer were protectable trade secrets.385 An employment contract that purported to protect trade secrets forever has been upheld under a Missouri law.386 A plaintiff may seek both monetary and injunctive relief for misappropriation.387 Missouri approves injunctions issued only for limited periods.388 Missouri limits injunctions to the defendant’s “head start,” defined as the time it would have taken the defendant to reproduce the product or process independently without the use of the wrongfully obtained information.389 An
378 See Reddi-Wip, Inc. v. Lemay Valve Co., 354 S.W.2d 913, 917 (Mo. Ct. App. 1962); see also Conseco Fin. Servicing Corp. v. N. Am. Mortgage Co., 381 F.3d 811, 818 (8th Cir. 2004). 379 See Neil & Spencer Holdings, Ltd. v. Kleen-Rite, Inc., 479 F. Supp. 164, 172, 206 U.S.P.Q. (BNA) 350, 355–56 (E.D. Mo. 1979). 380 See Lyn-Flex W., Inc. v. Dieckhaus, 24 S.W.3d 693, 698 (Mo. Ct. App. 1999). 381 See Jerrold-Stephens Co. v. Gustaveson, Inc., 138 F. Supp. 11, 15 (W.D. Mo. 1956). 382 See Sandlin v. Johnson, 152 F.2d 8, 11 (8th Cir. 1945); Food Processes, Inc. v. Swift & Co., 280 F. Supp. 353, 366 (W.D. Mo. 1966). 383 See A.L. Labs., Inc. v. Philips Roxane, Inc., 803 F.2d 378, 382 (8th Cir. 1986); Nat’l Rejectors, Inc. v. Trieman, 409 S.W.2d 1, 35, 152 U.S.P.Q. (BNA) 120, 144 (Mo. 1966). 384 See Walter E. Zemitzsch, Inc. v. Harrison, 712 S.W.2d 418, 421 (Mo. Ct. App. 1986). 385 See Merrill Lynch v. Zimmerman, 42 U.S.P.Q.2d (BNA) 1149, 1150 (D. Kan. Oct. 1, 1996) (applying Missouri law). 386 See Sigma Chem. Co. v. Harris, 586 F. Supp. 704, 710 (E.D. Mo. 1984). 387 See Jennings v. McCall Corp., 224 F. Supp. 919 (W.D. Mo. 1963). 388 See Nat’l Rejectors, Inc., 409 S.W.2d at 43, 152 U.S.P.Q. (BNA) at 150; see also Synergetics, Inc. v. Hurst, 477 F.3d 949, 961 (8th Cir. 2007) (approving two-year “head start” injunction notwithstanding that plaintiff required four years to develop its secret and would require two and a half years to regain lost customers); Sigma Chem. Co. v. Harris, 794 F.2d 371, 375 (8th Cir. 1986) (reversing grant of permanent injunction on the grounds that Missouri approves only limited injunctions); A.L. Labs., Inc., 803 F.2d at 384 (8th Cir. 1986); Carboline Co. v. Jarboe, 454 S.W.2d 540, 552, 165 U.S.P.Q. (BNA) 521, 530 (Mo. 1970). 389 See Carboline, 454 S.W.2d at 552–53, 165 U.S.P.Q. (BNA) at 530.
355
356 Appendix injunction runs from the commencement of the trade secret misappropriation as opposed to from the entry of judgment.390 An injunction should not be so broad as to prohibit the defendant from using public domain information.391 An injunction that is strictly prohibitory in character is not stayed by an appeal, but all proceedings on a mandatory injunction are.392 The “head start” rule is also employed in determining damages, which are limited to the plaintiff’s lost profits or the defendant’s gains during the time it would have taken the defendant to discover the trade secret through legitimate means.393 Damages may include both the actual loss caused by the misappropriation and any unjust enrichment not taken into account in computing the actual loss.394 When a plaintiff has received a full recovery under a contract claim, it may not then pursue a claim under the Missouri UTSA to recover for the same injury.395 A defendant’s net profits are calculated using the incremental profit method, which allows the defendant to deduct from its gross profits only the expenses, including uncollected debts, that relate directly to the production and sale of products embodying the trade secret.396 Overhead and administrative expenses are not deductible.397 Missouri law places no limit on the amount of punitive damages that may be awarded in a trade secret misappropriation action.398 In determining whether a noncompete agreement is enforceable, a court must balance the public policy favoring protection of an established business against the public policy encouraging free competition, with the balance favoring free competition.399 A noncompete agreement must therefore be reasonably necessary to protect the employer’s legitimate interest and reasonable in time and geographic scope.400 An employer has a legitimate protectable interest if, during his or her employment, the employee learned trade secrets or acquired customer contacts.401 Noncompete agreements are
390 391 392 393 394 395 396 397 398
See A.L. Labs., Inc., 803 F.2d at 385. See Sigma Chem. Co., 794 F.2d at 375. See State ex rel. Jarboe v. Holt, 444 S.W.2d 857, 859 (Mo. 1969). See Carboline Co. v. Jarboe, 454 S.W.2d at 553. See Kforce, Inc. v. Surrex Solutions Corp., 436 F.3d 981, 985 (8th Cir. 2006). See id. See Carboline Co., 454 S.W.2d at 553–54. See id. at 554. See Conseco Fin. Servicing Corp. v. N. Am. Mortgage Co., 381 F.3d 811, 823 (8th Cir. 2004). 399 See Nat’l Rejectors, Inc. v. Trieman, 409 S.W.2d 1, 39, 152 U.S.P.Q. (BNA) 120, 147 (Mo. 1966). 400 See Sigma Chem. Co. v. Harris, 586 F. Supp. 704, 709 (E.D. Mo. 1984); Showe-Time Video Rentals, Inc. v. Douglas, 727 S.W.2d 426, 433 (Mo. Ct. App. 1987). 401 See Cape Mobile Home Mart, Inc. v. Mobley, 780 S.W.2d 116, 118 (Mo. Ct. App. 1989).
New Jersey 357 enforceable only to protect against the competitive use of customer contacts or trade secrets.402 Missouri courts are allowed to “blue-pencil” a restrictive covenant to make it enforceable.403
M. New Jersey New Jersey’s trade secret protection laws are based on the Restatement (First) of Torts Section 757 (1939): One who discloses or uses another’s trade secret, without a privilege to do so, is liable to the other if (a) he discovered the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him, or (c) he learned the secret from a third person with notice of the facts that it was a secret and that the third person discovered it by improper means or that the third person’s disclosure of it was otherwise a breach of his duty to the other, or (d) he learned the secret with notice of the facts that it was a secret and that its disclosure was made to him by mistake.
In turn, the definition of trade secret is found in comment b to Section 757. It explains: A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. It differs from other secret information in a business . . . in that it is not simply information as to single or ephemeral events in the conduct of the business, as, for example, the amount or other terms of a secret bid for a contract or the salary of certain employees, or the security investments made or contemplated, or the date fixed for the announcement of a new policy or for bringing out a new model or the like. A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article. It may, however, relate to the sale of goods or to other operations in the business, such as a code for determining discounts, rebates or other concessions in a price list or catalogue, or a list of specialized customers, or a method of bookkeeping or other office management.
402 See Victoria’s Secret Stores, Inc. v. May Dep’t Stores Co., 157 S.W.3d 256 (Mo. Ct. App. 2004). 403 See Mid-States Paint & Chem. Co. v. Herr, 746 S.W.2d 613, 617 (Mo. Ct. App. 1988); Orchard Container Corp. v. Orchard, 601 S.W.2d 299, 304 (Mo. Ct. App. 1980).
358 Appendix New Jersey departs slightly from the Section 757 definition by rejecting the requirement that trade secret information be “used in one’s business.”404 New Jersey also deemphasizes the novelty requirement.405 In New Jersey, a plaintiff must prove five elements to prove trade secret misappropriation: (1) a trade secret exists, (2) the trade secret was communicated in confidence by the plaintiff to an employee, (3) the employee disclosed the trade secret in breach of that confidence, (4) the trade secret was acquired by the competitor with knowledge of the breach of confidence, and (5) the trade secret was used by the competitor to the plaintiff’s detriment.406 The plaintiff need not prove that the secret was acquired by the defendant with knowledge that the information’s revelation was wrongful as long as the evidence supports an inference that the defendant knew it.407 An additional required element of proof is that the plaintiff shows it took precautions to maintain the secrecy of the trade secret.408 New Jersey awards the trade secret owner its lost profits when the owner is also using the process appropriated by the defendant and permits an additional award to reflect the defendant’s unjust enrichment.409 Notwithstanding the mandate that the subject matter of a trade secret “must be secret,” the Restatement has not been interpreted to require absolute secrecy. Indeed, the Restatement itself provides that only a “substantial element of secrecy” need exist.410 New Jersey has moved away from a strict requirement that the Restatement’s six-factor test of secrecy must be satisfied. The test explains: The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. Matters which are completely disclosed by the goods which one markets cannot be his secret. Substantially, a trade secret is known only in the particular business in which it is used. It is not requisite that only the proprietor of the business know it. He may, without losing his protection, communicate it to
404 See Ferroline Corp. v. Gen. Aniline & Film Corp., 207 F.2d 912, 921 (7th Cir. 1953). 405 See Johnson v. Benjamin Moore & Co., 788 A.2d 906, 922 (N.J. Super. Ct. App. Div. 2002) (“New Jersey trade secret law does not require novelty.”); Rycoline Prods., Inc. v. Walsh, 756 A.2d 1047, 1055 (N.J. Super. Ct. App. Div. 2000) (“[O]nly a very minimal novelty requirement is imposed for a trade secret”); Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 637, 542 A.2d 879, 893 (1988) (“In sum, a trade secret need not be novel, inventive, or patentable, and may be a device that is clearly anticipated in the prior art or one that is merely a mechanical improvement that a good mechanic can make. However, it may not be part of the general knowledge or information of an industry or a matter of public knowledge.”). 406 See Rohm & Haas Co. v. Adco Chem. Co., 689 F.2d 424, 429–30 (3d Cir. 1982). 407 See id. at 430. 408 See id. 409 See Shamrock Techs., Inc. v. Med. Sterilization, Inc., 808 F. Supp. 932, 941 (E.D.N.Y. 1992) (applying New Jersey law), aff’d, 6 F.3d 788 (Fed. Cir. 1993). 410 See Tri-Tron Int’l v. Velto, 525 F.2d 432, 436 (9th Cir. 1975); Digital Dev. Corp. v. Int’l Memory Sys., 185 U.S.P.Q. (BNA) 136, 141 (S.D. Cal. Oct. 24, 1973); Cent. Plastics Co. v. Goodson, 537 P.2d 330, 333, 189 U.S.P.Q. (BNA) 748, 751 (Okla. 1975).
New Jersey 359 employees involved in its use. He may likewise communicate it to others pledged to secrecy. Others may also know of it independently, as, for example, when they have discovered the process or formula by independent invention and are keeping it secret. Nevertheless, a substantial element of secrecy must exist, so that, except by the use of improper means, there would be difficulty in acquiring the information. An exact definition of a trade secret is not possible. Some factors to be considered in determining whether given informa-tion is one’s trade secret are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; [and] (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.411
New Jersey courts view the factors as “additional considerations” that are “useful.”412 Under the Restatement, the statute of limitations is three years. However, states following the Restatement tend to employ the continuing tort theory under which each separate act may give rise to a new misappropriation claim.413 New Jersey has abandoned the rule that the statute of limitations is a procedural matter to be determined by the law of the forum state. Instead, New Jersey applies the interest-based test normally reserved for determining which states’ substantive law will apply.414 New Jersey courts have been sympathetic to the “inevitable disclosure” doctrine and have applied it in a number of instances.415 In one early case, however, the Third Circuit declined to apply it.416
411 RESTATEMENT (FIRST) OF TORTS § 757 cmt. b (1939). 412 See Hammock by Hammock v. Hoffmann-LaRoche, Inc., 142 N.J. 356, 384, 662 A.2d 546, 560 (1995); accord Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 637, 542 A.2d 879, 893 (1988). 413 See, e.g., Epstein v. C.R. Bard, Inc., 460 F.3d 183, 188 (1st Cir. 2006); Kistler Instrumente A.G. v. PCB Piezotronics, Inc., 419 F. Supp. 120, 122 (W.D.N.Y. 1976). 414 See Computer Assocs. Int’l, Inc. v. Altai, Inc., 22 F.3d 32, 35 n.3 (2d Cir. 1994); Constr. Tech., Inc. v. Lockformer Co., 704 F. Supp. 1212, 1219 (S.D.N.Y.), amended by 713 F. Supp. 100, 11 U.S.P.Q.2d (BNA) 1716 (S.D.N.Y. 1989). 415 See Apollo Techs. Corp. v. Centrosphere Indus. Corp., 805 F. Supp. 1157, 1210 (D.N.J. 1992); E.R. Squibb & Sons, Inc. v. Hollister, Inc., No. 91-203 (JCL), 1991 WL 15296, at *8 (D.N.J. Feb. 5, 1991), aff’d, 941 F.2d 1201 (3d Cir. 1991); Nat’l Starch & Chem. Corp. v. Parker Chem. Corp., 530 A.2d 31, 33 (N.J. Super. Ct. App. Div. 1987). 416 See Cont’l Group, Inc. v. Amoco Chems. Corp., 614 F.2d 351, 358–59 (3d Cir. 1980) (apparently applying Third Circuit law and holding that preliminary injunction to enforce restrictive covenant issued improperly despite possibility of inadvertent disclosure because there was no risk of irreparable harm).
360 Appendix In New Jersey, a noncompete agreement may be totally or partially enforced to the extent reasonable under the circumstances.417 A covenant not to compete following the termination of employment is not freely enforceable because public policy considerations favor honest competition.418 The courts recognize, though, that employers have a legitimate interest in the protection of trade secrets, confidential business information, and customer relationships.419
N. New York The Restatement (First) of Torts (1939) continues to be the law of trade secret misappropriation in New York.420 Section 757 of the Restatement states: One who discloses or uses another’s trade secret, without a privilege to do so, is liable to the other if (a) he discovered the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him, or (c) he learned the secret from a third person with notice of the facts that it was a secret and that the third person discovered it by improper means or that the third person’s disclosure of it was otherwise a breach of his duty to the other, or (d) he learned the secret with notice of the facts that it was a secret and that its disclosure was made to him by mistake.421
The starting point for understanding New York trade secret law begins with the definition of “trade secret” set forth in comment b to Section 757422: A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an
417 418 419 420
See Solari Indus., Inc. v. Malady, 55 N.J. 571, 585, 264 A.2d 53, 61 (1970). See id. at 581, 264 A.2d at 58–59. See Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 628, 542 A.2d 879, 888 (1988). New York uses both the Restatement Section 757, comment b definition of “trade secret” and the nonexclusive six-factor test to determine whether information is sufficiently secret to be protectable. See Eagle Comtronics, Inc. v. Pico, Inc., 89 A.D.2d 803, 803–04, 453 N.Y.S.2d 470, 472 (App. Div. 1982); Ashland Mgmt., Inc. v. Janien, 82 N.Y.2d 395, 407, 624 N.E.2d 1007, 1012–13 (1993). 421 Sections 758 and 759 address the acquisition of a secret by mistake and define liability for the acquisition of business information that does not qualify as a trade secret, respectively. 422 Because the Restatement definition excludes single or “ephemeral” events, it excludes bid proposals and the processes for creating them. Further, the “continuous use” requirement denies protection to a plaintiff who has not yet had an opportunity or acquired the means to put a trade secret to use.
New York opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. It differs from other secret information in a business. . . in that it is not simply information as to single or ephemeral events in the conduct of the business, as, for example, the amount or other terms of a secret bid for a contract or the salary of certain employees, or the security investments made or contemplated, or the date fixed for the announcement of a new policy or for bringing out a new model or the like. A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article. It may, however, relate to the sale of goods or to other operations in the business, such as a code for determining discounts, rebates or other concessions in a price list or catalogue, or a list of specialized customers, or a method of bookkeeping or other office management.
New York courts have, if anything, adopted a narrower definition of “trade secret” than is found in the Restatement. They not only adhere to the Restatement’s requirement that information be used continuously in commerce423 but also apply a rigorous novelty requirement in idea-submission cases for information to qualify as a protectable trade secret.424 Although secrecy is a question of fact, courts have held that there can be no trade secret protection, as a matter of law, if the secrecy is necessarily lost when the design or product is placed on the market.425
423 See Hudson Hotels Corp. v. Choice Hotels Int’l, 995 F.2d 1173, 1177 (2d Cir. 1993) (under New York law, “a trade secret must be used secretly and continuously in commerce.”). 424 See id. (“[A] non-novel idea, which is not used secretly and continuously in commerce, is not a trade secret.”); Ring v. Estée Lauder, Inc., 702 F. Supp. 76, 77 (S.D.N.Y. 1988) (“New York law is abundantly clear that a plaintiff is not entitled to relief under any theory for theft of an idea, absent proof that the idea was novel or original.”), aff’d, 874 F.2d 109 (2d Cir. 1989); Brandwynne v. Combe Int’l, Ltd., 74 F. Supp. 2d 364, 375 (S.D.N.Y. 1999) (“To establish novelty, an idea ‘need not reflect the “flash of genius,” but it must show[] genuine novelty and invention, and not a merely clever or useful adaptation of existing knowledge.’”) (quoting Educational Sales Programs, Inc. v. Dreyfus Corp., 65 Misc. 2d 412, 416, 317 N.Y.S.2d 840, 844 (Sup. Ct. 1970)). Basing its analysis on Apfel v. Prudential-Bache Sec., Inc., 81 N.Y.2d 470, 616 N. E.2d 1095, 600 N.Y.S.2d 433 (1993), which suggests that the novelty requirement means that an idea must be novel to the person receiving it, the Second Circuit explained that “[u]nder the Restatement’s approach, novelty—at least as that term is used in patent law—is not required in a trade secret” except in idea theft cases. Softel, Inc. v. Dragon Med. & Scientific Commc’ns, Inc., 118 F.3d 955, 968 (2d Cir. 1997). 425 See Hudson Hotels Corp., 995 F.2d at 1177; Brandwynne, 74 F. Supp. 2d at 378. New York courts have long recognized, however, that computer software can be a trade secret. See Q-Co Indus., Inc. v. Hoffman, 625 F. Supp. 608, 617 (S.D.N.Y. 1985);
361
362 Appendix To succeed on a claim for trade secret misappropriation under New York law, a plaintiff must establish that (1) it possessed a trade secret; and (2) the defendant used the trade secret in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means.426 To determine whether information constitutes a trade secret, New York courts apply the six-factor test of secrecy found in comment b to Section 757427: The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. Matters which are completely disclosed by the goods which one markets cannot be his secret. Substantially, a trade secret is known only in the particular business in which it is used. It is not requisite that only the proprietor of the business know it. He may, without losing his protection, communicate it to employees involved in its use. He may likewise communicate it to others pledged to secrecy. Others may also know of it independently, as, for example, when they have discovered the process or formula by independent invention and are keeping it secret. Nevertheless, a substantial element of secrecy must exist, so that, except by the use of improper means, there would be difficulty in acquiring the information. An exact definition of a trade secret is not possible. Some factors to be considered in determining whether given information is one’s trade secret are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; [and] (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.
The factors are not given equal weight in the analysis; the most important consideration is whether the information is secret.428 Trade secret information is not required to be kept absolutely secret, but a substantial element of secrecy must exist so that except by the use of improper means, it would be
Bus. Intelligence Servs., Inc. v. Hudson, 580 F. Supp. 1068, 1072 (S.D.N.Y. 1984) (holding that description of computer program and details of mathematical models, procedures, and statistical assumptions developed by an insurance company were trade secrets). Further, the way in which nonsecret utility programs are arranged to create a new software product can itself constitute a protectable trade secret. See Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173–75 (2d Cir. 1990). Source code may be protectable even though its object code is publicly available. See Q-Co Indus., 625 F. Supp. at 617–18. 426 See LinkCo, Inc. v. Fujitsu, Ltd., 230 F. Supp. 2d 492, 497–98 (S.D.N.Y. 2002). 427 See Ashland Mgmt., Inc. v. Janien, 82 N.Y.2d 395, 407, 624 N.E.2d 1007, 1012–13 (1993). 428 See id.
New York 363 difficult to acquire the information.429 The existence of a trade secret is a question of fact.430 New York law requires that a trade secret plaintiff prove (1) that it possessed a trade secret; and (2) that the defendant has used the trade secret in breach of an agreement or duty of confidence, or as a result of discovering the trade secret by improper means.431 The mere improper acquisition of a trade secret is not actionable; the complete absence of any use by the defendant will avoid liability for misappropriation.432 A mere promise to keep information secret or not to compete with the information lacks consideration and is not enforceable if the promise is made following the disclosure of the information.433 Significantly, employees have an absolute duty not to use or divulge trade secret information acquired during their employment.434 New York’s three-year statute of limitations for property-injury claims applies to trade secret misappropriation.435 When a claim for trade secret misappropriation actually accrues, however, depends on whether the defendant discloses the information or keeps the information secret for its own commercial use: If a defendant misappropriates and discloses a trade secret, he becomes liable to plaintiff upon disclosure. On the other hand, if the defendant keeps the secret confidential yet makes use of it to his own commercial advantage, each successive use constitutes a new actionable tort for the purposes of the Statute of Limitations.436
If the defendant misappropriates and publicly discloses a trade secret, the statute of limitations will begin to run upon the disclosure.437 The mere fact, however, that a publicly available product incorporates or is otherwise based on trade secret information is alone insufficient to “disclose” the trade secret for statute of limitations purposes. If an inspection of the product would not
429 See Q-Co Indus., 625 F. Supp. at 617. 430 See Integrated Cash Mgmt. Servs., Inc., 920 F.2d at 174; Bear, Stearns Funding, Inc. v. Interface Group-Nevada, Inc., 361 F. Supp. 2d 283, 305 (S.D.N.Y. 2005). 431 See N. Atl. Instruments, Inc. v. Haber, 188 F.3d 38, 43–44 (2d Cir. 1999); Alnwick v. European Micro Holdings, Inc., 281 F. Supp. 2d 629, 638 (E.D.N.Y. 2003). 432 See Abraham Zion Corp. v. Lebow, 593 F. Supp. 551, 569 (S.D.N.Y. 1984), aff’d, 761 F.2d 93, 226 U.S.P.Q. (BNA) 104 (2d Cir. 1985). 433 See Posen v. Genesco, Inc., 44 Misc. 2d 195, 197–98, 253 N.Y.S.2d 362, 365 (Sup. Ct. 1962). 434 See Roessel Cine Photo Tech, Inc. v. Kapsalis, 43 U.S.P.Q.2d (BNA) 1134, 1138 (N.Y. Sup. Ct. May 7, 1997). 435 See N.Y. C.P.L.R. 214(4) (2007); Architectronics, Inc. v. Control Sys., Inc., 935 F. Supp. 425, 432 (S.D.N.Y. 1996). 436 Architectronics, 935 F. Supp. at 433 (quoting Lemelson v. Carolina Enters., Inc., 541 F. Supp. 645, 659 (S.D.N.Y. 1982). 437 See id.; Bausch & Lomb, Inc. v. Alcon Labs., Inc., 64 F. Supp. 2d 233, 247 (W.D.N.Y. 1999).
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Appendix reveal the trade secrets that were used in making it or that are embodied in it, the plaintiff’s rights in the trade secret will not be extinguished.438 New York courts have not thus far recognized the discovery rule.439 As might be expected in a state having a tremendous volume of trade secret misappropriation litigation, New York courts have been inconsistent in their treatment of the “inevitable disclosure” doctrine. Many courts have expressed hostility to it, characterizing the doctrine as “fraught with hazards” because of the power it puts in the hands of employers, the concomitant chilling effect it has on employees, and the failure to provide “guideposts” for courts apart from the “nebulous standard of ‘inevitability.’”440 On the other hand, in a number of cases the courts have either applied the doctrine or have endorsed it in dictum.441
438 See Architectronics, 935 F. Supp. at 433. 439 See Bausch & Lomb, 64 F. Supp. 2d at 246. 440 See Payment Alliance Int’l, Inc. v. Ferreira, 530 F. Supp. 2d 477, 485 (S.D.N.Y. 2007) (recognizing “inevitable disclosure” doctrine as disfavored but using it as a basis to find reasonable the enforcement of a restrictive covenant in issuing a preliminary injunction); EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299, 310–11 (S.D.N.Y. 1999) (also noting that “such retroactive alterations [of employment agreements] distort the terms of the employment relationship and upset the balance which courts have attempted to achieve in construing non-compete agreements” and declaring that the doctrine should be applied “only in the rarest of cases”); see also PSC, Inc. v. Reiss, 111 F. Supp. 2d 252, 256 (W.D.N.Y. 2000) (following EarthWeb); Tactica Int’l, Inc. v. Atl. Horizon Int’l, Inc., 154 F. Supp. 2d 586, 608 (S.D.N.Y. 2001) (refusing to apply doctrine absent evidence of “overt theft or actual misappropriation of either trade secrets or confidential information”); Colonize.com, Inc. v. Perlow, No. 03-CV-466, 2003 WL 24256576, at *6, 2003 U.S. Dist. LEXIS 20021, at *15–16 (N.D.N.Y. Oct. 23, 2003) (holding that doctrine is disfavored in New York as are noncompete agreements generally); Marietta Corp. v. Fairhurst, 301 A.D.2d 734, 737 (N.Y. App. Div. 2003) (holding that doctrine is disfavored “absent evidence of actual misappropriation” and cautioning that a plaintiff should not be permitted to “make an end-run around the [confidentiality] agreement by asserting the doctrine of inevitable disclosure as an independent basis for relief”). 441 See Estée Lauder Cos. v. Batra, 430 F. Supp. 2d 158, 174 (S.D.N.Y. 2006); Delphine Software Int’l v. Elec. Arts, Inc., No. 99 CIV. 4454 AGAS, 1999 WL 627413, at *3 (S.D.N.Y. Aug. 18, 1999); Int’l Paper Co. v. Suwyn, 966 F. Supp. 246, 257–59 (S.D.N.Y 1997); Lumex, Inc. v. Highsmith, 919 F. Supp. 624, 631 (E.D.N.Y. 1996)); Multiform Desiccants v. Sullivan, No. 95-CV-0283E(F), 1996 WL 107102, at *2 (W.D.N.Y. Mar. 8, 1996) (finding the doctrine inapplicable on the facts of the case); Monovis, Inc. v. Aquino, 905 F. Supp. 1205, 1234 (W.D.N.Y. 1994); Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 732 F. Supp. 370, 378 (S.D.N.Y. 1989), aff’d, 920 F.2d 171 (2d Cir. 1990); Bus. Intelligence Servs., Inc. v. Hudson, 580 F. Supp. 1068, 1072 (S.D.N.Y. 1984); Cont’l Group, Inc. v. Kinsley, 422 F. Supp. 838, 845 (D. Conn. 1976); Willis of N.Y., Inc. v. DeFelice, 299 A.D.2d 240, 242, 750 N.Y.S.2d 39, 42 (App. Div. 2002) (enjoining high-level employees but refusing to enjoin lowlevel employees absent showing of actual misappropriation); Eastman Kodak Co. v. Powers Film Prods., Inc., 179 N.Y.S. 325, 330, 189 A.D. 556, 561–62 (App. Div. 1919); Spinal Dimensions, Inc. v. Chepenuk, No. 07 Civ. 4805, 2007 N.Y. Misc.
New York 365 To prevail on an application for a temporary restraining order, a plaintiff must demonstrate (1) a likelihood of success on the merits, (2) irreparable injury absent an injunction, and (3) that the balance of equities favors the plaintiff’s position.442 In federal court, a plaintiff must show that it will suffer irreparable harm in the absence of an injunction and either a likelihood of success on the merits or a sufficiently serious question going to the merits to make it a fair ground for litigation and a balance of hardships tipping decidedly in its favor.443 Actual harm is not required to show the potential for irreparable injury. The possibility that the contemplated harm will occur is sufficient.444 To establish irreparable injury, monetary damages must be incapable of redressing the harm.445 New York courts will enter perpetual injunctions in trade secret cases.446 The proper measure of damages is the lost profits sustained by the plaintiff due to the improper conduct.447 Recovery of the total value of a trade secret is allowed in lieu of lost profits only if the defendant has destroyed the value of the trade secret.448 If the plaintiff’s losses or the defendant’s actual gain cannot be easily computed, a reasonable royalty may be awarded.449
442 443 444 445 446 447 448 449
LEXIS 5691, 16 Misc. 3d 1121A, 847 N.Y.S.2d 905, 2007 WL 2296503, at 6–7 (2007) (finding inevitable disclosure based on (i) the extent to which the new employer was a direct competitor of the former employer, (ii) the extent the employee’s new position was sufficiently identical to his former position such that the employee could not reasonably be expected to fulfill his new job responsibilities without utilizing the former employer’s trade secrets, (iii) the extent to which the secrets would be valuable to the new employer, and (iv) the nature of the industry and its trade secrets); Spinal Dimensions, Inc. v. Chepenuk, No. 4805-07, 16 Misc. 3d 1121A, 847 N.Y.S.2d 905, 2007 WL 2296503, *6–7 (Aug. 9, 2007) (finding inevitable disclosure based on (i) the extent to which the new employer was a direct competitor of the former employer, (ii) the extent the employee’s new position was sufficiently identical to his former position such that the employee could not reasonably be expected to fulfill his new job responsibilities without utilizing the former employer’s trade secrets, (iii) the extent to which the secrets would be valuable to the new employer, and (iv) the nature of the industry and its trade secrets); DoubleClick, Inc. v. Henderson, No. 116914/97, 1997 WL 731413, at *5 (N.Y. Sup. Ct. Nov. 7, 1997) (purporting to apply doctrine after finding actual misappropriation). See Walter Karl, Inc. v. Wood, 137 A.D.2d 22, 26, 528 N.Y.S.2d 94, 97 (1988). See Worldwide Sport Nutritional Supplements, Inc. v. Five Star Brands, L.L.C., 80 F. Supp. 2d 25, 30 (N.D.N.Y. 1999). See Churchill Commc’ns Corp. v. Demyanovich, 668 F. Supp. 207, 214 (S.D.N.Y. 1987). See Nutmeg Techs., Inc. v. Mahshie, 12 U.S.P.Q.2d (BNA) 1469, 1471 (N.D.N.Y. June 6, 1989); Colonize.com, Inc. v. Perlow, 2003 WL 24256576, at *3. See Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 175 (2d Cir. 1990). See Allan Dampf, P.C. v. Bloom, 127 A.D.2d 719, 719, 512 N.Y.S.2d 116, 117 (1987). See Softel, Inc. v. Dragon Med. & Scientific Commc’ns, Inc., 118 F.3d 955, 969 (2d Cir. 1997). See Link Co. v. Fujitsu Ltd., 230 F. Supp. 2d 492, 503 (S.D.N.Y. 2002).
366 Appendix Noncompete agreements are enforceable to protect an employer’s trade secret or confidential information, to prevent the solicitation of former customers, or if the employee’s services are unique or extraordinary.450 Key employees owe an implicit duty of good faith and fair dealing to their employers. The duty not to use or divulge confidential information gained during employment is implicit in the employment relationship and is an absolute, not relative, duty.451 Although an employee may take steps to compete while still employed,452 it is improper to solicit customers during employment or during the term of an enforceable restrictive covenant.453 New York courts are hesitant to enforce a noncompete agreement in the employment context.454 They will, however, “blue-pencil” noncompete agreements to make them shorter and more reasonable.455 The existence of a meaningful trade secret is sufficient to render an otherwise unenforceable noncompete agreement enforceable.456 A covenant purporting to restrict an employee from soliciting the former employer’s customers will not be enforceable unless the employee has a unique skill or knowledge of a trade secret.457
O. North Carolina North Carolina, whose 1981 statute is loosely based on the UTSA as drafted in 1979, offers a broader protection of trade secrets than is afforded under the Restatement (First) of Torts. The North Carolina statute adds “including but not limited to” to the Restatement definition of “trade secret”: As used in this Article, unless the context requires otherwise: ....
450 See EarthWeb, Inc. v. Schlack, 71 F. Supp. 299, 312 (S.D.N.Y. 1999). 451 See, e.g., PSC, Inc. v. Reiss, 111 F. Supp. 2d 252, 255 (W.D.N.Y. 2000); Q-Co. Indus., Inc. v. Hoffman, 625 F. Supp. 608, 617 (S.D.N.Y. 1985); Kaufman v. IBM Corp., 97 A.D.2d 925, 927, 470 N.Y.S.2d 720, 723 (1983), aff’d, 61 N.Y.2d 930, 463 N.E.2d 37, 474 N.Y.S.2d 721 (1984). 452 See AGA Aktiebolag v. ABA Optical Corp., 441 F. Supp. 747, 754 (E.D.N.Y. 1977). 453 See Westwood Chem. Co., Inc. v. Kulick, 570 F. Supp. 1032, 1036 (S.D.N.Y. 1983). 454 See Global Switching, Inc. v. Kasper, No. CV 06 412(CPS), 2006 WL 1800001, at *15 (E.D.N.Y. June 28, 2006). 455 See EarthWeb, 71 F. Supp. 2d at 313. 456 See Victor Temp. Serv. v. Slattery, 105 A.D.2d 1115, 1117, 482 N.Y.S.2d 623, 625 (1984). 457 See Greenwich Mills Co. v. Barrie House Coffee Co., 91 A.D.2d 398, 402–03, 459 N.Y.S.2d 454, 457–58 (1983); Reed, Roberts Assocs., Inc. v. Strauman, 40 N.Y.2d 303, 308, 386 N.Y.S.2d 677, 680, 353 N.E.2d 590, 593 (1976).
North Carolina (3) “Trade Secret” means business or technical information, including but not limited to a formula, pattern, program, device, compilation of information, method, technique, or process that: (a) Derives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The existence of a trade secret shall not be negated merely because the information comprising the trade secret has also been developed, used, or owned independently by more than one person, or licensed to other persons.458
North Carolina further defines “misappropriation” as the “acquisition, disclosure, or use of a trade secret of another without express or implied authority or consent, unless such trade secret was arrived at by independent development, reverse engineering, or was obtained from another person with a right to disclose the trade secret.”459 In North Carolina, there is thus no requirement that a trade secret have been obtained through improper means for a misappropriation to occur. A defendant may therefore be found liable even if it proves that it obtained the trade secret in good faith. North Carolina, however, does apply the six-factor test from the Restatement (First) of Torts to determine whether information is sufficiently secret to qualify for protection.460 North Carolina trade secret law diverges from the UTSA in expressly addressing the burden of proof. North Carolina General Statute Section 66-155 states: Misappropriation of a trade secret is prima facie established by the introduction of substantial evidence that the person against whom relief is sought both: (1) Knows or should have known of the trade secret; and (2) Has had a specific opportunity to acquire it for disclosure or use or has acquired, disclosed, or used it without the express or implied consent or authority of the owner. This prima facie evidence is rebutted by the introduction of substantial evidence that the person against whom relief is sought acquired the information comprising the trade secret by independent development, reverse engineering, or it was obtained from another person with a right to disclose the trade secret.
458 N.C. GEN. STAT. § 66-152 (2007). 459 See id. 460 See Area Landscaping, L.L.C. v. Glaxo-Wellcome, Inc., 160 N.C. App. 520, 525, 586 S.E.2d 507, 511 (2003) (court “should” consider those factors); Combs & Assocs. v. Kennedy, 147 N.C. App. 362, 369–70, 555 S.E.2d 634, 640 (2001) (Restatement factors “are to be considered”); Byrd’s Lawn & Landscaping, Inc. v. Smith, 142 N.C. App. 371, 375, 542 S.E.2d 689, 692 (2001) (factors are “properly considered”).
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Appendix This section shall not be construed to deprive the person against whom relief is sought of any other defenses provided under the law.461
Interpreting the above statute, the Fourth Circuit has held that it is not reversible error to instruct a jury that a plaintiff must prove a trade secret claim by a “preponderance of the evidence.”462 The same case also held that “‘misappropriation of a trade secret is prima facie established by the introduction of substantial evidence that the person against whom relief is sought’ knew or should have known of the trade secret and had the opportunity to, or did, acquire, disclose, or use the secret without the consent of the owner” and that it was not reversible error to omit “use” of a trade secret from jury instructions addressing the defendant’s disclosure or sale of trade secret information.463 Misappropriation under the North Carolina Act can be established by proving that the defendant knew or should have known of the trade secret and had a specific opportunity to acquire it for disclosure or use; or had acquired, disclosed, or used it, without the expressed or implied consent of the trade secret owner.464 Actual damages may be measured by the economic loss of the trade secret owner or the unjust enrichment of the misappropriator, whichever is greater.465 Punitive damages of up to three times actual damages may be awarded under the North Carolina General Statute on punitive damages.466 In North Carolina, “[a]n action for misappropriation of a trade secret must be commenced within three years after the misappropriation complained of is or reasonably should have been discovered.”467 The North Carolina statute does not allow the preemption of common-law claims alleging the misappropriation of trade secret information. North Carolina does recognize the “inevitable disclosure” doctrine.468
461 N.C. GEN. STAT. § 66-155 (2007). 462 AG Sys., Inc. v. United Decorative Plastics Corp., 55 F.3d 970, 973, 35 U.S.P.Q.2d (BNA) 1048, 1050–51 (4th Cir. 1995). 463 Id. (quoting N.C. GEN. STAT. § 66-155 (2007)). 464 See Byrd’s Lawn & Landscaping, 142 N.C. App. at 375, 542 S.E.2d at 692; Combs & Assocs., 147 N.C. App. at 369–70, 555 S.E.2d at 640. 465 See X-It Prods., L.L.C. v. Walter Kidde Portable Equip., Inc., 227 F. Supp. 2d 494, 535 (E.D. Va. 2002) (applying North Carolina law). 466 See id. at 536; N.C. GEN. STAT. § 1D-25 (2007). 467 N.C. GEN. STAT. § 66-157 (2007). 468 See Glaxo, Inc. v. Novopharm, Ltd., 931 F. Supp. 1280, 1303 (E.D.N.C. 1996) (dictum), aff’d, 110 F.3d 1562 (Fed. Cir. 1997); Merck & Co. v. Lyon, 941 F. Supp. 1443, 1464–65 (M.D.N.C. 1996); FMC Corp. v. Cyprus Foote Mineral Co., 899 F. Supp. 1477, 1483 (W.D.N.C. 1995) (requiring showing of “bad faith, underhanded dealing, or employment by an entity so plainly lacking comparable technology that misappropriation can be inferred”); Analog Devices, Inc. v. Michalski, 157 N.C. App. 462, 470–71, 579 S.E.2d 449, 454–55 (2003) (following FMC in declining to
Ohio North Carolina will enforce noncompete agreements that are (1) written, (2) entered into concurrently with and as part of the employment contracts, (3) supported by consideration,(4) reasonable in time and territory, (5) fair to the parties, and (6) not against public policy.469 The failure to satisfy any requirement is fatal.470
P. Ohio Ohio’s version of the UTSA took effect in 1994.471 In enacting the UTSA, Ohio modified it in several respects. For one, Ohio provided a four-year statute of limitations subject to the discovery rule.472 Additionally, a “person” who can own or misappropriate trade secrets was defined to include “governmental entities.”473 The definition of “trade secret” was also modified by providing expressly that it extends to “the whole or any portion or phase of any scientific or technical information,” and by including customer lists through the inclusion of any “listing of names, addresses, or telephone numbers.”474 Customer lists may be misappropriated by memory.475 The existence of a trade secret is a question of fact.476 Ohio also modified the UTSA as it relates to injunctive relief to ensure that a trade secret misappropriator derives no benefit from the misdeed: Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist,
469
470 471 472
473 474
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apply doctrine); Travenol Labs., Inc. v. Turner, 228 S.E.2d 478, 484 (N.C. Ct. App. 1976); Union Carbide Corp. v. Sunox, Inc., 590 F. Supp. 224, 228 (W.D.N.C. 1984). See Chemimetals Processing, Inc. v. McEneny, 124 N.C. App. 194, 197, 476 S.E.2d 374, 376 (1996); Wilmar, Inc. v. Liles, 13 N.C. App. 71, 77, 185 S.E.2d 278, 282 (1971). See Eng’g Assocs., Inc. v. Pankow, 268 N.C. 137, 139, 150 S.E.2d 56, 58 (1966). See OHIO REV. CODE §§ 1333.61–1333.69 (1994). See id. § 1333.66; cf. Adcor Indus., Inc. v. Bevcorp., 252 Fed. Appx. 55, 62–63, 2007 U.S. App. LEXIS 25102, at *15–17 (6th Cir. 2007) (unsubstantiated rumors of misappropriation held sufficient to put trade secret owner on inquiry notice for statute of limitations purposes). OHIO REV. CODE § 1333.61(C) (1994). Id. § 1333.61(D). In at least one case, however, a customer list re-created by a former employee from memory was held not protectable. See Ellison & Assocs. v. Pekarek, No. 49560, 1985 Ohio App. LEXIS 7140, at *9 (Sept. 26, 1985). See Al Minor & Assocs. v. Martin, No. 06AP-217, 2006 Ohio App. LEXIS 5881, at *8, 2006-Ohio-5948 ¶ 14 (Nov. 9, 2006), aff’d, 117 Ohio St. 3d 58, 2008-Ohio-292 (2008). See Fred Siegel Co., L.P.A. v. Arter & Hadden, 85 Ohio St. 3d 171, 181, 707 N.E.2d 853, 862 (1999).
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Appendix unless the court finds that termination of the injunction is likely to provide a person who committed an actual or threatened misappropriation with a resulting commercial advantage, in which case the injunction shall be continued for an additional reasonable time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.477
Ohio courts will issue preliminary injunctions based on the “inevitable disclosure” doctrine even in the absence of a restrictive covenant.478 In Ohio, an injunction in a trade secret case will issue as of right to protect a trade secret.479 An injunction will ordinarily terminate after the trade secret could have become known through proper means, but Ohio courts tack on the advantage of any lead time gained by the defendant.480 In egregious cases, a permanent injunction may issue.481 Ohio modified the UTSA to ensure that a misappropriator does not gain any economic advantage and therefore modified the damages provision to state: Except to the extent that a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation renders a monetary recovery inequitable, a complainant in a civil action is entitled to recover damages for misappropriation. Damages may include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages measure by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty that is equitable under the
477 OHIO REV. CODE § 1333.62(A). 478 See Kemper Mortgage, Inc. v. Russell, No. 3:06-CV-042, 2006 WL 4968120, at *6 (S.D. Ohio May 4, 2006) (granting injunction based on “inevitable use” or “inevitable disclosure”); Procter & Gamble v. Stoneham, 747 N.E.2d 268, 278–79 (Ohio Ct. App. 2000) (referring to doctrine); Emery Indus., Inc. v. Cottier, 202 U.S.P.Q. (BNA) 829, 834 (S.D. Ohio Aug. 18, 1978) (granting injunction based on fact that “transfer of employment is to a head-to-head competitor and [on fact that] the responsibilities in the employments [were] comparable”); B.F. Goodrich Co. v. Wohlgemuth, 192 N. E.2d 99, 105, 137 U.S.P.Q. (BNA) 804, 807 (Ohio Ct. App. May 22, 1963) (granting injunction). But see Patio Enclosures, Inc. v. Herbst, 39 Fed. Appx. 964, 969 (6th Cir. 2002) (applying Ohio law and recognizing doctrine but finding it inapplicable on the facts); Splater v. Thermal Ease Hydronic Sys., Inc., 169 Ohio App. 3d 514, 519, 863 N.E.2d 1060, 1064, 2006-Ohio-5452 ¶ 16 (2006) (injunction denied because plaintiff failed to demonstrate compelling risk of misappropriation). 479 See Sovereign Chem. Co. v. Condren, Nos. 18285, 18465, 47 U.S.P.Q.2d (BNA) 1120, 1123 n.2, 1998 WL 195876, at *2 n.2 (Ohio Ct. App. Apr. 22, 1998). 480 See Valco Cincinnati, Inc. v. N & D Machining Svc., Inc., 24 Ohio St. 3d 41, 48 n.2, 492 N.E.2d 814, 820 n.2 (1986). 481 See Curcio Webb, L.L.C. v. Nat’l Benefit Programs Agency, Inc., 367 F. Supp. 2d 1191, 1206 (S.D. Ohio 2005); Pyromatics, Inc. v. Petruziello, 7 Ohio App. 3d 131, 137, 454 N.E.2d 588, 595 (1983); Standard Oil Co. v. Landmark Farm Bureau Coop., 52 Ohio App. 2d 225, 234–35, 369 N.E.2d 785, 791–92 (1976).
Ohio circumstances considering the loss to the complainant, the benefit to the misappropriator, or both, for a misappropriator’s unauthorized disclosure or use of a trade secret.482
Even before it adopted the UTSA, Ohio had two statutes that provided protection against trade secret misappropriation. Ohio Revised Code Section 1331.51 defined trade secret theft as a crime and Ohio Revised Code Section 1333.81 imposed an obligation on an employee to protect the confidential information of the employer. “Trade secret” is defined in the criminal statute in a manner virtually identical to the definition set forth in the Ohio UTSA. The criminal statute provides that information is presumed to be secret if the owner has taken measures designed to prevent it from being lost in the ordinary course of business. The Ohio UTSA does not provide a similar presumption, however, in civil actions. The trade secret definition in the criminal statute has sometimes been used as a guide in civil cases.483 Although Ohio courts have looked both to the Restatement and to the criminal law for a definition of “trade secret,” they also recognize that there is no precise definition and, in one case, a court simply defined a “trade secret” as “almost anything and everything useful or advantageous in business activity that is not generally known.”484 To state a claim under the Ohio UTSA, a plaintiff must allege that (1) a trade secret exists,(2) the trade secret was acquired as a result of a confidential relationship, and (3) the trade secret was acquired as a result of an unauthorized use of the trade secret.485 Ohio courts have recognized that even outside an employment relationship, a confidential relationship may be implied from the facts.486 The existence of a trade secret is a question of fact.487 In making that determination, a court should apply the six-factor test set forth in the Restatement First of Torts Section 757, comment b.488 Ohio requires that trade secret information be kept only relatively secret.
482 OHIO REV. CODE § 1333.63(A) (1994). 483 See, e.g., Suarez Corp. v. Seta Corp., 21 U.S.P.Q.2d (BNA) 1432 (N.D. Ohio Sept. 16, 1991). 484 Albert B. Cord Co. v. S & P Mgmt. Servs., Inc., 194 N.E.2d 173, 175 (Ohio Ct. C.P. 1963), rev’d, 2 Ohio App. 2d 148, 31 Ohio Op. 2d 248, 207 N.E.2d 247 (Ohio Ct. App. 1965). 485 ALTA Analytics, Inc. v. Muuss, 75 F. Supp. 2d 773, 785 (S.D. Ohio 1999). 486 See, e.g., Releasomers, Inc. v. Goodyear Tire & Rubber Co., No. 12535, 1986 Ohio App. LEXIS 9694 (Ohio Ct. App. Nov. 19, 1986). 487 See De Boer Structures (U.S.A.), Inc. v. Shaffer Tent & Awning Co., 233 F. Supp. 2d 934, 948 (S.D. Ohio 2002). 488 See Svoboda v. Clear Channel Commc’ns, Inc., No. L-02-1149, 2003 WL 22739622, at *3 (Ohio Ct. App. 2003).
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Appendix Accordingly, an owner’s reasonable precautions to maintain secrecy are sufficient for protectability.489 Ohio will hold liable a defendant who learns trade secrets by improper means even if the defendant could have gained them properly.490 Ohio law provides that a person who receives a trade secret in good faith— even from someone who misappropriated it—will not be found liable for misappropriation.491 Ohio enforces noncompete agreements that are ancillary to an employment contract, limited to reasonable time and geographic area and necessary to protect the employer without unreasonably restricting the employee.492 Recently, one case required that an employer show by clear and convincing evidence that the restrictions are no greater than necessary, do not impose an undue hardship on the employee, and are not injurious to the public.493 Under Ohio law, an employer has a legitimate business interest to protect if the employer played a large role in the employee’s development; the employee gained valuable experience in the business; the employer invested time, money, support staff, and training to benefit the employee’s development; and the employer developed a clientele with which the employee had direct contact or the employee had done business under the employer’s name.494 Under the “Business Control Doctrine,” an employer that withdraws from a market segment may not enforce a noncompete agreement against a former employee who seeks to compete in that segment.495 In construing restrictive covenants, Ohio courts will “blue-pencil” an agreement if appropriate.496 An Ohio statute criminalizes the theft or conversion of a “trade secret,” defined as: [T]he whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique, or improvement, or any business information or plans,
489 See CPG Prods. Corp. v. Mego Corp., 214 U.S.P.Q. (BNA) 206, 213 (S.D. Ohio Jan. 12, 1981). 490 See id. 491 See Amberley Co. v. Brown Co., 408 F.2d 1358, 1361 (6th Cir. 1969). 492 See Am. Nursing Care, Inc. v. Leisure, 609 F. Supp. 419, 432 (N.D. Ohio 1984); Barnes Group, Inc. v. O’Brien, 591 F. Supp. 454, 459–60 (N.D. Ind. 1984) (applying Ohio law). 493 See Brentlinger Enters. v. Curran, 752 N.E.2d 994, 998 (Ohio Ct. App. 2001). 494 See Farmers Ins. Exch. v. Weemhoff, No. 02-CA-26, 2002 WL 31319958, at *3, 2002Ohio-5570 ¶ 17 (Ct. App. Oct. 17, 2002). 495 See Klaus v. Kilb, Rogal & Hamilton Co., 437 F. Supp. 2d 706, 733 (S.D. Ohio 2006) (citing Premier Assocs. v. Loper, 149 Ohio App. 3d 660, 669, 2002-Ohio-5538 ¶ 25, 778 N.E.2d 630, 637 (2002)). 496 See Premix, Inc. v. Zappitelli, 561 F. Supp. 269, 275 (N.D. Ohio 1983); Raimonde v. Van Vlerah, 42 Ohio St. 2d 21, 23–25, 325 N.E.2d 544, 546–47 (1975).
Pennsylvania financial information, or listing of names, addresses, or telephone numbers, that satisfies both of the following: (1) It derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. (2) It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.497
A separate statute creates criminal liability for an employee “who in the course and within the scope of his employment receives any confidential matter or information” and “knowingly, without the consent of his employer” furnishes or discloses it “to any person not privileged to acquire.”498
Q. Pennsylvania Pennsylvania was one of the last states to adopt the UTSA. It took effect there in April 2004.499 Before then, Pennsylvania courts extended protection to trade secrets pursuant to Section 757 of the Restatement (First) of Torts.500 In enacting the UTSA, Pennsylvania omitted Section 8, which requires that each state’s version of the UTSA “be applied and construed to effectuate its general purpose to make uniform the law with respect to” the UTSA among states enacting it. The Pennsylvania UTSA provides the standard three-year statute of limitations subject to the dis-covery rule.501 As one would expect, Pennsylvania has an extensive body of trade secret cases that pre-date the UTSA. Equally unsurprising, there are as yet few Pennsylvania cases that have applied the UTSA. In one, a court concluded that when an alleged pattern of trade secret misappropriation began before the effective date of the statute and continued thereafter, any discrete acts that occurred after the effective date were subject to the UTSA claim but earlier acts would be judged under Pennsylvania trade secret common law.502
497 498 499 500
OHIO REV. CODE ANN. § 1333.61(D) (2008). Id. § 1333.81. See 12 PA. CONS. STAT. ANN. §§ 5301–5308 (2007). See, e.g., William Hendrickson, Inc. v. Nat’l R.R. Passenger Corp., No. 00-CV-3711, 2002 WL 398641, at *16 (E.D. Pa. Mar 13, 2002), aff’d, 63 Fed. Appx. 61 (3d Cir. 2003); Crum v. Bridgestone/Firestone N. Am. Tire, L.L.C., 2006 Pa. Super. 230 ¶ 18, 907 A.2d 578, 585 (2006). 501 See 12 PA. CONS. STAT. ANN. § 5307 (2007). 502 See Emergency Care Research Inst. v. Guidant Corp., No. 06-1898, 2006 WL 541776, at *4–5 (E.D. Pa. Dec. 5, 2006).
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374 Appendix Claims alleging nothing more than the taking or use of trade secrets are preempted by the Pennsylvania UTSA.503 Pennsylvania has long recognized the “inevitable disclosure” doctrine which allows the issuance of a preliminary injunction to prevent a former employee from engaging in a competitive activity when it is inevitable that the employee will use or disclose a former employer’s trade secrets in his or her new job.504 It is not necessary to require employees to sign nondisclosure agreements in Pennsylvania because the duty to protect trade secrets may be implied from the confidential employment relationship.505 Information available to competitors through legitimate means is not protectable as a trade secret.506 Pennsylvania has addressed the interplay between RICO and trade secret protection laws by holding that a corporation that is not an active participant in a conspiracy by its employees to steal trade secrets can-not be liable for a RICO violation under the doctrine of respondeat superior.507 In one unusual case, the Pennsylvania Supreme Court rejected the “startling argument” that stealing trade secrets was justified by the low moral standards of the business community.508 It is not improper, however, to obtain records containing trade secrets under Pennsylvania’s Right-to-Know law, 65 Pa. Cons. Stat. Ann. Sections 66.1 to 66.9.509 Pennsylvania has long protected technical information and intangible intellectual property such as computer software. 510 Customer lists are also
503 See Firstrust Bank v. Didio, No. 200, 2005 Phila. Ct. Com. Pl. LEXIS 376, at *3 (July 29, 2005) (conversion and unjust enrichment claims held preempted). 504 See Doebler’s Pa. Hybrids, Inc. v. Doebler’s Seeds, L.L.C., 88 Fed. Appx. 520, 522 n.1, 2004 WL 260781, at *1 n.1 (3d Cir. 2004) (predicting that Pennsylvania courts would apply the inevitable disclosure doctrine); SI Handling Sys., Inc. v. Heisley, 753 F.2d 1244, 1265 (3d Cir. 1985); Cont’l Group, Inc. v. Amoco Chems. Corp., 614 F.2d 351, 358–59 (3d Cir. 1980) (apparently applying Third Circuit Law); Nat’l Bus. Servs., Inc. v. Wright, 2 F. Supp. 2d 701, 708 (E.D. Pa. 1998); Christopher M’s Hand Poured Fudge v. Hennon, 699 A.2d 1272, 1277 (Pa. Super. Ct. 1997); DenTal-Ez, Inc. v. Siemens Capital Corp., 566 A.2d 1214, 1231–32 (Pa. Super. Ct. 1989) (involving a prospective buyer purchasing a competitor); Air Prods. & Chems., Inc. v. Johnson, 296 Pa. Super. 405, 420, 442 A.2d 1114, 1122, 215 U.S.P.Q. (BNA) 547, 554 (1982) (granting preliminary injunction). 505 See Sweetzel, Inc. v. Hawk Hill Cookies, Inc., 39 U.S.P.Q.2d (BNA) 1258, 1268 (E.D. Pa. Sept. 14, 1995); SI Handling Sys. Inc. v. Heisley, 581 F. Supp. 1553, 1569, 222 U.S.P.Q. (BNA) 52, 63 (E.D. Pa. 1984), vacated, 753 F.2d 1244 (3d Cir. 1985). 506 See Iron Age Corp. v. Dvorak, 2005 Pa. Super. 270 ¶ 12, 880 A.2d 657, 664 (2005). 507 See Cont’l Data Sys., Inc. v Exxon Corp., 638 F. Supp. 432, 438 (E.D. Pa. 1986). 508 See College Watercolor Group, Inc. v. Newbauer, Inc., 468 Pa. 103, 113, 360 A.2d 200, 205, 195 U.S.P.Q. (BNA) 82, 85 (1976). 509 See Parsons v. Pa. Higher Educ. Assistance Agency, 910 A.2d 177, 186 (Pa. Commw. Ct. 2006). 510 See, e.g., Computer Print Sys., Inc. v. Lewis, 281 Pa. Super. 240, 251–52, 422 A.2d 148, 154, 212 U.S.P.Q. (BNA) 626, 630 n.3 (1980).
Pennsylvania subject to protection without regard to whether they are misappropriated by memory or by theft of an actual list. 511 Supplier lists, however, may not be protected. 512 Pennsylvania has applied Section 759 of the Restatement (First) of Torts in the past to protect nonsecret information for the purpose of discouraging espionage, fraud, and other improper business conduct. 513 A trade secret plaintiff may recover the value of the information taken and the unjust enrichment, including profits, earned by the misappropriator.514 Both a former employee and a new employer who know that the information was obtained improperly are equally liable for damages from a trade secret use.515 Courts in Pennsylvania sometimes grant “lead time” injunctions prohibiting the defendant from using trade secret information only for the time that independent development of the information would require. In other cases, however, permanent injunctions have issued.516 In one instance, a Pennsylvania court issued a creative injunction. The defendant had obtained the plaintiff’s trade secrets pursuant to a confidentiality agreement, had improved upon them, and had filed patent applications. It also built pilot and demonstration plans. The court declared that the defendant held the patent applications in trust and ordered them assigned to the plaintiff. The defendant was further enjoined for seven years from using the trade secrets or benefiting in any way from the information in the patent applications. After that, the plaintiff was required to grant the defendant a royalty-free, nonexclusive license to use any patents that issued.517
511 See, e.g., Sweetzel, Inc. v. Hawk Hill Cookies, Inc., 39 U.S.P.Q.2d (BNA) 1258, 1269 (E.D. Pa. Sept. 14, 1995). 512 See Jewish Employment & Vocational Serv., Inc. v. Pleasantville Educ. Supply Corp., 220 U.S.P.Q. (BNA) 613, 627 (E.D. Pa. Nov. 23, 1982); Van Prods. Co. v. Gen. Welding & Fabricating Co., 419 Pa. 248, 261, 213 A.2d 769, 777, 147 U.S.P.Q. (BNA) 221, 227 (1965). 513 See, e.g., Den-Tal-Ez, Inc. v. Siemens Capital Corp., 566 A.2d 1214, 1231 (Pa. Super. Ct. 1987). 514 See Computer Print Sys., 281 Pa. Super. at 256, 422 A.2d at 157, 212 U.S.P.Q. (BNA) at 632; Greenberg v. Croydon Plastics Co., 378 F. Supp. 806, 817 (E.D. Pa. 1974). 515 See Computer Print Sys., 281 Pa. Super. at 253–54, 422 A.2d at 155, 212 U.S.P.Q. (BNA) at 631. 516 See, e.g., SI Handling Sys., Inc. v. Heisley, 753 F.2d 1244, 1266 (3d Cir. 1985) (“leadtime” injunction); Sweetzel, Inc. v. Hawk Hill Cookies, Inc., 39 U.S.P.Q.2d (BNA) 1258, 1269 (E.D. Pa. Sept. 14, 1995) (permanent injunction); College Watercolor Group, Inc. v. Newbauer, 468 Pa. 103, 114, 360 A.2d 200, 205, 195 U.S.P.Q. (BNA) 82, 85 (1976) (affirming grant of permanent injunction). 517 See Repap Enters., Inc. v. Kamyr, Inc., 27 U.S.P.Q.2d (BNA) 1685, 1691 (E.D. Pa. June 8, 1993). The constructive trust remedy may no longer be available now that Pennsylvania has adopted the UTSA. See B. Braun Med., Inc. v. Rogers, No. 0356193, 04-56836, 2006 WL 92879, at *7 (9th Cir. Jan 13, 2006) (reversing order
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Appendix Under Pennsylvania law, noncompete agreements are unenforceable unless they are contained in an employment agreement or are related to the sale of a business. In the former case, the employer must also have a protectable interest such as trade secrets or specialized training.518 Additionally, a noncompete provision must be reasonable in time and territory and reasonably necessary to protect the employer.519 A beneficial change in position after the commencement of employment is sufficient consideration to support a noncompete agreement.520 Pennsylvania courts generally enforce choice-of-law provisions in noncompete agreements.521 Forum-selection clauses, however, are viewed as permissive but not exclusive.522 Pennsylvania courts are allowed to “bluepencil” restrictive covenants.523 Also under Pennsylvania law, the theft of a trade secret consisting of “[t]he whole or any portion or phase of any scientific or technical information, design process, procedure, formula or improvement which is of value and has been specifically identified by the owner as of a confidential character, and which has not been published or otherwise become a matter of general public knowledge” is a felony.524
R. Tennessee Tennessee adopted the UTSA in 2000.525 Tennessee provides for a three-year statute of limitations subject to the discovery rule.526 There are few cases construing the Tennessee UTSA. Under the common law, one court declared that a “trade secret” could be defined as information used in the conduct of one’s business that confers a competitive advantage as
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requiring reassignment of a patent because the UTSA does not provide for the imposition of a constructive trust), cert. denied, 127 S. Ct. 158, 166 L. Ed. 2d 40 (2006). See Piercing Pagoda, Inc. v. Hoffner, 465 Pa. 500, 508, 351 A.2d 207, 211 (1976); Morgan’s Home Equip. Corp. v. Martucci, 390 Pa. 618, 629, 136 A.2d 838, 845 (1957). See, e.g., Boldt Mach. & Tools, Inc. v. Wallace, 469 Pa. 504, 517, 366 A.2d 902, 904 (1976) (Roberts, J., concurring); Morgan’s Home Equip. Corp., 390 Pa. at 628, 136 A.2d at 844. See, e.g., M. S. Jacobs & Assocs., Inc. v. Duffley, 452 Pa. 143, 146, 303 A.2d. 921, 922 (1973). See, e.g., First Health Group Corp. v. Nat’l Prescription Adm’rs, Inc., 155 F. Supp. 2d 194, 215 (M.D. Pa. 2001). See, e.g., Koresko v. Nationwide Life Ins. Co., 403 F. Supp. 2d 394, 400 (E.D. Pa. 2005). See Alexander & Alexander, Inc. v. Drayton, 378 F. Supp. 824, 830 (E.D. Pa.), aff’d without opinion, 505 F.2d 729 (3d Cir. 1974); Sidco Paper Co. v. Aaron, 465 Pa. 586, 595–96, 351 A.2d 250, 254–55 (1976). See 18 PA. CONS. STAT. ANN. § 3930(b) (2007). See TENN. CODE ANN. §§ 47-25-1701 to 47-25-1709 (2008). See id. § 47-25-1707.
Tennessee long as it is not disclosed to the public.527 Another court required that trade secret information be known only to the employer and to those employees to whom it is necessary to entrust the information.528 Because no information is presumed to be trade secret, the burden of proof is always on the party asserting a trade secret.529 It is not necessary to prove absolute secrecy, but there must be sufficient secrecy that a third party would have difficulty acquiring the information without resort to the use of improper means.530 The use of locked fences and the posting of signs limiting access to a plant have been held sufficient even though the measures were inadequate to prevent deliberate spying.531 In Hauck Manufacturing Co. v. Astec Industries, Inc., a Tennessee federal court applied the “same proof” standard to determine when the Tennessee UTSA will preempt other claims. Under that standard, “a claim will be preempted when it necessarily rises or it falls based on whether the defendant is found to have ‘misappropriated’ a ‘trade secret’ as those two terms are defined in UTSA.”532 In other words, a defendant would have to demonstrate that the plaintiff’s ancillary claims succeed or fail depending on proof that the defendant acquired, disclosed, or used the plaintiff’s trade secrets or that the defendant knew, or had reason to know, that such information was obtained through theft, bribery, misrepresentation, breach or inducement of breach of a duty to maintain secrecy, or espionage through electronic or other means.533 Citing Hauck, a different Tennessee federal court has recently interpreted the preemption doctrine more expansively. In Goldthread v. Davison, the court held that because the Tennessee UTSA “preempts all general tort claims for theft of secret information,” the plaintiff’s common-law causes of action were preempted even though the plaintiff had failed to state a claim under the Tennessee UTSA.534 Another court has held that Tennessee does not recognize a cause of action for conversion of trade secrets.535
527 See Data Processing Equip. Corp. v. Martin, No. 87-230-II, 1987 WL 30155, at *4 (Tenn. Ct. App. Dec. 30, 1987). 528 See Ark. Dailies, Inc. v. Dan, 36 Tenn. App. 663, 672, 260 S.W.2d 200, 204 (1953). 529 See id. 530 See Biodynamic Techs., Inc. v. Chattanooga Corp., 644 F. Supp. 607, 610 (S.D. Fla. 1986) (applying Tennessee law). 531 See id. 532 Hauck Mfg. Co. v. Astec Indus., Inc., 375 F. Supp. 2d 649, 658 (E.D. Tenn. 2004). 533 See id. 534 Goldthread v. Davison, No. 3:06-0805, 2007 WL 2471803, at *7 (M.D. Tenn. Aug. 29, 2007) (quoting Hauck Mfg., 375 F. Supp. 2d at 661). 535 See Stratienko v. Cordis Corp., 429 F.3d 592, 602 (6th Cir. 2005) (holding that claims for tortious interference with contract and unlawful procurement of breach of contract
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Appendix Tennessee provides for injunctive relief even when a defendant has not profited financially from a misappropriation.536 Noncompete agreements are enforceable if found reasonable under the particular circumstances.537 The factors that a court may consider in evaluating reasonableness include the danger or threat to the employer if the agreement is not enforced, the potential economic hardship that enforcement would impose on the employee, and whether the restraint is contrary to the public interest.538 A restraint must also be reasonable in time and territory and impose no greater limitations than necessary to protect the employer’s business interests.539 In Central Adjustment Bureau, Inc. v. Ingram, the Tennessee Supreme Court held that the existence of adequate consideration for a restrictive covenant depends on the facts of each case and that continued employment for a considerable period of time is sufficient consideration if the covenant was signed before, at, or shortly after the beginning of employment.540 Tennessee follows the “rule of reasonableness” in deciding whether to allow a court to modify a restrictive covenant.541 Accordingly, a court not only may “blue-pencil” an agreement by striking out objectionable words but also may enforce restrictive covenants to the extent they are reasonably necessary to protect the employer’s interest without undue hardship to the employee or adverse effect on the public if the employer has acted in good faith.542
S. Texas Texas trade secret law is based on Section 757 of the Restatement (First) of Torts: One who discloses or uses another’s trade secret, without a privilege to do so, is liable to the other if
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were not preempted to the extent the claims were based on a former employee’s alleged breach of a conflict-of-interest agreement). See TENN. CODE ANN. § 47-25-1703 (2008); Stratienko v. Cordis Corp., No. 1:02-CV005, 2003 U.S. Dist. LEXIS 22104, at *10 n.3 (E.D. Tenn. Oct. 2, 2003), aff’d, 429 F.3d 592 (6th Cir. 2005). See Trahan v. E.R. Squibb & Sons, Inc., 567 F. Supp. 505, 507 (M.D. Tenn. 1983). See Allright Auto Parks, Inc. v. Berry, 219 Tenn. 280, 285, 409 S.W.2d 361, 363 (1966); William B. Tanner Co. v. Taylor, 530 S.W.2d 517, 522 (Tenn. Ct. App. 1974); Kaset v. Combs, 58 Tenn. App. 559, 564, 434 S.W.2d 838, 841 (1968). See Allright Auto Parks, 219 Tenn. at 285–86, 409 S.W.2d at 363. See Cent. Adjustment Bureau, Inc. v. Ingram, 678 S.W.2d 28, 32–33 (Tenn. 1984). See id. See id. at 30–31.
Texas (a) he discovered the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him, or (c) he learned the secret from a third person with notice of the facts that it was a secret and that the third person discovered it by improper means or that the third person’s disclosure of it was otherwise a breach of his duty to the other.
In turn, “trade secret” is defined in comment b to Section 757: A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. It differs from other secret information in a business . . . in that it is not simply information as to single or ephemeral events in the conduct of the business, as, for example, the amount or other terms of a secret bid for a contract or the salary of certain employees, or the security investments made or contemplated, or the date fixed for the announcement of a new policy or for bringing out a new model or the like. A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article. It may, however, relate to the sale of goods or to other operations in the business, such as a code for determining discounts, rebates or other concessions in a price list or catalogue, or a list of specialized customers, or a method of bookkeeping or other office management.
Texas courts view the six-factor test of secrecy set forth in the Restatement as “relevant but not dispositive” to establishing the existence of a trade secret.543 According to that test: The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his
543 See In re Bass, 113 S.W.3d 735, 739–40 (Tex. 2003). The Texas Supreme Court in Bass also explained that: Texas courts of appeals who continue to apply this test [tort test to determine trade secret] are split on whether the six-factors should be weighed as relevant criteria or whether a person claiming trade secret privilege must satisfy all six factors before trade secret status applies. See American Derringer Corp. v. Bond, 924 S.W.2d 773, 777 n.2 (Tex. App.-Waco 1996, no writ) (the factors are “to be considered in determining whether given information is a trade secret”); Expo Chem. Co. v. Brooks, 572 S.W.2d 8, 11 (Tex. Civ. App.-Houston [1st Dist.] 1978), rev’d on other grounds, 576 S.W.2d 369, 22 Tex. Sup. Ct. J. 192 (Tex. 1979); but see Birnbaum v. Alliance of Am. Insurers, 994 S.W.2d 766, 783 (Tex. App.-Austin 1999, pet. denied) (all six factors “must be established by a claimant”). . . . We agree with the Restatement and the majority of jurisdictions that the party claiming a trade secret should not be required to satisfy all six factors because trade secrets do not fit neatly into each factor every time.
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Appendix secret. Matters which are completely disclosed by the goods which one markets cannot be his secret. Substantially, a trade secret is known only in the particular business in which it is used. It is not requisite that only the proprietor of the business know it. He may, without losing his protection, communicate it to employees involved in its use. He may likewise communicate it to others pledged to secrecy. Others may also know of it independently, as, for example, when they have discovered the process or formula by independent invention and are keeping it secret. Nevertheless, a substantial element of secrecy must exist, so that, except by the use of improper means, there would be difficulty in acquiring the information. An exact definition of a trade secret is not possible. Some factors to be considered in determining whether given information is one’s trade secret are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; [and] (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.544
Texas has no formula for weighing the secrecy factors. Courts are required to consider the value of the trade secret to the owner in conferring a substantial advantage over competitors and should consider the cost to develop the secret. In “egregious” cases, however, a trade secret misappropriation may be found if the secret was not of great value and was developed at little cost.545 Departing from the Section 757 requirement, Texas courts hold that information may be subject to protection even if the plaintiff is not using it.546 In Texas, a person who gains trade secret information in confidence may be enjoined from using or disclosing the information even after it has become public.547 When an employee has an intimate knowledge of the employer’s business, a confidential relationship will be implied.548 The Restatement protects both technical and nontechnical trade secrets such as price codes, customer lists, economic studies, and the like.549 Texas, courts recognize that trade secrets can be stolen either physically or through the use of memory.550 Texas also recognizes a separate tort of “misappropriation” based on the use by the defendant, in competition with the plaintiff, of a unique pecuniary interest created by the plaintiff through the expenditure of labor, skill, and
544 RESTATEMENT (FIRST) OF TORTS § 757 cmt. b (1939). 545 See Metallurgical Indus., Inc. v. Fourtek, Inc., 790 F.2d 1195, 1202, 229 U.S.P.Q. (BNA) 945, 949 (5th Cir. 1986). 546 See Bertotti v. C.E. Shepherd Co., 752 S.W.2d 648, 653 (Tex. App. 1988). 547 See Bryan v. Kershaw, 366 F.2d 497, 500 (5th Cir. 1966). 548 See Zoecon Indus. v. Am. Stockman Tag Co., 713 F.2d 1174, 1178 (5th Cir. 1983). 549 See Ecolaire, Inc. v. Crissman, 542 F. Supp. 196, 206–07 (E.D. Pa. 1982). 550 See Am. Republic Ins. Co. v. Union Fidelity Life Ins. Co., 295 F. Supp. 553, 555 (D. Or. 1968), supplemental opinion, 315 F. Supp. 311 (D. Or. 1970).
Texas money.551 In one case, a defendant was found liable for misappropriating confidential information related to industrial control systems developed by his employer by setting up a competing business while still employed.552 The defendant was liable for the plaintiff’s lost development costs even though the plaintiff had never finished the product and the defendant never made a product using the misappropriated information. The court observed that the Texas misappropriation law was designed to protect the “sweat equity” that goes into creating a valuable work.553 The elements of a claim for unfair competition by misappropriation in Texas are (1) the creation of a product by the plaintiff through extensive time, labor, skill, and money; (2) the defendant’s use of that product in competition with the plaintiff thereby gaining a special advantage because the defendant is burdened with little or no development expense; and (3) commercial damage to the plaintiff.554 The misappropriation claim is subject to challenge. In at least one case, it was held preempted by the Copyright Act555 and a more recent Fifth Circuit decision questioned whether the cause of action even exists.556 Texas provides a pro-plaintiff legal environment. The Fifth Circuit declared that Texas courts will grant preliminary injunctions based on the doctrine of “inevitable disclosure” if “it appears very possible” that a trade secret will be revealed despite the good faith on the part of a former employee.557 Not surprisingly, the inevitable disclosure doctrine has been applied frequently.558
551 See U.S. Sporting Prods., Inc. v. Johnny Stewart Game Calls, Inc., 865 S.W.2d 214, 217 (Tex. App. 1993), writ denied (Mar. 30, 1994). 552 See Dresser-Rand Co. v. Virtual Automation, Inc., 361 F.3d 831, 837–38, 840 (5th Cir. 2004). 553 See id. at 839. 554 See U.S. Sporting Prods., 865 S.W.2d at 218. 555 See Synercom Tech., Inc. v. Univ. Computing Co., 474 F. Supp. 37, 44 (N.D. Tex. 1979). 556 See Seatrax, Inc. v. Sonbeck Int’l, Inc., 200 F.3d 358, 368 (5th Cir. 2000). 557 FMC Corp. v. Varco Int’l, Inc., 677 F.2d 500, 504 (5th Cir. 1982). 558 See Trilogy Software, Inc. v. Callidus Software, Inc., 143 S.W.3d 452, 464 (Tex. App. 2004) (holding that inevitable misappropriation was an appropriate basis for an injunction notwithstanding that no Texas case had expressly adopted the inevitable disclosure doctrine); Conley v. DSC Commc’ns Corp., No. 05-98-01051-CV, 1999 WL 89955, at *4 (Tex. App. Feb. 24, 1999) (finding no Texas case referring to the doctrine but recognizing “probable” disclosure, as did Rugen v. Interactive Bus. Systems, Inc., 864 S.W.2d 548, 552 (Tex. App. 1993), and referring to Rugen’s potential factors that could support a finding of inevitable disclosure: the existence of misconduct on the part of the departing employee; and the new employer’s apparent need for the trade secret information due to its lack of a comparable technology; a significant degree of similarity between employee’s former and current positions; absence of efforts by the new employee to protect the trade secrets of the former employers; and the existence of a noncompetition agreement); T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d 18, 24 (Tex. App. 1998) (narrow injunction issued based on finding that it was “likely” that former employees would use confidential information and
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382 Appendix However, an application for a preliminary injunction granted on the basis of inevitable disclosure was reversed without opinion in one case.559 One older case concluded that Texas would not restrict solicitation of the plaintiff’s customers by a former employee in the absence of a restrictive covenant.560 Texas also follows the rule of Shellmar Products Co. v. Allen-Qualley Co.,561 allowing both injunctive relief and damages for trade secret misappropriation continuing beyond a public disclosure of the trade secret. Texas courts reason that the existence of a lawful means to obtain a trade secret should not bar protection against misappropriation by unfair means.562 Perpetual injunctions are also granted routinely against trade secret misappropriators.563 Texas even allows the recovery of the lost profits a plaintiff would have earned had it not been hindered by the defendant in developing a product.564 A Texas court awarded both compensatory and punitive damages when the defendant used the knowledge of trade secrets gained through license negotiations to increase the sale price of its business even though it never made any product embodying the trade secrets.565 The statute of limitations in Texas is three years but is subject to both the discovery rule566 and the fraudulent concealment doctrine.567 Noncompete agreements are enforceable assuming they are reasonable in time, area, and scope.568 Even though the Texas Supreme Court had earlier
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trade secrets in new employment); Weed Eater, Inc. v. Dowling, 562 S.W.2d 898, 902, 203 U.S.P.Q. (BNA) 635 (Tex. App. 1978) (finding inevitable disclosure); Elec. Data Sys. Corp. v. Powell, 524 S.W.2d 393, 398 (Tex. App. 1975) (broadening injunction to enforce noncompete agreement). See Maxxim Med., Inc. v. Michelson, 51 F. Supp. 2d 773, 754–87 (S.D. Tex.) (applying California law), rev’d without opinion, 182 F.3d 915 (5th Cir. 1999); see also Guy Carpenter & Co. v. Provenzale, 334 F.3d 459, 469 (5th Cir. 2003) (finding use of trade secrets not probable and denying injunction). See Hart v. McCormack, 746 S.W.2d 330, 330 (Tex. App. 1988). Shellmar Prods. Co. v. Allen-Qualley Co., 87 F.2d 104 (7th Cir. 1936). See Hancock v. Decker, 379 F.2d 552, 552–53 (5th Cir. 1967); Hyde Corp. v. Huffines, 158 Tex. 566, 580, 314 S.W.2d 763, 772, 117 U.S.P.Q. (BNA) 44, 51 (1958). See Zoecon Indus. v. Am. Stockman Tag Co., 713 F.2d 1174, 1180 (5th Cir. 1983); Molex, Inc. v. Nolen, 759 F.2d 474, 477 (5th Cir. 1985). DSC Commc’ns Corp. v. Next Level Commc’ns, 107 F.3d 322, 328–30 (5th Cir. 1997) (denying a request for a permanent injunction but affirming award for lost profits premised on the assumption that the defendant would develop and sell a competing system). See DSC Commc’ns Corp., 107 F.3d at 330 (affirming award of $369 million in compensatory damages, $10 million in punitive damages and attorneys’ fees based upon the inherent power of the court). See Tex. Tanks, Inc. v. Owens-Corning Fiberglas Corp., 99 F.3d 734, 739–40 (5th Cir. 1996), withdrawn, 99 F.3d 740 (5th Cir. 1997). See Seatrax, Inc. v. Sonbeck Int’l, Inc., 200 F.3d 358, 365 (5th Cir. 2000). See id. at 366; Coastal Distrib. Co. v. NGK Spark Plug Co., 779 F.2d 1033, 1035–36 (5th Cir. 1986). See TEX. BUS. & COM. CODE ANN. §§ 15.50−15.51 (Vernon 2007).
Virginia 383 held that a noncompete agreement that purported to restrain an employee’s right to engage in a “common calling” was not enforceable,569 the Texas statute draws no distinction for “common callings.” It does, however, require proof of irreparable injury for plaintiff to recover for a breach.570 The statute further states that the court “shall” reform any unreasonable covenant to make it reasonable and enforceable at the request of the promisee.571 Texas also has a criminal statute prohibiting the theft of “the whole or any part of any scientific or technical information, design, process, procedure, formula, or improvement that has value and that the owner has taken measures to prevent from becoming available to persons other than those selected by the owner to have access for limited purposes.”572 The statute was applied in sentencing two Texas Instruments employees to two years in prison for misappropriating computer programs.573
T. Virginia The UTSA took effect in Virginia in 1986.574 Virginia provides a three-year statute of limitations subject to the discovery rule.575 In enacting the UTSA, Virginia omitted Section 8, which says that each state’s UTSA “shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of [the UTSA] among states enacting it.” Virginia also modified the damages provisions: A. Except where the user of a misappropriated trade secret has made a material and prejudicial change in his position prior to having either knowledge or reason to know of the misappropriation and the court determines that a monetary recovery would be inequitable, a complainant
569 See Hill v. Mobile Auto Trim, Inc., 725 S.W.2d 168, 172 (Tex. 1987), superseded by statute, TEX. BUS. & COM. CODE ANN. §§ 15.50–15.51; Bergman v. Norris of Houston, 734 S.W.2d 673, 674 (Tex. 1987), superseded by statute, TEX. BUS. & COM. CODE ANN. §§ 15.50–15.51. 570 See Cardinal Health Staffing Network v. Bowen, 106 S.W.3d 230, 241 (Tex. App. 2003) (“We hold that the Act does not preempt the equitable principles, including the need to show irreparable injury for which legal remedy is inadequate, for obtaining temporary-injunctive relief”). 571 See TEX. BUS. & COM. CODE ANN. § 15.51(c); see also Wright v. Sport Supply Group, Inc., 137 S.W.3d 289, 298–99 (Tex. App. 2004) (holding that a court is required to reform a non-compete agreement to make it reasonable even without the request of any party to the suit). 572 TEX. PENAL CODE ANN. § 31.05 (Vernon 2007). 573 See Schalk v. State, 823 S.W.2d 633 (Tex. Crim. App. 1991). 574 See VA. CODE ANN. §§ 59.1-336 to 59.1-343 (1986). 575 See id. § 59.1-340.
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Appendix is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. If a complainant is unable to prove a greater amount of damages by other methods of measurement, the damages caused by misappropriation can be measured exclusively by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret. B. If willful and malicious misappropriation exists, the court may award punitive damages in an amount not exceeding twice any award made under subsection A of this section, or $350,000 whichever amount is less.576
The defendant’s failure to profit from an infringement will not insulate it from a damages award because it will be liable for a reasonable royalty.577 Virginia does not favor punitive damage awards and reserves them for only the most egregious conduct.578 In Virginia, a plaintiff must prove the following elements of a trade secret misappropriation claim: (i) the plaintiff possessed a valid trade secret, (ii) the defendant acquired the plaintiff’s trade secrets, and (iii) the defendant knew or should have known that the trade secret was acquired by improper means.579 The existence of a trade secret and its misappropriation are questions of fact.580 The Virginia UTSA was interpreted by the Virginia Supreme Court in Dionne v. Southeast Foam Converting & Packaging, Inc.581 In Dionne, one of the partners in a compressed foam manufacturing business was terminated and left to start a competing business. Because the manufacturing process was a trade secret, the court reasoned that a misappropriation was threatened and enjoined the former partner from using the process “until further order of this court.”582 Interestingly, the defendant demonstrated that the compressed foam concept was known in general terms from an expired patent. His argument that the plaintiff lacked trade secret rights was rejected on the basis that the critical characteristic of a trade secret is secrecy as opposed to novelty.583 The court also found that the plaintiff had exercised reasonable precautions to protect the
576 See id. § 59.1-338. 577 See Am. Sales Corp. v. Adventure Travel, Inc., 862 F. Supp. 1476, 1479–80 (E.D. Va. 1994). 578 See id. at 1481. 579 See Religious Tech. Ctr. v. Lerma, 908 F. Supp. 1362, 1368 (E.D. Va. 1995). 580 See MicroStrategy, Inc. v. Li, 268 Va. 249, 264, 601 S.E.2d 580, 589 (2004). 581 Dionne v. S.E. Foam Converting & Packaging, Inc., 240 Va. 297, 397 S.E.2d 110, 17 U.S.P.Q.2d (BNA) 1565 (1990). 582 Id. at 299, 397 S.E.2d at 111, 17 U.S.P.Q.2d (BNA) at 1566. 583 See id. at 302, 397 S.E.2d at 113, 17 U.S.P.Q.2d (BNA) at 1567; see also MicroStrategy, 268 Va. at 262, 601 S.E.2d at 588.
Virginia 385 secrecy of its information by requiring employees to sign nondisclosure agreements.584 Oddly, the court also noted that the process provided the plaintiff with a competitive advantage in its own local “sales area.” In doing so, the court rejected the notion that a trade secret must not be generally known or readily ascertainable in the country as a whole: Unlike the standard applicable to an applicant for a patent, the trade-secret proponent is not required to prove its claim nationwide.585
Under the Virginia UTSA, secrecy need not be absolute and is not lost if trade secret information is disclosed to a licensee, employee, or stranger subject to an express or implied confidentiality agreement.586 Because the courts focus on whether secrecy has actually been lost, trade secret information will remain protectable even if placed in publicly accessible court files as long as it is not actually accessed or copied by others.587 On the other hand, information that escapes onto the Internet is automatically divested of protection because the owner can no longer show that the information is “not generally known.”588 An employer may be held vicariously liable for a trade secret misappropriation committed by an employee acting within the scope of employment.589 An employer may also be held liable for an employee’s misappropriation pursuant to the doctrine of respondeat superior.590 In Koontz v. Jaffarian, the court expressed the logical conclusion that a company may not claim trade secret protection in work performed for it by another.591 The plaintiff had asked Hewlett-Packard to write a specialized software program for it. It then provided algorithms and assistance to Hewlett-Packard in developing the program. Because the plaintiff did not own the software, it could not prove trade secret misappropriation when Hewlett-Packard later provided the program to a competitor. Trade secret protection for software programs was also addressed in Comprehensive Technologies International, Inc. v. Software Artisans, Inc.592
584 See Dionne, 240 Va. at 305, 397 S.E.2d at 114, 17 U.S.P.Q.2d (BNA) at 1568. 585 Id. at 303 n.2, 397 S.E.2d at 113 n.2, 17 U.S.P.Q.2d (BNA) at 1568 n.2. 586 See Tao of Sys. Integration, Inc. v. Analytical Servs. & Materials, Inc., 299 F. Supp. 2d 565, 574 (E.D. Va. 2004). 587 See MicroStrategy, Inc. v. Bus. Objects, S.A., 331 F. Supp. 2d 396, 418–19 (E.D. Va. 2004). 588 See Religious Tech. Ctr. v. Lerma, 897 F. Supp. 260, 266 (E.D. Va. 1995). 589 See Newport Trade News Indus. v. Dynamic Testings, Inc., 130 F. Supp. 2d 745, 754 (E.D. Va. 2001). 590 See id. 591 See Koontz v. Jaffarian, 617 F. Supp. 1108, 1115 (E.D. Va. 1985). 592 Comprehensive Techs. Int’l, Inc. v. Software Artisans, Inc., 3 F.3d 730 (4th Cir. 1993), vacated, No. 92-1837, 1993 U.S. App. LEXIS 28601 (4th Cir. Sept. 30, 1993).
386 Appendix There, the interplay with copyright law was discussed. The Fourth Circuit held that the Copyright Act did not preempt the Virginia UTSA. Because the Copyright Act protects only the expression of an idea, the Fourth Circuit held that two software programs may be sufficiently dissimilar at the level of expression to defeat a copyright claim but sufficiently similar on an “ideational” level to constitute actionable trade secret misappropriation.593 The court also noted that the Virginia UTSA states that a trade secret may consist of public domain elements if the combination is secret.594 If a trade secret owner uses extraordinary efforts to protect the secrecy of its information but the information nevertheless becomes public, a defendant cannot be liable for using it.595 There also can be no liability for downloading information from the Internet even if the user is aware that trade secret protection is claimed in the information.596 Virginia does not allow the preemption of alternative claims unless it can be clearly discerned that the information at issue constitutes a trade secret.597 Virginia does not apply the “inevitable disclosure” doctrine to prevent an employee with one employer’s trade secrets from taking a similar position with a competitor.598 Virginia enforces noncompete agreements that are reasonable in time and area if the restraint is no greater than is necessary to protect an employer’s legitimate business interest, the restraint is not unduly harsh and oppressive in curtailing the employee’s efforts to earn a livelihood, and the
593 See id. at 736 n.7. 594 See id. at 736. 595 See Religious Tech. Ctr. v. Lerma, 908 F. Supp. 1362, 1368 (E.D. Va. 1995) (Washington Post obtained religious scriptures from court file and posted the information on the Internet for two days before the plaintiff could obtain a temporary restraining order requiring its removal). 596 See id.; see also Arrowhead Global Solutions, Inc. v. DataPath, Inc., 166 Fed. Appx. 39, 45, 2006 WL 278393, at *5 (4th Cir. 2006) (holding that the posting of a trade secret on the Internet effectively places it in the public domain). 597 See Stone Castle Fin., Inc. v. Friedman, Billings, Ramsey & Co., 191 F. Supp. 2d 652, 659 (E.D. Va. 2002); see also S&S Computers & Design, Inc. v. Paycom Billing Servs., No. 5:00-CV-00058, 2001 U.S. Dist. LEXIS 25874, at *8 (W.D. Va. Apr. 5, 2001) (breach of fiduciary duty claim based on alleged misappropriation of trade secrets held preempted). 598 See Motion Control Sys., Inc. v. East, 262 Va. 33, 38, 546 S.E.2d 424, 426 (2001) (holding that the mere fact that an employee has trade secrets is insufficient to enjoin actual or threatened misappropriation; there must be a showing of actual or threatened disclosure); Gov’t Tech. Servs. Inc. v. IntelliSys Tech. Corp., No. 160265, 1999 WL 1499548, at *1 (Va. Cir. Ct. Oct. 20, 1999) (“Virginia does not recognize the inevitable disclosure doctrine.”); cf. Datatel, Inc. v. Rose & Tuck, L.L.C., No. 05495, 2005 U.S. Dist. LEXIS 29704, at *3 (E.D. Va. June 17, 2005) (preliminary injunction was narrowly tailored to prevent copyright infringement and trade secret misappropriation and did not prevent defendant from engaging in business).
Washington 387 restraint is reasonable in light of public policy.599 A Virginia appellate court has held that the continuation of employment is sufficient consideration for a noncompete agreement entered into during the course of employment even if the employment is at-will.600 It is not necessary to prove actual damage resulting from competition to enforce a noncompete agreement if competition in violation of the covenant might result in injury.601
U. Washington Washington adopted the UTSA in 1982 and has never incorporated the 1985 amendments to it.602 Washington provides a three-year statute of limitations subject to the discovery rule.603 An objective standard is used to determine whether the misappropriation should have been discovered.604 Estoppel allows tolling if the plaintiff is prevented or delayed from bringing suit.605 The Washington UTSA provides with respect to injunctive relief: (1) Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation. (2) If the court determines that it would be unreasonable to prohibit future use, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time the use could have been prohibited. (3) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.606
599 See Comprehensive Techs. Int’l, 3 F.3d at 738; Eden Hannon & Co. v. Sumitomo Trust & Banking Co., 914 F.2d 556, 560–61 (4th Cir. 1990); Int’l Limousine Serv., Inc. v. Reston Limousine & Travel Serv., Inc., No. 24816, 2005 WL 1026985, at *2 (Va. Cir. Ct. May 3, 2005); Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick, 239 Va. 369, 371–72, 389 S.E.2d 467, 468–69 (1990). 600 See Paramount Termite Control Co. v. Rector, 238 Va. 171, 176, 380 S.E.2d 922, 926 (1989). 601 See Worrie v. Boze, 191 Va. 916, 928–29, 62 S.E.2d 876, 882 (1951) (citing Capital Laundry Co. v. Vannozzi, 115 N.J. Eq. 26, 27, 169 A. 554, 555 (Ch. 1933)). 602 See WASH. REV. CODE ANN. §§ 19.108.010−19.108.940 (2007). 603 See id. § 19.108.060. 604 See McLeod v. N.W. Alloys, Inc., 90 Wash. App. 30, 38, 969 P.2d 1066, 1070–71 (1988). 605 See id. at 39, 969 P.2d at 1071. 606 WASH. REV. CODE ANN. § 19.108.020.
388 Appendix Washington courts apply the doctrine of “inevitable disclosure” to enjoin employees with knowledge of an employer’s trade secrets from taking a position with a competitor in which the employee would inevitably have to use or disclose the former employer’s trade secrets.607 Washington also adheres to the initial version of the damages provision of the UTSA: (1) In addition to or in lieu of injunctive relief, a complainant may recover damages for the actual loss caused by misappropriation. A complainant may also recover for the unjust enrichment caused by misappropriation that is not taken into account in computing damages for actual loss. (2) If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under subsection (1).608
The decision to award punitive damages is discretionary with the trial court.609 An award of fees, however, must be based on evidence of bad faith.610 Washington also retains the initial UTSA preemption provision: (1) This chapter displaces conflicting tort, restitutionary, and other law of this state pertaining to civil liability for misappropriation of a trade secret. (2) This chapter does not affect: (a) Contractual or other civil liability or relief that is not based upon misappropriation of a trade secret; or (3) Criminal liability for misappropriation of a trade secret.611
Construing that provision, the Washington Supreme Court held that the existence of a contract protecting trade secrets will not preclude a separate claim under the UTSA.612 To the contrary, the terms of a contract may be relevant to the existence of a trade secret or the existence of a duty of
607 See Solutec Corp. v. Agnew, No. 16105-6-III, 1997 WL 794496, at *8 (Dec. 30, 1997) (enjoining former employees from making Carnauba- or Shellac-based apple waxes because it was “highly unlikely” that ex-employees, “without college level degrees in chemistry or chemical engineering,” could have developed the “high quality, competitive edible apple waxes” absent use of former employer’s trade secrets); Temco Metal Prods. v. GT Dev. Corp., No. 99-755-KI, 2000 WL 556607, at *3 (D. Or. May 5, 2000) (applying Washington law). 608 WASH. REV. CODE ANN. § 19.108.030. 609 See Boeing Co. v. Sierracin Corp., 108 Wash. 2d 38, 61–62, 738 P.2d 665, 680 (1987). 610 See Precision Airmotive Corp. v. Rivera, 288 F. Supp. 2d 1151, 1154–55 (W.D. Wash. 2003). 611 WASH. REV. CODE ANN. § 19.108.900. 612 See Ed Nowogroski Ins., Inc. v. Rucker, 137 Wash. 2d 427, 437 n.2, 971 P.2d 936, 942 n.2, 50 U.S.P.Q.2d (BNA) 1268, 1273 n.2 (1999).
Washington 389 confidence.613 Common-law actions based on misappropriation are preempted.614 Vicarious liability is a general theory of civil liability and is not preempted.615 Breach of contract and breach of common-law duties of confidentiality and loyalty that are independent of a trade secret misappropriation claim are also not preempted.616 In Ed Nowogroski Insurance, Inc. v. Rucker, the Washington Supreme Court held that in determining whether certain information has independent economic value, one of the key factors is the degree of effort and expense required to develop the information.617 In the same case, the court held that the protectability of a customer list depends on (i) whether the list is a compilation of information, (ii) whether it is valuable because it is unknown to others, and (iii) whether the owner has made reasonable attempts to keep it secret.618 It makes no difference whether information is misappropriated in written or memorized form.619 Information need not have been implemented to enjoy trade secret status.620 The Ninth Circuit has construed Washington law to provide that an employer fails to exercise reasonable efforts to maintain the secrecy of its information if it allows departing employees to keep that information.621 In that case, recipes were denied trade secret protection on the additional grounds that they were “undeniably obvious” and that the plaintiffs failed to prove that the recipes helped the plaintiff provide superior quality or control its costs.622 Under Washington law, the existence of a trade secret is a question of fact.623 The Washington UTSA allows a successful plaintiff to recover lost profits, recoup the misappropriator’s unjust enrichment, and recover attorneys’ fees.
613 See id. 614 See Thola v. Henschell, 140 Wash. App. 70, 82, 84, 164 P.3d 524, 530–31 (2007) (but holding that unjust enrichment claims are authorized by statute and not preempted). 615 See id. at 78, 164 P.3d at 528. 616 See Pac. Aerospace & Elecs., Inc. v. Taylor, 295 F. Supp. 2d 1205, 1212 (E.D. Wash. 2003). 617 See Ed Nowogroski Ins., 137 Wash. 2d at 438, 971 P.2d at 942, 50 U.S.P.Q.2d (BNA) at 1273. 618 See id. at 442, 971 P.2d at 944, 50 U.S.P.Q.2d (BNA) at 1275; see also Keystone Fruit Mktg., Inc. v. Brownfield, No. CV-05-5087-RHW, 2006 WL 1873800, at *7 (E.D. Wash. June 6, 2006). 619 See Ed Nowogroski Ins., 137 Wash. 2d at 449, 971 P.2d at 948, 50 U.S.P.Q.2d (BNA) at 1272. 620 See Össur Holdings, Inc. v. Bellacure, Inc., No. C05-1552JLR, 2006 WL 2401269, at *2 (D. Wash. Aug. 18, 2006). 621 See Buffets, Inc. v. Klinke, 73 F.3d 965, 969 (9th Cir. 1996). 622 See id. at 968–69. 623 See Calence, L.L.C. v. Dimension Data Holdings, No. C06-0262RSM, 2007 WL 1549495, at *4 (W.D. Wash. May 24, 2007).
390
Appendix The lost profits must be “net profits,” defined as gross profits minus overhead and expenses. No deduction may be made for the defendant’s salary or other general overhead expenses that would have been paid under any circumstances.624 The amount of damages must be established with reasonable certainty. Any reasonable basis for establishing or estimating a loss will suffice, but the evidence generally must be the best available under the circumstances. A damage award may also include future losses constituting the reasonable value of the business opportunities that the plaintiff will probably lose.625 Noncompete agreements are enforceable in Washington if they are no more restrictive than is reasonably necessary to protect the business or goodwill of the employer.626 A restrictive covenant must be supported by adequate consideration which may include teaching the employee a special skill.627 In the absence of an express noncompete agreement, a former employee is generally free to solicit business from customers of a former employer even though the employee learned of the customers by working for the former employer.628 Liquidated damages provisions in restrictive covenants are upheld unless they constitute a penalty.629
V. Wisconsin The UTSA took effect in Wisconsin in 1986.630 Wisconsin provides a threeyear statute of limitations, subject to the discovery rule.631 A plaintiff is not required to bring suit based on mere suspicion.632 Wisconsin has modified the UTSA to provide that “readily ascertainable” information “does not include information accessible through a license agreement or by an employee under a confidentiality agreement with his or her employer.”633 Wisconsin also modified the UTSA to provide for the
624 See Staff Builders Home Healthcare, Inc. v. Whitlock, 108 Wash. App. 928, 929, 33 P.3d 424, 425 (2001). 625 See Eagle Group, Inc. v. Pullen, 58 P.3d 292, 298 (Wash. Ct. App. 2002). 626 See Wood v. May, 73 Wash. 2d 307, 309, 438 P.2d 587, 589 (1968). 627 See id. at 310, 438 P.2d at 589. 628 See Nat’l School Studios, Inc. v. Superior Photo Serv., Inc., 242 P.2d 756, 760, 40 Wash. 2d 263, 271 (1952); Lewis Pac. Dairyman’s Ass’n v. Turner, 314 P.2d 625, 633, 5 Wash. 2d 762, 776 (1957). 629 See Cent. Credit Collection Control Corp. v. Grayson, 7 Wash. App. 56, 61, 499 P.2d 57, 60 (1972). 630 See WIS. STAT. ANN. §§ 134.90, 893.51(2) (2007). 631 See id. § 893.51(2). 632 See Sokol Crystal Prods., Inc. v. DSC Commc’ns Corp., 15 F.3d 1427, 1430 (7th Cir. 1994). 633 WIS. STAT. ANN. § 134.90(1)(b).
Wisconsin issuance of interlocutory and temporary restraining orders. Wisconsin law requires that any application for a restraining order include a detailed, written disclosure of all alleged trade secrets for which protection is sought.634 The statute allows a restraining order to issue ex parte, but requires that the complainant serve its application upon the party to be enjoined at the earlier of the time the motion for the injunction is made or the restraining order is served.635 The purpose of this provision is to allow the defendant an early opportunity to challenge whether the plaintiff’s information is, indeed, trade secret. Wisconsin courts still apply the six-factor test of the Restatement (First) of Torts Section 757 to determine the existence of a trade secret.636 These factors are (1) the extent to which the information is known outside the owner’s business, (2) the extent to which it is known by employees and others involved in the business, (3) the measures taken to guard the secrecy of the information, (4) the value of the information to the owner and to its competitors, (5) the amount of effort and money expended to develop the information, and (6) the amount of difficulty that others would have in obtaining or developing the information lawfully.637 If it would not be difficult for a competitor to discover information in which protection is sought, such information cannot constitute a trade secret.638 The existence of a trade secret is a mixed question of law and fact.639 Misappropriation is proved when a defendant’s device is substantially derived from the plaintiff’s secret in breach of a relationship of trust and confidence.640 Mere improper acquisition of a trade secret, without use, is sufficient to constitute misappropriation.641 An independent contractor does not acquire rights in a client’s trade secret data by using the data in the performance of its duties.642 A contract requiring that information be kept secret for a specified period reflects that there is no need to maintain secrecy thereafter.643 By the summary judgment or trial stage, the plaintiff must identify
634 635 636 637 638 639
640 641 642 643
See id. § 134.90(3)(a). See id. See Genzyme Corp. v. Bishop, 460 F. Supp. 2d 939, 952 (W.D. Wis. 2006). See id. See Sysco Food Servs., L.L.C. v. Ziccarelli, 445 F. Supp. 2d 1039, 1053 (E.D. Wis. 2006) (competitors could have divined customers by using a telephone book). See Corroon & Black-Rutters & Roberts, Inc. v. Hosch, 109 Wis. 2d 290, 294, 325 N.W.2d 883, 885 (1982), superseded by statute on other grounds as stated in Am. Nat’l Property & Cas. Co. v. Graham, 370 F. Supp. 2d 819, 823 (E.D. Wis. 2005). See id. at 294–95, 325 N.W.2d at 886. See Minuteman, Inc. v. Alexander, 147 Wis. 2d 842, 844, 434 N.W.2d 773, 774 (1989). See Hicklin Eng’g, L.C. v. Bartell, 439 F.3d 346, 349–50 (7th Cir. 2006). See ECT Int’l, Inc. v. Zwerlein, 228 Wis. 2d 343, 355–56, 597 N.W.2d 479, 484–85 (Ct. App. 1999).
391
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Appendix its trade secrets with sufficient detail that a reasonable jury could find that it has established each statutory element of a trade secret.644 The Southern District of New York was called upon to apply Wisconsin law to determine whether a game concept was a trade secret.645 Aspects of the game that were readily ascertainable from products sold in France were not protectable because they were discoverable “with a fair degree of ease, without much difficulty.”646 Other aspects of the game, such as the “knowhow” (defined as informational and experiential expertise that can be applied to a product) used in developing the game were not readily ascertainable and were, therefore, protectable.647 The Wisconsin Supreme Court has adopted an unusual and widely criticized approach to the preemption of ancillary claims by the UTSA. It has interpreted the UTSA as “replac[ing] all pre-existing definitions of ‘trade secret’ and remedies for tort claims dependent solely on the existence of a specific class of information statutorily defined as ‘trade secrets,’” and leaving available “all other types of civil actions that do not depend on information that meets the statutory definition of a ‘trade secret.’”648 The court concluded, therefore, “any civil tort claim not grounded in a trade secret, as defined in the statute, remains available.”649 Under Wisconsin’s approach, the UTSA does not preempt claims for breach of duty of loyalty, misuse of corporate opportunity, or conspiracy.650 It also does not preempt claims based upon the misuse and exploitation of confidential or proprietary information that is not a trade secret.651 Unjust enrichment claims are also not preempted.652 Most other states, of course, apply the preemption doctrine more expansively. A Wisconsin court may grant injunctive relief but only for the time reasonably necessary to eliminate any commercial advantage the defendant received from the misappropriation. An award compensating the plaintiff for the cost of developing information does not render an injunction against the future use of trade secrets an impermissible double recovery.653
644 See IDX Sys. Corp. v. Epic Sys. Corp., 165 F. Supp. 2d 812, 817 (W.D. Wis. 2001), aff’d in part and rev’d in part on other grounds, 285 F.3d 581 (7th Cir. 2002). 645 See Editions Play Bac, S.A. v. W. Publ’g Co., 31 U.S.P.Q.2d (BNA) 1338, 1339–40 (S.D.N.Y. Dec. 22, 1993). 646 Id. at 1340–41. 647 See id. at 1341. 648 Burbank Grease Servs., L.L.C. v. Sokolowski, 294 Wis. 2d 274, 298, 717 N.W.2d 781, 793 (2006). 649 Id., 717 N.W.2d at 793–94 (emphasis in original). 650 See Genzyme Corp. v. Bishop, 460 F. Supp. 2d 939, 951–52 (W.D. Wis. 2006). 651 See id. at 952. 652 See Certified Power, Inc. v. Beierle, No. 2006AP1398, 2007 Wis. App. LEXIS 689, at *15 (Aug. 8, 2007). 653 See Minn. Mining & Mfg. Co. v. Pribyl, 259 F.3d 587, 608 (7th Cir. 2001).
Wisconsin In awarding relief, Wisconsin courts may consider the damages to the plaintiff during a defendant’s “head start” period resulting from misappropriation. Further, a jury may find that the defendant would never have developed the secret information absent a misappropriation.654 Compensation for lost profits is cut off at the point the defendant discovered or would have discovered the trade secret without misappropriation.655 Consequential damages are also recoverable if the defendant has distributed a defective product incorporating the trade secret and to recover the loss of future business that was a foreseeable consequence of the defendant’s conduct.656 A plaintiff may also recover consequential damages for the loss of use of a trade secret.657 Punitive damages may be awarded for malicious or outrageous conduct.658 Wisconsin is one of the few states that continues to apply the common-law tort of misappropriation to provide a plaintiff with a remedy if (i) it generates information at a substantial cost or expense, (ii) the value of the information is time-sensitive, (iii) the defendant’s use of the information constitutes free-riding on the plaintiff’s costly efforts to collect the information, (iv) the defendant’s use of the information is in direct competition with the plaintiff, and (v) the ability of other parties to free-ride on the plaintiff’s efforts would reduce the incentive to produce the product or service.659 Under Wisconsin law, noncompete agreements are prima facie suspect.660 To determine whether a restrictive covenant is enforceable, a court must consider whether it (1) is needed to protect a legitimate interest, (2) provides a reasonable time restriction, (3) provides reasonable territorial restrictions, (4) is not harsh or oppressive, and (5) is contrary to the public interest.661 A Wisconsin court will not “blue-pencil” a noncompete agreement. An unreasonable restraint is “unenforceable even as to so much of the covenant or performance as would be a reasonable restraint.”662 A much greater scope
654 See Sokol Crystal Prods., Inc. v. DSC Commc’ns Corp., 15 F.3d 1427, 1433 (7th Cir. 1994). 655 See Minn. Mining, 259 F.3d at 609. 656 See World Wide Prosthetic Supply, 251 Wis. 2d 45, 57, 640 N.W.2d 764, 768 (2002). 657 See id. at 60, 640 N.W.2d at 769. 658 See In re Mikulsky, 301 B.R. 726, 729 (Bankr. E.D. Wis. 2003). 659 See ConFold Pac., Inc. v. Polaris Indus., Inc., 433 F.3d 952, 960 (7th Cir. 2006) (citing NBA v. Motorola, Inc., 105 F.3d 841, 852 (2d Cir. 1997)). 660 See Genzyme Corp. v. Bishop, 460 F. Supp. 2d 939, 945–46 (W.D. Wis. 2006) (quoting Mut. Serv. Cas. Ins. Co. v. Brass, 242 Wis. 2d 733, 738, 625 N.W.2d 648, 652 (2001)). 661 See Nalco Chem. Co. v. Hydro Techs., Inc., 984 F.2d 801, 805 (7th Cir. 1993); Pollack v. Calimag, 157 Wis. 2d 222, 236 (Ct. App. 1990). 662 Nalco, 984 F.2d at 803.
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394 Appendix of restraint is allowed in contracts between vendors and vendees than in contracts between employers and employees.663 Wisconsin courts have not addressed the “inevitable disclosure” doctrine but based on the public policy disfavoring restrictive covenants, it appears unlikely that Wisconsin courts will apply the doctrine.
663 See IDX Sys. Corp. v. Epic Sys. Corp., 285 F.3d 581, 585 (7th Cir. 2002).
Table of Cases
AAA Blueprint & Digital Reprographics v. Ibarra, No. G037831, 2007 WL 3105887 (Cal. Ct. App. Oct. 24, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . 16n77 Abanco International, Inc. v. Guestlogix, Inc., 486 F. Supp. 2d 779 (N.D. Ill. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334n212 ABBA Rubber Co. v. Seaquist, 235 Cal. App. 3d 1, 286 Cal. Rptr. 518 (1991) . . . . . . . . . . . . . . . . . . . . . 14n65, 109n323, 109n329, 164n123, 308n22, 309n23 Abbott Laboratories v. Chiron Corp., No. 97 C 0519, 1997 WL 208369 (N.D. Ill. Apr. 23, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16n75, 95n252, 171n158 Abbott Laboratories v. Norse Chemical Corp., 33 Wis. 2d 445, 147 N.W.2d 529 (1967) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159n92 ABC Coating Co. v. J. Harris & Sons Ltd. 747 P.2d 266 (Okla. 1986) . . . . . . . . 146n16 A.B. Chance Co. v. Schmidt, 719 S.W.2d 854 (Mo. Ct. App. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98n266, 354n374 Abernathy-Thomas Engineering Co. v. Pall Corp., 103 F. Supp. 2d 582 (E.D.N.Y. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173n167 Abraham Zion Corp. v. Lebow, 593 F. Supp. 551 (S.D.N.Y. 1984). . . 32n159, 363n432 Abramson v. Blackman, 340 Mass. 714, 166 N.E.2d 729 (1960) . . . . . . . . . . . . 344n293 Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F. Supp. 2d 941 (N.D. Cal. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . 64n108, 148n24, 310, 310n32, 314n58 ACI Chemicals, Inc. v. Metaplex, Inc., 615 So. 2d 1192 (Miss. 1993) . . . . . . . 178n190 Ackerman v. Kimball International, Inc., 652 N.E.2d 507 (Ind. 1995) . . . . . . . 95n255, 336n235, 337n237, 337n244 Adcor Industries, Inc. v. Bevcorp, LLC, 411 F. Supp. 2d 778 (N.D. Ohio 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161–162, 161n103, 161n108 Adcor Industries, Inc. v. Bevcorp, LLC, 252 F. App’x 55 (6th Cir. 2007) . . . . 369n472 Advanced Bionics Corp. v. Medtronic, Inc., 29 Cal. 4th 697, 59 P.3d 231, 128 Cal. Rptr. 2d 172 (2002), modified on denial of pleading (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132n396, 247n9 Advanced Modular Sputtering, Inc. v. Super. Ct., 132 Cal. App. 4th 826, 33 Cal. Rptr. 3d 901 (2005) . . . . . . . . . . . . . . . . .51n44, 83n203, 84n204, 311n38, 311n39, 312n40 Aerospace Am., Inc. v. Abatement Technologies Inc., 738 F. Supp. 1061 (E.D. Mich. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60n89 Aetna, Inc. v. Fluegel, No. 074033345S, 2008 Conn. Super. LEXIS 326 (Conn. Super. Ct. Feb. 7, 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94n244
395
396
Table of Cases Aetna Building Maintenance Co. v. West, 39 Cal. 2d 198, 246 P.2d 11 (1952) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317n77 Aetna Casualty & Surety Co. v. Quarles, 92 F.2d 321 (4th Cir. 1937) . . . . . . . 133n399 Aetna Retirement Services, Inc. v. Hug, No. CV970479974S, 1997 Conn. Super. LEXIS 1781 (Conn. Super. Ct. June 18, 1997) . . . . . . . . . . . 94, 94n244 Affiliated Hospital Products, Inc. v. Baldwin, 57 Ill. App. 3d 800, 373 N.E.2d 1000 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171n156 AGA Aktiebolag v. ABA Optical Corp, 441 F. Supp. 747 (E.D.N.Y. 1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366n452 Agency Holding Corp. v. Malley-Duff & Associates, 483 U.S. 143, 107 S. Ct. 2759 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77n181 Agricultural Labor Relations Board v. Richard A. Glass Co., 175 Cal. App. 3d 703, 221 Cal. Rptr. 63 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . 313n52 AG Systems, Inc. v. United Decorative Plastics Corp. 55 F.3d 970 (4th Cir. 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368n462 A.H. Emery Co. v. Marcan Products Corp., 268 F. Supp. 289 (S.D.N.Y. 1967), aff ’d, 389 F.2d 11 (2d Cir. 1968) . . . . . . . . . . . . . . . . 20n89, 208n21 Ahlert v. Hasbro, Inc. 325 F. Supp. 2d 509 (D.N.J. 2004). . . . . . . . . . . . . . . . . . . 29n148 Ahmed v. Rosenblatt, 118 F.3d 886 (1st Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . 77n179 A.I.B. Express, Inc. v. FedEx Corp., 358 F. Supp. 2d 239 (S.D.N.Y. 2004). . . . 176n185 Airborne Data, Inc. v. United States, 216 U.S.P.Q. (BNA) 887, 30 Cont. Cas. Fed. (CCH) 70, 1982 WL 36734 (Ct. Cl. 1982), aff ’d, 702 F.2d 1350 (Fed. Cir. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54n51, 292n83 Airdefense, Inc. v. Airtight Networks, Inc., No. C 05-04615JF, 2006 U.S. Dist. LEXIS 55364 (N.D. Cal. July 26, 2006). . . . . . . . . . . . . . . . . . . 151n46 Airport Systems International, Inc. v. AIRSYS ATM, Inc., 144 F. Supp. 2d 1268 (D. Kan. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . 153n55, 67n127 Air Products & Chemicals, Inc. v. Johnson, 442 A.2d 1114, 215 U.S.P.Q. (BNA) 547 (Pa. Super. Ct. 1982). . . . . . . . . . . . . . . . . . 91n233, 374n504 A.I. Trade Financial, Inc. v. Petra International Banking Corp., 62 F.3d 1454 (D.C. Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136n419 Ajaxo, Inc. v. E*Trade Group, Inc., 135 Cal. App. 4th 21, 37 Cal. Rptr. 3d 221 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54n54, 315n66, 315n67 Alagold Corp. v. Freeman, 20 F. Supp. 2d 1305 (M.D. Ala. 1998) . . . . . . . . . . 164n124 Alamar Biosciences, Inc. v. Difco Laboratories, Inc., No. Civ-S-941856, 1995 WL 912345 (E.D. Cal. Oct. 13, 1995) . . . . 134n405, 161n105, 178n194, 307n12 Albert B. Cord Co. v. S & P Management Services, Inc., 194 N.E.2d 173 (Ohio Ct. C.P. 1963), rev’d, 2 Ohio App. 2d 148, 31 Ohio Op. 2d 248, 207 N.E.2d 247 (Ohio Ct. App. 1965) . . . . . . . . . . . . . . . . . . . . . 371n484 Alcatel USA, Inc. v. Cisco Systems, Inc., 239 F. Supp. 2d 645 (E.D. Tex. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157n82, 281n33 Alcatel USA, Inc. v. DGI Technologies, Inc., 166 F.3d 772 (5th Cir. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46n14 Alexander & Alexander, Inc. v. Drayton, 378 F. Supp. 824 (E.D. Pa.) aff’d without opinion, 505 F.2d 729 (3d Cir. 1974) . . . . . . . . . . . . . . . . . . . . . 376n523 Alexander & Alexander Benefits Services v. Benefit Brokers & Consultants, Inc., 756 F. Supp. 1408 (D. Or. 1991) . . . . . . . . . . . . . . . . . . . . . . . . 7n27
Table of Cases 397 A.L. Laboratories, Inc. v. Philips Roxane, Inc., 803 F.2d 378 (8th Cir. 1986). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355n383, 355n388, 356n390 Allan Dampf, P.C. v. Bloom, 127 A.D.2d 719, 512 N.Y.S.2d 116 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365n447 Allan M. Dworkin, D.D.S., P.A. v. Blumenthal, 77 Md. App. 774, 551 A.2d 947 (Ct. Spec. App. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176n184 Allegiance Healthcare Corp. v. Coleman, 232 F. Supp. 2d 1329 (S.D. Fla. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152n51 Allen-Qualley Co. v. Shellmar Products Co, 31 F.2d 293 (N.D. Ill.), aff ’d, 36 F.2d 623 (7th Cir. 1929). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59n79 Alliance Payment Systems, Inc. v. Walczer, 152 Cal. App. 4th 620, 61 Cal. Rptr. 3d 789 (2007), superseded by grant of review, No. S155066, 2007 Cal. LEXIS 11659 (Cal. Oct. 17, 2007) . . . . . . . . . . . . . . . . 317n76 Allied Supply Co. v. Brown, 585 So. 2d 33 (Ala. 1991) . . . . . . . . . . . . . 22n115, 173n168 Allis-Chalmers Manufacturing Corp. v. Continental Aviation & Engineering Corp., 255 F. Supp. 645 (E.D. Mich. 1966) . . . . . 10n44, 12n52, 20n93, 22n110, 97n262, 348n319 All Pro Sports Camp v. Walt Disney Co., 727 So. 2d 363 (Fla. Dist. Ct. App. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321n117 Allright Auto Parks, Inc. v. Berry, 219 Tenn. 280, 409 S.W.2d 361 (1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378n538, 378n539 Al Minor & Associates v. Martin, No. 06AP-217, 2006 Ohio App. LEXIS 5881 (Ohio Ct. App. Nov. 9, 2006), aff’d, 117 Ohio St. 3d 58, 2008-Ohio-292 (Ohio 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369n475 Alnwick v. European Micro Holdings, Inc., 281 F. Supp. 2d 629 (E.D.N.Y. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363n431 Alphamed Pharmaceuticals Corp. v. Arriva Pharmaceuticals, Inc., 432 F. Supp. 2d 1319 (S.D. Fla. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324n140 Alston v. Sundeck Products, Inc., 498 So. 2d 493 (Fla. Dist. Ct. App. 1986). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324n141 ALTA Analytics, Inc. v. Muuss, 75 F. Supp. 2d 773 (S.D. Ohio 1999) . . . . . . . 371n485 Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079 (9th Cir. 2005) . . . . . . . . . . . . . 156n75 American Airlines, Inc. v. National Mediation Board, 588 F.2d 863 (2d Cir. 1978). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234n115 Amariglio-Dunn v. McCoy, 4 F.3d 984 (4th Cir. N.C. 1993) . . . . . . . . . . . . . . 173n170 Amberley Co. v. Brown Co., 408 F.2d 1358 (6th Cir. 1969) . . . . . . . . . . . . . . . 372n491 American Can Co. v. Mansukhani, 742 F.2d 314 (7th Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103n288, 170n155 American Derringer Corp. v. Bond, 924 S.W.2d 773 (Tex. App.-Waco 1996, no writ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34n170, 379n543 American Eutectic Welding Alloys Sales Co. v. Dytron Alloys Corp., 439 F.2d 428 (2d Cir. 1971). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53n50 American Hoechst Corp. v. Nuodex, Inc., No. 7950, 1985 WL 11563 (Del. Ch. April 23, 1985) . . . . . . . . . . . . . . . . . . . 94, 94n247, 148n23, 319n93, 319n97 American Paper & Packaging Products, Inc. v. Kirgan, 183 Cal. App. 3d 1318, 228 Cal. Rptr. 713 (1986) . . . . . . . . . . . . . . . 14n65, 164n123, 171, 171n157, 176n184
398 Table of Cases AmeriGas Propane, L.P. v. T-Bo Propane, Inc., 972 F. Supp. 685 (S.D. Ga. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326n157, 327n167 Amex Distrib. Co. v. Mascari, 150 Ariz. 510, 724 P.2d 596 (Ariz. Ct. App. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307n8 American Family Life Assurance Co. v. Tazelaar, 135 Ill. App. 3d 1069, 90 Ill. Dec. 789, 482 N.E.2d 1072 (1985). . . . . . . . . . . . . . . . . . . . . . . . . . . 56n62 American Honda Motor Co. v. Motorcycle Information Network, Inc., 390 F. Supp. 2d 1170 (M.D. Fla. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321n111 American Jewish Congress v. Kreps, 574 F.2d 624 (D.C. Cir. 1978) . . . . . . . . 237n134 American National Property & Casualty Co. v. Graham, 370 F. Supp. 2d 819 (E.D. Wis. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391n639 American Nursing Care, Inc. v. Leisure, 609 F. Supp. 419 (N.D. Ohio 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372n492 Amoco Prod. Co. v. Laird, 622 N.E.2d 912, 30 U.S.P.Q.2d (BNA) 1515 (Ind. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15n69, 335n224 AMP, Inc. v. Fleischhacker, 823 F.2d 1199 (7th Cir. 1987) . . . . . . . . . . . . . 8n37, 240n1 American Photocopy Equipment Co. v. Henderson, 250 Ga. 114, 296 S.E.2d 573 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325n155 AMP Inc. v. Fleischhacker, No. 84 C 1676, 1986 WL 3598 (N.D. Ill. Mar. 18, 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95n252 American Red Cross v. Palm Beach Blood Bank, Inc., 143 F.3d 1407 (11th Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321n113 American Republic Insurance Co. v. Union Fidelity Life Insurance Co., 295 F. Supp. 553 (D. Or. 1968), supplemental opinion, 315 F. Supp. 311 (D. Or. 1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34n178, 380n550 American Sales Corp. v. Adventure Travel, Inc., 862 F. Supp. 1476 (E.D. Va.), reconsidered and amended on other grounds, 867 F. Supp. 378 (E.D. Va. 1994) . . . . . . . . . . . . . . . . . . . 124n371, 384n577, 384n578 American Totalisator Co. v. Autotote Ltd., No. 7268, 1983 WL 21374 (Del. Ch. Aug. 18, 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94n247, 319n97 Anaconda Co. v. Metric Tool & Die Co., 485 F. Supp. 410 (E.D. Pa. 1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47n16, 178n193 Analog Devices, Inc. v. Michalski, 157 N.C. App. 462, 579 S.E.2d 449 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n272, 368n468 Analogic Corp. v. Data Translation, Inc., 371 Mass. 643, 358 N.E.2d 804 (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37n199, 37n200, 106n305, 124n367, 343n278, 343n279 Ananda Church of Self-Realization v. Massachusetts Bay Insurance Co., 95 Cal. App. 4th 1273, 116 Cal. Rptr. 2d 370 (2002) . . . . . . . . . . . . . . . . . . . . . 23n128 Anderson v. Department of Health & Human Services, 907 F.2d 936 (10th Cir. 1990). . . . . . . . . . . . . . . . . . . . . . . . . . . 218n40, 234n116, 235n117, 235n118 A.O. Smith Corp. v. Petroleum Iron Works Co., 73 F.2d 531 (6th Cir. 1934). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6n21 APAC Teleservices Inc. v. McRae, 985 F. Supp. 852 (N.D. Iowa 1997) . . . . . . . 95n256 Apfel v. Prudential-Bache Sec., Inc., 81 N.Y.2d 470, 616 N.E.2d 1095, 600 N.Y.S.2d 433 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31n154, 361n424 Apollo Technologies Corp. v. Centrosphere Indus. Corp., 805 F. Supp. 1157 (D.N.J. 1992) . . . . . . . . . . . . . . . . . . . . . . 98n267, 159n91, 359n415
Table of Cases 399 Apple Computer, Inc. v. Doe, No. 1-04-CV-032178, 2005 WL 578641, 74 U.S.P.Q.2d (BNA) 1191 (Cal. Super. Ct. Mar. 11, 2005) . . . . . . . . . . . . . . . 309n26 Appleton v. FDA, 310 F. Supp. 2d 194 (D.D.C. 2004) . . . . . . . . . . . . . . . . . . . . 233n106 Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881, 72 Cal. Rptr. 2d 73 (1998) . . . . . . . . . . . . . . . . . . . . . . 57n69, 131n390, 246n6, 313n48 Applied Equipment v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 28 Cal. Rptr. 2d 475 (1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68n129 Aqua Bay Concepts, Inc. v. Grosse Point Board of Realtors, 24 U.S.P.Q.2d (BNA) 1372 (E.D. Mich. May 7, 1992) . . . . . . . . . . . . . . . . . . . 156n76 Architectronics, Inc. v. Control Systems, Inc., 935 F. Supp. 425 (S.D.N.Y. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . 135n417, 137n427, 363n435, 363n436, 363n437, 364n438 Architext, Inc. v. Kikuchi, No. 0500600, 20 Mass. L. Rptr. 127, 2005 WL 2864244 (Super. Ct. May 19, 2005) . . . . . . . . . . . . . . . . . . . . . . . 38n207, 96n259, 343n286, 344n287 Arco Industries Corp. v. Chemcast Corp., 633 F.2d 435 (6th Cir. 1980). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23n121, 173n170, 174n173 Arcor, Inc. v. Haas, 363 Ill. App. 3d 396, 299 Ill. Dec. 526, 842 N.E.2d 265 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330n192 Area Landscaping, L.L.C. v. Glaxo-Wellcome, Inc., 160 N.C. App. 520, 586 S.E.2d 507 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39n212, 174n173, 375n460 Aries Information Systems, Inc., v. Pacific Management Systems Corp., 366 N.W.2d 366 (Minn. Ct. App. 1985) . . . . . . . . 8n36, 350n342, 350n346, 351n352 Arkansas Dailies, Inc. v. Dan, 36 Tenn. App. 663, 260 S.W.2d 200 (1953) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377n528, 377n529 Arminius Schleifmittel GmbH v. Design Indus., Inc., No. 1:06CV00644, 2007 U.S. Dist. LEXIS 10847 (M.D.N.C. Feb. 15, 2007) . . . . . . . . . . . . . . . . . 106n301 Arnold’s Ice Cream Co. v. Carlson, 171 U.S.P.Q. (BNA) 333 (E.D.N.Y. June 16, 1971) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13n60 Aronson v. Quick Point Pencil Co., 440 U.S. 257, 99 S. Ct. 1096 (1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122n350, 160n97, 165n127 Arrowhead Global Solutions, Inc. v. DataPath, Inc., 166 F. App’x 39 (4th Cir. 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386n596 Asahi Glass Co. v. Toledo Engineering Co., 505 F. Supp. 2d 423 (N.D. Ohio 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184n221 Ashland Management, Inc. v. Janien (1993), 82 N.Y.2d 395, 624 N.E.2d 1007 (1993) . . . . . . . . . . . 29n147, 170n154, 360n420, 362n427, 362n428 Ashland Oil, Inc. v. Federal Trade Commission, 409 F. Supp. 297 (D.D.C), aff ’d, 548 F.2d 977 (D.C. Cir. 1976) . . . . . . . . . . . . . . . . . . . . . . . . . . 217n36 Ashton-Tate Corp. v. Ross, 728 F. Supp. 597, (N.D. Cal. 1989), aff’d, 916 F.2d 516, 16 U.S.P.Q.2d (BNA) 1541 (9th Cir. 1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . 134n412, 162n112, 164n124, 307n13 Atari Games Corp. v. Nintendo, Inc., 975 F.2d 832 (Fed. Cir. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168n144 Atco Manufacturing Co. v. Share Corp., No. 3:07-CV-028, 2007 WL 1521008 (E.D. Tenn. May 22, 2007). . . . . . . . . . . . . . . . 149n29, 149n30, 153n56 Atlantic Coast Line Railroad Co. v. Brotherhood of Locomotive Engineers, 398 U.S. 281, 90 S. Ct. 1739 (1970). . . . . . . . . . . . . . . . . . . . . . . . . 132n397
400
Table of Cases AT&T Information Systems, Inc. v. General Services Administration, 627 F. Supp. 1396 (D.D.C. 1986), rev’d on other grounds, 810 F.2d 1233 (D.C. Cir. 1987) . . . . . . . . . . . . . . . . . . . . . .218n39, 234n115, 236n126, 236n127, 236n128 AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 106 S. Ct. 1415 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . 180n205, 180n206 Augat, Inc. v. Aegis, Inc., 409 Mass. 165, 565 N.E.2d 415 (1991) . . . . . . . . . . . . 257n21 Aunyx Corp. v. Canon U.S.A., Inc., 978 F.2d 3 (1st Cir. 1992) . . . . . . . . . . . . . . 80n188 Auto Channel, Inc. v. Speedvision Network, L.L.C., 144 F. Supp. 2d 784 (W.D. Ky. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144n4, 151n46 AutoMed Techologies, Inc. v. Eller, 160 F. Supp. 2d 915 (N.D. Ill. 2001) . . . . . . . . . . . . . . . . . . . . . 52n44, 85n208, 147n22, 334n212, 334n215 Avery Dennison Corp. v. Finkle, No. CV010757706, 2002 WL 241284 (Conn. Super. Ct. Feb. 1, 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94n244 Avnet v.Wyle Lab.,Inc., 263 Ga. 615, 437 S.E.2d 302 (1993) . . . . . . . . . . . . . . . 326n157 Avondale Industries v. NLRB, 90 F.3d 955 (5th Cir. 1996) . . . . . . . . . . . . . . . . 234n113 Ayres v. City of Chicago, 125 F.3d 1010 (7th Cir. 1997) . . . . . . . . . . . . . . . . . . 108n321 BAB Systems v. Pilatus Investment Groupm, No. 05 C 3038, 2005 U.S. Dist. LEXIS 25737 (N.D. Ill. Oct. 27, 2005) (2005) . . . . . . . . . . . . . . . . . 334n212 Bagley v. Lumbermens Mutual Casualty Co., 100 F. Supp. 2d 879 (N.D. Ill. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144n2, 148, 148n25, 334n212 Baker by Thomas v. General Motors Corp., 522 U.S. 222, 118 S. Ct. 657 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131n393 Balboa Insurance Co. v. Trans Global Equities, 218 Cal. App. 3d 1327, 267 Cal. Rptr. 787 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63n99 Baltimore Luggage Co. v. Samsonite Corp., 1992 U.S. App. LEXIS 27493, 24 U.S.P.Q.2d (BNA) 1851 (4th Cir. Oct. 16, 1992) . . . . . . . . . . . . . . . 80n188 B & B Microscopes v. Armogida, 532 F. Supp. 2d 744 (W.D. Pa. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65n115 B & M National Automation, L.L.C. v. AMX Corp., No. 06-20412 CIV, 2007 WL 809675 (S.D. Fla. Mar. 15, 2007) . . . . . . . . . . . . . . . . . . . . 145, 145n11 Bank Travel Bank v. McCoy, 802 F. Supp. 1358 (E.D.N.C. 1992). . . . . . . . . . . 173n170 Barilla America, Inc. v. Wright, 2002 WL 31165069 (S.D. Iowa July 5, 2002) (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95n256 Barnes Group, Inc. v. O’Brien, 591 F. Supp. 454 (N.D. Ind. 1984) . . . . . . . . . . 372n492 Barnett v. Johnson, 839 F. Supp. 236 (S.D.N.Y. 1993) . . . . . . . . . . . . . . . . . . . . 136n422 Barr-Mullin, Inc. v. Browning 108 N.C. App. 590, 424 S.E.2d 226 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n272, 106n301 Basic America, Inc. v. Shatila, 133 Idaho 726, 992 P.2d 175 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13n59, 167n139 Basic Chemicals, Inc. v. Benson, 251 N.W.2d 220 (Iowa 1977) . . . . . . . . . . . . . 21n102 Bateman v. Mnemonics, Inc., 79 F.3d 1532 (11th Cir. 1996) . . . . . . . . . . . . . . . 157n81 Bausch & Lomb, Inc. v. Alcon Laboratories, Inc., 64 F. Supp. 2d 233 (W.D.N.Y. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138n429, 363n437, 364n439 Baxter International, Inc. v. Morris, 976 F.2d 1189 (8th Cir. 1992). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98n266, 354n374
Table of Cases 401 Bayer Corp. v. Roche Molecular Systems, Inc., 72 F. Supp. 2d 1111 (N.D. Cal. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21n104, 93n243, 312n43 Bayline Partners L.P. v. Weyerhaeuser Co., 31 U.S.P.Q.2d (BNA) 1051 (N.D. Cal. Feb. 17, 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22n119, 172n165 Baystate Technologies v. Bentley Systems, 946 F. Supp. 1079 (D. Mass. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22n120 B. Braun Medical, Inc. v. Rogers, Nos. 03-56193, 04-56836, 2006 U.S. App. LEXIS 884 (9th Cir. Jan. 13, 2006) . . . . . . . . . . . . . . . . . . 163n119, 315n66, 316n70, 375n517 B.C. Ziegler & Co. v. Ehren, 141 Wis. 2d 19, 414 N.W.2d 48 (1987) . . . . . . . . . . 46n15 Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236, 25 S. Ct. 637 (1905) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321n118 BDT Products, Inc. v. Lexmark International, Inc., 274 F. Supp. 2d 880 (E.D. Ky. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58n73 Bear, Stearns Funding, Inc. v. Interface Group-Nevada, Inc., 361 F. Supp. 2d 283 (S.D.N.Y. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363n430 Becker Metals Corp. v. West Florida Scrap Metals, 407 So. 2d 380 (Fla. Dist. Ct. App. 1981). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323n130 Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . .185, 185n224, 185n225, 185n226, 186n228 Bellboy Seafood Corp. v. Nathanson, 410 N.W.2d 349 (Minn. Ct. App. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353n364 Bell Helicopter Textron v. Tridair Helicopters, Inc., 982 F. Supp. 318 (D. Del. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318n86, 320n99 Benda v. Grand Lodge of International Association of Machinists & Aerospace Workers, 584 F.2d 308 (9th Cir. 1978) . . . . . . . . . . . . . . . . . . . . . 105n298 Bendinger v. Marshalltown Trowell Co., 994 S.W.2d 468 (Ark. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93, 93n239 Benefit Resource v. Apprize Technology Solutions, Inc., No. 07-4199 (JNE/FLN), 2008 U.S. Dist. LEXIS 39701 (D. Minn. May 15, 2008) . . . . . . . 89n223 Bennett v. Storz Broadcasting Co., 270 Minn. 525, 134 N.W.2d 892 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353n363 Bergen v. Rothschild, 648 F. Supp. 582 (D.D.C. 1986) . . . . . . . . . . . . . . . . . . . . . 76n173 Bergman v. Norris of Houston, 734 S.W.2d 673 (Tex. 1987) . . . . . . . . . . . . . . 383n569 Bernier v. Merrill Air Engineers, Inc., 770 A.2d 97 (Me. 2001) . . . . . . . . . . . . . . 13n58 Bertotti v. C.E. Shepherd Co., 752 S.W.2d 648 (Tex. App. 1988) . . . . 34n172, 380n546 Bestechnologies, Inc. v. Trident Environmental Systems, 681 So. 2d 1175 (Fla. Dist. Ct. App. 1996) . . . . . . . . . . . . . . . . . . . . . . . . 175n179, 321n116 B.F. Goodrich Co. v. Wohlgemuth, 192 N.E.2d 99, U.S.P.Q. (BNA) 804 (Ohio Ct. App. May 22, 1963) . . . . . . . . . . . . . . . . . . . . . . . . 91, 91n233, 99–100n273, 370n478 Bimba Manufacturing Co. v. Starz Cylinder Co., 256 N.E.2d 357, 119 Ill. App. 2d 251, 164 U.S.P.Q. (BNA) 304 (1969) . . . . . . . . . . . . . . . . . . . 175n178 Biodynamic Technologies, Inc. v. Chattanooga Corp., 644 F. Supp. 607 (S.D. Fla. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377n530, 377n531 Birnbaum v. Alliance of American Insurers, 994 S.W.2d 766 (Tex. App.-Austin 1999, pet. denied) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379n543
402
Table of Cases Bishop v. Wick, 11 U.S.P.Q.2d (BNA) 1360 (N.D. Ill. Dec. 29, 1988) . . . . . . . . 157n83 Blank v. Pollack, 916 F. Supp. 165 (N.D.N.Y. 1996) . . . . . . . . . . . . . . 166n131, 177n186 Bliss Clearing Niagara, Inc. v. Midwest Brake Bond Co., 339 F. Supp. 2d 944 (W.D. Mich. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58n72 Bliss Clearing Niagara, Inc. v. Midwest Brake Bond Co., 270 F. Supp. 2d 943 (W.D. Mich. 2003) . . . . . . . . . . . . . . . . . . . . . . . 146n12, 347n312 Blue Cross v. Insurance Bureau Hearing Officer, 104 Mich. App. 113, 133, 304 N.W.2d 499, 507 (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . 346n310 Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick, 239 Va. 369, 371–72, 389 S.E.2d 467 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387n599 Boch Toyota, Inc. v. Klimoski, No. 04966, 18 Mass. L. Rptr. 80, 2004 WL 1689770 (Super. Ct. June 28, 2004). . . . . . . . . . . . . . . . . . . . . . . . . . 344n292 Boeing Co. v. Sierracin Corp., 108 Wash. 2d 38, 738 P.2d 665, 680 (1986) . . . . . . . . . . . . . . . . . . . 123n359, 125n379, 146n18, 388n609 Bohach v. City of Reno, 932 F. Supp. 1232 (D. Nev. 1996) . . . . . . . . . . 210n23, 211n24 Bohler-Uddeholm America, Inc. v. Ellwood Group, Inc., 247 F.3d 79 (3d Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171n161 Boldt Machinery & Tools, Inc. v. Wallace, 469 Pa. 504, 366 A.2d 902 (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376n519 BondPro Corp. v. Siemens Power Generation, Inc., 463 F.3d 702 (7th Cir. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6n21, 18n81, 158n91 Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 109 S. Ct. 971 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . 15n71, 18, 18n84, 19n86 64, 64n106, 158, 158n90, 165, 165n129 Borinski v. Williamson, 3:02CV1014-L, 2005 WL 1206872 (N.D. Tex. May 17, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210n23, 211n24 Bosley Medical Group v. Abramson, 161 Cal. App. 3d 284, 207 Cal. Rptr. 477 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57n68 Bowers v. Baystate Technologies, Inc., 302 F.3d 1334 (Fed. Cir. 2002), vacated, 320 F.3d 1316 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . 155n69, 157n80, 160n97 Boyette v. L.W. Looney & Son, Inc., 932 F. Supp. 1344 (D. Utah 1996) . . . . . . 220n55 Boyle v. Stephens, Inc. No. 97CIV.1351(SAS), 1997 WL 529006, 44 U.S.P.Q.2d (BNA) 1138 (S.D.N.Y. Aug. 26, 1997), aff ’d, 21 F. App’x 76 (2d Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4n12 BP Chemicals Ltd. v. Jiangsu Sopo Corp., 285 F.3d 677 (8th Cir. 2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354n375 Braman Motors, Inc. v. Ward, 479 So. 2d 225 (Fla. Dist. Ct. App. 1985) . . . . 322n123 Brandwynne v. Combe International, Ltd., 74 F. Supp. 2d 364 (S.D.N.Y. 1999) . . . . . . . . . . . . . . . . . . . 31n154, 31n155, 177n186, 361n424, 361n425 Branson Ultrasonics Corp. v. Stratman, 921 F. Supp. 909 (D. Conn. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94, 94n245 Brentlinger Enterprises v. Curran, 752 N.E.2d 994 (Ohio Ct. App. 2001) . . . 372n493 Bridge Publications, Inc. v. Vien, 827 F. Supp. 629 (S.D. Cal. 1993) . . . . . . . . . . 12n54 Bridgestone Americas Holding, Inc. v. Mayberry, 878 N.E.2d 189, 2007 Ind. LEXIS 1154 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335n220 Bridgestone/Firestone v. Lockhart, 5 F. Supp. 2d 667 (S.D. Ind. 1998). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95, 95n254, 336, 336n234
Table of Cases 403 Bridge v. Phoenix Bond & Indemnity Co., 128 S.Ct. 2131,
170 L.Ed.2d 1012 (2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291n77 Brookhaven Typesetting Services, Inc. v. Adobe Systems, Inc., No. C-01-20813 RMW, 2007 WL 2429653 (N.D. Cal. Aug. 24, 2007) . . . . . . 154n62 Brown Bag Software v. Symantec Corp., 960 F.2d 1465 (9th Cir. 1992) . . . . . . 87n216 Brunswick Corp. v. Outboard Marine Corp. 69 Ill. App. 3d 106, 25 Ill. Dec. 570, 387 N.E.2d 27 (1979), aff’d, 79 Ill. 2d 475, 38 Ill. Dec. 781, 404 N.E.2d 205 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331n196 Bryan v. Kershaw, 366 F.2d 497 (5th Cir. 1966) . . . . . . . . . . . . . . . . . . 34n173, 380n547 Buckley v. Seymour, 679 So. 2d 220 (Ala. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . 170n154 Budget Rent-A-Car, Inc. v. Raab, 268 Md. 478, 302 A.2d 11 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339n264 Buffets, Inc. v. Klinke, 73 F.3d 965 (9th Cir. 1996) . . . . . . . . . . . . . . . 23n127, 173n169, 389n621, 389n622 Bunnell Plastics, Inc. v. Gamble, 6 Del. J. Corp. L. 331, 1980 WL 3041 (Del. Ch. 1980). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320n104 Burbank Grease Services, L.L.C. v. Sokolowski, 2005 WI App 28, 278 Wis. 2d 698, 693 N.W.2d 89 (2005) . . . . . . . . . . . . . . . . . . . . . 144, 144n2, 144n3, 144n4, 144n5, 176n184 Burbank Grease Services, L.L.C. v. Sokolowski, 294 Wis. 2d 274, 717 N.W.2d 781 (2006) . . . . . . . . . . . . . . . . . . . . . . .144, 144n2, 144n3, 144n5, 144n6, 145, 145n7, 176n184, 392n648, 392n649 Burnside-Ott Aviation Training Center v. United States, 617 F. Supp. 279 (S.D. Fla. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234n115 Burroughs Corp. v. Schlessinger, 403 F. Supp. 633 (E.D. Va. 1975) . . . . . . . . . 235n124 Burten v. Milton Bradley Co., 763 F.2d 461 (1st Cir. 1985) . . . . . . . . . . . . . . . . . 36n189, 38n208, 38n209, 50n40, 59n80, 341n269, 342n276, 343n277 Burton v. R.J. Reynolds Tobacco Co., 397 F.3d 906 (10th Cir. 2005) . . . . . . . . 161n103 Business Intelligence Services, Inc. v. Hudson, 580 F. Supp. 1068 (S.D.N.Y. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31n155, 99n271, 361–362n425 Business Trends Analysts v. Freedonia Group, Inc., 650 F. Supp. 1452 (S.D.N.Y. 1987). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139n435 Business Trends Analysts v. Freedonia Group, Inc., 700 F. Supp. 1213 (S.D.N.Y. 1988), aff ’d in part and rev’d in part, 887 F.2d 399 (2d Cir. 1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173n170 By-Buk Co. v. Printed Cellophane Tape Co., 163 Cal. App. 2d 157, 329 P.2d 151 (1958) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59n77 Byrd’s Lawn & Landscaping, Inc. v. Smith, 142 N.C. App. 371, 542 S.E.2d 689 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39n212, 367n460, 368n464 Cable Connection, Inc. v. DirectTV, Inc., No. S147767, 2008 Cal. LEXIS 10354 (Aug. 25, 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184n218 Cacique, Inc. v. Robert Reiser & Co., 169 F.3d 619 (9th Cir. 1999) . . . . 122n344, 316n70 Cadence Design Systems, Inc. v. Avant! Corp., 29 Cal. 4th 215, 127 Cal. Rptr. 2d 169, 57 P.3d 647 (2002). . . . . . . . . . . . . . . . . . . . 135n415, 136–137, 137n424, 147–148, 148n24, 307n13, 307n15, 315n64 Cadillac Gage Co. v. Verne Engineering Corp., 203 U.S.P.Q. (BNA) 473 (Mich. Cir. Ct. Aug. 17, 1978) . . . . . . . . . . . . . . . . . . . . 23n123, 174n170, 208n22
404
Table of Cases Cal-Almond, Inc. v. U.S. Department of Agriculture, 960 F.2d 105 (9th Cir. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217n33 Calence, L.L.C. v. Dimension Data Holdings, No. C06-0262RSM, 2007 WL 1549495 (W.D. Wash. May 24, 2007). . . . . . . . . . . . . . . . . . . . . . . . 389n623 California v. Greenwood, 486 U.S. 35, 108 S. Ct. 1625 (1988) . . . . . . . 23n128, 208n22 Callaway Golf Co. v. Dunlop Slazenger Group Americas, Inc., 318 F. Supp. 2d 205 (D. Del. 2004) . . . . . . . . . . . . . . . . . . . . . . 52n44, 52n45, 84n205, 134n407, 145n10, 148–149, 149n30, 153n56, 310n31, 312n40, 314n54 California Micro Devices, Corp. v. Universal Semiconductor, Inc., No. C93-20476 JW (PVT), 1995 WL 705144 (N.D. Cal. Nov. 21, 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52n44, 84n205, 312n40 Cambridge Filter Corp. v. International Filter Co., 548 F. Supp. 1301 (D. Nev. 1982). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55n59 Campaign for Family Farms v. Glickman, 200 F.3d 1180 (8th Cir. 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233n107 Campbell Soup Co. v. ConAgra, Inc., 977 F.2d 86 (3d Cir. 1992) . . . . . . 6n21, 18n81, 107n309, 158n91, 343n284, 343n285, 344nn287 Campbell Soup Co. v. Giles, 47 F.3d 467 (1st Cir. 1995) . . . . 38n205, 38n206, 96n259 Camp Creek Hospitality Inns, Inc. v. Sheraton Franchise Corp., 139 F.3d 1396 (11th Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . 59n81, 327n168, 327n169 C&F Packing Co. v. IBP, Inc., 224 F.3d 1296 (Fed. Cir. 2000) . . . . 145, 145n8, 152n51 Cannondale Corp. v. GT Bicycles, No. CV 970156601S, 1997 WL 53561 (Conn. Super. Ct. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94n245 Canter v. West Publishing Co., No. C 96-20440 PVT, 1999 WL 11701 (N.D. Cal. Jan. 6, 1999). . . . . . . . . . . . . . . . . . . . . . 52n44, 84n205, 312n40 Cape Mobile Home Mart, Inc. v. Mobley, 780 S.W.2d 116 (Mo. Ct. App. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356n401 Capital Laundry Co. v. Vannozzi, 115 N.J. Eq. 26, 169 A. 554 (Ch. 1933) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387n601 Capitol Records, Inc. v. Naxos, Inc., 262 F. Supp. 2d 204 (S.D.N.Y. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63n103 Capsonic Group, Inc. v. Plas-Met Corp., 361 N.E.2d 41 (Ill. App. Ct. 1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23n123, 173n169 Carboline Co. v. Jarboe, 454 S.W.2d 540, 165 U.S.P.Q. (BNA) 521 (Mo. 1970) . . . . . . . . . . . . . . . . . 355n388, 355n389, 356n393, 356n396, 356n397 Carboline Co. v. Lebeck, 990 Supp. 762, 45 U.S.P.Q.2d (BNA) 1922 (E.D. Mo. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98n265, 354, 354n371 Cardiac Pacemakers, Inc. v. Aspen II Holding Co., 413 F. Supp. 2d 1016 (D. Minn. 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351n354 Cardinal Freight Carriers, Inc. v. J.B. Hunt Transport Services, Inc., 987 S.W.2d 642 (Ark. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93n241 Cardinal Health Staffing Network v. Bowen, 106 S.W.3d 230 (Tex. App. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383n570 Cardionet, Inc. v. Lifewatch Corp., No. 07 C 6625, 2008 U.S. Dist. LEXIS 15938 (N.D. Ill., Feb. 27, 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65n116 Carl A. Colteryahn Dairy, Inc. v. Schneider Dairy, 415 Pa. 276, 203 A.2d 469 (1964) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322n125
Table of Cases 405 Carpenter v. United States, 484 U.S. 19, 108 S.Ct. 316 (1987) . . . . . . . . . . . . . . . 282n41 Carson Products Co. v. Califano, 594 F.2d 453 (5th Cir. 1979) . . . . . 159n92, 159n93, 160n99 Carson v. Dynegy, Inc., 344 F.3d 446 (5th Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . 156n74 Celeritas Technologies v. Rockwell International Corp., 150 F.3d 1354 (Fed. Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316n70 Celpaco Inc. v. MD Papierfabriken, 686 F. Supp. 983 (D. Conn. 1988). . . . . . . 284n53, 290n76 Centennial Life Insurance Co. v. Poston, 88 F.3d 255 (4th Cir. 1996) . . . . . . . 133n399 Central Credit Collection Control Corp. v. Grayson, 7 Wash. App. 56, 499 P.2d 57 (1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390n629 Central Plastics Co. v. Goodson, 537 P.2d 330, 189 U.S.P.Q. (BNA) 748 (Okla. 1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33n168, 358n410 Central Adjustment Bureau, Inc. v. Ingram, 678 S.W.2d 28 (Tenn. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378, 378n540, 378n541, 378n542 Century Personnel, Inc. v. Brummett, 499 N.E.2d 1160 (Ind. Ct. App. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337n241 Cenveo Corp. v. Slater, No. Civ. A 06-CV-2632, 2007 WL 527720 (E.D. Pa. Feb. 12, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146n13 Cereva Networks, Inc. v. Lieto, No. 01-3835, 13 Mass. L. Rptr. 694, 2001 WL 1228040 (Mass. Super. Ct. Oct. 12, 2001) . . . . . . . . . . . . . . . . . . . . 344n291 Certified Power, Inc. v. Beierle, No. 2006AP1398, 2007 Wis. App. LEXIS 689 (Wis. Ct. App. Aug. 8, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392n652 Chas. S. Winner, Inc. v. Polistina, No. 06-4865 (NLH), 2007 WL 1652292 (D.N.J. June 4, 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74n161 Chasteen v. UNISIA JECS Corp., 216 F.3d 1212 (10th Cir. 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161n103, 161n104, 162, 162n111, 162n112, 163n114 Chatterbox, L.L.C. v. Pulsar Ecoproducts, L.L.C., No. CV 06-512-S-LMB, 2007 WL 1388183 (D. Idaho May 9, 2007). . . . . . . . . . . . . . . . 144n4, 144n6, 145n10, 146n12, 150, 150n41, 152n51, 153n56 Chemimetals Processing, Inc. v. McEneny, 124 N.C. App. 194, 476 S.E.2d 374 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369n469 Chemical Sales Co. v. Diamond Chemical Co., 766 F.2d 364 (8th Cir. 1985). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64n109 Chem-Trend, Inc. v. McCarthy, 780 F. Supp. 458 (E.D. Mich. 1991) . . . . . . . 346n305 Cheney v. Automatic Sprinkler Corp., 377 Mass. App. 141, 385 N.E.2d 961 (1979). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345n294 Cherne Industries, Inc. v. Grounds & Associates, Inc., 278 N.W.2d 81, 205 U.S.P.Q. (BNA) 854 (Minn. 1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352n355 Chevron Chemical Co. v. Costle, 443 F. Supp. 1024 (N.D. Cal. 1978) . . . . . . . . 218n40, 235n119, 292n82 Chicago Lock Co. v. Fanberg, 676 F.2d 400 (9th Cir.1982) . . . . . . . 45n5, 175, 175n178 Children’s Broadcasting Corp. v. Walt Disney Co., 357 F.3d 860 (8th Cir. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124n368 Choisser Research Corp. v. Electronic Vision Corp., 173 U.S.P.Q. (BNA) 234 (Cal. Super. Ct. Feb. 28, 1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21n107
406 Table of Cases Christopher M’s Hand Poured Fudge v. Hennon, 699 A.2d 1272 (Pa. Super. Ct. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100n275, 374n504 C.H. Robinson Worldwide, Inc. v. Command Transportation L.L.C., No. 05 C 3401, 2005 U.S. Dist. LEXIS 28063 (N.D. Ill. Nov. 16, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333n212 Chrysler Corp. v. Brown (1979), 441 U.S. 281, 99 S. Ct. 1705 (1979) . . . . . . . . 231n95, 233, 233n110, 234n113, 292n81 Churchill Communications Corp. v. Demyanovich, 668 F. Supp. 207 (S.D.N.Y. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365n444 Church of Scientology v. U.S. Postal Service, 633 F.2d. 1327 (9th Cir. 1980). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236n131 CIA v. Sims, 471 U.S. 159, 105 S. Ct. 1881 (1985) . . . . . . . . . . . . . . . . . . . . . . . . 236n132 City Solutions, Inc. v. Clear Channel Communications, Inc., 365 F.3d 835 (9th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63n100 Clark v. Bunker, 453 F.2d 1006 (9th Cir. 1972) . . . . . . . . . . . . . . . . . . . 169n153, 313n50 ClearOne Communications, Inc. v. Chiang, No. 2:07-CV-37 TC, 2007 U.S. Dist. LEXIS 91693 (D. Utah Dec. 13, 2007) . . . . . . . . . . . . . . . . . . . 69n138 Clement Communications, Inc. v. American Future Systems, Inc., No. 89-6280, 1990 U.S. Dist. LEXIS 9165 (E.D. Pa. July 19, 1990) . . . . . . . . . 77n180 Cliffs Notes, Inc. v. Bantam Doubleday Dell Publishing Group, 886 F.2d 490 (2d Cir. 1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105n297 CMAX/Cleveland, Inc. v. UCR, Inc., 804 F. Supp. 337 (M.D. Ga. 1992). . . . . . . 20n94 CMI International, Inc. v. Intermet International Corp., 251 Mich. App. 125, 649 N.W.2d 808 (2002) . . . . . . . . . . . . . . .96, 96n260, 347, 347n317 CNA Financial Corp. v. Donovan, 830 F.2d 1132 (D.C. Cir. 1987) . . . . . . . . . . 231n96, 233n109, 236n129, 236n133, 237n134, 237n138 Coastal Distributing Co. v. NGK Spark Plug Co., 779 F.2d 1033 (5th Cir. 1986). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34n176, 382n567 Coca-Cola Bottling Co. v. Coca-Cola Co., 107 F.R.D. 288, 227 U.S.P.Q. (BNA) 18 (D. Del. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7n30 Coca-Cola Co. v. Reed Industries, Inc., No. 1:85-CV-10, 1988 U.S. Dist. LEXIS 16551, 10 U.S.P.Q.2d (BNA) 1211 (N.D. Ga. Feb. 17, 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167, 167n137 Cognis Corp. v. Chemcentral Corp., 430 F. Supp. 2d 806 (N.D. Ill. 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28n143 Cohen v. Cowles Media Co., 501 U.S. 663, 111 S. Ct. 2513 (1991) . . . . . . . . . . 179n200 Coleman v. Vukovich, 825 N.E.2d 397 (Ind. Ct. App. 2005) . . . . . . . . . . . . . . . 335n221, 336n228, 336n229 Cole v. Circle R. Convenience Stores, Inc., 602 F. Supp. 1108 (M.D. La. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76n173 College Life Insurance Co. v. Austin, 466 N.E.2d 738 (Ind. Ct. App. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335n222 College Watercolor Group, Inc. v. Newbauer, Inc., 468 Pa. 103, 360 A.2d 200, 195 U.S.P.Q. (BNA) 82 (1976) . . . . . . . . . . . . . . . . . . . . . 374n508, 375n516 Colonize.com, Inc. v. Perlow, No. 03-CV-466, 2003 WL 24256576 (N.D.N.Y. Oct. 23, 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . 98n270, 364n440, 365n445 Combined Metals of Chicago Limited Partnership v. Airtek, Inc., 985 F. Supp. 827 (N.D. Ill. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149n32
Table of Cases 407 Combs & Associates v. Kennedy, 147 N.C. App. 362, 555 S.E.2d 634 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39n212 Combustion Engineering, Inc. v. Murray Tube Works, Inc., 222 U.S.P.Q. (BNA) 239 (E.D. Tenn. Feb. 24, 1984) . . . . . . . . . 49n36, 105n293 Comdisco, Inc. v. General Services Administration, 864 F. Supp. 510 (E.D. Va. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235n121 Commercial Cleaning Services, L.L.C. v. Colin Service Systems, Inc., 271 F.3d 374 (2d Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76n172 Compass Bank v. Hartley, 430 F. Supp. 2d 973 (D. Arizona 2006). . . . . . . . . . . 307n10 Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 84 S. Ct. 779 (1964) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159, 159n96, 165n126 Competitive Technologies v. Fujitsu, Ltd., 286 F. Supp. 2d 1118 (N.D. Cal. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7n26 Components for Research, Inc. v. Isolation Products, Inc., 241 Cal. App. 2d 726, 50 Cal. Rptr. 829 (1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48n28 Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263 (7th Cir. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146n12, 147, 147n19, 152n51, 173n170, 333, 333n206, 333n212, 335n217 Comprehensive Technologies International, Inc. v. Software Artisans, Inc., 3 F.3d 730 (4th Cir. 1993), vacated, No. 92-1837, 1993 U.S. App. LEXIS 28601 (4th Cir. Sept. 30, 1993) . . . . . . . . . . . . . . . . . . 385–386, 385n592, 386n593, 386n594, 387n599 Computer Associates International, Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir.1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47n16, 156n73, 157n81 Computer Associates International, Inc. v. Altai, Inc. 22 F.3d 32 (2d Cir. 1994) . . . . . . . . . . . . . . . . . . 135n417, 137n426, 160n101, 359n414 Computer Associates International, Inc. v. Altai, Inc., 918 S.W.2d 453 (Tex. 1996). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29n149 Computer Associates International v. Quest Software, Inc., 333 F. Supp. 2d 688 (N.D. Ill. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331n196 Computer Care v. Service Systems Enterprises, Inc., 982 F.2d 1063 (7th Cir. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15n69, 15n70, 330n189 Computer Economics, Inc. v. Gartner Group, 50 F. Supp. 2d 980 (S.D. Cal. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52n44, 84n204, 185n222, 312n40 Computer Print Systems, Inc. v. Lewis, 281 Pa. Super. 240, 422 A.2d 148, 212 U.S.P.Q. (BNA) 626 (1980) . . . . . . . 374n510, 375n514, 375n515 Compuware Corp. v. Health Care Service Corp., 203 F. Supp. 2d 952 (N.D. Ill. 2002), withdrawn, No. 01 C 0873, 2002 WL 31598839 (N.D. Ill. Oct. 31, 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174n173 Compuware Corp. v. Serena Software International, Inc., 77 F. Supp. 2d 816 (E.D. Mich. 1999) . . . . . . . . . . . . . . . . . . . 6n22, 157n84, 346n309 Compuware v. IBM, No. 02-CV-70906, 2003 WL 23212863 (E.D. Mich. Dec. 19, 2003) . . . . . . . . . . . . . . . . 345n297, 345n298, 346n305, 347n312 COMSAT Corp. v. National Science Foundation, 190 F.3d 269 (4th Cir. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183n216 Com-Share, Inc., v. Computer Complex, Inc., 338 F. Supp. 1229 (E.D. Mich. 1971) aff ’d, 458 F.2d 1341 (6th Cir. 1972) . . . . . . . . . . . . . . . . . . . 20n95
408
Table of Cases ConAgra, Inc. v. Tyson Foods, Inc., 342 Ark. 672, 30 S.W.3d 725 (2000) . . . . 172n165 Conax Florida Corp. v. United States, 824 F.2d 1124 (D.C. Cir. 1987) . . . . . . 233n107 Concept, Inc. v. Thermotemp, Inc., 553 So. 2d 1325 (Fla. Dist. Ct. App. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322n121 ConFold Pacific, Inc. v. Polaris Industries, Inc., 433 F.3d 952 (7th Cir. 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4n10, 63, 63n104, 64n105, 148, 148n26, 393n659 Conley v. DSC Communications Corp., No. 05-98-01051-CV, 1999 WL 89955 (Tex. App. Feb. 24, 1999) . . . . . . . . . . . . . . . . . . . . 100n276, 381n558 Conmar Products Corp. v. Universal Slide Fastener Co., 172 F.2d 150 (2d Cir. 1949). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159n94, 160n98, 347n314 Conseco Financial Servicing Corp. v. Northern American Mortgage, 2000 WL 33739340 (E.D. Mo. Dec. 6, 2000) . . . . . . . . . . . . . .98n265, 354, 354n373, 355n378, 356n398 Construction Technology, Inc. v. Lockformer Co.,704 F. Supp. 1212 (S.D.N.Y. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137n426, 359n414 Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 100 S. Ct. 2051 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237n136 conTeyor Multibag Systems N.V. v. Bradford Co., No. 1:05-CV-613, 2006 U.S. Dist. LEXIS 55898 (W.D. Mich. Aug. 10, 2006) . . . . . . . . . . . . . . . . 181n20 Continental Car-Na-Var Corp. v. Moseley, 24 Cal. 2d 104, 148 P.2d 9 (1944) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89n225, 93, 93n242, 312n43 Continental Group, Inc. v. Amoco Chemicals Corp., 614 F.2d 351 (3d Cir. 1980). . . . . . . . . . . . . . . . . . 89n225, 90n229, 98n268, 100n275, 105, 105n294, 359n416, 374n504 Continuum Co. v. Incepts, Inc., 873 F.2d 801 (5th Cir. 1989). . . . . . . . . . . . . . 109n326 Continental Data Systems, Inc. v. Exxon Corp., 638 F. Supp. 432 (E.D. Pa. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46n14, 374n507 Continental Group, Inc. v. Kinsley, 422 F. Supp. 838 (D. Conn. 1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n271, 364n441 Continental Oil Co. v. Federal Power Commission, 519 F.2d 31 (5th Cir. 1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236n125 Contract Materials Processing, Inc. v. KataLeuna GmbH Catalysts, 164 F. Supp. 2d 520 (D. Md. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173n170 Contract Materials Processing, Inc. v. KataLeuna GmbH Catalysts, 303 F. Supp. 2d 612 (D. Md. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338n255 Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511 (10th Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180n207 Cordis Corp. v. Prooslin, 482 So. 2d 486 (Fla. Dist. Ct. App. 1986) . . . . . . . . . 323n134 Corn Products Refining Co. v. Eddy, 249 U.S. 427, 39 S. Ct. 325 (1919) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219n47 Corroon & Black-Rutters & Roberts, Inc. v. Hosch, 109 Wis. 2d 290, 325 N.W.2d 883 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391n639 Cortland Line Co. v. Vincent, 48 U.S.P.Q.2d (BNA) 1684 (N.D.N.Y. Aug. 15, 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106n303 County Materials Corp. v. Allan Block Corp., 431 F. Supp. 2d 937 (W.D. Wis. 2006), aff’d, 502 F.3d 7304 U.S.P.Q.2d (BNA) 1420 (7th Cir. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352n360
Table of Cases 409 Courtesy Temporary Service, Inc. v. Camacho, 222 Cal. App. 3d 1278, 272 Cal. Rptr. 352 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5n13, 7n24, 11n50 Covey v. United States, 377 F.3d 903 (8th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . 281n36 CPG Products Corp. v. Mego Corp. 214 U.S.P.Q. (BNA) 206 (S.D. Ohio Jan. 12, 1981) . . . . . . . . . . . . . . . . . . . . 20n96, 104n293, 372n489, 372n490 C.R. Bard, Inc. v. Intoccia, No. 94-11568-Z, 1994 WL 601944 (D. Mass. Oct. 13, 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344n287 Creative Computing v. Getloaded.com, L.L.C., 386 F.3d 930 (9th Cir. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74n163 Credentials Plus, L.L.C. v. Calderone, 230 F. Supp. 2d 890 (N.D. Ind. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336, 336n231 Critical Mass Energy Project v. Nuclear Regulatory Commission, 975 F.2d 871 (D.C. Cir. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235n120 Crocan Corp. v. Sheller-Globe Corp., 385 F. Supp. 251 (N.D. Ill. 1974) . . . . . . 22n112 Crow, Pope & Carter, Inc. v. James, 349 So. 2d 827 (Fla. Dist. Ct. App. 1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324n137 Crowe v. DeGioia, 90 N.J. 126, 447 A.2d 173 (1982), aff ’d, 102 N.J. 50, 505 A.2d 59 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104–105n293 Crown Industries v. Kawneer Co., 335 F. Supp. 749 (N.D. Ill. 1971) . . . . . . . . . 213n29 CRST Van Expedited, Inc. v. Werner Enterprises, 479 F.3d 1099 (9th Cir. 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192n240 Crum v. Bridgestone/Firestone North American Tire, L.L.C., 2006 Pa. Super. 230, 907 A.2d 578 (2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373n500 Cubic Corp. v. Marty, 185 Cal. App. 3d 438, 229 Cal. Rptr. 828 (1986). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123n353, 123n354 Cubic Transportation Systems v. Miami-Dade County, 899 So. 2d 453 (Fla. Dist. Ct. App. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322n122 Curcio Webb, L.L.C. v. National Benefit Programs Agency, Inc., 367 F. Supp. 2d 1191 (S.D. Ohio 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . 370n481 Curtiss-Wright Corp. v. Edel-Brown Tool & Die Co., 381 Mass. 1, 407 N.E.2d 319 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . 38n203, 343n282 Custom Teleconnect, Inc. v. International Tele-Services, Inc., 254 F. Supp. 2d 1173 (D. Nev. 2003) . . . . . . . . . . . . . . . . . . 149, 149n34, 151n47, 152, 152n52, 153, 153n58 CVD, Inc. v. Raytheon Co., 769 F.2d 842 (1st Cir. 1985) . . . . . . . . . . . . . . . . . 5n15, 179, 179n201, 180n202 Cypress Semiconductor Corp. v. Superior Court, 163 Cal. App. 4th 575, 77 Cal. Rptr. 3d 685 (2008) . . . . . . . . . . . . . . . . . . . . 134n404, 135n413, 135n415, 161n106, 161n107, 307n15 Daboub v. Gibbons, 42 F.3d 285 (5th Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . 156n74 Daily International Sales Corp. v. Eastman Whipstock, Inc., 662 S.W.2d 60 (Tex. App. 1983). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22n110, 172n165 Dalton v. Camp, 548 S.E.2d 704 (N.C. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61n92 Danjaq L.L.C. v. Sony Corp., No. CV 97-8414-ER (MCX), 1999 WL 317629 (C.D. Cal. 1999) . . . . . . . . . . . . . . . . . . . . . 93n243, 312n43, 314n59 Data General Corp. v. Grumman Systems Support Corp., 825 F. Supp. 340 (D. Mass. 1993) . . . . . . . . . . . . . . . . . 38n204, 44n1, 50n40, 343n283
410
Table of Cases Data General Corp. v. Grumman Systems Support Corp., 36 F.3d 1147 (1st Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157n81 Data Processing Equipment Corp. v. Martin, No. 87-230-II, 1987 WL 30155 (Tenn. Ct. App. Dec. 30, 1987) . . . . . . . . . . . . . . . . . . . . . . . 377n527 Datatel, Inc. v. Rose & Tuck, L.L.C., No. 05-495, 2005 U.S. Dist. LEXIS 29704 (E.D. Va. June 17, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . 386n598 Dealertrack, Inc. v. Huber, 460 F. Supp. 2d 1177 (C.D. Cal. 2006). . . . . . . . . . . 314n57 Dean Witter Reynolds v. Byrd, 470 U.S. 213, 105 S. Ct. 1238 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184n219 Dearborn v. Everett J. Prescott, Inc., 486 F. Supp. 2d 802 (S.D. Ind. 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338n246 De Boer Structures (U.S.A.), Inc. v. Shaffer Tent & Awning Co., 233 F. Supp. 2d 934 (S.D. Ohio 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371n487 Defcon, Inc. v. Webb, 687 So. 2d 639 (La. Ct. App. 1997) . . . . . . . . . . . 147n22, 148n23 Defiance Button Machine Co. v. C&C Metal Products Corp., 759 F.2d 1053 (2d Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211n24 Degussa Admixtures, Inc. v. Burnett, 471 F. Supp. 2d 848 (W.D. Mich. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96–97n260, 347n317 Deiulemar Compagnia Di Navigazione, S.p.A. v. Transocean Coal Co., No. 03 Civ. 2038 (RCC), 2004 U.S. Dist. LEXIS 23948 (S.D.N.Y. Nov. 29, 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184n217 Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal. 4th 376, 45 Cal. Rptr. 2d 436 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66n121 Del Madera Properties v. Rhodes & Gardner, Inc., 820 F.2d 973 (9th Cir. 1987). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156n77 Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1326 (S.D. Fla. 2001) . . . . . . . . . . . . . . . . . . . . . 7n35, 52n44, 56n66, 65n120, 84n205, 85n209, 90n231, 93n243, 95n248, 257n20, 312n40, 312n43, 323, 323n133, 325n148 Delphine Software International v. Electronic Arts, Inc., No. 99 CIV. 4454 AGAS, 1999 WL 627413 (S.D.N.Y. Aug. 18, 1999) . . . . 99n271, 364n441 Delta Filter Corp. v. Morin, 108 A.D.2d 991, 485 N.Y.S.2d 143 (N.Y. App. Div. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172n165 Delta Medical Systems, Inc. v. Mid-America Medical Systems, Inc., 331 Ill. App. 3d 777, 265 Ill. Dec. 397, 772 N.E.2d 768 (2002) . . . . . . . 334n212 Demit of Venezuela, C.A. v. Electronic Water Systems, Inc., 547 F. Supp. 850 (S.D. Fla. 1982), aff’d without opinion, 740 F.2d 977 (11th Cir. 1984). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324n139 Denison v. Westmore Dental Arts, P.C., 212 U.S.P.Q. (BNA) 601 (W.D. Pa. Jan. 15, 1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139n435 Den-Tal-Ez, Inc. v. Siemens Capital Corp., 566 A.2d 1214 (Pa. Super. Ct. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100n275, 374n504, 375n513 Department of Parks & Recreation v. Bazaar Del Mundo, Inc., 448 F.3d 1118 (9th Cir. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105n297 Department of the Air Force v. Rose, 425 U.S. 352, 96 S. Ct. 1592 (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217n33 DeRubeis v. Witten Technologies, Inc., 244 F.R.D. 676 (N.D. Ga. 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51n44, 85n212
Table of Cases 411 Devon Industries, Inc. v. American Medical International, Inc., 61 F.3d 910, 1995 U.S. App. LEXIS 20719 (9th Cir. 1995), amended by Nos. 94-55074, 94-55211, 1995 U.S. App. LEXIS 31528 (9th Cir. Nov. 7, 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309n23 DeVoto v. Pacific Fidelity Insurance Co., 618 F.2d 1340 (9th Cir. 1980) . . . . . . 66n12 Diamond Power International, Inc. v. Clyde Bergemann, Inc., No. 1:04-CV-1708-RWS, 2005 U.S. Dist. LEXIS 12493 (N.D. Ga. Jan. 5, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326n157 Diamond Power International, Inc. v. Davidson, Nos. 1:04-CV-0091-RWS-CCH, 1:04-CV-1708-RWS-CCH, 2007 WL 2904119 (N.D. Ga. Oct. 1, 2007) . . . . . . 148n29, 151n45, 153n56, 328n171 Diamond v. Chakrabarty, 447 U.S. 303, 100 S. Ct. 2204 (1980) . . . . . . . . . . . . 187n231 Diamond v. T. Rowe Price Associates, 852 F. Supp. 372 (D. Md. 1994) . . . . . 338n254 Dicen v. New Sesco, Inc., 839 N.E.2d 684 (Ind. 2005) . . . . . . . . . . . . . . . . . . . . 338n247 Dick Corp. v. SNC-Lavalin Constructors, Inc., No. 04 C 1043, 2004 U.S. Dist. LEXIS 26767 (N.D. Ill. Nov. 23, 2004) . . . . . . . . . . . . . . . . . . 334n212 Dickinson Medical Group, P.A. v. Foote, 9 Del. J. Corp. L. 180, 1984 WL 8208 (Del. Ch. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319n94 Digital Development Corp. v. International Memory Systems, 185 U.S.P.Q. (BNA) 136 (S.D. Cal. Oct. 24, 1973). . . . . . . . . . . . . . . . 33n168, 59n79, 313n49, 316n73, 358n410 Digital Envoy, Inc. v. Google, Inc., 370 F. Supp. 2d 1025 (N.D. Cal. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145n10, 148n23, 152n51, 310n31 Diodes, Inc. v. Franzen, 260 Cal. App. 2d 244, 67 Cal. Rptr. 19 (1968) . . . . . . . . . . . . . . . . . . . . . . . . . . 83–84, 83n203, 130n386, 311n39 Dionne v. Southeast Foam Converting & Packaging, Inc., 240 Va. 297, 397 S.E.2d 110, 17 U.S.P.Q.2d (BNA) 1565 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205n14, 384–385, 384n581, 384n582, 384n583, 385n584, 385n585 Diversified Fastening Systems, Inc. v. Rogge, 786 F. Supp. 1486 (N.D. Iowa 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95–96n256 Diversified Technology v. Dubin, 31 U.S.P.Q.2d (BNA) 1692 (S.D. Miss. Mar. 8, 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85n211, 185n223 Dixie Bearings, Inc. v. Walker, 219 Ga. 353, 133 S.E.2d 338 (1963) . . . . . . . . . 328n175 Dixie Parking Service, Inc. v. Hargrove, 691 So. 2d 1316 (La. Ct. App. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246n7 Doebler’s Pennsylvania Hybrids, Inc. v. Doebler’s Seeds, L.L.C., 88 F. App’x 520 (3d Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100n275, 374n504 Doe v. Medlantic Health Care Group, Inc., 814 A.2d 939 (D.C. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60n84 Do It Best Corp. v. Passport Software, Inc., No. 01 C 7674, 2004 U.S. Dist. LEXIS 14174 (N.D. Ill. July 23, 2004) . . . . . . . . . . . . . . . . . . . 333n212 Dombrowski v. Pfister, 380 U.S. 479, 85 S. Ct. 1116 (1965). . . . . . . . . . . . . . . . 132n398 Donahue v. Permacel Tape Corp., 127 N.E.2d 235 (Ind. 1955) . . . . . . . . . . . . 337n245 Donovan v. City of Dallas, 377 U.S. 408, 84 S. Ct. 1579 (1964). . . . . . . . . . . . . 132n395 Dotolo v. Schouten, 426 So. 2d 1013 (Fla. Dist. Ct. App. 1983) . . . . . . . . . . . . 322n120 DoubleClick, Inc. v. Henderson, No. 116914/97, 1997 WL 731413 (N.Y. Sup. Ct. Nov. 7, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n271, 364–365n441
412 Table of Cases Dow Chemical Co. v. United States 749 F.2d 307 (6th Cir. 1984), aff ’d, 476 U.S. 227, 106 S.Ct. 1819 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19n87 Dow Jones Co. v. Federal Energy Regulatory Commission, 219 F.R.D. 167 (C.D. Cal. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235n121 Dresser-Rand Co. v. Virtual Automation, Inc., 361 F.3d 831, 840 (5th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . 35n180, 35n181, 381n552, 381n553 Drill Parts & Service Co. v. Joy Manufacturing Co., 439 So. 2d 43, 223 U.S.P.Q. (BNA) 521 (Ala. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46n15, 208n18 Droeger v. Welsh Sporting Goods Corp., 541 F.2d 790 (9th Cir. 1976) . . . . . . 213n28 DSC Communications Corp. v. Next Level Communications, 107 F.3d 322 (5th Cir. 1997) . . . . . . . . . . . . . . . . 35n187, 124n363, 382n563, 382n564 DSC Communications Corp. v. Pulse Communications, Inc., 170 F.3d 1354 (Fed. Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168n145 DTM Research, L.L.C. v. AT&T Corp., 245 F.3d 327 (4th Cir. 2001). . . . . . . . . . . . . . . . . . . . . . . . . . . 138–139, 138n433, 338n251, 338n252 Dulisse v. Park International Corp., No. 97 C 8018, 1998 WL 25158, 45 U.S.P.Q.2d (BNA) 1688 (N.D. Ill. Jan. 9, 1998) . . . . . 95n252, 106n306, 108n318 Dura Global Technologies, Inc. v. Magna Donnelly Corp., No. 07-CV-10945-DT, 2008 U.S. Dist LEXIS 38989 (E.D. Mich. May 14, 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51n44, 85n212 Dutch Cookie Machine Co. v. Vande Vrede, 289 Mich. 272, 286 N.W. 612 (1939) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347n313 DVD Copy Control Association v. Bunner, 93 Cal. App. 4th 648, 113 Cal. Rptr. 2d 338 (Ct. App. 2001), review granted and opinion superseded, 41 P.3d 2, 117 Cal. Rptr. 2d 167 (2002), rev’d, 31 Cal. 4th 864, 75 P.3d 1, 4 Cal. Rptr. 3d 69 (2003) . . . . . . . . .130n387, 309, 309n24 DVD Copy Control Association v. Bunner, 116 Cal. App. 4th 241, 10 Cal. Rptr. 3d 185 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8n38 DVD Copy Control Association v. McLaughlin, No. CV 786804, 2000 WL 48512 (Cal. App. Dept. Super. Ct. Jan. 21, 2000), rev’d sub nom. DVD Copy Control Association v. Bunner, 93 Cal. App. 4th 648, 113 Cal. Rptr. 2d 338 (Ct. App. 2001), review granted and opinion superseded, 41 P.3d 2, 117 Cal. Rptr. 2d 167 (2002), rev’d, DVD Copy Control Association, Inc. v. Bunner, 31 Cal. 4th 864, 75 P.3d 1, 4 Cal. Rptr. 3d 69 (2003) . . . . . . . . . . . . . . . . . . . . 130n387 Dynamics Research Corp. v. Analytic Sciences Corp., 400 N.E.2d 1274 (Mass. App. Ct. 1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173n169 Dyson Technology Ltd. v. Maytag Corp., 241 F.R.D. 247 (D. Del. 2007) . . . . 112n335 Eagle Comtronics, Inc. v. Pico, Inc., 89 A.D.2d 803, 453 N.Y.S.2d 470 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29n147, 360n420, 390n625 Eagle Group, Inc. v. Pullen, 114 Wash App. 409, 58 P.3d 292 (2002) . . . . . . . 124n364 Eagle Investment Systems Corp. v. Tamm, 146 F. Supp. 2d 105 (D. Mass. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210n23 EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299 (S.D.N.Y. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . 98n270, 364n440, 366n450, 366n455 Eastman Kodak Co. v. Powers Film Products, Inc., 179 N.Y.S. 325, 189 A.D. 556 (1919) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n271, 364n441
Table of Cases 413 Eaton Corp. v. Appliance Valves Corp., 526 F. Supp. 1172 (N.D. Ind. 1981), aff ’d, 688 F.2d 842 (7th Cir. 1982) . . . . . . . . . . . . 90n229, 104n293 ebay, Inc. v. MercExchange, L.L.C., 547 U.S. 388, 126 S. Ct. 1837 (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105n296 Ecolaire, Inc. v. Crissman, 542 F. Supp. 196 (E.D. Pa. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34n177, 107n313, 208n17, 380n549 Ecologix, Inc. v. Fansteel, Inc., 676 F. Supp. 1374 (N.D. Ill. 1988) . . . . . . . . . . 173n170 Economy Roofing & Insulating Co. v. Zumaris, 538 N.W.2d 641 (Iowa 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4n9 ECT International, Inc. v. Zwerlein, 228 Wis. 2d 343, 597 N.W.2d 479 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .175, 175n177, 391n643 Eden Hannon & Co. v. Sumitomo Trust & Banking Co., 914 F.2d 556 (4th Cir. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387n599 Editions Play Bac v. Western Publishing Co., 31 U.S.P.Q.2d (BNA) 1338 (S.D.N.Y. Dec. 22, 1993) . . . .146n17, 147, 392n645, 392n646, 392n647 Edix Media Group, Inc. v. Mahani, No. 2186-N, 2006 Del. Ch. LEXIS 207 (Del. Ch. Dec. 12, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320n100 Ed Nowogroski Insurance, Inc. v. Rucker, 137 Wash. 2d 427, 971 P.2d 936, 50 U.S.P.Q.2d (BNA) 1268 (1999) . . . . . . . . . . . . . . . . . . . 11n49, 101n282, 145n10, 388n612, 389n613, 389n617, 389n619 Educational Sales Programs, Inc. v. Dreyfus Corp., 65 Misc. 2d 412, 317 N.Y.S.2d 840 (Sup. Ct. 1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31n154, 361n424 Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 81 Cal. Rptr. 3d 282, 189 P.3d 285 (2008) . . . . . . . . . . . . . . . . . . . . . . . 57n68, 313, 313n46, 313n47, 316n74 E. Edgar Wood, Inc. v. Clark, No. 883-K, 1986 WL 1160 (Del. Ch. Jan. 21, 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320n106 EEMSO, Inc. v. Complex Technologies, Inc., No. 3:05-CV-0897-P, 2006 U.S. Dist. LEXIS 67225 (N.D. Tex. Aug. 31, 2006) . . . . . . . . . . . . . . . . 125n374 EFCO Corp. v. Symons Corp., 219 F.3d 734 (8th Cir. 2000) . . . . . . . 124n361, 171n161 Ehat v. Tanner, 780 F.2d 876 (10th Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156n78 E.I. du Pont de Nemours & Co. v. American Potash & Chemical Corp., 200 A.2d 428 (Del. Ch. 1964) . . . . . . . . . . . . . . . . 94, 94n246, 248n12, 319n97 E.I. du Pont de Nemours & Co. v. Christopher, 431 F.2d 1012 (5th Cir. 1970). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17n78, 18–19, 19n85, 45n8, 46n13 E.I. du Pont de Nemours & Co. v. United States, 288 F.2d 904 (Ct. Cl. 1961) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175n179 E.I. Du Pont de Nemours Powder Co. v. Masland, 244 U.S. 100, 37 S. Ct. 575 (1917) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21n107 Eldorado Stone, L.L.C. v. Renaissance Stone, Inc., No. 04CV2562 JM(CAB), 2007 WL 2403572 (S.D. Cal. Aug. 20, 2007) . . . . . . . . . . . 151n48, 315n62 Electronic Data Systems Corp. v. Heinemann, 268 Ga. 755, 493 S.E.2d 132 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326n161 Electronic Data Systems Corp. v. Powell, 524 S.W.2d 393 (Tex. App. 1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100n276, 381–382n558 Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890 (Minn. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . 12n57, 23n123, 349, 349n330, 349n331, 349n333, 349n337, 350, 350n339, 350n343, 350n344, 350n345
414 Table of Cases Electro-Miniatures Corp. v. Wendon Co., 771 F.2d 23 (2d Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89n224, 121n342 Electro Optical Industries, Inc. v. White, 90 Cal. Rptr. 2d 680 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94n243, 313n43 Ellicott Machine Corp. v. Modern Welding Co., 502 F.2d 178 (4th Cir. 1974). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132n394 Elliott v. Kieswetter, 98 F.3d 47 (3d Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . 109n331 Ellison & Associates v. Pekarek, No. 49560, 1985 Ohio App. LEXIS 71409 (Sept. 26, 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369n474 Elmer Miller, Inc. v. Landis, 253 Ill. App. 3d 129, 625 N.E.2d 338 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329n183 Emergency Care Research Institute v. Guidant Corp., No. 06-1898, 2006 WL 541776 (E.D. Pa. Dec. 5, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373n502 Emery Industries v. Cottier, 202 U.S.P.Q. (BNA) 829 (S.D. Ohio Aug. 18, 1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n273, 370n478 Engelhard Corp. v. Savin Corp., 505 A.2d 30 (Del. Ch. 1986) . . . . . . . . . . . . . . . . . . . . . . .52n44, 85, 85n207, 318n89, 334, 334n214 Engineering Associates, Inc. v. Pankow, 268 N.C. 137, 150 S.E.2d 56 (1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369n470 Enterprise Leasing Co. v. Ehmke, 55 U.S.P.Q.2d (BNA) 1303 (Ariz. Ct. App. Dec. 2, 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306, 306n3 Entertainment Research Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211 (9th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60n83 Epstein v. C.R. Bard, Inc., 460 F.3d 183 (1st Cir. 2006) . . . . 137n425, 160n102, 359n413 Equity Enterprises, Inc. v. Milosch, 2001 Wis. App. 186, 247 Wis. 2d 172, 633 N.W.2d 662 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101n283 Equus Computer Systems, Inc. v. Northern Computer Systems, Inc., No. CIV. 01-657DWFAJB, 2001 WL 1636487 (D. Minn. May 4, 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97n263, 352n356, 352n357 Erik Electric Co. v. Elliot, 403 So. 2d 1041 (Fla. Dist. Ct. App. 1981) . . . . . . . 324n138 Ernest Paper Products, Inc. v. Mobil Chemical Co., No. CV95-7918 LGB(AJWX), 1997 WL 33483520 (C.D. Cal. Dec. 2, 1997) . . . . 148n23 Ernst & Ernst v. Carlson, 247 Cal. App. 2d 125, 55 Cal. Rptr. 626 (1966) . . . . . 316n72 E.R. Squibb & Sons, Inc. v. Hollister, Inc., No. 91-203 (JCL), 1991 WL 15296 (D.N.J. Feb. 5, 1991), aff’d, 941 F.2d 1201 (3d Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98n267, 359n415 Ervin & Associates, Inc. v. United States, 59 Fed. Cl. 267 (2004) . . . . . . . . . . . . 223n71 Essex Group, Inc. v. Southwire Co., 269 Ga. 553, 501 S.E.2d 501 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95n251, 327n162 Estée Lauder Cos. v. Batra, 430 F. Supp. 2d 158 (S.D.N.Y. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99n271, 364n441 Ethypharm S.A. France v. Bentley Pharmaceuticals, Inc., 388 F. Supp. 2d 426 (D. Del. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146n12, 320n102, 320n103 Eutectic Welding Alloys Corp. v. West, 160 N.W.2d 566 (Minn. 1968) . . . . . 352n359 Evolution, Inc. v. SunTrust Bank, 342 F. Supp. 2d 943 (D. Kan. 2004) . . . . . . . . 58n71 Ewen v. Gerofsky, 382 N.Y.S.2d 651 (Sup. Ct. 1976), aff ’d, 72 A.D.2d 976 (N.Y. App. Div. 1979) (1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21n108
Table of Cases 415 Excelligence Learning Corp. v. Oriental Trading Co., No. 5:03-CV4947 JF (RS), 2004 WL 2452834 (N.D. Cal. June 14, 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52n44, 84n205, 312n40 Exchange National Bank v. Abramson, 295 F. Supp. 87 (D. Minn. 1969) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231n97 Expo Chemical Co. v. Brooks, 572 S.W.2d 8 (Tex. Civ. App.-Houston [1st Dist.] 1978), rev’d on other grounds, 576 S.W.2d 369, 22 Tex. Sup. Ct. J. 192 (Tex. 1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379n543 Faris v. Enberg, 97 Cal. App. 3d 309, 158 Cal. Rptr. 704 (1979) . . . . . . . 60n88, 310n34 Farmers Insurance Exchange v. Weemhoff, No. 02-CA-26, 2002 WL 31319958, 2002-Ohio-5570 (Ohio Ct. App. Oct. 17, 2002) . . . . . 372n494 FASA Corp. v. Playmates Toys, Inc., 892 F. Supp. 1061 (N.D. Ill. 1995) . . . . . . 213n30 FCI USA, Inc. v. Tyco Electronics Corp., No. 2:06-CV-128 (TJW) . . . .2006 U.S. Dist. LEXIS 48432 (E.D. Tex. July 14, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181n209 Federal Laundry Co. v. Zimmerman, 218 Mich. 211, 187 N.W. 335 (1922) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345n303, 346n304 Federal Screw Works v. Interface Systems, Inc., 569 F. Supp. 1562 (E.D. Mich. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348n322 Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 111 S. Ct. 1282 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63n102, 155n65 Ferroline Corp. v. General Aniline & Film Corp., 207 F.2d 912 (7th Cir. 1953). . . . . . . . . . . . . . . . . . . . . . . . .33n162, 47n25, 50n38, 159n92, 358n404 Fibreboard Paper Products Corp. v. East Bay Union of Machinists, 227 Cal. App. 2d 675, 39 Cal. Rptr. 64 (1964) . . . . . . . . . . . . . . . . . . . . . . . . . 177n187 Fields v. Thompson Printing Co., 363 F.3d 259 (3d Cir. 2004) . . . . . . . . . . . . . . . 62n96 Filter Dynamics International, Inc. v. Astron Battery, Inc., 19 Ill. App. 3d 299, 311 N.E.2d 386 (1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13n59 First Advantage Background Services Corp. v. Private Eyes, Inc., No. C-07-2424 SC, 2008 U.S. Dist. LEXIS 28974 (N.D. Cal. Mar. 5, 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146n16, 152n51 First Equity Development, Inc. v. Risko, No. CV 970162561S, 1998 Conn. Super. LEXIS 1475 (Conn. Super. Ct. May 26, 1998) . . . . . . . . . . 62n95 First Health Group Corp. v. National Prescription Administrators, Inc., 155 F. Supp. 2d 194 (M.D. Pa. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376n521 Firstrust Bank v. Didio, No. 200, 2005 Phila. Ct. Com. Pl. LEXIS 376 (July 29, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374n503 First Technology Safety Systems, Inc. v. Depinet, 11 F.3d 641 (6th Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103n288 Fish v. Adams, 401 So. 2d 843 (Fla. Dist. Ct. App. 1981) . . . . . . . . . . . . . . . . . . 325n149 Florida Medical Association v. U.S. Department of Health, Education & Welfare, 601 F.2d 199 (5th Cir. 1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324n136 Flavorchem Corp. v. Mission Flavors & Fragrances, Inc., 939 F. Supp. 593 (N.D. Ill. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135n417 Fleming Sales Co. v. Bailey, 611 F. Supp. 507 (N.D. Ill. 1985) . . . . . . . . . 8n37, 335n222 Flotec, Inc. v. Southern Research, Inc., 16 F. Supp. 2d 992 (S.D. Ind. 1998). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170n154, 336n226, 336n227
416
Table of Cases Flynt Distributing Co. v. Harvey, 734 F.2d 1389 (9th Cir. 1984) . . . . . . . . . . . 103n291 FMC Corp. v. Capital Cities/ABC, Inc., 915 F.2d 300 (7th Cir. 1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65n113, 65n118 FMC Corp. v. Cyprus Foote Mineral Co., 899 F. Supp. 1477 (W.D.N.C. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n272, 368n468 FMC Corp. v. Taiwan Tainan Giant Industrial Co., 730 F.2d 61 (2d Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106n304 FMC Corp. v. Varco International, Inc., 677 F.2d 500 (5th Cir. 1982). . . . . . . . . . . . . . . . . . . . . . . . . . . . 35n186, 101n279, 104n293, 381n557 Foley v. Luster, 249 F.3d 1281 (11th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . 156n73 Follmer, Rudzewicz & Co. v. Kosco, 420 Mich. 394, 362 N.W.2d 676 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348n323 Foodcomm International v. Barry, 328 F.3d 300 (7th Cir. 2003) . . . . . . . . . . . 107n311 Food Lion, Inc. v. Capital Cities/ABC, Inc., 194 F.3d 505 (4th Cir. 1999) . . . . . 62n96 Food Processes v. Swift & Co., 280 F. Supp. 353 (W.D. Mo. 1966) . . . . . . . . . 355n382 Forcier v. Microsoft Corp., 123 F. Supp. 2d 520 (N.D. Cal. 2000) . . . 163n121, 310n29 Ford Motor Co. v. Lane, 67 F. Supp. 2d 745 (E.D. Mich. 1999) . . . . . . . . . . . . 347n316 Ford v. International Harvester Co., 399 F.2d 749 (9th Cir. 1968) . . . . . . . . . . 135n417 Forest Laboratories, Inc. v. Pillsbury Co., 452 F.2d 621 (7th Cir. 1971) . . . . . . . 47n26 Formax, Inc. v. Hostert, 841 F.2d 388 (Fed Cir. 1988) . . . . . . . . . . . . . . . . . . . . . 77n180 Forro Precision, Inc. v. IBM Corp. 745 F.2d 1283 (9th Cir. 1984) . . . . . . . . . . . . 272n4 Fortune Personnel Agency, Inc. v. Sun Technology, Inc., 423 So. 2d 545 (Fla. Dist. Ct. App. 1982). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323n128 Foster & Co. v. Snodgrass, 333 So. 2d 521 (Fla. Dist. Ct. App. 1976) . . . . . . . . 324n145 Fountain v. Hudson Cash-N-Foam Corp., 122 So. 2d 232 (Fla. Dist. Ct. App. 1960). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95n250 Fountain v. United States, 357 F.3d 250 (2d Cir. 2004) . . . . . . . . . . . . . . . . . . . . 284n46 Fourcier v. Microsoft Corp.. 123 F. Supp. 2d 520 (N.D. Cal. 2000) . . . . . . . . . . 314n55 Four Seasons Hotels & Resorts B.V. v. Consorcio Barr, S.A., 267 F. Supp. 2d 1268 (S.D. Fla. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322n123 Fowler v. Varian Associates, 196 Cal. App. 3d 34, 241 Cal. Rptr. 539 (1987) . . . 62n97 Fox Controls, Inc. v. Honeywell, Inc., No. 02 C 346, 2004 U.S. Dist. LEXIS 7231 (N.D. Ill. Apr. 23, 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334n212 Fox v. Ethicon Endo-Surgery, Inc., 35 Cal. 4th 797, 27 Cal. Rptr. 3d 661, 110 P.3d 914 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134n404, 161n106 Franke v. Wiltschek, 209 F.2d 493 (2d Cir. 1953) . . . . . . . . . . . . . . . . . . . . . . . . 166n134 Franklin Fibre-Lamitex Corp. v. Marvec Manufacturing, Inc., 23 Del. J. Corp. L. 199, 204, 1997 WL 153825 (Del. Ch. 1997) . . . . . . . . . . . . . . . . . . . . . 319n92 Fraser v. Nationwide Mutual Insurance Co., 135 F. Supp. 2d 623 (E.D. Pa. 2001), aff ’d in part, vacated in part and remanded, 352 F.3d 107 (3d Cir. 2003). . . . . . . . . . . . . . . . . . . . . . . . . . 120n338, 210n23, 211n24 Frazee v. United States Forest Service, 97 F.3d 367 (9th Cir. 1996). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172n163, 234n112 Frederick Chusid & Co. v. Marshall Leeman & Co., 279 F. Supp. 913 (S.D.N.Y. 1968) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55n58 Fred Siegel Co., L.P.A. v. Arter & Hadden, 85 Ohio St. 3d 171, 707 N.E.2d 853 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369n476
Table of Cases 417 Freedom Calls Foundation v. Bukstel, No. 05CV5460(SJ)(VVP) . . . . 2006 WL 845509 (E.D.N.Y. Mar. 03, 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211n24 Freedom Newspapers, Inc. v. Egly, 507 So. 2d 1180 (Fla. Dist. Ct. App. 1987). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323n129 Freeman v. Duluth Clinic, Ltd., 334 N.W.2d 626 (Minn. 1983) . . . . . . . . . . . . 352n361 Freeman v. Lawton, 353 Pa. 613, 46 A.2d 205 (1946) . . . . . . . . . . . . . . . . . . . . . 135n417 Frink America, Inc. v. Champion Road Machinery Ltd. 48 F. Supp. 2d 198 (N.D.N.Y. 1999), dismissed, 62 F. Supp. 2d 679 (N.D.N.Y. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166n131, 177n186 Frumkes v. Beasley-Reed Broadcasting, Inc., 533 So. 2d 942 (Fla. Dist. Ct. App. 1988). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254n18 Funcat Leisure Craft, Inc. v. Johnson Outdoors, Inc., No. S-06-0533GEBGGH, 2007 WL 273949 (E.D. Cal. Jan 29, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84n206, 312n41 Futurecraft Corp. v. Clary Corp., 205 Cal. App. 2d 279, 23 Cal. Rptr. 198 (1962). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316n72 Future Plastics, Inc. v. Ware Shoals Plastics, Inc., 340 F. Supp. 1376 (D.S.C. 1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178n190 GAB Business Services, Inc. v. Lindsey & Newsome Claim Services, Inc., 83 Cal. App. 4th 409, 99 Cal. Rptr. 2d 665 (2000) . . . . . . . . . . . . . . . . . . . 61n92 Gaia Technologies Inc. v. Recycled Products Corp., 175 F.3d 365 (5th Cir. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158n91 Gallo v. Norris Dispensers, Inc. 315 F. Supp. 38 (E.D. Mo. 1970) . . . . . . . . . . . 159n91 Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis. 2d 202, 267 N.W.2d 242 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55n59 Gates Rubber Co. v. Bando Chemical Industries, 9 F.3d 823 (10th Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21n105, 23n124 GATX Management Services, L.L.C. v. Weakland, 171 F. Supp. 2d 1159 (D. Colo. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180–181n207, 182n213 GC Micro Corp. v. Defense Logistics Agency, 33 F.3d 1109 (9th Cir. 1994) . . . . 235n126 Gemcraft Homes, Inc. v. Sumurdy, 688 F. Supp. 289 (E.D. Tex. 1988) . . . . . . . 157n78 Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal. App. 4th 1249, 116 Cal. Rptr. 2d 358 (2002) . . . . . . 13n61, 192n240, 310n28 Gemisys Corp. v. Phoenix America, Inc., 186 F.R.D. 551 (N.D. Cal. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22n118, 174n173 General Clutch Corp. v. Lowry, 10 F. Supp. 2d 124 (D. Conn. 1998) . . . . . . . . 69n135 General Motors Corp. v. Ignacio Lopez de Arriortua, 948 F. Supp. 656 (E.D. Mich. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75, 75n170, 290n76 Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840 (2d Cir. 1987) . . . . . . . . . . . 181n208 Genzyme Corp. v. Bishop, 460 F. Supp. 2d. 939 (W.D. Wis. 2006) . . . . . . . . . 101n283, 130–131n389, 147n21, 391n636, 391n637, 392n650, 393n660, 649 Gibson-Homans Co. v. Wall-Tite, Inc., 1992 WL 512411, 26 U.S.P.Q.2d (BNA) 1867 (C.D. Cal. Oct. 27, 1992) . . . . .54n56, 90n230, 94n243, 313n43, 314n56 Gillette Co. v. Williams, 360 F. Supp. 1171 (D. Conn. 1973). . . . . . . . . . . . 5n13, 11n50
418
Table of Cases Ginsberg v. Lennar Florida Holdings, Inc., 645 So. 2d 490 (Fla. Dist. Ct. App. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186n229 Givemepower Corp. v. Pace Compumetrics, Inc., No. 07CV157 WQH (RBB), 2007 U.S. Dist. LEXIS 59371 (S.D. Cal. Aug. 14, 2007) . . . . . 186n228 Givens v. Mullikin ex rel. Estate of McElwaney, 75 S.W.3d 383 (Tenn. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60n85 Gladstone v. Hillel, 203 Cal. App. 3d 977, 250 Cal. Rptr. 372 (1988) . . . . . . . . 123n352 Glaxo Inc. v. Novopharm, Ltd., 931 F. Supp. 1280 (E.D.N.C. 1996), aff ’d, 110 F.3d 1562 (Fed. Cir. 1997) . . . . . . . . . 99n272, 170n154, 172n164, 368n468 Global Switching, Inc. v. Kasper, No. CV 06 412(CPS), 2006 WL 1800001 (E.D.N.Y. June 28, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366n454 GlobeSpan, Inc. v. O’Neill, 151 F. Supp. 2d 1229 (C.D. Cal. 2001) . . . 93n243, 312n43 Glucol Manufacturing Co. v. Schulist, 239 Mich. 70, 214 N.W. 152 (1927) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346n307 Glue-Fold, Inc. v. Slautterback Corp., 82 Cal. App. 4th 1018, 98 Cal. Rptr. 2d 661 (2000) . . . . . . . . . . . . . . . . . . . . . . . . . 135n414, 163n120, 307n14 Godefroy Manufacturing Co. v. Lady Lennox Co., 134 S.W.2d 140 (Mo. Ct. App. 1939) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175n178 Goldberg v. Medtronic, Inc., 686 F.2d 1219 (7th Cir. 1982) . . . . . . . . . 159n93, 213n28 Goldin v. R. J. Reynolds Tobacco Co., 22 F. Supp. 61 (S.D.N.Y. 1938) . . . . . . 175n178 Goldthread v. Davison, No. 3:06-0805, 2007 WL 2471803 (M.D. Tenn. Aug. 29, 2007) . . . . . . . . . . . . . . 146n12, 147n23, 150, 150n39, 153n56, 310, 377n534 Good v. Modern Globe Inc., 346 Mich. 602, 78 N.W.2d 199 (1956) . . . . . . . . 348n324 Gordon Employment, Inc. v. Jewell, 356 N.W.2d 738 (Minn. Ct. App. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350n340, 351n348 Gordon v. Landau, 49 Cal. 2d 690, 321 P.2d 456 (1958) . . . . . . . . . . . . . . . . . . . 317n76 GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199 (9th Cir. 2000) . . . . . . . . . 109n330 Government Technology Services Inc. v. IntelliSys Technology Corp., No. 160265, 1999 WL 1499548 (Va. Cir. Ct. Oct. 20, 1999) . . . . . 101n281, 386n598 Granville v. Lockheed Corp., No. B 101437 (Cal. Ct. App. 1997) . . . . . . . . . . . . 213n31 Greenberg v. Croydon Plastics Co., 378 F. Supp. 806 (E.D. Pa. 1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20n98, 48n30, 375n514 Greenberg v. Miami Children’s Hospital Research Institute, Inc., 264 F. Supp. 2d 1064 (S.D. Fla. 2003) . . . . . . . . . . . . . . . . . . . . . . 49n33, 186n230 Greenwich Mills Co. v. Barrie House Coffee Co., 91 A.D.2d 398, 459 N.Y.S.2d 454 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366n457 Greif, Inc. v. MacDonald, No. CIV A 3:06CV-312-H, 2007 WL 679040 (W.D. Ky. Mar. 1, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151, 151n46 Gross v. Weingarten, 217 F.3d 208 (4th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . 132n395 Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6n21, 18n81, 158n91 Grove v. CIA, 752 F. Supp. 28 (D.D.C. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . 232n101 GTI Corp. v. Calhoon, 309 F. Supp. 762 (S.D. Ohio 1969) . . . . . . . . . . . . . . . . . . 49n32 Guffey v. Shelnut & Associates, 247 Ga. 667, 278 S.E.2d 371 (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328n177, 328n178 Guy Carpenter & Co. v. Provenzale, 334 F.3d 459 (5th Cir. 2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100n277, 382n559
Table of Cases 419 Hagen v. Burmeister & Associates, 633 N.W.2d 497 (Minn. 2001) . . . . . . . . . 351n351 Hair Club for Men, L.L.C. v. Elite Solutions Hair Alternatives, Inc., No. 2:07-CV-546-GEB-KJM, 2007 U.S. Dist. LEXIS 30167 (E.D. Cal. Apr. 5, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317n76 Hamer Holding Group, Inc. v. Elmore, 202 Ill. App. 3d 994, 148 Ill. Dec. 310, 560 N.E.2d 907 (1990) . . . . . . . 14n66, 164n123, 330n187, 330n189 Hammock by Hammock v. Hoffmann-LaRoche, Inc., 142 N.J. 356, 662 A.2d 546 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33n169, 359n412 Hancock v. Decker, 379 F.2d 552 (5th Cir. 1967) . . . . . . . . . . . . . . . . . . . . . . . . 382n562 Hancock v. Essential Resources, Inc., 792 F. Supp. 924 (S.D.N.Y. 1992) . . . . . 176n184 Hannah v. General Motors Corp., 969 F. Supp. 554 (D. Ariz. 1996) . . . . . . . . 131n391 Harllee v. Professional Service Industries, Inc., 619 So. 2d 298 (Fla. Dist. Ct. App. 1992), amended by, No. 89-2650, 1993 Fla. App. LEXIS 6510 (Fla. Dist. Ct. App. June 8, 1993) . . . . 325n147, 325n149 Harper & Row Publishers, Inc. v. Nation Enterprises, 723 F.2d 195 (2d Cir. 1983), rev’d on other grounds, 471 U.S. 539, 105 S.Ct. 2218 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157n78 Hartford Financial Corp. v. Burns, 96 Cal. App. 3d 591, 158 Cal. Rptr. 169 (1979). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65n117 Hart v. McCormack, 746 S.W.2d 330 (Tex. App. 1988) . . . . . . . . . . . 100n278, 382n560 Harvest Insurance Agency, Inc. v. Inter-Ocean Insurance Co., 492 N.E.2d 686 (Ind. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337n242, 337n243 Hatfield v. Autonation, Inc., 930 So.2d 155 (Fla. Dist. Ct. App. 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95n249, 325n148 Hauck Manufacturing Co. v. Astec Industries, Inc., 375 F. Supp. 2d 649 (E.D. Tenn. 2004) . . . . . 144n6, 145n9, 146n12, 150n39, 377, 377n532, 377n533 Haworth, Inc. v. Herman Miller, Inc., 162 F.R.D. 289 (W.D. Mich. 1995) . . . 112n335 Hayes-Albion Corp. v. Kuberski, 421 Mich. 170, 364 N.W.2d 609 (1984) . . . 345n300, 345n302, 347n315, 348n321 Health Alliance Network, Inc. v. Continental Casualty Co., 354 F. Supp. 2d 411 (S.D.N.Y. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153n56 Heatbath Corp. v. Ifkovits, 254 N.E.2d 139, 117 Ill. App. 2d 158, 164 U.S.P.Q. (BNA) 537 (1969) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175n178 Heavenly Ham Co. v. HBH Franchise Co., L.L.C., No. 04 C 2577, 2005 U.S. Dist. LEXIS 5566 (N.D. Ill. Feb. 7, 2005). . . . . . . . . . . . . . . . . . . . . . . 58n71 H.E. Butt Grocery Co. v. Moody’s Quality Meats, 951 S.W.2d 33 (Tex. App. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177n186 Hecny Transportation, Inc. v. Chu, 430 F.3d 402 (7th Cir. 2005) . . . . . . .150, 150n42, 150n43, 334n212 Heideman v. South Salt Lake City, 348 F.3d 1182 (10th Cir. 2003) . . . . . . . . . 103n291 Herbert Morris, Ltd. v. Saxelby, 1 App. Cas. 688 (Mass. 1916) . . . . . . . . . . . . . . . 243n4 Hexacomb Corp. v. GTW Enterprises, Inc., 875 F. Supp. 457 (N.D. Ill. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330n189 Heyman v. A.R. Winarick, Inc., 325 F.2d 584 (2d Cir. 1963) . . . . . . . . . . . . . . . 21n109 Hicklin Engineering, L.C. v. Bartell, 439 F.3d 346 (7th Cir. 2006) . . . . . . . . . . 391n642 Higher Gear Group, Inc. v. Rockenbach Chevrolet Sales, Inc., 223 F. Supp. 2d 953 (N.D. Ill. 2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156n76
420
Table of Cases Highland Tank & Manufacturing Co. v. PS International, Inc., 393 F. Supp. 2d 348 (W.D. Pa. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178n192 Hilb, Rogal & Hamilton Co. v. DePew, 440 S.E.2d 918 (Va. 1994) . . . . . . . . . . . 62n95 Hilb, Rogal & Hamilton Co. v. Holley, 284 Ga. App. 591, 644 S.E.2d 862 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326n157 Hilb, Rogal & Hamilton Insurance Services v. Robb, 33 Cal. App. 4th 1812, 39 Cal. Rptr. 2d 887 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317n77 Hill v. Mobile Auto Trim, Inc., 725 S.W.2d 168 (Tex. 1987), superseded by statute, TEX. BUS. & COM. CODE ANN. §§ 15.50–15.51. . . . . . . . . . . . 383n569 HiRel Connectors, Inc. v. United States, 465 F. Supp. 2d 984 (C.D. Cal. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307n12 Hi-Tek Consultant Services, Inc. v. Bar-Nahum, 218 Ill. App. 3d 836 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248n11 Hoechst Diafoil Co. v. Nan Ya Plastics Corp. (1999), 174 F.3d 411 (4th Cir. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23n124, 101n283 Hoey v. Dexel Systems Corp., 716 F. Supp. 222 (E.D. Va. 1989) . . . . . . . . . . . . 156n76 Hoffmann-La Roche, Inc. v. Yoder, 950 F. Supp. 1348 (S.D. Ohio 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170n154, 172n165, 173n170 Holland Developments, Ltd. v. Manufacturers Consultants, Inc., 81 Or. App. 57, 724 P.2d 844 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100n274 Hollywood Motion Picture Equipment Co. v. Furer, 16 Cal. 2d 184, 105 P.2d 299 (1940) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22n112 Home Paramount Pest Control Cos. v. FMC Corp./Agricultural Products Group, 107 F. Supp. 2d 684 (D. Md. 2000). . . . . . . . . . . 170n154, 176n184, 338n257 Honda Motor Co. v. Motorcycle Information Network, Inc., 390 F. Supp. 2d 1170 (M.D. Fla. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321n111 Horwitz v. Southwest Forest Industries Inc., 604 F. Supp. 1130 (D. Nev. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108n321 Hoselton v. Metz Baking Co., 48 F.3d 1056 (8th Cir. 1995) . . . . . . . . . . . . . . . . . 61n91 Hoskins Manufacturing Co. v. PMC Corp., 47 F. Supp. 2d 852 (E.D. Mich. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97n262, 348n319 H & R Block Eastern Tax Services, Inc. v. Enchura, 122 F. Supp. 2d 1067 (W.D. Mo. 2000). . . . . . . . . . . . . . . . . 90n231, 97–98, 98n265, 257n20, 354, 354n372 Huckshold v. HSSI, L.L.C., 344 F. Supp. 2d 1203 (E.D. Mo. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157n81 Hudson Hotels Corp. v. Choice Hotels International, 995 F.2d 1173 (2d Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . 4n12, 11n46, 31n153, 31n154, 31n155, 361n423, 361n424, 361n425 Huffy Corp. v. Superior Court, 112 Cal. App. 4th 97, 4 Cal. Rptr. 3d 823 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172n164 Hurst v. Hughes Tool Co., 634 F.2d 895 (5th Cir. 1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2n5 Hutchison v. KFC Corp., 809 F. Supp. 68 (D. Nev. 1992) . . . 152n51, 153n56, 170n154 Hyde Corp. v. Huffines, 314 S.W.2d 763 (Tex. 1958) . . . . . . 22n110, 35n185, 382n562 Hydroaire, Inc. v. Sager, 98 Ill. App. 3d 758, 53 Ill. Dec. 928, 424 N.E.2d 719 (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106n307, 107n312 Hypred S.A. v. Pochard, No. 04-2773 (JNE/JGL), 2004 U.S. Dist. LEXIS 11293, 71 U.S.P.Q.2d (BNA) 1625 (D. Minn. June 18, 2004) . . . . . . 351n350
Table of Cases 421 IBM Corp. v. Seagate Technology, Inc., 941 F. Supp. 98 (D. Minn. 1992) . . . 352n356 Ideal Electronic Security Co. v. International Fidelity Insurance Co., 129 F.3d 143 (D.C. Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136n419 IDX Systems Corp. v. Epic Systems Corp., 165 F. Supp. 2d 812, 817 (W.D. Wis. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392n644 IDX Systems Corp. v. Epic Systems Corp., 285 F.3d 581 (7th Cir. 2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152n50, 392n644, 394n663 ILG Industries, Inc. v. Scott, 49 Ill. 2d 88, 273 N.E.2d 393 (1971) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .166, 166n135, 166n136 Illumination Station, Inc. v. Cook, No. CIV. 07-3007, 2007 WL 1624458 (W.D. Ark. June 4, 2007). . . . . . . . . . . . . . . . . . 147n22, 148, 148n29, 151n48, 153n59 Imax Corp. v. Cinema Technologies Inc., 152 F.3d 1161 (9th Cir. 1998). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83n200, 312n42 Imperial Chemical Industries, Ltd. v. National Distillers & Chemical Corp., 342 F.2d 737 (2d Cir. 1965). . . . . . . . . . . . . . . . . . . . . . . . 6n18, 7n31 I.M.S. Inquiry Management Systems, Ltd. v. Berkshire Information Systems, Inc., 307 F. Supp. 2d 521 (S.D.N.Y. 2004) . . . . . . . . . . 74n163 Incase, Inc. v. Timex Corp., 488 F.3d 46 (1st Cir. 2007) . . . . . . . . . . . 37n195, 342n275 Infinity Products, Inc. v. Quandt, 775 N.E.2d 1144 (Ind. Ct. App. 2002), vacated, 810 N.E.2d 1028 (Ind. 2004) . . . . . . . . . 20n92, 336n232, 337n238, 337n239 Inflight Newspapers, Inc. v. Magazines In-Flight, L.L.C., 990 F. Supp. 119 (E.D.N.Y. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176n184 Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 542 A.2d 879 (1988) . . . . . . . . . . . . . . . . . . . . . . . 33n163, 33n169, 358n405, 359n412, 360n419 In re Adobe Systems, Inc. Securities Litigation, 141 F.R.D. 155 (N.D. Cal. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123n355 In re American Online, Inc., 168 F. Supp. 2d 1359 (S.D. Fla. 2001) . . . . . . . . . . 288n61 In re Bass, 113 S.W.3d 735 (Tex. 2003) . . . . . . . . . . . 25n132, 29n149, 34n170, 379n543 In re Caremark International, Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197n4 In re Certain Apparatus for Continuous Production of Copper Rod, 2 Int’l Trade Rep. (BNA) 5006, 206 U.S.P.Q. (BNA) 138, 1979 WL 33484 (I.T.C. Nov. 23, 1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81n193 In re DoubleClick, Inc. Privacy Litigation, 154 F. Supp. 2d 497 (S.D.N.Y. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74n162 In re Golden Distributors Ltd, 134 B.R. 750 (Bankr. S.D.N.Y. 1991) . . . . . . . . 176n184 In re Innovative Construction Systems, Inc., 793 F.2d 875 (7th Cir. 1986). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16n76, 249n14 In re Mikulsky, 301 B.R. 726 (Bankr. E.D. Wis. 2003) . . . . . . . . . . . . . . . . . . . . 393n658 In re Providian Credit Card Cases, 96 Cal. App. 4th 292, 116 Cal. Rptr. 2d 833 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173–174n170 In re Robinson, 256 B.R. 482 (Bankr. S.D. Ohio 2000), aff ’d, 265 B.R. 722 (B.A.P. 6th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184n220 In re Wilson, 248 B.R. 745 (M.D.N.C. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122n348 In re Worlds of Wonder Securities Litigation, 147 F.R.D. 214 (N.D. Cal. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122n344 Insurance Associates Corp. v. Hansen, 111 Idaho 206, 723 P.2d 190 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55n60, 154n60, 176n182
422
Table of Cases Institutional Management Corp. v. Translation Systems, Inc., 456 F. Supp. 661 (D. Md. 1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69n134 Insure New Mexico, L.L.C. v. McGonigle, 128 N.M. 611, 995 P.2d 1053 (N.M. Ct. App. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98n269 Integral Systems, Inc. v. Peoplesoft, Inc., No. C-90-2598-DLJ, 1991 WL 498874 (N.D. Cal. July 19, 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22n116 Integrated Bar Coding Systems Co. v. Wemert, No. 04-60271, 2007 WL 496464 (E.D. Mich. Feb. 12, 2007) . . . . . . . . . . . . . . . . . . 346n306, 346n307 Integrated Cash Management Services, Inc. v. Digital Transactions, Inc., 920 F.2d 171 (2d Cir. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . 8n36, 31n155, 50n39, 99n271, 361–362n425, 363n430, 364n441, 365n446 Intermedics, Inc. v. Ventritex, 775 F. Supp. 1258 (N.D. Cal. 1991) . . . . . . . . . 134n410, 135n417, 162n109 Intermedics, Inc. v. Ventritex, 139 F.R.D. 384 (N.D. Cal. 1991) . . . . . . . . . . . . 112n335 Intermedics, Inc. v. Ventritex, 822 F. Supp. 634 (N.D. Cal. 1993) . . . . . . . . . . . . 47n19, 162, 162n113, 163n116 International Business Machine Corp. v. Seagate Technology, Inc., 941 F. Supp. 98, 101 & n.1 (D. Minn. 1992) (1992) . . . . . . . . . . . . . . . . . . . . . . 97n263 International Limousine Service, Inc. v. Reston Limousine & Travel Service, Inc., No. 24816, 2005 WL 1026985 (Va. Cir. Ct. May 3, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387n599 International News Service v. Associated Press, 248 U.S. 215, 39 S. Ct. 68 (1918) . . . . . . . . . . . . . . . . . . . . . . . . . 24n130, 62, 62n98, 63, 148, 148n27 International Paper Co. v. Gilliam, 63 Va. Cir. 485 (2003) . . . . . . . . . . . . . . . . . . 61n94 International Paper Co. v. Suwyn, 966 F. Supp. 246 (S.D.N.Y 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n271, 364n441 Interox American v. PPG Industries, Inc., 736 F.2d 194 (5th Cir. 1984). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19n87, 45n9, 106n302 Iron Age Corp. v. Dvorak, 2005 Pa. Super. 270, 880 A.2d 657 (2005) . . . . . . . 374n506 Irons & Sears v. Dann, 606 F.2d 1215 (D.C. Cir. 1979) . . . . . . . . . . . 236n131, 237n135 I-Systems, Inc. v. Softwares, Inc., No. 02-1951 (JRT/FLN) 2004 U.S. Dist. LEXIS 6001 (D. Minn. Mar. 29, 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350n341 ITT Schadow, Inc. v. Stein, 36 Pat. Trademark & Copyright J. (BNA) 29 (D. Minn. May 12, 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149n33 ITT Telecom Products Corp. v. Dooley, 214 Cal. App. 3d 307, 262 Cal. Rptr. 773 (1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54n55 Ivy Mar Co. v. C.R. Seasons Ltd., 907 F. Supp. 547 (E.D.N.Y. 1995), dismissed in part, No. 95 CV 0508 (FB), 1997 WL 37082 (E.D.N.Y. Jan. 24, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173n170 J’Aire Corp. v. Gregory, 24 Cal. 3d 799, 157 Cal. Rptr. 407 (1979). . . . . . . . . . . 66n122 James C. Wilborn & Sons, Inc. v. Heniff, 237 N.E.2d 781, 95 Ill. App. 2d 155, 159 U.S.P.Q. (BNA) 293 (1969) . . . . . . . . . . . . . . . . . . . . . . . . . 175n178 James v. Childtime Childcare, Inc., No. S-06-2676 DFL DAD, 2007 WL 1589543 (E.D. Cal. June 1, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310n33 Jefferies & Co. v. International Assets Holding Corp., 830 So. 2d 256 (Fla. Dist. Ct. App. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323n135
Table of Cases 423 Jenkins v. Jenkins Irrigation, Inc., 244 Ga. 95, 259 S.E.2d 47 (1979). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328n174, 328n176 Jennings v. McCall Corp., 224 F. Supp. 919 (W.D. Mo. 1963) . . . . . . . . . . . . . 355n387 Jensen v. Redevelopment Agency, 998 F.2d 1550 (10th Cir. 1993) . . . . . . . . . 172n163 J.E. Rhoads & Sons, Inc. v. Ammeraal, Inc., No. 83C-NO-98, 1988 WL 32012 (Del. Super. Ct. Mar. 30, 1988) . . . . . . . . . . . . . . . . . . . . . . . . 318n87 Jerome Stevens Pharmaceuticals, Inc. v. FDA, 402 F.3d 1249 (D.C. Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219n51 Jerrold-Stephens Co. v. Gustaveson, Inc., 138 F. Supp. 11 (W.D. Mo. 1956). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355n381 Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 282 N.E.2d 921 (1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37n193, 37n201, 343n280 Jewish Employment & Vocational Service, Inc. v. Pleasantville Educational Supply Corp., 220 U.S.P.Q. (BNA) 613 (E.D. Pa. Nov. 23, 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375n512 Johns-Manville Corp. v. Guardian Industries Corp. 586 F. Supp. 1034 (E.D. Mich. 1983), aff ’d as modified, 770 F.2d 178 (Fed. Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11n50, 60n82 Johnson Controls, Inc. v. Phoenix Control Systems Inc., 886 F.2d 1173 (9th Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111n333 Johnson v. Benjamin Moore & Co., 788 A.2d 906 (N.J. Super. Ct. App. Div. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33n163, 358n405 Jones v. Ceramco, Inc., 378 F. Supp. 65 (E.D.N.Y. 1974), vacated in part on other grounds, 387 F. Supp. 940, 184 U.S.P.Q. (BNA) 591 (E.D.N.Y. 1975), aff ’d without opinion, 526 F.2d 585 (2nd Cir. 1975) . . . . 178n192 Jostens, Inc. v. National Computer Systems, Inc., 318 N.W.2d 691, 214 U.S.P.Q. (BNA) 918 (Minn. 1982) . . . . . . . . . . . . . . . . . . . . . . . 349n338, 353n362 J.T. Healy & Son, Inc. v. James A. Murphy & Son, Inc., 357 Mass. 728, 260 N.E.2d 723 (1970) . . . . . . . . . . . . . . . . . . 36n189, 37n195, 172n165, 342n275 Julius Hyman & Co. v. Velsicol Corp., 123 Colo. 563, 233 P.2d 977 (1951) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159n92, 175n178 K-2 Ski Co. v. Head Ski Co., 506 F.2d 471 (9th Cir. 1974) . . . . . . . . . . . . . . . . . . 313n51 Kadant, Inc. v. Seeley Machine, Inc., 244 F. Supp. 2d 19 (N.D.N.Y. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167n140, 167n141, 176n184 Kamin v. Kuhnau, 232 Or. 139, 374 P.2d 912 (1962) . . . . . . . . . . . . . . . . . . . . . . . 60n89 Kardios Systems Corp. v. Perkins-Elmer Corp., 645 F. Supp. 506 (D. Md. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338n250 Kaset v. Combs, 58 Tenn. App. 559, 434 S.W.2d 838 (1968) . . . . . . . . . . . . . . . 378n538 Kaufman v. IBM Corp, 97 A.D.2d 925, 470 N.Y.S.2d 720 (1983), aff’d, 61 N.Y.2d 930, 463 N.E.2d 37, 474 N.Y.S.2d 721 (1984) . . . . . . . . . . . 366n451 KCH Services, Inc. v. Vanaire, Inc., No. CIV A 05-777-C, 2007 WL 2571671 (W.D. Ky. Aug. 31, 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153n54 Kearns v. Ford Motor Co., 203 U.S.P.Q. (BNA) 884 (E.D. Mich. 1978) . . . . . . 213n29 Kelite Corp. v. Khem Chemicals, Inc., 162 F. Supp. 332 (N.D. Ill. 1958) . . . . . . 20n97 Kelly Services, Inc. v. Greene, 535 F. Supp. 2d 180 (D. Me. 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97n260, 347n317, 348n319 Kelly Services v. Noretto, 495 F. Supp. 2d 645 (E.D. Mich. 2007) . . . . . . . . . . 348n319
424
Table of Cases Kemper Mortgage, Inc. v. Russell, No. 3:06-CV-042, 2006 WL 4968120 (S.D. Ohio May 4, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n273, 370n478 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S. Ct. 1879 (1974) . . . . . . . . . . . . . . . . . . . . . . . . 19n86, 157–158, 158n85, 158n88, 158n89, 165n128, 193n241, 281n32 Keystone Fruit Marketing, Inc. v. Brownfield, No. CV-05-5087-RHW, 2006 WL 1873800 (E.D. Wash. June 6, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . 389n618 Kforce, Inc. v. Surrex Solutions Corp., 436 F.3d 981 (8th Cir. 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356n394, 356n395 Kilbarr Corp. v. Business Systems, Inc., 679 F. Supp. 422 (D.N.J. 1988), aff ’d, 869 F.2d 589 (3d Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . 123n357 Kimball v. Anesthesia Specialists of Baton Rouge, Inc., 809 So. 2d 405 (La. Ct. App. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129n381 Kistler Instrumente A.G. v. PCB Piezotronics, Inc., 419 F. Supp. 120 (W.D.N.Y. 1976). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135n417, 137n425, 359n413 Klaus v. Kilb, Rogal & Hamilton Co., 437 F. Supp. 2d 706 (S.D. Ohio 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372n495 Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S. Ct. 1020 (1941) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136n418 Klick v. Crosstown State Bank, 372 N.W.2d 85 (Minn. Ct. App. 1985) . . . . . . 353n364 Koch Engineering Co. v. Faulconer, 227 Kan. 813, 610 P.2d 1094 (1980). . . . 139n436 Konop v. Hawaiian Airlines, Inc. 302 F.3d 868 (9th Cir. 2002) . . . . . . . . . . . . . 211n24 Koontz v. Jaffarian, 617 F. Supp. 1108 (E.D. Va. 1985) . . . . . . . . . . . . . . . 385, 385n591 Korean Philadelphia Presbyterian Church v. California Presbytery, 77 Cal. App. 4th 1069, 92 Cal. Rptr. 2d 275 (2000) . . . . . . . . . . . . . . . . . . . . . . 89n226 Koresko v. Nationwide Life Insurance Co., 403 F. Supp. 2d 394 (E.D. Pa. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376n522 Kremen v. Cohen, 325 F.3d 1035 (9th Cir. 2003) . . . . . . . . . . . . . . . . . . 64n110, 64n111 Kremen v. Cohen, 337 F.3d 1024 (9th Cir. 2003) . . . . . . . . . . . . . . . 64, 64n111, 65n113 Krisa v. Equitable Life Assurance Society, 196 F.R.D. 2541 (M.D. Pa. 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112n335 Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 432 N.E.2d 566 (1982). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345n294 Kubik, Inc. v. Hull, 56 Mich. App. 335, 224 N.W.2d 80 (1974) . . . . 347n314, 348n320 L-3 Communications Westwood Corp. v. Robicharux, No. 06-0279, 2007 WL 756528 (E.D. La. Mar. 8, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74n161 Labor Ready, Inc. v. Williams Staffing, L.L.C., 149 F. Supp. 2d 398 (N.D. Ill. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151, 151n44 La Calhene, Inc. v. Spolyar, 938 F. Supp. 523 (W.D. Wis. 1996). . . . . 97n264, 352n357 Lachman v. Sperry-Sun Well Surveying Co., 457 F.2d 850 (10th Cir. 1972). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179, 179n197 La Gran Familia, Inc. v. Cuba Pharmacy, Inc., 349 So. 2d 769 (Fla. Dist. Ct. App. 1977). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324n137 Lamb-Weston, Inc. v. McCain Foods, Ltd., 941 F.2d 970, 19 U.S.P.Q.2d (BNA) 1775 (9th Cir. 1991). . . . . . . . . . . 49n35, 158–159n91, 158n91 Lamorte Burns & Co. v. Walters, 167 N.J. 285, 770 A.2d 1158 (2001) . . . . . . . 171n159 Lam Research Corp. v. Deshmukh, 157 F. App’x 26 (9th Cir. 2005) . . . . . 93n243, 312n43
Table of Cases 425 Landsberg v. Scrabble Crossword Game Players, Inc., 736 F.2d 485 (9th Cir. 1984). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54n53, 311n35 Langford v. Rotech Oxygen & Medical Equipment, Inc., 541 So. 2d 1267 (Fla. Dist. Ct. App. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323n134 Laro, Inc. v. Chase Manhattan Bank (National Association), 866 F. Supp. 132 (S.D.N.Y. 1994), aff ’d, 60 F.3d 810 (2d Cir. 1995) . . . . . . . . . . . 77n178 Larx Co. v. Nicol, 28 N.W.2d 705 (Minn. 1947) . . . . . . . . . . . . . . . . . . . . . . . . . 353n363 Laurie Visual Etudes, Inc. v. Chesebrough-Pond’s, Inc. 432 N.Y.S.2d 457 (Sup. Ct. 1980), rev’d on other grounds, 441 N.Y.S.2d 88 (App. Div. 1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22n113 Leach v. Ford Motor Co., 299 F. Supp. 2d 763 (E.D. Mich. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97n261, 348n317 Learning Curve Toys, L.P. v. Playwood Toys, Inc., No. 94 C 6884, 1999 WL 529572 (N.D. Ill. July 20, 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146n12 Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714 (7th Cir. 2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16n77 Lear Siegler, Inc. v. Ark-Ell Springs, Inc., 569 F.2d 286 (5th Cir. 1978). . . . . . . . 55n58 Lee Pharmaceuticals v. Den-Mat, Inc., No. CV 75-2311, 1976 U.S. Dist. LEXIS 12037 (C.D. Cal. Dec. 1, 1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . 111n333 Lee v. Cercoa, Inc., 433 So. 2d 1 (Fla. Dist. Ct. App. 1983) . . . . . . . . . . . . . . . . 321n114 Leggett & Platt v. Hickory Springs Manufacturing Co., 132 F. Supp. 2d 643 (N.D. Ill. 2001), rev’d in part on other grounds, 285 F.3d 1353 (Fed Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334n212 Lehman v. Dow Jones & Co., 783 F.2d 285 (2d Cir. 1986). . . . . . . . . . . . . . . . . . . 60n86 LeJeune v. Coin Acceptors, Inc., 849 A.2d 451 (Md. 2004) . . . . . . . . . 96n258, 339n259 Lemelson v. Carolina Enterprises, Inc., 541 F. Supp. 645 (S.D.N.Y. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363n436 Lemelson v. Kellogg Co., 440 F.2d 986 (2d Cir. 1971) . . . . 158n91, 172n163, 175n180 Lessner Dental Laboratories, Inc. v. Kidney, 16 Ariz. App. 159, 492 P.2d 39 (1971) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307n9 Leucadia, Inc. v. Applied Extrusion Technologies, Inc., 755 F. Supp. 635 (D. Del. 1991) . . . . . . . . . . . . . . . . . . . . . . . .52n44, 85n207, 144n3, 185n223, 320n102 Levenger Co. v. Feldman, 516 F. Supp. 2d 1272 (S.D. Fla. 2007) . . . . . 51n44, 85n209, 86n214, 323n133 Lewis Pacific Dairyman’s Association v. Turner, 314 P.2d 625, 5 Wash. 2d 762 (1957) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390n628 Lexis-Nexis v. Beer, 41 F. Supp. 2d 950 (D. Minn. 1999) . . . . . . . . . . . 97n264, 352n357 Liberty American Insurance Group, Inc. v. WestPoint Underwriters, L.L.C., 199 F. Supp. 2d 1271 (M.D. Fla. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . 322n126 Liberty American Insurance Group, Inc. v. Westpoint Underwriters, L.L.C., 199 F. Supp. 2d 1271 (M.D. Fla. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10n45 Licata & Co. v. Goldberg, 812 F. Supp. 403 (S.D.N.Y. 1993) . . . . . . . . . . . . . . . 176n184 Licocci v. Cardinal Associates Inc., 445 N.E.2d 556 (Ind. 1983) . . . . . . . . . . . . 338n246 Liebert Corp. v. Mazur, 357 Ill. App. 3d 265, 293 Ill. Dec. 28, 827 N.E.2d 909 (2005). . . . . . . . . . . . . . . . . . . 45n4, 88n217, 172n165, 173n169, 331n196 LinkCo, Inc. v. Fujitsu, Ltd., 230 F. Supp. 2d 492 (S.D.N.Y. 2002). . . . . 31n156, 32n156, 32n157, 63n100, 124n370, 166n131, 170n154, 177n186, 362n426, 365n449
426
Table of Cases Local Union No. 884 v. Bridgestone/Firestone, Inc., 61 F.3d 1347 (8th Cir. 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105n299 Lockheed Martin Corp. v. Speed, No. 6:05-CV-1580-ORL-31, 2006 WL 2683058 (M.D. Fla. Aug. 1, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74n161 Loral Corp. v. Moyes, 174 Cal. App. 3d 268, 219 Cal. Rptr. 836 (1985). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47n18, 317n75, 317n79 Louis v. Meissner, 530 F. Supp. 924 (S.D. Fla. 1981). . . . . . . . . . . . . . . . . . . . . . 324n136 Lovell Farms, Inc. v. Levy, 641 So. 2d 103 (Fla. Dist. Ct. App. 1994) . . . . . . . . 323n132 Lowndes Products, Inc. v. Brower, 191 S.E.2d 761 (S.C. 1972) . . . . . . . . . . . . . . . 61n93 Loxtercamp, Inc. v. Belgrade Cooperative Association, 368 N.W.2d 299 (Minn. Ct. App. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351n349 Lucini Italia Co. v. Grappolini, 231 F. Supp. 2d 764 (N.D. Ill. 2002) . . . . . 146, 147n15 Lucini Italia Co. v. Grappolini, No. 01 C 6405, 2003 WL 1989605 (N.D. Ill. Apr. 28, 2003) . . . . . . . . . . . . 91n234, 147n19, 331n198, 332n202, 332n204 Lumex, Inc. v. Highsmith, 919 F. Supp. 624 (E.D.N.Y. 1996) . . . . . . . 99n271, 364n441 Lyn-Flex W., Inc. v. Dieckhaus, 24 S.W.3d 693 (Mo. Ct. App. 1999) . . . . . . . 355n380 Lyon v. General Motors Corp., 200 F. Supp. 89 (N.D. Ill. 1961) . . . . . . . . . . . . . 159n91 Macbeth-Evans Glass Co. v. Schnelbach, 239 Pa. 76, 86 A. 688 (1913) . . . . . . . . 58n75 MacDonald v. Chicago Park District, 132 F.3d 355 (7th Cir. 1997) . . . . . . . . . 108n317 Mack Trucks, Inc. v. Bendix-Westinghouse Auto. Air Brake Co., 372 F.2d 18 (3d Cir. 1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135n417 Magistro v. J. Lou, Inc., 703 N.W.2d 887 (Neb. 2005) . . . . . . . . . . . . . . . . . . . . . . . 7n30 Magnecomp Corp. v. Athene Co., 209 Cal. App. 3d 526, 257 Cal. Rptr. 278 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89n227 Magnivision, Inc. v. Bonneau Co., Nos. CV 91-2167-DT, CV 92-7553-DT, CV 97-8351 DT, 2003 WL 23320550 (C.D. Cal. Dec. 18, 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112n335 Magnox v. Turner, No. Civ. A. 11951, 1991 WL 182450 (Del. Ch. Sept. 10, 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52n44, 85n207 MAI Basic Four, Inc. v. Generic Business Solutions, Inc., No. 9908, 1990 WL 3665 (Del. Ch. Jan. 16, 1990) . . . . . . . . . . . . . . . . . . . . . . . 319n94 MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . 11n48, 83n200, 102n286, 164n124, 314 Maloney v. Scottsdale Insurance Co., No. 05-16686, 2007 WL 3391334 (9th Cir. Nov. 14, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185n227 Mangren Research & Development Corp. v. National Chemical Co., 87 F.3d 937 (7th Cir. 1996) . . . . . . . . . . . .124n366, 125n376, 332n203, 333, 333n210 Manuel v. Convergys Corp., 430 F.3d 1132 (11th Cir. 2005) . . . . . . . . . . . . . . 326n157 Marcam Corp. v. Orchard, 885 F. Supp. 294 (D. Mass. 1995) . . . . . . . 96n259, 344n287 Marietta Corp. v. Fairhurst, 301 A.D.2d 734 (N.Y. App. Div. 2003) . . . . . . . . 364n440 Markowitz v. Serio, 11 Misc. 3d 439, 812 N.Y.S.2d 841 (Sup. Ct. 2006) . . . . . rev’d, 39 A.D.3d 247, 833 N.Y.S.2d 444 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177n185 Marshall v. Gipson Steel, Inc., 806 So. 2d 266 (Miss. 2002) . . . . . . . . . . . . . . . . . . . 6n19 Martin v. Julius Dierck Equipment Co., 43 N.Y.2d 583, 374 N.E.2d 97, 403 N.Y.S.2d 185 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136n421 Masonite Corp. v. County of Mendocino Air Quality Management District, 42 Cal. App. 4th 436, 49 Cal. Rptr. 2d 639 (1996) . . . . . . . . 22n117, 219n48
Table of Cases 427 Mason v. Jack Daniel Distillery, 518 So. 2d 130 (Ala. Civ. App. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7n30, 13n59 Massachusetts Eye & Ear Infirmary v. QLT Phototherapeutics, Inc., 412 F.3d 215 (1st Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133n401 Master Tech Products v. Prism Enterprises, No. 00 C 4599, 2002 U.S. Dist. LEXIS 5481 (N.D. Ill. Mar. 26, 2002) . . . . . . . . . . . . . . . . . . . . . . . . 334n212 Materials Development Corp. v. Atlantic Advanced Metals, Inc., 172 U.S.P.Q. (BNA) 595 (Mass. Super. Ct. Nov. 11, 1971) . . . . . . . . . . . . . . . . 11n51 Mattel, Inc. v. Louis Marx & Co., 353 F.2d 421 (2d Cir. 1965) . . . . . . . . . . . . . 132n394 Maxwell Alarm Screen Manufacturing Co. v. Protective Service Corp., 218 U.S.P.Q. (BNA) 580 (C.D. Cal. Apr. 3, 1982) . . . . . . . . . . . . . . . . . . 59n76 Maxxim Medical, Inc. v. Michelson, 51 F. Supp. 2d 773 (S.D. Tex.), rev’d without opinion, 182 F.3d 915 (5th Cir. 1999) . . . . . . . . . . . . 100n277, 382n559 MBL (USA) Corp. v. Diekman, 112 Ill. App. 3d 229, 445 N.E.2d 418, 67 Ill. Dec. 938, 221 U.S.P.Q. (BNA) 725 (1983) . . . . . . . 23n125, 104n293, 107n313 McCaffree Financial Corp. v. Nunninck, 847 P.2d 1321 (Kan. Ct. App. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163n115 McCormack & Dodge Corp. v. ABC Management Systems, Inc., 222 U.S.P.Q. (BNA) 432 (Wash. Super. Ct. Dec. 22, 1983) . . . . . . . . . . . . . . . . . . 134n412 McDonald v. West Branch, 466 U.S. 284, 104 S. Ct. 1799 (1984), overruled in part as stated in Rosenberg v. Merrill Lynch, 965 F. Supp. 190 (D. Mass. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184n219 McDonnell Douglas Corp. v. EEOC, 922 F. Supp. 235 (E.D. Mo. 1996) . . . . . 233n107 McGough v. University of San Francisco, 214 Cal. App. 3d 1577, 263 Cal. Rptr. 404 (1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58n73 McKay v. Communispond, Inc., 581 F. Supp. 801 (S.D.N.Y. 1983) . . . . . . . . . . 21n107 McLaren v. Microsoft Corp., No. 05-97-008824-CV, 1999 WL 339015 (Tex. App. May 28, 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210n23 McLeod v. Northwest Alloys, Inc., 90 Wash. App. 30, 969 P.2d 1066 (Wash. Ct. App. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134n406, 387n604, 387n605 Medinol Ltd. v. Boston Scientific Corp., 346 F. Supp. 2d 575 (S.D.N.Y. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177n186 Mediware Information Systems v. McKesson Information Solutions, L.L.C., No. 06-2391-JWL 2007, U.S. Dist LEXIS 22087 (D. Kan. Mar. 26, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53n46 Medtronic, Inc. v. Sun, Nos. C7-97-1185, C9-97-1186, 1997 WL 729168 (Minn. App. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97n263, 352n356 Medtronic Vascular, Inc. v. Advanced Cardiovascular Systems, No. 98-80-SLR, 2005 U.S. Dist. LEXIS 1158 (D. Del. Jan. 5, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318n85 Meissner Filtration Products, Inc. v. Harrington, No. CIV212103, 2004 WL 2189249 (Cal. Ct. App. Sept. 30, 2004). . . . . . . . . 93n243, 309n28, 312n43 Memry Corp. v. Kentucky Oil Technology, N.V., No. C-04-03843 RMW, 2006 WL 3734384 (N.D. Cal. Dec. 18, 2006) . . . . . . . .139, 139n435, 139n436 Memry Corp. v. Kentucky Oil Technology, N.V., No. C-04-03843 RMW, 2007 U.S. Dist. LEXIS 82015 (N.D. Cal. Nov. 5, 2007) . . . . . . . . . . . . 69n137 Merck & Co. v. Lyon, 941 F. Supp. 1443 1464–65 (M.D.N.C. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n272, 256n20, 368n468
428
Table of Cases Merck & Co. v. SmithKline Beecham Pharmaceuticals, No. 15443-NC, 1999 Del. Ch. LEXIS 242, 1999 WL 66934 (Del. Ch. Aug. 5, 1999), aff ’d per curiam, 746 A.2d 277, 2000 Del. LEXIS 45 (Del. 2000), aff ’d, 766 A.2d 442 (Del. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170-171n156 Merrill Lynch v. Ran, 67 F. Supp. 2d 764 (E.D. Mich. 1999) . . . . . . . 345n301, 346n305 Merrill Lynch v. Zimmerman, 42 U.S.P.Q.2d (BNA) 1149 (D. Kan. Oct. 1, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355, 355n385 Metal Lubricants Co. v. Engineered Lubricants Co., 284 F. Supp. 483 (E.D. Mo. 1968), aff ’d, 411 F.2d 426 (8th Cir. 1969) . . . . . . . . . . . . . . . . . . . 173n170 Metallurgical Industries, Inc. v. Fourtek, Inc., 790 F.2d 1195 (5th Cir. 1986). . . . . . . . . . . . . . . 5n13, 5n18, 7n34, 34n171, 50n41, 88n221, 380n545 Metro Traffic Control, Inc. v. Shadow Traffic Network, 22 Cal. App. 4th 853, 27 Cal. Rptr. 2d 573 (1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316–317n75 Mettler-Toledo, Inc. v. Acker, 908 F. Supp. 240 (M.D. Pa. 1995) . . . 170n154, 176n184 MG Capital, L.L.C. v. Sullivan, No. 01 C 5815, 2001 WL 1609382 (N.D. Ill. Dec. 17, 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149, 150n38 Michels v. Dyna-Kote Industries, Inc., 497 N.E.2d 586 (Ind. Ct. App. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . 55n60, 154n61, 176n182, 335n223 Micro Display Systems, Inc. v. Axtel, Inc., 699 F. Supp. 202 (D. Minn. 1988) . . . . . . . . . 149, 149n35, 150n38, 151n47, 152, 152n53, 153, 153n57 Micro Lithography, Inc. v. Inko Industries Inc., 20 U.S.P.Q.2d (BNA) 1347 (Cal. Ct. App. Apr. 9, 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20n90 MicroStrategy, Inc. v. Business Objects, S.A., 331 F. Supp. 2d 396 (E.D. Va. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10n45, 146, 178n191, 385n587 MicroStrategy, Inc. v. Li, 268 Va. 249, 601 S.E.2d 580 (2004) . . . . . . 384n580, 384n583 Mid-States Paint & Chemical Co. v. Herr, 746 S.W.2d 613 (Mo. Ct. App. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357n403 Miles, Inc. v. Scripps Clinic & Research Foundation, 810 F. Supp. 1091 (S.D. Cal. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65n117 Miller Mechanical, Inc. v. Ruth, 300 So. 2d 11 (Fla. 1974). . . . . . . . . . . . . . . . . 324n145 Miller v. Owens-Illinois, Inc., 187 U.S.P.Q. (BNA) 47 (D. Md. Feb. 11, 1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170n155 Millet v. Crump, 687 So. 2d 132 (La. Ct. App. 1996) . . . . . . . . . . . . . . . . . . . . . 130n389 Milwaukee County v. M.E. White Co., 296 U.S. 268, 56 S. Ct. 229 (1935) . . . 131n393 Mineral Deposits Ltd. v. Zigan, 773 P.2d 606 (Colo. Ct. App. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159n93, 173n167 Minnesota Mining & Manufacturing Co. v. Johnson & Johnson Orthopaedic, Inc., 22 U.S.P.Q.2d (BNA) 1401 (D. Minn. July 26, 1991), aff ’d, 976 F.2d 1559 (Fed. Cir. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134n409 Minnesota Mining & Manufacturing Co. v. Pribyl, 259 F.3d 587 (7th Cir. 2001). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392n653, 393n655 Minuteman, Inc. v. Alexander, 147 Wis. 2d 842, 434 N.W.2d 773 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88n217, 165n125, 391n641 Mirafi, Inc. v. Murphy, No. C-C-87-578M, 1989 WL 206491, 14 U.S.P.Q.2d (BNA) 1337 (W.D.N.C. Oct. 23, 1989), aff ’d in part and rev’d in part on other grounds, 1991 U.S. App. LEXIS 1636, 18 U.S.P.Q.2d (BNA) 1087 (Fed. Cir. Feb. 4, 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55–56, 56n62, 56n63
Table of Cases 429 Mission Insurance Co. v. Puritan Fashions Corp., 706 F.2d 599 (5th Cir. 1983). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133n399 Mittenzwei v. Industrial Waste Service, Inc., 618 So. 2d 328 (Fla. Dist. Ct. App. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322n123, 322n124 M.J. McPherson Services, L.L.P. v. Sports Images, Inc., No. 5:06 CV 465, 2006 WL 2505925 (N.D. Ohio Aug. 28, 2006) . . . . . . . . . . . . . . . . . 185n230 MLB Corp. v. Diekman, 445 N.E.2d 418 (Ill. App. Ct. 1983) . . . . . . . . . . . . . . 172n165 Modern Materials, Inc. v. Advance Tooling Specialists, Inc., 557 N.W.2d 835 (Wis. Ct. App. 1996). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61n92 Molex, Inc. v. Nolen, 759 F.2d 474 (5th Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . 382n563 Monolithic Power Systems, Inc. v. 02 Micro International Ltd. (2007), No. C 04-2000 CW, 6 06-2929 CW, 2007 WL 801886 (N.D. Cal. Mar. 14, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145n10, 152n51, 310n31 Monovis, Inc. v. Aquino, 905 F. Supp. 1205 (W.D.N.Y. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . 99n271, 121n341, 159n93, 364n441 Montana v. San Jose Mercury News, Inc., 34 Cal. App. 4th 790, 40 Cal. Rptr. 2d 639 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63n101 Moore v. American Barmag Corp., 15 U.S.P.Q.2d (BNA) 1829 (Fed. Cir. Apr. 27, 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173n170 Moore v. Marty Gilman, Inc., 965 F. Supp. 203 (D. Mass. 1996) . . . . . . . . . . . 177n186 Morgan’s Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838 (1957) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376n518, 376n519 Morgan Stanley DW, Inc. v. Frisby, 163 F. Supp. 2d 1371 (N.D. Ga. 2001). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326n160 Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514, 66 Cal. Rptr. 2d 731 (1997) . . . . . . . . . . . . . . . . . . . 122n348, 308n22, 316n69, 316n70 Mortgage Specialists, Inc. v. Davey, 904 A.2d 652 (N.H. 2006) . . . . . . . . . . . . . 146n12 Morton v. Rank America, Inc., 812 F. Supp. 1062 (C.D. Cal. 1993) . . . . . 16n72, 47n24 Morton v. Rogers, 20 Ariz. App. 581, 514 P.2d 752 (1973) . . . . . . . . . . . . 306n4, 306n5 Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180n206 Moss, Adams & Co. v. Schilling, 179 Cal. App. 3d 124, 224 Cal. Rptr. 456 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317n78 Motion Control Systems, Inc. v. East, 262 Va. 33, 546 S.E.2d 424 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101n281, 386n598 Motor City Bagels, L.L.C. v. American Bagel Co., 50 F. Supp. 2d 460 (D. Md. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22n118, 174n173 Motorola, Inc. v. Computer Displays International, Inc., 739 F.2d 1149 (7th Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122n349 Motorola, Inc. v. Fairchild Camera & Instrument Corp., 366 F. Supp. 1173 (D. Ariz. 1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . 159n92, 173n166, 173n169, 175n181 Motorola v. Qualcomm, Inc., No. 96 ch. 7575 (Cir. Ct. Cook County 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95n253 M. S. Jacobs & Associates, Inc. v. Duffley, 452 Pa. 143, 303 A.2d. 921 (1973) . . . . 376n520 Muggill v. Reuben H. Donnelley Corp., 62 Cal. 2d 239, 42 Cal. Rptr. 107 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57n68 Multiform Desiccants v. Sullivan, No. 95-CV-0283E(F), 1996 WL 107102 (W.D.N.Y. Mar. 8, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n271, 364n441
430
Table of Cases Mundy v. Decker, No. A-97-882, 1999 WL 14479 (Neb. Ct. App. Jan. 5, 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65n114 Murphy v. Society of Real Estate Appraisers, 388 F. Supp. 1046 (E.D. Wis. 1975), vacated and remanded, 544 F.2d 521 (7th Cir. 1976) . . . 103n290 Murray Hill Publications, Inc. v. ABC Communications, Inc., 264 F.3d 622 (6th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156n74 Mutual Service Casualty Insurance, Co. v. Brass, 2001 Wis. App. 92, 242 Wis. 2d. 733, 625 N.W.2d 648 (2001) . . . . . . . . . . . . . . . . . . . . 101n283, 393n660 Mycalex Corp. v. Pemco Corp., 64 F. Supp. 420 (D. Md. 1946), aff ’d, 159 F.2d 907 (4th Cir. 1947). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159n92 Nalco Chemical Co. v. Hydro Technologies, Inc., 984 F.2d 801 (7th Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393n661, 393n662 Naterra Land, Inc. v. Dingmann, No. 27-CV-05-16624, 2006 WL 1767967 (Minn. Dist. Ct. June 26, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . 349n334 National Basketball Association v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155, 155n67, 393n659 National Broadcasting Co. v. Satellite Broadcasting Networks, Inc., 940 F.2d 1467 (11th Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157n78 National Business Services, Inc. v. Wright, 2 F. Supp. 2d 701 (E.D. Pa. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100n275, 374n504 National Parks & Conservation Association v. Kleppe, 547 F.2d 673 (D.C. Cir. 1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237n138 National Parks & Conservation Association v. Morton (1974) . . . . 235n122, 235n123 National Property & Gasoline Co. v. Graham, 370 F. Supp. 2d 819 (E.D. Wis. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391n639, 391n640 National Rejectors, Inc. v. Trieman, 409 S.W.2d 1, 152 U.S.P.Q. (BNA) 120 (Mo. 1966) . . . . . . . . . . . . 23n122, 173n169, 355n383, 355n388, 356n399 National Risk Management, Inc. v. Bramwell, 819 F. Supp. 417 (E.D. Pa. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173n170, 176n184 National School Studios, Inc. v. Superior Photo Service, Inc., 242 P.2d 756, 40 Wash. 2d 263 (1952) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390n628 National Starch & Chemical Corp. v. Parker Chemical Corp., 530 A.2d 31 (N.J. Super. Ct. App. Div. 1987) . . . . . . . . . . . . . . . . . . . 98n267, 359n415 National Union Fire Insurance Co. v. Marsh USA, Inc. (In re Hawaiian Electric Industries), 2004 U.S. Dist. LEXIS 12716 (S.D.N.Y. May 25, 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183n216 Nationwide Mutual Insurance Co. v. Hart, 73 Md. App. 406, 534 A.2d 999 (1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339n264, 339n266, 340n268 Nationwide Mutual Insurance Co. v. Stenger, 695 F. Supp. 688 (D. Conn. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173n170 North Atlantic Instruments, Inc. v. Haber, 188 F.3d 38 (2d Cir. 1999) . . . . . . . 32n158, 106n304, 363n431 NaturaLawn of America, Inc. v. West Group, L.L.C., 484 F. Supp. 2d 392 (D. Md. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338n256 Northeast Coating Technologies, Inc. v. Vacuum Metallurgical Co., 684 A.2d 1322, 41 U.S.P.Q.2d. (BNA) 1862 (Me. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22n114, 172n165, 173n167
Table of Cases 431 Neel v. Williams Communication Service, Inc., 638 So. 2d 1017 (Fla. Dist. Ct. App. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323n135 Neil & Spencer Holdings, Ltd. v. Kleen-Rite, Inc., 479 F. Supp. 164, 206 U.S.P.Q. (BNA) 350 (E.D. Mo. 1979) . . . . . . . . . . . . . . . . . . . . . . . . 355n379 Neothermia Corp. v. Rubicor Medical, Inc., 345 F. Supp. 2d 1042, (N.D. Cal. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21n109, 52n44m312n30, 84n205 New England Circuit Sale v. Randall, No. 1:96CV10840, 1996 WL 1171929 (D. Mass. June 4, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . 96n259, 344n287 NewLeaf Designs, L.L.C. v. BestBins Corp., 168 F. Supp. 2d 1039 (D. Minn. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97n264, 352n357 New Lenox Industries, Inc. v. Fenton, No. 5:06 CV 184 OC 10GRJ, 2007 WL 1303035 (M.D. Fla. May 3, 2007) . . . . . . . . . . . . . . . . . . . . . . . . 150, 150n40 Newport News Industrial v. Dynamic Testings, Inc., 130 F. Supp. 2d 745 (E.D. Va. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385n589, 385n590 New World Fashions, Inc. v. Lieberman, 429 So. 2d 1276 (Fla. Dist. Ct. App. 1983). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324n139 Nexans Wires S.A. v. Sark-USA, Inc., 319 F. Supp. 2d 468 (S.D.N.Y. 2004), aff ’d, 166 F. App’x 559 (2d Cir. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74n161, 288n62, 288n63 Nichols v. Hast, 62 Cal. 2d 598, 43 Cal. Rptr. 641, 400 P.2d 753 (1965) . . . . . . 316n73 Nilssen v. Motorola, Inc., 963 F. Supp. 664, 680 (N.D. Ill. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333n211, 334n213, 334n215 9 to 5 Organization for Women Office Workers v. Board of Governors, 721 F.2d 1, 12 (1st Cir. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231n96 North Kansas City Hospital Board of Trustees v. St. Luke’s Northland Hospital, 984 S.W.2d 113 (Mo. Ct. App. 1998) . . . . . . . . . . . . . . . . . . . . . . . . 354n376 Noel v. Hall, No. 99-649-AS, 2006 WL 2129799 (D. Or. July 28, 2006). . . . . . . 211n24 Nora Beverages, Inc. v. Perrier Group of America, Inc., 164 F.3d 736, 751 (2d Cir. 1998). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147n23 Norlund v. Faust, 675 N.E.2d 1142 (Ind. Ct. App. 1997) . . . . . . . . . . . . . . . . . . 106n307 Novell, Inc. v. Timpanogos Research Group, Inc., 1998 WL 177721, 46 U.S.PQ.2d (BNA) 1197 (D. Utah 1998) . . . . . . . . . . . . . 101n280, 204n12 Northern Petrochemical v. Tomlinson, 484 F.2d 1057 (7th Cir. 1973) . . . . . . . . 47n23 Nucar Consulting, Inc. v. Doyle, 76 U.S.P.Q.2d (BNA) 1087, 2005 Del. Ch. LEXIS 43 (Del. Ch. Apr. 5, 2005) . . . . . . . . . . . . . . . . . . . . . 319n98, 320n101 Numed, Inc. v. McNutt, 724 S.W.2d 432 (Tex. App. 1987) . . . . . . . . . . . . . . . . 177n185 Nutmeg Technologies, Inc. v. Mahshie, 12 U.S.P.Q.2d (BNA) 1469 (N.D.N.Y. June 6, 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365n445 Nutzz.com v. Vertrue, Inc., No. 1231-N, 2005 Del. Ch. LEXIS 101 (Del. Ch. July 6, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320n102 N.Y. Public Interest Research Group v. U.S. EPA, 249 F. Supp. 2d 327 (S.D.N.Y. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235n121 O2 Micro International, Ltd. v. Monolithic Power Systems, Inc., No. C 04-2000 CW, 6 06-2929 CW, 2007 WL 801886 (N.D. Cal. Mar. 14, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316, 316n71 Oddo v. Ries, 743 F.2d 630 (9th Cir. 1984). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156n74 Ohio Oil Co. v. Conway Inc., 279 U.S. 813, 49 S. Ct. 256 (1929) . . . . . . . . . . . 108n320
432 Table of Cases Omnitech International, Inc. v. Clorox Co., 11 F.3d 1316 (5th Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147, 147n20 On-Line Technologies v. Perkin Elmer Corp., 141 F. Supp. 2d 246 (D. Conn. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153n56 Opteum Financial Services, L.L.C. v. Spain, 406 F. Supp. 2d 1378 (N.D. Ga. 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149n30, 327n170 Optic Graphics, Inc. v. Agee, 87 Md. App. 770, 591 A.2d 578 (Ct. Spec. App. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . 176–177n185, 339n260, 339n261 Orchard Container Corp. v. Orchard, 601 S.W.2d 299 (Mo. Ct. App. 1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357n403 Organic Chemicals, Inc. v. Carroll Products, Inc., 211 U.S.P.Q. (BNA) 628 (W.D. Mich. May 7, 1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7n28 Orkin Exterminating Co. v. Walker, 251 Ga. 536, 307 S.E.2d 914 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328n172, 328n173 Ossur Holdings, Inc. v. Bellacure, Inc., No. C05-1552JLR, 2005 U.S. Dist. LEXIS 38750 (W.D. Wash. Dec. 14, 2005) . . . . . . . . . . . . . . . . . . . 106n305 Össur Holdings, Inc. v. Bellacure, Inc., No. C05-1552JLR, 2006 WL 2401269 (D. Wash. Aug. 18, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389n620 Otis Elevator Co. v. Intelligent Systems, Inc., 17 U.S.P.Q.2d (BNA) 1773 (Conn. Super. Ct. July 18, 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . 20n91 Pacific Aerospace & Electronics, Inc. v. Taylor, 295 F. Supp. 2d 1205 (E.D. Wash. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389n616 Pachmayr Gun Works, Inc. v. Olin Mathieson Chemical Corp., 502 F.2d 802 (9th Cir. 1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60n89 Pacific & South Co. v. Satellite Broadcasting Networks, Inc., 694 F. Supp. 1565 (N.D. Ga. 1988) rev’d on other grounds, National Broadcasting Co. v. Satellite Broadcasting Networks, Inc., 940 F.2d 1467 (11th Cir. 1991) . . . . . 157n78 Padco Advisors, Inc. v. Omdahl, 179 F. Supp. 2d 600 (D. Md. 2002) 96n258, 339n258 Palmer & Cay, Inc. v. Lockton Cos., 284 Ga. App. 196, 643 S.E.2d 746 (2007) . . . cert. denied, No. S07C1074, 2007 Ga. LEXIS 503 (Ga. June 25, 2007) . . . . . . . . . 328n178 Panizza v. Mattel, Inc., No. 02 CV 7722 (GBD) . . . 68 U.S.P.Q.2d (BNA) 1469, 1472, 2003 WL 22251317 (S.D.N.Y. Sept. 30, 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . 155n68 Papasan v. Allain, 478 U.S. 265, 106 S. Ct. 2932 (1986) . . . . . . . . . . . . . . . . . . . 185n225 Paramanandam v. Herrmann, 827 N.E.2d 1173 (Ind. Ct. App. 2005) . . . . . . . 336n228, 336n230 Paramount Termite Control Co. v. Rector, 238 Va. 171, 380 S.E.2d 922 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387n600 Parker v. Ryan, 960 F.2d 543 (5th Cir. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105n300 Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99 S. Ct. 645 (1979) . . . . . . . . . . . 80n189 Parsons v. Pennsylvania Higher Education Assistance Agency, 910 A.2d 177 (Pa. Commw. Ct. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374n509 Patio Enclosures, Inc. v. Herbst, 39 F. App’x. 964 (6th Cir. 2002) . . 100n273, 370n478 Patriot Homes, Inc. v. Forest River Housing Inc., 489 F. Supp. 2d 865 (N.D. Ind. 2007), vacated in part, 512 F.3d 412 (7th Cir. 2008) . . . . . . . . . . 337n240 Payment Alliance International, Inc. v. Ferreira, 530 F. Supp. 2d 477 (S.D.N.Y. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98n270, 364n440 Payne v. Elliot, 54 Cal. 339, 1880 WL 1907 (Cal. 1880) . . . . . . . . . . . . . . . . . . . . 64n112
Table of Cases 433 PCx Corp. v. Ross, 168 Ill. App. 3d 1047, 522 N.E.2d 1333 (1988) . . . . . . . . . . 335n216 Peace v. Conway 246 Va. 278, 435 S.E.2d 133, 10 Va. Law Rep. 282 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61n94 Pearson v. Dodd, 410 F.2d 701 (D.C. Cir. 1969) . . . . . . . . . . . . . . . . . . . . . . . . . . 65n118 Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. 937, 466 N.E.2d 138 (1984). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37n193, 67n125, 342n273 Penalty Kick Management, Ltd. v. Coca-Cola Co., 318 F.3d 1284 (11th Cir. 2003). . . . . . . . . . . . 147n16, 147, 149n30, 153n56, 327, 327n167, 327n170 Penetone Corp. v. Palchem, Inc., 627 F. Supp. 997, 228 U.S.P.Q. (BNA) 497 (N.D. Ohio 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49n32 Peoples Security Life Insurance v. Fletcher, No. 913, 1988 WL 26791 (Del. Ch. Mar. 16, 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320n108 People v. Gopal, 171 Cal. App. 3d 524, 217 Cal. Rptr. 487 (1985) . . . . 293n88, 317n81 People v. Land, 30 Cal. App. 4th 220, 35 Cal. Rptr. 2d 544 (1994) . . . . . . . . . . . 295n91 People v. Moore, 104 Cal. App. 3d 1001, 163 Cal. Rptr. 906 (1980) . . . . . . . . . . 317n81 People v. Pribich, 21 Cal. App. 4th 1844, 27 Cal. Rptr. 2d 113 (1994) . 21n101, 317n81 People v. Russo, 131 Misc. 2d 677, 501 N.Y.S.2d 276 (1986) . . . . . . . . . . . . . . . . 300n96 People v. Seagraves, No. H021996, 2001 WL 1283781 (Cal. Ct. App. Oct. 23, 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317n81 People v. Serrata, 62 Cal. App. 3d 9, 133 Cal. Rptr. 144 (1976) . . . . . . . 21n106, 317n81 PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995) . . . . . . . . . . . . . . . . . . 7n27, 56, 56n65, 91, 91n232, 92, 92n235, 92n236, 152n51, 240n2, 256n20, 331n196, 331n197, 333n212, 336, 336n233, 348n318, 352n356 Perdue Farms, Inc. v. Hook, 777 So. 2d 1047 (Fla. Dist. Ct. App. 2001) . . . . . 324n139 Pestco, Inc. v. Associated Products, Inc., 880 A.2d 700 (Pa. Super. Ct. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176n184 Pet World v. Walker, No. 13592, 1994 WL 384617 (Del. Ch. July 18, 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320–321n108 Pfizer, Inc. v. ICI Americas, Inc., 10 Del. J. Corp. L. 275, 1984 WL 8262 (Del. Ch. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319n92 Philip Morris, Inc. v. Reilly, 312 F.3d 24 (1st Cir. 2002) . . . . . . . . . . . . . . . . . . . 219n50 Phillips v. Frey, 20 F.3d 623 (5th Cir. 1994) . . . . . . . . 21n109, 60n88, 88n219, 173n167 Picker International Corp. v. Imaging Equipment Services, Inc., 931 F. Supp. 18 (D. Mass. 1995), aff’d, 94 F.3d 640 (1st Cir. Aug. 26, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192n238 PI Electronics Corp. v. United States, 55 Fed. Cl. 279 (2003) . . . . . . . . . . . . . . . 219n52 Piercing Pagoda, Inc. v. Hoffner, 465 Pa. 500, 351 A.2d 207 (1976). . . . . . . . . 376n518 Pilkington Brothers, P.L.C. v. Guardian Industries Corp., No. 83-5260, 1986 U.S. Dist. LEXIS 24466 (E.D. Mich. June 9, 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163n115, 163n116 Pillsbury, Madison & Sutro v. Schectman, 55 Cal. App. 4th 1279, 64 Cal. Rptr. 2d 698 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68n133 Pioneer Hi-Bred International v. Holden Foundation Seeds, Inc., 35 F.3d 1226 (8th Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7n35, 17n79, 281n33 Pixion, Inc. v. Placeware, Inc., 421 F. Supp. 2d 1233 (N.D. Cal. 2005), aff ’d, 177 F. App’x 85 (Fed. Cir. 2006) . . . . . . . . . . 208n20, 309n23 Plant Industries, Inc. v. Coleman, 287 F. Supp. 636 (C.D. Cal. 1968) . . . . . . . . 21n107
434 Table of Cases Plastics & Metal Fabricators, Inc. v. Roy, 163 Conn. 257, 303 A.2d 725 (1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159n91 Pleasant Hill Bank v. United States, 58 F.R.D. 97 (W.D. Mo. 1973). . . . . . . . . . 231n98 PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368, 1385, 93 Cal. Rptr. 2d 663 (2000) . . . . . . . . . . . . . . . . 47n17, 48n28, 163n117, 308n16, 314n58, 348n319 Polin v. Kellwood Co., 103 F. Supp. 2d 238 (S.D.N.Y. 2000) . . . . . . . . . . . . . . . 184n217 Pollack v. Calimag, 157 Wis. 2d 222, 236 (Ct. App. 1990) . . . . . . . . . . . . . . . . . 393n661 Porex Corp. v. Haldopoulos, 284 Ga. App. 510, 644 S.E.2d 349 (2007), cert. denied, No. S07C1154, 2007 Ga. LEXIS 498 (Ga. June 25, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162n109, 325n152 Porous Media Corp. v. Midland Brake, Inc., 187 F.R.D. 598 (D. Minn. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85n210, 185n223, 349n335 Posdata Co. v. Kim, No. C-07-02504RMW, 2007 WL 1848661 (N.D. Cal. June 27, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315n62 Posen v. Genesco, 44 Misc. 2d 195, 253 N.Y.S.2d 362 (Sup. Ct. 1962) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32n160, 363n433 Postx Corp. v. Secure Data in Motion, Inc., No. C02-04483 SI, 2004 U.S. Dist. LEXIS 24260 (N.D. Cal. Nov. 20, 2004) . . . . . . . . . . . . . . . . . . . 52n44, 84n205, 310n31, 312n40 Powell Products v. Marks, 948 F. Supp. 1469 (D. Colo. 1996) . . . . . . . . . . . . . . 68n128 Precision Airmotive Corp. v. Rivera, 288 F. Supp. 2d 1151 (W.D. Wash. 2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161n103, 388n610 Precision Automation, Inc. v. Technical Services, Inc., No. 07-CV-707-AS, 2007 U.S. Dist. LEXIS 94555 (D. Or. Dec. 14, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151n49 Precision Instrument Manufacturing Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 65 S. Ct. 993 (1945) . . . . . . . . . 164n122 Precision Plating & Metal Finishing, Inc. v. Martin-Marietta Corp., 435 F.2d 1262 (5th Cir. 1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124n365 Premier Associates v. Loper, 149 Ohio App. 3d 660, 2002-Ohio-5538, 778 N.E.2d 630 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372n495 Premix, Inc. v. Zappitelli, 561 F. Supp. 269 (N.D. Ohio 1983) . . . . . . . . . . . . . 372n496 Prescott v. Morton International, Inc., 769 F. Supp. 404 (D. Mass. 1990) . . . . . . . . . . . . 37n196, 37n197, 37n198, 344n288, 344n289, 344n290 Press-A-Dent, Inc. v. Weigel, 849 N.E.2d 661 (Ind. Ct. App. 2006) . . . . . . . . . 337n242 Pressure Science, Inc., v. Kramer, 413 F. Supp. 618 (D. Conn. 1976), aff ’d, 551 F.2d 301 (2d Cir. 1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173n170 Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S. Ct. 1801 (1967) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181n210 ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) . . . . . . . .155, 155n64, 155n66 Procter & Gamble v. Stoneham, 747 N.E.2d 268 (Ohio Ct. App. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n273, 370n478 Providence Journal Co. v. Convention Center Authority, 774 A.2d 40 (R.I. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218n41 Prudential Insurance Co. v. Pochiro, 153 Ariz. 368, 736 P.2d 1180 (Ariz. Ct. App. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306n4 PSC, Inc. v. Reiss, 111 F. Supp. 2d 252 (W.D.N.Y. 2000) . . . . . . . . . . . . . . . . . . . 98n270,
Table of Cases 435 364n440, 366n451 Public Citizen Health Research Group v. FDA, 704 F.2d 1280 (D.C. Cir. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218n39, 234n115, 236n126 Public Systems, Inc. v. Towry, 587 So. 2d 969, 21 U.S.P.Q.2d (BNA) 1220 (Ala. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92–93, 93n238 Pyromatics, Inc. v. Petruziello, 7 Ohio App. 3d 131, 454 N.E.2d 588 (1983) . . . . 370n481 qad.inc. v. ALN Associates, Inc., 18 U.S.P.Q.2d (BNA) 1122 (N.D. Ill. June 18, 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333n208, 333n209 Q-Co Indus., Inc. v. Hoffman, 625 F. Supp. 608 (S.D.N.Y. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7n29, 31n155, 361-362n425, 363n429, 366n451 QSRSoft, Inc. v. Restaurant Technology, Inc., 2006 U.S. Dist. LEXIS 76120, 84 U. S.P.Q.2d (BNA) 1297 (N.D. Ill. Oct. 19, 2006). . . . . . . . . . . . . . . . . . . . . . . . . . 88n222 Quixote Transportation Safety, Inc. v. Cooper, No. 03 C 1401, 2004 WL 528011 (N.D. Ill. Mar. 12, 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95n252 Quon v. Arch Wireless Operating Co., No. 07-55282, 2008 WL 2440559 (9th Cir. June 18, 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210n23 Raimonde v. Van Vlerah, 42 Ohio St. 2d 21, 325 N.E.2d 544 (1975) . . . . . . . . 372n496 Rainbow Nails Enterprises v. Maybelline, Inc., 93 F. Supp. 2d 808 (E.D. Mich. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170n154 Ralph Andrews Products, Inc. v. Paramount Pictures Corp., 222 Cal. App. 3d 676, 271 Cal. Rptr. 797 (1990) . . . . . . . . . . . . . . . . . . . . . . . 134n404 Rare Coin-It, Inc. v. I.J.E., Inc., 625 So. 2d 1277 (Fla. Dist. Ct. App. 1993). . . 323n131 Raymond James & Associates v. Leonard & Co. (2006) . . . . . . . . . . . 173n170, 346n308 Raymundo v. Hammond Clinic Association, 405 N.E.2d 65 (Ind. Ct. App. 1980), vacated, 449 N.E.2d 276 (Ind. 1983) . . . . . . . . . . . . . . 337n245 RBC Dain Rauscher, Inc. v. Farmers State Bank, Inc., No. 05-6109-CV-SJ-HFS, 2006 U.S. Dist. LEXIS 40997 (W.D. Mo. June 20, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182n214 Reading & Bates Construction Co. v. O’Donnell, 627 S.W.2d 239 (Tex. App. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103n289 Read & Lundy, Inc. v. Washington Trust Co., No. PC99-2859, 2002 WL 31867868 (R.I. Super. Ct. Dec. 13, 2002) . . . . . . . . . . . . . 161n103, 161n105 Reddi-Wip, Inc. v. Lemay Valve Co., 354 S.W.2d 913 (Mo. Ct. App. 1962) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355n378 Reed, Roberts Associates, Inc. v. Strauman, 40 N.Y.2d 303, 386 N.Y.S.2d 677, 353 N.E.2d 590 (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366n457 Regional Airport Authority v. LFG, L.L.C., 460 F.3d 697 (6th Cir. 2006) . . . . 112n335 Reinforced Earth Co. v. Neumann, 201 U.S.P.Q. (BNA) 205 (D. Md. June 5, 1978). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170n155 Reingold v. Swiftships, Inc., 126 F.3d 645 (5th Cir. 1997) . . . . 15n71, 67n125, 67n126 Reingold v. Swiftships, Inc., 210 F.3d 320 (5th Cir. 2000) . . . . . . . . . . . . . . . . . . 69n135 Relational Design & Technology, Inc. v. Data Team Corp., No. CIV A 91-2452-O, 23 U.S.P.Q.2d (BNA) 1074 (D. Kan. Apr. 16, 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156n72
436 Table of Cases Releasomers, Inc. v. Goodyear Tire & Rubber Co., No. 12535, 1986 Ohio App. LEXIS 9694 (Ohio Ct. App. Nov. 19, 1986). . . . . . . . . . . . . 371n486 Reliastar Life Insurance Co. v. KMG America Corp., No. A05-2079, 2006 WL 2529760 (Minn. Ct. App. Sept. 5, 2006) . . . . . . . . . . . . . . . 97n264, 352n357 Religious Technology Center v. Lerma, 908 F. Supp. 1362 (E.D. Va. 1995) . . . . . . . . . . . . 23n124, 49n34, 384n579, 385n588, 386n595, 386n596 Religious Technology Center v. Netcom On-Line Communication Services, Inc., 923 F. Supp. 1231 (N.D. Cal. 1995) . . . . . . 7n25, 9n39, 12n55, 21n100, 47n20, 309n25, 315n61 Religious Technology Center v. Scott, 10 U.S.P.Q.2d (BNA) 1379 (9th Cir. Mar. 10, 1989); (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7n25, 12n53 Religious Technology Center v. Wollersheim, 796 F.2d 1076 (9th Cir. 1986). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12n56 RenewData Corp. v. Strickler, No. 03-05-00273-CV, 2006 Tex. App. LEXIS 1689 (Tex. App. Mar. 3, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61n94 Repap Enterprises, Inc. v. Kamyr, Inc., 27 U.S.P.Q.2d (BNA) 1685 (E.D. Pa. June 8, 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375n517 Republic Aviation Corp. v. Schenk, 152 U.S.P.Q. (BNA) 830 (N.Y. Sup. Ct. Jan. 13, 1967) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123n358 Resdev, L.L.C. v. Lot Builders Association, No. 6:04-CV-1374ORL31DAB, 2005 WL 1924743 (M.D. Fla. Aug. 10, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . 74n161 Research & Trading Corp. v. Powell, 468 A.2d 1301 (Del. Ch. 1983) . . . . . . . 320n105, 320n106 Re v. Horstmann, No. CA 83C-FE-82, 1987 WL 16710 (Del. Super. Ct. Aug. 11, 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179, 179n196 Richardson v. Suzuki Motor Co., 868 F.2d 1226 (Fed. Cir. 1989). . . . 122n345, 311n36 Rigging International Maintenance Co. v. Gwin, 128 Cal. App. 3d 594, 180 Cal. Rptr. 451 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56n62, 317n75 Ring v. Estée Lauder, Inc., 702 F. Supp. 76 (S.D.N.Y. 1988), aff’d, 874 F.2d 109 (2d Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31n154, 361n424 Rita Personnel Services International, Inc. v. Kot, 229 Ga. 314, 191 S.E.2d 79 (1972). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328n176 Riteoff, Inc. v. Contact Industries, 350 N.Y.S.2d 690 (App. Div. 1973) . . . . . . . 22n111 Rivendell Forest Products, Ltd. v. Georgia-Pacific Corp., 28 F.3d 1042 (10th Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5n18, 8n36 R.K. Enterprise, L.L.C. v. Pro-Comp Management, Inc., 356 Ark. 565, 158 S.W.3d 685 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .148, 148n28, 149n30 R.K. Enterprises, L.L.C. v. Pro-Comp Management, Inc., 372 Ark. 199, 2008 Ark. LEXIS 53 (Ark. 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69n135 RKI, Inc. v. Grimes, 177 F. Supp. 2d 859 (N.D. Ill. 2001) . . . . . . . . . . . . . . . . . . 95n252 Robert L. Cloud & Associates v. Mikesell, 69 Cal. App. 4th 1141, 82 Cal. Rptr. 2d 143 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125n372 Robert S. Weiss & Associates v. Wiederlight, 208 Conn. 525, 546 A.2d 216 (1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176n184 Rockwell Graphic Systems, Inc. v. DEV Industries, Inc., 925 F.2d 174 (7th Cir. 1991). . . . . . . . . . . . . . . . . .6n23, 16n73, 174n172, 208n19, 290n75 Roessel Cine Photo Tech Inc. v. Kapsalis, 43 U.S.P.Q.2d (BNA) 1134 (N.Y. Sup. Ct. May 7, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32n161, 363n434
Table of Cases 437 Rohm & Haas Co. v. Adco Chemical Co., 689 F.2d 424 (3d Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2n5, 33n164, 33n165, 33n166, 44n1, 50n38, 249n14, 358n406, 358n407, 358n408 Ronald Litoff Ltd. v. American Express Co., 621 F. Supp. 981 (S.D.N.Y. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156n77 Rosenberg v. Merrill Lynch, 965 F. Supp. 190 (D. Mass. 1997). . . . . . . . . . . . . 184n219 Rosenzweig v. Heller, 302 Pa. 279, 153 A. 346 (1931). . . . . . . . . . . . . . . . . . . . . 135n417 Roton Barrier, Inc. v. Stanley Works, 79 F.3d 1112 (Fed. Cir. 1996) . . . . . . . . 124n362, 329n183, 330n191, 332n202, 333n207 Rototron Corp. v. Lake Shore Burial Vault Co., 712 F.2d 1214 (7th Cir. 1983). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56n62 RSR Corp. v. Browner, No. 96-6186, 1997 U.S. App. LEXIS 5523 (2d Cir. Mar. 26, 1997), vacated, 1997 U.S. App. LEXIS 41414 (2d Cir. Apr. 17, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233n109 RTE Corp. v. Coatings, Inc., 84 Wis. 2d 105, 267 N.W.2d 226 (1978) . . . . . . . . . 49n37 Ruckelshaus v. Monsanto Co., 467 U.S. 986, 104 S. Ct. 2862 (1984) . . . . . . . . . 217n35 Rugen v. Interactive Business Systems, Inc., 864 S.W.2d 548 (Tex. App. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100n276, 381n558 Ruiz v. Estelle, 679 F.2d 1115 (5th Cir. 1982), amended in part and vacated in part, 688 F.2d 266 (5th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . 192n239 Rusheen v. Cohen, 37 Cal. 4th 1048, 39 Cal. Rptr. 3d 516 (2006) . . . . . . . . . . . . 68n130 Rycoline Products, Inc. v. Walsh, 756 A.2d 1047 (N.J. Super. Ct. App. Div. 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33n163, 358n405 Safety-Kleen Systems, Inc. v. McGinn, 233 F. Supp. 2d 121 (D. Mass. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96n259, 344n287 Saliterman v. Finney, 361 N.W.2d 175 (Minn. Ct. App. 1985) . . . . . . . . . . . . . 351n349, 351n353, 352n355 Salsbury Laboratories, Inc. v. Merieux Laboratories, Inc., 908 F.2d 706 (11th Cir. 1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121n343 Samsung Electronics America, Inc. v. Bilbruck, No. 06 CC08239, 2006 WL 3012875 (Cal. Super. Ct. Oct. 19, 2006) . . . . 145n10, 149, 149n31, 310n31 S & H Contractors, Inc. v. A.J. Taft Coal, 906 F.2d 1507 (11th Cir. 1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181–182n212 Sandlin v. Johnson, 152 F.2d 8 (8th Cir. 1945) . . . . . . . . . . . . . . . . . . . . . . . . . . 355n382 S&S Computers & Design, Inc. v. Paycom Billing Services No. 5:00-CV-00058, 2001 U.S. Dist. LEXIS 25874 (W.D. Va. Apr. 5, 2001) . . . . . . . . . . . . . . . . . . 386n597 Sandstrom v. Douglas Machines Corp., 372 N.W.2d 89 (Minn. Ct. App. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352n358 San Gabriel Tribune v. Superior Court, 143 Cal. App. 3d 762, 192 Cal. Rptr. 415 (1983). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234n111 Sanirab Corp. v. Sunroc Corp., No. OOC-02-191-SCD, 2002 Del. Super. LEXIS 350 (Del. Super. Ct. Apr. 29, 2002) . . . . . . . . . . . . . . . . . . . . . . 320n102 Sardi’s Restaurant Corp. v. Sardi, 755 F.2d 719 (9th Cir. 1985) . . . . . . . . . . . . 108n319 Sargent Fletcher, Inc. v. Able Corp., 110 Cal. App. 4th 1658, 3 Cal. Rptr. 3d 279 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213n28 Sarkes Tarzian, Inc. v. Audio Devices, Inc., 166 F. Supp. 250 (S.D. Cal. 1958), aff’d, 283 F.2d 695 (9th Cir. 1960) . . . . . . . . . . . . . . . . 16n74, 55n59
438 Table of Cases Satellite Industries, Inc. v. Keeling, 396 N.W.2d 635 (Minn. Ct. App. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352n361, 353n362 Savoie v. Merchants Bank, 84 F.3d 52 (2d Cir. 1996) . . . . . . . . . . . . . . . . . . . . . 107n308 Savor, Inc. v. FMR Corp., 812 A.2d 894 (Del. 2002) . . . . . . . . . . . . . . . . 152n51, 318n88 Schalk v. State, 823 S.W.2d 633 (Tex. Crim. App. 1991) . . . . . . . . . . . . . . . . . . 383n573 Scharmer v. Carrollton Manufacturing Co., 525 F.2d 95 (6th Cir. 1975). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6n21, 158n91 Scherr v. Volpe, 466 F.2d 1027 (7th Cir. 1972) . . . . . . . . . . . . . . . . . . . . . . . . . . 109n331 Schiller & Schmidt, Inc. v. Nordisco Corp., 969 F.2d 410, 23 U.S.P.Q.2d (BNA) 1762 (7th Cir. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333n205 Schiller & Schmidt, Inc. v. Wallace Computer Services, Inc. No. 85 C 4415, 19 U.S.P.Q.2d (BNA) 1942, 1947, 1991 WL 270170 (N.D. Ill. Apr. 26, 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332-333n205 Schlumberger Well Services v. Blaker, 623 F. Supp. 1310, 1318 (S.D. Ind. 1985). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95n255, 336n235 Schreyer v. Casco Products Corp., 190 F.2d 921 (2d Cir. 1951) . . . . . . . . . . . . . . 60n88 Schulenburg v. Signatrol, Inc., 33 Ill. 2d 379, 212 N.E.2d 865, 147 U.S.P.Q. (BNA) 167 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332n199 Scotts Co. v. United Industries Corp., 315 F.3d 264 (4th Cir. 2002) . . . . . . . . 108n316 Scott v. Snelling & Snelling, 732 F. Supp. 1034 (N.D. Cal. 1990) . . . 130n389, 131n390 Scully Signal Co. v. Guay, No. 071740, 2007 WL 1977714 (Mass. Super. Ct. June 7, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344n291 Seaga Manufacturing v. Fortune Metal, Inc., No. 99 C 50332, 2001 U.S. Dist. LEXIS 16341 (N.D. Ill. Oct. 10, 2001) . . . . . . . . . . . . . . . . . . 334n212 Sealed Party v. Sealed Party, No. H-04-2229, 2006 U.S. Dist. LEXIS 28392 (S.D. Tex. Apr. 28, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61-62n94 Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S. Ct. 784 (1964) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159, 159n95, 165n126 Seatrax, Inc. v. Sonbeck International, Inc., 200 F.3d 358 (5th Cir. 2000). . . . . . . . . . . . . 34n175, 34n176, 35n184, 381n556, 382n566, 382n567 Seattle Times Co. v. Rhinehart, 467 U.S. 20, 104 S. Ct. 2199 (1984). . . . . . . . . 179n200 Secure Services Technology, Inc. v. Time & Space Processing, Inc., 722 F. Supp. 1354 (E.D. Va. 1989) . . . . . . . . . . . . . . . . . . . . . 18n82, 23n126, 177n186 Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992) . . . . . . 168n146 Selection Research, Inc. v. Murman, 230 Neb. 786, 433 N.W.2d 526 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170n155 Select Portfolio Servicing, Inc. v. Evaluation Solutions, L.L.C., No. 306CV582J33MMH, 2006 WL 2691784 (M.D. Fla. Sept. 20, 2006) . . . . . . . . . 49n33 Self Directed Placement Corp. v. Control Data Corp., 908 F.2d 462 (9th Cir. 1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63n100, 165n124 Sentilles Optical Services v. Phillips, 651 So. 2d 395 (La. Ct. App. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129n381, 246n7 SePRO Corp. v. Florida Department of Environmental Protection, 839 So. 2d 781 (Fla. Dist. Ct. App. 2003) . . . . . . . . . . . . . . . . . . . . . 189n236, 322n122 Service Systems Corp. v. Harris, 41 A.D.2d 20, 341 N.Y.S.2d 702 (App. Div. 1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13n59 Seta Corp., Inc. v. Florida, 756 So. 2d 1093 (Fla. Dist. Ct. App. 2000) . . . . . . . 232n103
Table of Cases 439 Sethscot Collection v. Drbul, 669 So. 2d 1076 (Fla. Dist. Ct. App. 1996) . . . . 322n123 Shamrock Technologies, Inc. v. Medical Sterilization, Inc., 808 F. Supp. 932 (E.D.N.Y. 1992), aff’d, 6 F.3d 788 (Fed. Cir. 1993) . . . . . . . . . .33n167, 358n409 Shatterproof Glass Corp. v. Guardian Glass Co., 322 F. Supp. 854 (E.D. Mich. 1970), aff ’d, 462 F.2d 1115 (6th Cir. 1972) . . . . . . . . 23n121, 59n78, 173n169 Sheets v. Yamaha Motors Corp., 657 F. Supp. 319 (E.D. La. 1987) aff ’d in part and remanded in part, 849 F.2d 179 (5th Cir. 1988). . . . . . . . . 170n154 Sheets v. Yamaha Motors Corp., 849 F.2d 179 (5th Cir. 1988), aff ’d in part and rev’d in part, 891 F.2d 533 (5th Cir. 1990) . . . . . . . . . . . . . . . 18n83 Shellmar Products Co. v. Allen-Qualley Co., 87 F.2d 104 (7th Cir. 1936). . . . . . . . . . . . . 14n66, 35n185, 164n123, 330, 330n188, 382, 382n561 Shell Oil Co. v. Department of Energy, 477 F. Supp. 413 (D. Del. 1979), aff ’d, 631 F.2d 231 (3d Cir. 1980) . . . . . . . . . . . . . . . . . . . . . . . 217n37 Shields v. Cape Fox Corp., 42 P.3d 1083 (Alaska 2002) . . . . . . . . . . . . . . . . . . . . . 61n91 Showe-Time Video Rentals, Inc. v. Douglas, 727 S.W.2d 426 (Mo. Ct. App. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356n400 Shurgard Storage Centers, Inc. v. Safeguard Self Storage, Inc., 119 F. Supp. 2d 1121 (W.D. Wash. 2000) . . . . . . . . . . . . . . . . . . . . . . . 74n163, 288n60 Sidco Paper Co. v. Aaron, 465 Pa. 586, 351 A.2d 250 (1976). . . . . . . . . . . . . . . 376n523 Sidney v. Superior Court, 198 Cal. App. 3d 710, 244 Cal. Rptr. 31 (1988), cert. denied, 127 S. Ct. 158, 166 L. Ed. 2d 40 (2006). . . . . . . . . . . . . . 163n119 Sigma Chemical Co. v. Harris, 586 F. Supp. 704 (E.D. Mo. 1984) . . . . . . . . . 98n266, 354n374, 355n386, 355n388, 356n391, 356n400 SI Handling Systems, Inc. v. Heisley, 753 F.2d 1244 (3d Cir. 1985) . . . . . . . . .7n32, 11n51, 54n56, 100n275, 374n504, 374n505, 375n516 Sikes v. McGraw-Edison Co., 665 F.2d 731 (5th Cir. 1982) . . . . . . . . . . . . . . . . . . 12n57 Silvers v. Dis-Com Securities, Inc., 403 So. 2d 1133 (Fla. Dist. Ct. App. 1981). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324n142, 324n144 Simko, Inc. v. Graymar Co., 55 Md. App. 561, 464 A.2d 1104 (1983) . . . . . . . 340n267 Sims v. Western Steel Co., 551 F.2d 811 (10th Cir. 1977) . . . . . . . . . . . . . . . . . . 159n91 Simula, Inc. v. Autoliv, Inc., 175 F.3d 716 (9th Cir. 1999) . . . . . . . . . . . . . . . . . . . 306n6 Sinclair v. Aquarius Electronics, Inc., 42 Cal. App. 3d 216, 116 Cal. Rptr. 654 (1974). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12n52, 45n7 Singer v. Habif, Arogeti & Wynne, P.C., 250 Ga. 376, 297 S.E.2d 473 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328n172 Smithfield Ham & Products Co. v. Portion Pac, Inc., 905 F. Supp. 346 (E.D. Va. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151n47 SmithKline Beecham Pharmaceuticals Co. v. Merck & Co., 766 A.2d 442 (Del. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164n122 Smith v. Dravo Corp., 203 F.2d 369 (7th Cir. 1953) . . . . . . . . . . . . . . . . . . . . . . 166n134 Smith v. Mid-State Nurses, Inc., 261 Ga. 208, 403 S.E.2d 789 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .326n157, 327, 327n163 Smith v. Snap-On Tools Corp., 833 F.2d 578 (5th Cir. 1987) . . . . . . . 21n109, 173n167 Smith v. Superior Court, 41 Cal. App. 4th 1014, 49 Cal. Rptr. 2d 20 (1996) . . . 131n391 Smith v. Transducer Technology, Inc., 197 F.R.D. 260 (D.V.I. 2000) . . . . . . . 112n335 SmokEnders, Inc. v. Smoke No More, Inc., 184 U.S.P.Q. (BNA) 309, 1974 U.S. Dist. LEXIS 6183 (S.D. Fla. 1974). . . . . . . . . . . . . . . . . . . 321n112, 321n118
440
Table of Cases Soap Co. v. Ecolab, Inc., 646 So. 2d 1366 (Ala. 1994) . . . . . . . . . . . . . . . . . . . . . . 208n22 Softel, Inc. v. Dragon Med. & Scientific Communications, Inc., 118 F.3d 955 (2d Cir. 1997). . . . . . . . . . . . . . . . . . . . . 2n5, 31n154, 361n424, 365n448 Sokol Crystal Products v. DSC Communications Corp., 15 F.3d 1427 (7th Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124n360, 134n408, 162n110, 178n192, 178n193, 390n632, 393n654 Solari Industries, Inc. v. Malady, 55 N.J. 571, 264 A.2d 53 (1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360n417, 360n418 Solutec Corp, Inc. v. Agnew, No. 16105-6-III, 1997 WL 794496 (Dec. 30, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101n282, 388n607 Sony Computer Entertainment, Inc. v. Connectix Corp., 203 F.3d 596 (9th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168n146 Sovereign Chemical Co. v. Condren, Nos. 18285, 18465, 47 U.S.P.Q.2d (BNA) 1120, 1998 WL 195876 (Ohio Ct. App. Apr. 22, 1998) . . . . . . . . . . . 370n479 Space Aero Products Co. v. R.E. Darling Co., 238 Md. 93, 208 A.2d 74, 145 U.S.P.Q. (BNA) 356, modified, 238 Md. 93, 208 A.2d 699 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13n59, 22n111 Specialty Chemicals & Services, Inc. v. Chandler, 9 U.S.P.Q.2d (BNA) 1793 (N.D. Ga. Sept. 26, 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166n132 Spectrum Creations, L.P. v. Carolyn Kinder International, L.L.C., No. CIV A SA05-CV750-XR, 2007 WL 1046911 (W.D. Tex. Apr. 5, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157n83 Speechworks International, Inc. v. Cote, No. 024411BLS, 2002 WL 31480290 (Mass. Super. Ct. Oct. 11, 2002) . . . . . . . . . . . . . . . . . . . 344n291 Speedry Chemical Products v. Carter’s Ink Co., 306 F.2d 328 (2d Cir. 1962) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22n110, 88n220 Sperry Rand Corp. v. Pentronix, Inc., 311 F. Supp. 910 (E.D. Pa. 1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205n14, 249n14 Sperry Rand Corp. v. Rothlein, 241 F. Supp. 549 (D. Conn. 1964). . . . . . . . . . . . 45n10 Spinal Dimensions, Inc. v. Chepenuk, No. 07 Civ. 4805, 2007 N.Y. Misc. LEXIS 5691, 16 Misc. 3d 1121A, 847 N.Y.S.2d 905 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n271, 364-365n441 Splater v. Thermal Ease Hydronic Systems, Inc., 169 Ohio App. 3d 514, 863 N.E.2d 1060, 2006-Ohio-5452 (2006) . . . . . . . . . . . . . . . . . 370n478 Staff Builders Home Healthcare, Inc. v. Whitlock, 108 Wash. App. 928, 33 P.3d 424 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390n624 Stamicarbon, N.V. v. American Cyanamid Co., 506 F.2d 532 (2d Cir. 1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268n2 Stampede Tool Warehouse, Inc. v. May, 272 Ill. App. 3d 580, 209 Ill. Dec. 281, 651 N.E.2d 209 (1995) . . . . . . . . . . . . . . . . . . . . . . . . .122n347, 329n184 Standard Brands, Inc. v. Zumpe, 264 F. Supp. 254 (E.D. La. 1967) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90, 90n229, 96, 96n257 Standard Oil Co. v. Landmark Farm Bureau Cooperative, 52 Ohio App. 2d 225, 369 N.E.2d 785 (1976). . . . . . . . . . . . . . . . . . . . . . . . . . 370n481 Stanley v. University of Southern California, 13 F.3d 1313 (9th Cir. 1994) . . 102n286 Starkey v. U.S. Department of Interior, 238 F. Supp. 2d 1188 (S.D. Cal. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237n137
Table of Cases 441 State ex rel. Ampco Metal, Inc. v. O’Neill, 273 Wis. 530, 78 N.W.2d 921 (1956) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268n2 State ex rel. Coffman Group, L.L.C. v. Sweeney, 219 S.W.3d 763 (Mo. Ct. App. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354n377 State ex rel. Humphrey v. Philip Morris Inc., 606 N.W.2d 676 (Minn. Ct. App. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350n344 State ex rel. Jarboe v. Holt, 444 S.W.2d 857 (Mo. 1969) . . . . . . . . . . . . . . . . . . . 356n392 State ex rel. Plain Dealer v. Ohio Department of Insurance, 80 Ohio St. 3d 513, 687 N.E.2d 661 (Ohio 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . 218n45 Steenhoven v. College Life Insurance Co., 460 N.E.2d 973 (Ind. Ct. App. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308n21, 335n222, 336n231 Stein Steel & Supply Co. v. Tucker, 219 Ga. 844, 136 S.E.2d 355 (1964) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328n175 Steve Jackson Games, Inc. v. U.S. Secret Service, 36 F.3d 457 (5th Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210n23 Stilwell Development, Inc. v. Chen, 11 U.S.P.Q.2d (BNA) 1328 (C.D. Cal. Apr. 25, 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309n28 St. Luke Evangelical Lutheran Church, Inc. v. Smith, 318 Md. 337, 568 A.2d 35 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339n262 Stolt-Nielsen Transportation Group, Inc. v. Celanese AG, 430 F.3d 567 (2d Cir. 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183n216 Stone Castle Financial, Inc. v. Friedman, Billings, Ramsey & Co., 191 F. Supp. 2d 652 (E.D. Va. 2002) . . . . . . . . . . . . . . 146n14, 147n22, 386n597 Strata Marketing, Inc. v. Murphy, 317 Ill. App. 3d 1054, 251 Ill. Dec. 595, 740 N.E.2d 1166 (1st Dist. 2000) . . . . . . . . . . . . . . . . . . . . 95n252, 330n192 Stratienko v. Cordis Corp., 429 F.3d 592 (6th Cir. 2005) . . . . . . . . . . 377n535, 378n536 Strick Corp. v. Cravens Homalloy (Sheffield) Ltd., 352 F. Supp. 844 (E.D. Pa. 1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181n209 Stromback v. New Line Cinema, 384 F.3d 283 (6th Cir. 2004) . . . . . . . 156n71, 156n78 Structural Dynamics Research Corp. v. Engineering Mechanics Research Corp., 401 F. Supp. 1102 (E.D. Mich. 1975) . . . . . . . . . . . . . . . . . . . . 55n58 Struthers Scientific & International Corp. v. General Foods Corp., 51 F.R.D. 149 (Del. 1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52n44, 85n207 Stutz Motor Car, Inc. v. Reebok International Ltd., 909 F. Supp. 1353 (C.D. Cal. 1995), aff ’d, 113 F.3d 1258 (Fed. Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133n403, 159n91, 163n118 Suarez Corp. v. Seta Corp., 21 U.S.P.Q.2d (BNA) 1432 (N.D. Ohio Sept. 16, 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371n483 Summit Machine Tool Manufacturing Corp. v. Victor CNC Systems, Inc., 7 F.3d 1434 (9th Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64n108 Sunbelt Rentals, Inc. v. Head & Engquist, Equipment, L.L.C., 620 S.E.2d 222 (N.C. Ct. App. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20n99 Sun Crete, Inc. v. Sundeck Products, Inc., 452 So. 2d 973 (Fla. Dist. Ct. App. 1984). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321n115 Sun Dial Corp. v. Rideout, 16 N.J. 252, 108 A.2d 442 (1954) . . . . . . . . . . . . . . . 29n148 Superior Consultant Co. v. Bailey, No. 00-CV-73439, 2000 U.S. Dist. LEXIS 13051, 2000 WL 1279161 (E.D. Mich. 2000) . . . . 97n261, 348n318
442 Table of Cases Surgidev Corp. v. Eye Technology, Inc., 648 F. Supp. 661 (D. Minn. 1986), aff’d, 828 F.2d 452 (8th Cir. 1987) . . . . . . . . . . . . . . . . .6n73, 13n60, 97n264, 174n171, 352n357 Svoboda v. Clear Channel Communications, Inc., No. L-02-1149, 2003 WL 22739622 (Ohio Ct. App. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371n488 Swartz v. Schering-Plough Corp., 53 F. Supp. 2d 95 (D. Mass. 1999) . . . . . . . 177n186 Sweetzel, Inc. v. Hawk Hill Cookies, Inc., 39 U.S.P.Q.2d (BNA) 1258 (E.D. Pa. Sept. 14, 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . 374n505, 375n511, 375n516 Southwest Energy Co. v. Eickenhorst, 955 F. Supp. 1078 (W.D. Ark. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93n241, 179n199 Southwest Whey, Inc. v. Nutrition 101, Inc., 117 F. Supp. 2d 770 (C.D. Ill. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174n173 Sygma Photo News, Inc. v. Globe International, Inc., 616 F. Supp. 1153 (S.D.N.Y. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156n77 Synercom Technology, Inc. v. University Computing, 474 F. Supp. 37 (N.D. Tex. 1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35n183, 381n555 Synergetics, Inc. v. Hurst, 477 F.3d 949 (8th Cir. 2007) . . . . . . . . . . . . . . . . . . . 355n388 Syngenta Crop Protection, Inc. v. Helliker, 138 Cal. App. 4th 1135, 42 Cal. Rptr. 3d 191 (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47n21 Syntex Opthalmics, Inc. v. Novicky, 214 U.S.P.Q. (BNA) 272 (N.D. Ill. May 6, 1982), aff ’d sub nom. Syntex Ophthalmics, Inc. v. Tsuetaki, 701 F.2d 677 (7th Cir. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . 17n78 Syntex Ophthalmics, Inc. v. Tsuetaki, 701 F.2d 677 (7th Cir. 1983) . . . . . . . . . . 17n78 Sysco Food Services, L.L.C. v. Ziccarelli, 445 F. Supp. 2d 1039 (E.D. Wis. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391n638 System Concepts, Inc. v. Dixon, 669 P.2d 421 (Utah Aug. 8, 1983) . . . . . . . . . 101n280 System Operations, Inc. v. Scientific Games Development Corp., 425 F. Supp. 130 (D.N.J. 1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179n198 Systran Financial Services Corp. v. Giant Cement Holding, 252 F. Supp. 2d 500 (N.D. Ohio 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182n212 Tabs Associates, Inc. v. Brohawn, 59 Md. App. 330, 475 A.2d 1203 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339n263, 339n264, 339n265 Taco Cabana International, Inc. v. Two Pesos, Inc., 932 F.2d 1113 (5th Cir. 1991), aff ’d, 505 U.S. 763, 112 S. Ct. 2753 (1992) . . . . . . . . . . . 50n42 Tactica International, Inc. v. Atlantic Horizon International, Inc., 154 F. Supp. 2d 586 (S.D.N.Y. 2001) . . . . . .45–46, 46n11, 98n270, 274n11, 364n440 Tanges v. Heidelberg North America, Inc., 93 N.Y.2d 48, 687 N.Y.S.2d 604, 710 N.E.2d 250 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136n421 Tao of Systems Integration, Inc. v. Analytical Services & Materials, Inc., 299 F. Supp. 2d 565 (E.D. Va. 2004) . . . . . . . . . . . . . . . . . . . . . . 159n91, 385n586 Tax Track Systems Corp. v. New Investor World, Inc., No. 01 C 6217, 2005 U.S. Dist. LEXIS 7241 (N.D. Ill. Mar. 24, 2005), aff’d, 478 F.3d 783 (7th Cir. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333n212 T.D.I. International, Inc. v. Golf Preservations Inc., No. 6: 07-313-DCR, 2008 U.S. Dist. LEXIS 7427 (E.D. Ky. Jan. 31, 2008). . . . . . . . . . . . . . . . 185–186n228 Technicon Data Systems Corp. v Curtis 1000 Corp., 224 U.S.P.Q. (BNA) 286 (Del. Ch. Aug. 21, 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . 168n143, 319n96
Table of Cases 443 Technicon Medical Information Systems Corp. v. Green Bay Packaging, Inc., 687 F.2d 1032 (7th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . 157n83 Tedder Boat Ramp Systems, Inc. v. Hillsborough County, Florida, 54 F. Supp. 2d 1300 (M.D. Fla. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6n22, 157n82 Tele-Count Engineers, Inc. v. Pacific Telephone & Telegraph Co., 168 Cal. App. 3d 455, 214 Cal. Rptr. 276 (1985) . . . . . . . . . . . . . . . . . . . . . . . . 310n34 Telerate Systems, Inc. v. Caro, 689 F. Supp. 221 (S.D.N.Y. 1988) . . . . . . . . . . . 168n143 Telex Corp. v. IBM Corp., 510 F.2d 894 (10th Cir. 1975) . . . . . . . . . . . 47n22, 89n224, 121n342, 133n402, 249n14 Temco Metal Products v. GT Development Corp., No. 99-755-K1, 2000 WL 556607 (D. Or. May 5, 2000) . . . . . . . . . . . . . . 100n274, 101n282, 388n607 Templeton v. Creative Loafing, Inc., 552 So. 2d 288 (Fla. Dist. Ct. App. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322n125 Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16 (2d Cir. 1997). . . . . . . . . . . . . 184n217 Tennant Co. v. Advance Machine Co., 355 N.W.2d 720 (Minn. Ct. App. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46n15 Teradyne, Inc. v. Clear Communications Corp., 707 F. Supp. 353 (N.D. Ill. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95n252, 334, 334n213 Terarecon, Inc. v. Fovia, Inc., No. C 05-4407 CW, 2006 WL 1867734 (N.D. Cal. July 6, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149, 149n33 Testerion, Inc. v. Skoog, 602 F. Supp. 578 (D. Minn. 1984) . . . . . . . . . . . . . . . 104n293 Texas Tanks, Inc. v. Owens-Corning Fiberglas Corp., 99 F.3d 734 (5th Cir. 1996), withdrawn, 99 F.3d 740 (5th Cir. 1997) . . . . . . . . . . . . . . . . . 35n188 Texas Instruments, Inc. v. Cypress Semiconductor Corp., 90 F.3d 1558 (Fed. Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79n187 Texas Tanks, Inc. v. Owens-Corning Fiberglas Corp., 99 F.3d 734 (5th Cir. 1996), withdrawn, 99 F.3d 740 (5th Cir. 1997) . . . . . . . . . . . . . . . . 382n565 Thermo Trim, Inc. v. Mobil Oil Corp., 194 U.S.P.Q. (BNA) 450 (W.D.N.Y. 1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213n27 Thola v. Henschell, 140 Wash. App. 70, 164 P.3d 524 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147n20, 389n614, 389n615 Thomas & Betts Corp. v. Panduit Corp., 108 F. Supp. 2d 968 (N.D. Ill. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147n19, 149, 149n37, 334n212 Thomas v. Alloy Fasteners, Inc., 664 So. 2d 59 (Fla. Dist. Ct. App. 1995) . . . . 325n147 Thomas v. Best Manufacturing Corp., 234 Ga. 787, 218 S.E.2d 68 (1975). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56n62 Thompson v. California Brewing Co., 150 Cal. App. 2d 469, 310 P.2d 436 (1957) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311n35 Thompson v. Impaxx, Inc., 113 Cal. App. 4th 1425, 7 Cal. Rptr. 3d 427 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252n15, 316n75, 317n76 Thompson v. Thompson, No. 02-91-M, 2002 WL 1072342 (D.N.H. May 30, 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210n23 Thrifty-Tel, Inc. v. Bezenek, 46 Cal. App. 4th 1559, 54 Cal. Rptr. 2d 468 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65n119 Thyruft v. Nationwide Mutual Insurance Co., 864 N.E.2d 1272, 8 N.Y.3d 283, 832 N.Y.S.2d (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65n114 Tidwell v. Wedgestone Financial (In re Hercules Automotive Products, Inc.), 245 B.R. 903 (Bankr. M.D. Ga. 1999) . . . . . . . . . . . . . . . . . . . 327n17
444
Table of Cases Tlapek v. Chevron Oil Co., 407 F.2d 1129 (8th Cir. 1969) . . . . . . . . . . . . . . . . . 125n373 T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d 18 (Tex. App. 1998). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100n276, 381n558 Tomasello, Inc. v. de Los Santos, 394 So. 2d 1069 (Fla. Dist. Ct. App. 1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324n142 Total Care Physicians, P.A. v. O’Hara, No. 99C-11-201-JRS, 2002 WL 31667901 (Del. Super. Ct. Oct. 29, 2002) . . . . . . . . . . . . . . . 319n90, 319n98 T.P. Laboratories, Inc. v. Huge, 261 F. Supp. 349 (E.D. Wis. 1965) . . . . . . . . . . . 59n80 Tracer Research Corp. v. National Environmental Service Co., 843 F. Supp. 568 (D. Ariz. 1993), rev’d on other grounds, 42 F.3d 1292 (9th Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123n351, 181n299 Trahan v. E.R. Squibb & Sons, Inc., 567 F. Supp. 505, 507 (M.D. Tenn. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378n537 Trandes Corp. v. Guy F. Atkinson Co., 798 F. Supp. 284 (D. Md. 1992), aff ’d in part and rev’d in part, 996 F.2d 655 (4th Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11n47, 22n110, 157n81 Travenol Laboratories, Inc. v. Turner, 228 S.E.2d 478, 484 (N.C. Ct. App. 1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n272, 369n468 Trigon Insurance Co. v. United States, 204 F.R.D. 277 (E.D. Va. 2001) . . . . . 118n336 Trilogy Software, Inc. v. Callidus Software, Inc., 143 S.W.3d 452 (Tex. App. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100n276, 176n185, 381n558 Trimless-Flashless Design, Inc. v. Thomas & Betts Corp., 34 F. App’x 913 (4th Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . 4n12, 37n194, 342n274 Trinity Hospice, Inc. v. Miles, No. 406 CV 1674 CDP, 2007 WL 844817 (E.D. Mo. Mar. 16, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148n24 Trinity Transport, Inc. v. Ryan, 12 Del. J. Corp. L. 1222, 1986 WL 11111 (Del. Ch. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320n107 Tri-Tron International v. Velto, 525 F.2d 432 (9th Cir. 1975). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21n109, 33n168, 358n410 Tronitec, Inc. v. Shealy, 249 Ga. App. 442, 547 S.E.2d 749 (2001), overruled on other grounds by Williams General Corp. v. Stone, 279 Ga. 428, 614 S.E.2d 758 (2005) . . . . . . . . . . . . . . 149n30, 326n157 True Center Gate Leasing, Inc. v. Gate, L.L.C., 427 F. Supp. 2d 946 (D. Ariz. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306n7 True Title, Inc. v. Blanchard, No. 6:06-CV-1871-Orl-19DAB, 2006 U.S. Dist. LEXIS 95069 (M.D. Fla. Feb. 5, 2006) . . . . . . . . . . . . . . . . . . 323n133 Tubular Threading, Inc. v. Scandaliato, 443 So. 2d 712 (La. App. 1983) . . . . . . 96n257 Turner v. Purina Mills, Inc., 989 F.2d 1419 (5th Cir. 1993) . . . . . . . . . . . . . . . . . 67n126 Tyson Foods, Inc. v. ConAgra, Inc., 349 Ark. 469, 79 S.W.3d 326 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173n170 Tyson Metal Products, Inc. v. McCann, 546 A.2d 119, 376 Pa. Super. 461 (1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177n185 UD Technology Corp. v. Phenomenex, Inc., No. CA 05-842-GMS, 2007 WL 28295 (D. Del. Jan. 4, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . 152n51, 153n56 Uncle B’s Bakery, Inc. v. O’Rourke, 920 F. Supp. 1405 (N.D. Iowa 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95n256, 109n328, 164n124 Underwater Storage, Inc. v. U.S. Rubber Co., 371 F.2d 950 (D.C. Cir. 1966) . . . . 9n39
Table of Cases 445 Ungar Electric Tools, Inc. v. Sid Ungar Co., 192 Cal. App. 2d 398, 1 3 Cal. Rptr. 268 (1961), overruled on other grounds by Nichols v. Hast, 62 Cal. 2d 598, 43 Cal. Rptr. 641, 400 P.2d 753 (1965) . . . . . . . . . . . . . . . . . . . 316n73 Union Carbide Corp. v. Sunox, Inc., 590 F. Supp. 224 (W.D.N.C. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n272, 368–369n468 Union Carbide Corp. v. Tarancon Corp., 742 F. Supp. 1565 (N.D. Ga. 1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327, 327n164, 327n165, 327n166 Union Manufacturing Co., Inc. v. Han Baek Trading Co., 763 F.2d 42 (2d Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80n188 Union Oil Co. v. Federal Power Commission, 542 F.2d 1036 (9th Cir. 1976). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218n40, 235n119 Union Pacific Railroad v. Mower, 219 F.3d 1069 (9th Cir. 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21n107, 55n60, 176n182 Unisource Worldwide, Inc. v. Schroeder, No. Civ. 06-4007 (RHK/AJB), 2006 WL 3030887 (D. Minn. Oct. 23, 2006) . . . . . . . . . . . . . . . 351n349 Unistar Corp. v. Child, 415 So. 2d 733 (Fla. Dist. Ct. App. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322n119, 322n123 United Products Corp. of America, Inc. v. Cederstrom, No. A05-1688, 2006 WL 1529478, 2006 Minn. App. Unpub. LEXIS 594 (June 6, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97n264, 352n357 United Rentals (North America), Inc. v. Keizer, 202 F. Supp. 2d 727 (W.D. Mich. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97n262, 348n319 United States v. Ameri, 412 F.3d 893 (8th Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . 277n21 United States v. American Electric Power Service Corp. Nos. 2:99-CV-1182, 2:99-CV-1250, 2006 WL 3827509 (S.D. Ohio, Dec. 28, 2006) . . . . . . . . . . . . 112n335 United States v. Arora, 860 F. Supp. 1091 (D. Md. 1994) . . . . . . . . . . . . . . . . . . . . 7n35 United States v. Beaird, 145 F. App’x 853 (5th Cir. 2005) . . . . . . . . . . . . . . . . . . 280n30 United States v. Brown, 150 F. App’x 575 (8th Cir. 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280n30, 285n55, 285n57 United States v. Dentsply, International, Inc., 187 F.R.D. 152 (D. Del. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87n216 United States v. Falkowitz, 214 F. Supp. 2d 365 (S.D.N.Y. 2002) . . . . . . . . . . . . 284n47 United States v. Farraj, 142 F. Supp. 2d 484 (S.D.N.Y. 2001) . . . . . . . . . . . . . . . 285n57 United States v. First National City Bank, 379 U.S. 378, 85 S. Ct. 528 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108n322 United States v. Genovese, 409 F. Supp. 2d 253 (S.D.N.Y. 2005) . . . . . . 8n38, 277n19, 277n20, 282n40 United States v. Gordon, 393 F.3d 1044 (9th Cir. 2004) . . . . . . . . . . . . . . . . . . . 280n30 United States v. Hsu, 155 F.3d 189 (3d Cir. 1998). . . . . . . . . . . . . . . . . 279n24, 279n26, 281n37, 282n40 United States v. Jones, 451 F. Supp. 2d 71 (D.D.C. 2006) . . . . . . . . . . . . . . . . . 120n338 United States v. Kelly, 507 F. Supp. 495 (E.D. Pa. 1981) . . . . . . . . . . . . . . . . . . . 284n49 United States v. Kragness, 830 F.2d 842 (8th Cir. 1987) . . . . . . . . . . . . . . . . . . . 76n175 United States v. Kwan, No. 02 CR 241(DAB), 2003 WL 21180401 (S.D.N.Y. May 20, 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285n57 United States v. Kwan, No. 02 CR 241(DAB), 2003 WL 22973515 (S.D.N.Y. Dec. 17, 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278n21, 285n56 United States v. Lange, 312 F.3d 263 (7th Cir. 2002) . . . . 6n19, 7n33, 279n26, 281n37
446
Table of Cases United States v. Lemire, 720 F.2d 1327 (D.C. Cir. 1983) . . . . 284n50, 284n51, 284n52 United States v. Lemm, 680 F.2d 1193 (8th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . 76n174 United States v. Lester, 282 F.2d 750 (3d Cir. 1960) . . . . . . . . . . . . . . . . . . . . . . . 285n57 United States v. Louderman, 576 F.2d 1383 (9th Cir. 1978) . . . . . . . . . . . . . . . . 282n41 United States v. Martin, 228 F.3d 1 (1st Cir. 2000) . . . . . . . . . . . . . . . . . 284n48, 285n57 United States v. McLaren, 957 F. Supp. 215 (M.D. Fla. 1997) . . . . . . . 120n339, 212n26 United States v. Morison, 844 F.2d 1057 (4th Cir. 1988) . . . . . . . . . . . . . . . . . . . 282n38 United States v. Pemberton, 904 F.2d 515 (9th Cir. 1990) . . . . . . . . . . . . . . . . . . 278n21 United States v. Riggs (1990), 743 F. Supp. 556 (N.D. Ill. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282n39, 285-286n57 United States v. Seidlitz, 589 F.2d 152 (4th Cir. 1978) . . . . . . . . . . . . . . . . . . . . . 282n41 United States v. Smith, 155 F.3d 1051 (9th Cir. 1998) . . . . . . . . . . . . . . . . . . . . . 211n24 United States v. Steiger, 318 F.3d 1039 (11th Cir. 2003) . . . . . . . . . . . . . . . . . . 120n338 United States v. Thevis, 665 F.2d 616 (5th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . 77n176 United States v. Urfer, 287 F.3d 663 (7th Cir. 2002) . . . . . . . . . . . . . . . . 281n34, 281n35 United States v. Wang, 898 F. Supp. 758 (D. Colo. 1995) . . . . . . . . . . . . . . . . . . 283n41 United States v. Wilson, 900 F.2d 1350 (9th Cir. 1990) . . . . . . . . . . . . . . . . . . . . 277n21 United States v. Wirtz, 357 F. Supp. 2d 1164 (D. Minn. 2005) . . . . . . . . . . . . . . 286n57 United States v. Yang, 281 F.3d 534 (6th Cir. 2002) . . . . . . . . . . . . . . . . 272n5, 277n23, 281n37, 282n40 United Yacht Brokers, Inc v. Gillespie (1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66n123 Universal Analytics, Inc. v. MacNeal-Schwendler Corp. (1989) . . . . . . 93n243, 312n43 Universal City Studios, Inc. v. Nintendo Co., 615 F. Supp. 838 (S.D.N.Y. 1985), aff ’d, 797 F.2d 70 (2d Cir. 1986) . . . . . . . . . . . . . . . . . . . . . . 156n77 Universal Gym Equipment, Inc. v. ERWA Exercise Equipment, Ltd, 827 F.2d 1542 (Fed. Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311n36 University of Colorado Foundation, Inc. v. American Cyanamid Co., 216 F. Supp. 2d 1188 (D. Colo. 2002), aff ’d, 342 F.3d 1298 (Fed. Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124n369 Upjohn Co. v. Hygieia Biological Laboratories, 151 F.R.D. 355 (E.D. Cal. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85n206, 122n344, 312n41 Uribe v. Howie, 19 Cal. App. 3d 194, 96 Cal. Rptr. 493 (1971) . . . . . . . . . . . . . . 218n43 U.S. ex rel. Berge v. Board of Trustees of the University of Alabama, 104 F.3d 1453 (4th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156n74 U.S. Golf Association v. Arroyo Software Corp., 40 U.S.P.Q.2d (BNA) 1840 (Cal. App. Dep’t Super. Ct. Oct. 25, 1996), aff’d, 69 Cal. App. 4th 607, 81 Cal. Rptr. 2d 708 (Ct. App. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63n99, 63n101, 310n33 U.S. Gypsum Co. v. LaFarge North America, Inc., 508 F. Supp. 2d 601 (N.D. Ill. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333n212 USM Corp. v. Marson Fastener Corp., 393 N.E.2d 895 (Mass. 1979) . . . . . . . . . 17n80 USM Corp. v. Marson Fastener Corp., 392 Mass. 334, 467 N.E.2d 1271 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38n202, 343n281 U.S. Sporting Products, Inc. v. Johnny Stewart Game Calls, Inc., 865 S.W.2d 214 (Tex. App. 1993) . . . . . . . . . . . . 35n179, 35n182, 381n551, 381n554 U.S. Steel Corp. v. United States, 730 F.2d 1465 (Fed. Cir. 1984) . . . . . . . . . . . . 87n216 U.S. Surgical Corp. v. Origin Medsystems, Inc., 27 U.S.P.Q.2d (BNA) 1526 (N.D. Cal. Jan. 12, 1993), aff ’d, 16 F.3d 420 (Fed. Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16n72
Table of Cases 447 Utah Medical Products Inc. v. Clinical Innovations Associates, 79 F. Supp. 2d 1290 (D. Utah 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101n280 Utilase, Inc. v. Williamson, Nos. 98-1233, 98-1320, 1999 U.S. App. LEXIS 22452 (6th Cir. Sept. 10, 1999) . . . . . . . . . . . . . . . . . . . . . . . 345n297 Vacco Indus., Inc. v. Van Den Berg (1992) . . . . . . . . . . . . . . . . . . 19n88, 48n29, 61n90, 86n215, 125n380, 177n187, 177n188 Valco Cincinnati, Inc. v. N & D Machining Service, Inc. (1986) . . . . 21n103, 370n480 Valente-Kritzer Video v. Pinckney (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157n79 Vanguard Transp. Sys., Inc. v. Edwards Transfer & Storage Co. (1996) . . . . . 109n325 Van Products Co. v. Gen. Welding & Fabricating Co. (1965). . . . . . . . . . . . . . 375n512 Vault Corp. v. Quaid Soft ware Ltd. (1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157n82 Vector Environmental Group, Inc. v. 3M Co. No. 06-CV-11264, 2006 WL 3004086 (E.D. Mich. Oct. 20, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345n297 Venture Express, Inc. v. Zilly, 973 S.W.2d 602 (Tenn. Ct. App. 1998) . . . . . . 176n185 Veritas Operating Corp. v. Microsoft Corp., No. C06-0703C, 2006 U.S. Dist. LEXIS 79451 (W.D. Wash. Oct. 31, 2006) . . . . . . . . . 69n136, 149n30 Vermont Microsystems, Inc. v. Autodesk, Inc., 88 F.3d 142 (2d Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . 14n62, 47n20, 52n44, 84n205, 312n40, 313–314, 314n53, 316n68 VFD Consulting, Inc. v. 21st Services, 425 F. Supp. 2d 1037 (N.D. Cal. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22n112, 173n170 Victoria’s Secret Stores, Inc. v. May Department Stores Co., 157 S.W.3d 256 (Mo. Ct. App. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357n402 Victor Temporary Service v. Slattery, 105 A.D.2d 1115, 482 N.Y.S.2d 623 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366n456 Videotronics, Inc. v. Bend Electronics, 564 F. Supp. 1471 (D. Nev. 1983) . . . . 73n151 Vigoro Industries v. Cleveland Chemical Co., 866 F. Supp. 1150 (E.D. Ark. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170n154, 176n184 Vision-Ease Lens, Inc. v. Essilor International SA, 322 F. Supp. 2d 991 (D. Minn. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351n349 VLIW Technology, L.L.C. v. Hewlett-Packard Co., No. 20069, 2005 Del. Ch. LEXIS 59 (Del. Ch. May 4, 2005) . . . . . . . . . . . . . . . . . . . . . . . . 318n84 VL Systems, Inc. v. Unisen, Inc., 152 Cal. App. 4th 708, 61 Cal. Rptr. 3d 818 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317n80 Volvo Penta, Inc. v. Brunswick Corp., 187 F.R.D. 240 (E.D. Va. 1999) . . . . . . . 87n216 VSL Corp. v. General Technologies, Inc., 44 U.S.P.Q.2d (BNA) 1301 (N.D. Cal. July 21, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22n116 VSL Corp. v. General Technologies, Inc., 46 U.S.P.Q.2d (BNA) 1356 (N.D. Cal. Jan. 5, 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309n28 Waldeck v. Curtis 1000, Inc., 261 Ga. App. 590, 583 S.E.2d 266 (2003) . . . . . . 252n16 Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 86 S. Ct. 347 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180n203 Walker v. Time Life Films, Inc., 784 F.2d 44 (2d Cir. 1986) . . . . . . . . . . . . . . . . 156n78 Walter E. Zemitzsch, Inc. v. Harrison, 712 S.W.2d 418 (Mo. Ct. App. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355n384 Walter Karl, Inc. v. Wood, 137 A.D.2d 22, 528 N.Y.S.2d 94 (1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105n294, 365n442
448
Table of Cases Walton v. Morgan Stanley & Co., 623 F.2d 796 (2d Cir. 1980) . . . . . . . . . . . . . . 21n109 Warrington Associates v. Real-Time Engineering Systems, Inc., 522 F. Supp. 367 (N.D. Ill. 1981) . . . . . . . . . . . . . . . . . . . . . . . 47n16, 72n149, 157n83 Washington Research Project, Inc. v. Department of Health, Education & Welfare, 504 F.2d 238 (D.C. Cir. 1974) . . . . . . . . . . . . . . . . . . . . 218n44 Water Management, Inc. v. Stayanchi, 472 N.E.2d 715 (Ohio 1984) . . . . . . . . 172n165 Watkins v. L.M. Berry & Co., 704 F.2d 577 (11th Cir. 1983) . . . . . . . . 120n339, 212n26 Web Communications Group, Inc. v. Gateway 2000, Inc., 889 F. Supp. 316 (N.D. Ill. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153n56 Wedin v. Atherholt, 298 Mich. 142, 298 N.W. 483 (1941). . . . . . . . . . . . . . . . . 345n299 Weed Eater, Inc. v. Dowling, 562 S.W.2d 898, 203 U.S.P.Q. (BNA) 635 (Tex. App. Feb. 9, 1978) . . . . . . . . . . . . . . . . . . . . 100n276, 381–382n558 Weinberger v. Romero-Barcelo, 456 U.S. 305, 102 S. Ct. 1798 (1982) . . . . . . . 123n358 Weins v. Sporleder, 569 N.W.2d 16 (S.D. 1997) . . . . . . . . . . . . . . . . . . . . 6n19, 174n170 Weins v. Sporleder, 605 N.W.2d 488 (S.D. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . 145n10 Wells Fargo Home Mortgage v. Devereaux, No. 3:06CV649-HEH, 2006 U.S. Dist. LEXIS 92718 (E.D. Va. Dec. 22, 2006) (2006) . . . . . . . . . . . . . . 61n94 Wellspan Health v. Bayliss, 869 A.2d 990 (Pa. Super. Ct. 2005) . . . . . . . . . . . . 177n185 Weseley Software Development Corp. v. Burdette, 977 F. Supp. 137 (D. Conn. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94n245 Wesley College v. Pitts, 974 F. Supp. 375 (D. Del. 1997), aff ’d, 172 F.3d 861 (3rd Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210n23 Wesley-Jessen, Inc. v. Reynolds, No. 72 C 1677, 182 U.S.P.Q. (BNA) 135 (N.D. Ill. May 23, 1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168n149 Westwood Chemical Co., Inc. v. Kulick, 570 F. Supp. 1032 (S.D.N.Y. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366n453 Weygand v. CBS, Inc., 43 U.S.P.Q.2d (BNA) 1120 (C.D. Cal. May 20, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172n163, 175n180 Wheelabrator Corp. v. Fogle, 317 F. Supp. 633 (W.D. La. 1970), aff ’d per curiam, 438 F.2d 1226 (5th Cir. 1971) . . . . . . . . . . . . . . . . . . . . . . . 174n173 Whirlpool Corp. v. Burns, 457 F. Supp. 2d 806 (W.D. Mich. 2006) . . . . . . . . . 348n326 White v. Fletcher/Mayo/Associates, 251 Ga. 203, 303 S.E.2d 746 (1983) . . . . 328n172 Whittaker Corp. v. Mockus, 187 U.S.P.Q. (BNA) 317 (Cal. Ct. App. June 4, 1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205n14 Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 125 Cal. Rptr. 2d 277 (2002) . . . . . . . . . . . . . . . . . 56n67, 83n203, 86, 86n213, 93n243, 311n39, 312n43 William B. Tanner Co. v. Taylor, 530 S.W.2d 517 (Tenn. Ct. App. 1974). . . . 378n538 William Hendrickson, Inc. v. National Railroad Passenger Corp., No. 00-CV-3711, 2002 WL 398641 (E.D. Pa. Mar 13, 2002), aff’d, 63 F. App’x 61 (3d Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373n500 Williams General Corp. v. Stone, 279 Ga. 428, 614 S.E.2d 758 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149n30, 326n157 Williams v. Curtiss-Wright Corp., 681 F.2d 161 (3d Cir. 1982) . . . . . . 219n48, 219n49 Williams v. Poulos, 801 F. Supp. 867 (D. Me. 1992), aff ’d, 11 F.3d 271 (1st Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120n339 Willis of New York, Inc. v. DeFelice, 299 A.D.2d 240, 750 N.Y.S.2d 39 (App. Div. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99n271, 364n441
Table of Cases 449 Wilmar, Inc. v. Liles, 13 N.C. App. 71, 185 S.E.2d 278 (1971) . . . . . . . . . . . . . 369n469 Wilmington Trust Co. v. Consistent Asset Management Co., 13 Del. J. Corp. L. 403, 1987 WL 8459 (Del. Ch. 1987). . . . . . . . . . . . 319n90, 319n91 Wilson v. Electro Marine Systems, Inc., 915 F.2d 1110 (7th Cir. 1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173n170 Winston Research Corp. v. Minnesota Mining & Manufacturing Co., 350 F.2d 134 (9th Cir. 1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11n51, 177n189 Wisconsin Elec. Power Co. v. Public Service Commission, 110 Wis. 2d 530, 329 N.W.2d 178 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218n42 W.L. Gore & Associates, Inc. v. Wu, No. 263-N, 2006 WL 2692584 (Del. Ch. Sept. 15, 2006), aff ’d, 918 A.2d 1171 (Del. 2007), cert. denied, 128 S. Ct. 379, 169 L. Ed. 2d 262 (2007) . . . . . . . . . . . . . . . . . . . . 91n232, 91n234, 256–257n20 Wolfe v. Tuthill Corp., 532 N.E.2d 1 (Ind. 1988) . . . . . . . . . . . . . . . . . . . . 336, 336n236 Wood v. May, 73 Wash. 2d 307, 438 P.2d 587 (1968) . . . . . . . . . . . . 390n626, 390n627 World Wide Prosthetic Supply, Inc. v. Mikulsky, 251 Wis. 2d 45, 640 N.W.2d 764 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393n656 Worldwide Sport Nutritional Supplements, Inc. v. Five Star Brands, 80 F. Supp. 2d 25 (N.D.N.Y. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50n39, 365n443 Worrie v. Boze, 191 Va. 916, 62 S.E.2d 876 (1951) . . . . . . . . . . . . . . . . . . . . . . . 387n601 Worthington Compressors, Inc. v. Costle, 662 F.2d 45 (D.C. Cir. 1981) . . . . 236n125 W.R. Grace & Co. v. Local Union, 461 U.S. 757, 103 S. Ct. 2177 (1983) . . . . . 109n327 Wright Chemical Corp. v. Johnson, 563 F. Supp. 501 (M.D. La. 1983) . . . . . . 105n293, 108n315 Wright v. Sport Supply Group, Inc., 137 S.W.3d 289 (Tex. App. 2004) . . . . . 383n571 Wyeth v. Natural Biologics, Inc., No. Civ. 98-2469 (NJE/JGL), 2003 WL 22282371 (D. Minn. Oct. 2, 2003), aff’d, 395 F.3d 897 (8th Cir. 2005). . . . . . . . . . . . . 12n57, 89n223, 178n192, 349n329, 349n336, 350n347 Wysong Corp. v. M.I. Industries, 412 F. Supp. 2d 612 (E.D. Mich. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346n311 Xantrex Technology Inc. v. Advanced Energy Industries, No. 07-CV-02324-WYD-MEH, 2008 U.S. Dist. LEXIS 41206 (D. Colo. May 23, 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89n225, 182n213 Xerxe Group, Inc. v. United States, 278 F.3d 1357 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217n38, 220n56, 220n57 XFire, Inc. v. IGN Entertainment, Inc., No. C 06-6475 SI, 2006 WL 2990203 (N.D. Cal. Oct. 19, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . 315n63 X-It Products, L.L.C. v. Walter Kidde Portable Equipment, Inc., 227 F. Supp. 2d 494 (E.D. Va. 2002) . . . . . . . . . . . . . . . . 329n186, 368n465, 368n466 Xpert Automation Systems Corp. v. Vibromatic Co., 569 N.E.2d 351 (Ind. Ct. App. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335n222, 335n225 YCA, L.L.C. v. Berry, No. 03 C 3116, 2004 WL 1093385 (N.D. Ill. May 7, 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95n252 Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101 (9th Cir. 2001). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125n377, 171n161
450 Table of Cases Zellweger Analytics, Inc. v. Milgram, No. 95 C 5998, 1997 WL 667778 (N.D. Ill. Oct. 21, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95n252 Zemco Manufacturing V. Navistar International Transportation Corp., 759 N.E.2d 239 (Ind. Ct. App. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . 336n228 Zimmer v. CooperNeff Advisors, Inc., 523 F.3d 224 (3d Cir. 2008) . . . . . 181, 181n211 Zoecon Industries v. American Stockman Tag Co., 713 F.2d 1174 (5th Cir. 1983). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21n107, 34n174, 380n548, 382n563 Zotos International, Inc. v. Young, 830 F.2d 350 (D.C. Cir. 1987) . . . . . . . . . . . . . . 167, 167n138, 167n139 Zwitserse Maatschappij Van Levensverzekering En Lijfrente v. ABN International Capital Markets Corp., 996 F.2d 1478 (2d Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181n212
Index
A
contract; civil conspiracy; common-law misappropriation; computers: unauthorized access to; conversion, tort of; interference with prospective business advantage; replevin, civil writ of; unfair competition; unjust enrichment American Hoechst Corp. v. Nuodex, Inc. (1985), 94 American Paper & Packaging Products, Inc. v. Kirgan (1986), 171 American Potash & Chemical Corp., I. du Pont de Nemours v. (1964), 94 American Standards Testing Bureau, Inc, 113 Amoco Chemicals Corp., Continental Group, Inc. v. (1980), 105 AMX Corp., B & M National Automation, L.L.C. v. (2007), 145 ancillary claims preemption by the Copyright Act, 156–157 preemption by UTSA in Indiana, 337 anticompetitive effects of trade secret misuse, as defense, 179–180 Antidumping Act (1921), 77, 275 Anti-Injunction Act, 132 arbitration, 180–184 advantages, 182 awards, 184 defenses to enforcement of arbitration agreement, 181 disadvantages, 183–184 nonparties to agreement, 182 Arizona, 306–307 Arkansas inevitable disclosure doctrine, 93, 131 preemption of conversion claims, 148 tortuous interference, 151 unjust enrichment, 153
Accuimage Diagnostics Corp. v. Terarecon, Inc. (2003), 310 acquiescence defense, 177 acquisition in good faith, 372 UTSA versus Restatement (First) of Torts, 47 inadvertent, 47 understanding of the term, 46–47 Adcor Industries, Inc. v. Bevcor, L.L.C. (2005), 161–162 Administrative Procedure Act, 233 advantages of alleging alternative claims, 51–53 of International Trade Commission process, 79 advice of counsel defense, 281 Aetna Retirement Services, Inc. v. Hug (1997), 94 Agee, Optic Graphics, Inc. v. (1991), 339 Alabama inevitable disclosure doctrine, 92–93, 129 inevitable disclosure doctrine, 56n67 statute of limitations, 160n100 Allen-Qualley Co., Shellmar Products Co. v. (1936), 330, 382 alternative claims. See also U.S. International Trade Commission advantages to, 51–53 and forum selection, 53 remedies, 53 alternative claims, federal. See Computer Fraud and Abuse Act; copyright infringement; RICO claims alternative claims under state law. See breach of duty of confidence; breach of duty of loyalty; breach of express contract; breach of fiduciary duty; breach of implied-infact contract; breach of implied-in-law
451
452
Index Associated Press, International News Service v. (1918), 62, 63, 148 Atlantic Horizon International, Inc., Tactica International, Inc. v. (2001), 45–46 AT&T Corp., DTM Research, L.L.C. v. (2001), 138–139 attorneys’ fees, 124 in Arizona, 306 in California, 297, 309–310 under contract theory, 53 in copyright infringement, 290 in criminal prosecution, 268 defendant’s, 192 in Delaware, 320 in Florida, 324 in Illinois, 333 in Maryland, 339 in Massachusetts, 343 in Minnesota, 351 in Missouri, 353 under RICO, 75, 291 settlement and, 127 for unauthorized access to computers, 71, 297 under UTSA, 125 in Washington, 389 audits of compliance plan and ethics plan, 304 trade secrets, 198–202 content of, 199 initial audit checklist, 200–202 Autodesk, Inc., Vermont Microsystems, Inc. v. (1996), 313–314 Avant! Corp., Cadence Design Systems, Inc. v. (2002), 136–137, 147–148 avoiding suits by prior employer, 248–249 Axtel, Inc., Micro Display Systems, Inc. v. (1988), 149, 152, 153
B Bagley v. Lumbermens Mutual Casualty Co. (2000), 148 B & M National Automation, L.L.C. v. AMX Corp. (2007), 145 Bell Atlantic Corp. v. Twombly (2007), 185 Bendinger v. Marshalltown Trowell Co. (1999), 93 Bevcor, L.L.C., Adcor Industries, Inc. v. (2005), 161–162 B.F. Goodrich Co. v. Wohlgemuth (1963), 91 Bicron Corp., Kewanee Oil Co. v. (1974), 158
Bilbruck, Samsung Electronics America, Inc. v. (2006), 149 “blue-pencil” rule, noncompete agreements and, 254 in Arizona, 307 in Georgia, 328 in Indiana, 337 in Maryland, 340 in Minnesota, 353 in Missouri, 357 in New York, 366 in Ohio, 372 in Tennessee, 378 in Wisconsin, 393 “blue-pencil” rule, noncompete agreements and, 247n10 bond requirement, 108–110 ITC investigation and, 83 TRO or preliminary injunction and, 104, 108–110, 128, 324 Bonito Boats, Inc. v. Thunder Craft Boats, Inc. (1989), 18, 64, 158, 165 Branson Ultrasonics Corp. v. Stratman (1996), 94 breach of duty of confidence, 59–61 in California, 310 constructive trust as remedy, 125 preemption by UTSA, 146–147 in Georgia, 327 in Washington, 389 breach of duty of loyalty, 51, 62 preemption by UTSA, 147 in Washington, 389 in Wisconsin, 392 breach of express contract, 54–58 employment agreements, 55–57 license and franchise agreements, 57–58 breach of implied-in-fact contract, 58, 311 breach of implied-in-law contract, 58–59 Bridgestone/Firestone Company v. Lockhart (1998), 95, 336 Brown, Chrysler Corp. v. (1979), 233 Bunner, DVD Copy Control Ass’n v. (2003), 309 burden of proof in North Carolina, 367–368 in Tennessee, 377 Business Control Doctrine, 372 Business Objects, S.A., MicroStrategy, Inc. v. (2004), 146
Index
C Cadence Design Systems, Inc. v. Avant! Corp. (2002), 136–137, 147–148 Calderone, Credentials Plus, L.L.C. v. (2002), 336 California, 307–317 arbitration agreement, 184 breach of confidence claims, 59, 60 Bus. & Prof. Code, 93 criminal prosecution, 293–298, 317 identification of trade secret with reasonable particularity before discovery, 83, 129 inevitable disclosure doctrine rejection, 56, 93, 129 on meaning of “not generally known,” 14 noncompete agreements, 57, 130, 245–246 consultant compensation in lieu of, 243–244 Penal Code, 317 preemption of common-law misappropriation, 147–148 of conversion claims, 149 preliminary injunctive relief, 89 tort of conversion, 64 California Directory of Expert Witnesses & Consultants, 117 Callaway Golf Co. v. Dunlop Slazenger Group Americas, Inc. (2004), 148–149 C&F Packing Co. v. IBP, Inc. (2000), 145 Carboline v. Lebeck (1997), 354 Central Adjustment Bureau, Inc. v. Ingram (1984), 378 CFAA. See Computer Fraud and Abuse Act Chasteen v. UNISIA JECS Corp. (2000), 162 Chatterbox, L.L.C. v. Pulsar Ecoproducts, L.L.C. (2007), 150 checklists employee hiring document collection, 241–242 good hiring precautions, 246–247 employee terminating exit interview, 255–256 post-departure, 257–258 protection plans document security, 208–209 electronic security, 209–212 employee education, 205 facilities protection, 206 general precautions in disclosing information to government, 220–221
initial audit, 200–202 manufacturing protection, 212–213 visitor precautions, 207 Chicago Lock Co. v. Fanberg (1982), 175 choice-of-law provision, contracts and, 56 Christopher, E.I. du Pont de Nemours & Co. v. (1970), 18–19 Chrysler Corp. v. Brown (1979), 233 Chu, Hecny Transportation, Inc. v. (2005), 150 civil conspiracy, 67–68 preemption by the Copyright Act, 156 preemption of claim in Arkansas, 148 in Michigan, 346 in Virginia, 146 in Wisconsin, 392 Clear Communications Corp., Teradyne, Inc. v. (1989), 334 Clorox, Omnitech International, Inc. v. (1994), 147 CMI International, Inc. v. Intermet International Corp. (2002), 96, 347 Coca-Cola and manufacturing security, 212 Coca-Cola Co., Penalty Kick Management, Ltd. v. (2003), 147, 327 Coca-Cola Co. v. Reed Industries, Inc. (1988), 166 common-law misappropriation, 62–64 in Massachusetts, 341 in Missouri, 355 in New York, 63 preemption by UTSA, 147–148 in Washington, 389 in Wisconsin, 393 company size and expectations for ensuring secrecy, 16 Compco Corp. v. Day-Brite Lighting, Inc. (1964), 159 compensatory damages. See damages Compliance Plan and Ethics Plan, 197, 301–304 Composite Marine Propellers, Inc. v. Van Der Woude (1992), 147, 333 Comprehensive Technologies International, Inc. v. Software Artisans, Inc. (1993), 385–386 Computer Fraud and Abuse Act, 73–75 computer programs incorporating antecedent work, 190 in Maryland, 338
453
454
Index computer programs (Continued) protection in Pennsylvania, 374 in Virginia, 385–386 restricted rights of government, 225–226 computers, 73–75 criminal prosecution for unlawful access or attempted access, 287–288 trade secret protection plans and, 205 unauthorized access to, 69–71 in California, 297 confidential commercial information, defined, 232 confidentiality agreements, 17, 205 expiration of and denial of protection of trade secret, 172–173 confidentiality obligation, implied, 21–22 confidentiality restrictions, settlement and, 126–127 confidential relationship in Florida, 322 in Massachusetts, 342 in Missouri, 355 in Texas, 380 Confold Pacific, Inc. v. Polaris Industries, Inc. (2006), 63, 148 Connecticut, inevitable disclosure doctrine in, 94, 131 Conseco Financial Servicing Corp. v. Northern American Mortgage (2002), 354 CONSOR, 113 constructive trust, 125 consultants experts retained as, 110 in settlements, 127 consultants confidentiality orders on, 110n332 Continental Car-Na-Var Corp. v. Moseley (1944), 93 Continental Group, Inc. v. Amoco Chemicals Corp. (1980), 105 continuing tort, misappropriation as under Restatement (First) of Torts, 135, 137 and statute of limitations, 160 contract, breach of based on reverse engineering of software Copyright Act and, 157 express contract, 54–58 implied-in-fact, 58, 311 implied-in-law, 58–59 preemption of misappropriation claims by, 154
contract, breach of written versus oral contract, 54n52 contracts with federal government, 221–230 computer software, 222 government purpose rights, 227–229 disclosure of information and, 216 government purpose rights, 227–229 limited rights, 224 restricted rights, 225–227 rights in commercial computer software, 230 SBIR data rights, 229–230 specifically negotiated license rights, 229 technical data, 222 government purpose rights, 227–229 unlimited rights, 223 unlimited rights, 223 Controlled Motion, Inc., Electro-Craft Corp. v. (1983), 349, 350 conversion, tort of, 64–65 preemption by the Copyright Act, 156 preemption by UTSA, 148–149 in Georgia, 327 in Indiana, 337 Cook, Illumination Station, Inc. v. (2007), 148 CooperNeff Advisors, Inc., Zimmer v. (2008), 181 Copyright Act, preemption by, 154–158 of ancillary state law claims, 156–157 “extra element” test, 156 of trade secret misappropriation claims, 157–158, 381 in Virginia, 386 copyright infringement, 71–73, 288–290 definition of criminal, 289 Copyright Office disclosure and, 6, 216 registration with, 73 before filing suit, 289 registration with, 72n148 trade secrets and, 175 copyright protection versus trade secret protection, 9 copyright protection length of, 9n42 Cornerstone Research, 113 corporate opportunity, misuse of, 392 Credentials Plus, L.L.C. v. Calderone (2002), 336
Index criminal prosecution, 265–304. See also Economic Espionage Act (1996); RICO claims access or attempted access of a protected computer, 287–288 benefits, 266–268 breach of fiduciary duty of loyalty, 284–285 copyright infringement, 288–290 disclosure by a federal employee, 291–292 drawbacks, 269–270 mail fraud, 282–283 National Stolen Property Act, 285–286 under state statutes, 292–300 in California, 293–298, 317 in New Jersey, 298–299 in New York, 299–300 in Ohio, 371, 372–373 in Texas, 383 wire fraud, 283–284 criminal prosecution under state statutes in Texas, 29n149 customer lists copyright protection, 289 in Florida, 322 in Georgia, 325–327 incorporating antecedent work, 189–190 in Maryland, 338 in Michigan, 345, 346 in Ohio, 369 in Pennsylvania, 374–375 privacy protection of personal information in, 26n139 protections claims, 176 Restatement (Third) of Unfair Competition and, 26 in Washington, 11, 389 Custom Teleconnect, Inc. v. International Tele-Services, Inc. (2003), 149, 152, 153 CVD, Inc. v. Raytheon Co. (1985), 179–180
D damages, 123–125 for breach of express contract, 54 in California, 297, 316 in civil RICO action, 291 consequential, in Wisconsin, 393 in copyright infringement, 290 copyright infringement and, 290 in Delaware, 319–320
and discovery of plaintiff’s assessments of success in marketplace, 191 in Florida, 324 in Georgia, 326 head start as measure of, 37, 44, 122, 124, 160 in Massachusetts, 343 in Missouri, 356 in Wisconsin, 393 in Illinois, 332 under intentional tort theory, 53 International Trade Commission and, 80 for lost profits in California, 315–316 in Florida, 324 in Indiana, 337 in New Jersey, 358 in New York, 365 in Washington, 389–390 in Wisconsin, 393 in Massachusetts, 37, 341, 343 in Michigan, 348 in Minnesota, 351 in Missouri, 356 in New York, 365 in North Carolina, 368 in Pennsylvania, 374–375 punitive, 125 capped at double of compensatory damages under UTSA, 125 in Delaware, 320 in Maryland, 339 in Massachusetts, 37, 343 in Minnesota, 351 in Missouri, 356 in North Carolina, 368 settlement and, 127 in Texas, 382 for unauthorized access to computers, 71 in Virginia, 384 in Washington, 388 in Wisconsin, 393 as remedy for irreparable injury, 107 settlement and, 127 in Texas, 382 for unauthorized access to computers, 71, 297 unjust enrichment and, 316, 356 in Virginia, 383–384 in Washington, 388 in Wisconsin, 393
455
456
Index Davison, Goldthread v. (2007), 150, 319 D.C. Circuit on exemption to FOIA, 217–218 definition of trade secret in California, 308–309 Penal Code, 293 in comment to Restatement (First) of Torts, 30–31, 174–175 by D.C. Circuit, 218 in Economic Espionage Act, 273–274 in exemption to FOIA Ninth Circuit, 235 Tenth Circuit, 234–235 in Georgia, 326 in Illinois, 329 in Indiana, 335–336, 337 in Massachusetts, 36–37, 340, 341 in Michigan, 345 in Minnesota, 349 in Missouri, 354 in New Jersey, 357–358 in New York, 31–32, 360–361 in North Carolina, 39, 366–367 in Ohio, 369, 371 by Restatement (Third) of Unfair Competition (1995), 3, 24, 174 in Tennessee, 376–377 in Texas, 379 by UTSA, 2–23, 174 independent economic value, meaning of, 10–14 information, definition of, 3–9 not generally known, meaning of, 14–15 reasonable efforts to maintain secrecy, 15–23 definition of trade secret in New Jersey, 29n148 in criminal proceedings, 29n148 in New York, 29n147 in Texas in criminal actions, 29n149 by UTSA compared to Restatement (First) of Torts, 30n152 Delaware, 317–320 on directors’ obligations, 197 identification of trade secret with reasonable particularity prior to discovery, 85, 129 inevitable disclosure doctrine, 94, 131 preemption of conversion claims, 148–149
Del Monte Fresh Produce Co. v. Dole Food Co. (2001), 323 Department of Defense FAR Supplement (DFARS), 221–222 and unlimited rights, 223 deprivation of honest services, 284–285 development cost damages for lost, in Texas, 35, 381 and determination of economic value, 13 government contracts and, 222 Restatement (First) of Torts on, 10, 13 unjust enrichment and, 124 development cost and determination of economic value, 277n21 DFARS. See Department of Defense FAR Supplement (DFARS) Diodes, Inc. v. Franzen (1968), 83–84 Dionne v. Southeast Foam Converting & Packaging, Inc. (1990), 384–385 disclosure of information contracts with federal government and, 216 elimination of trade secret protection and, 18 to government, 172, 188, 189, 216–221 in Florida, 322 inadvertent disclosure by, 217 narrow view of what is protectable information, 217 preventing federal government for disclosing trade secret information, 231–237 protection and, 6 Restatement (Third) of Unfair Competition on, 26, 28–29 discovery arbitration and, 183 defendant and, 186–192 expedited, temporary restraining order and, 102 and forum selection, 129–130 negative know-how and, 121 tactics, 119–122 District of Columbia, breach of confidence claims in, 60 document security, trade secret protection plans and, 207–209 Dole Food Co., Del Monte Fresh Produce Co. v. (2001), 323 DTM Research, L.L.C. v. AT&T Corp. (2001), 138–139
Index Dunlop Slazenger Group Americas, Inc., Callaway Golf Co. v. (2004), 148–149 DVD Copy Control Ass’n v. Bunner (2003), 309
E Economic Espionage Act (1996), 197, 269, 273–282 defenses, 280–282 elements of violation of, 276–279 persuading the government, 270–273 protection from further disclosure, 276 remedies, 279–280 economic loss in North Carolina, 368 ECT International, Inc. v. Zwerlein (1999), 175 Editions Play Bac v. Western Publishing Co. (1993), 147 Ed Nowogroski Insurance, Inc. v. Rucker (1999), 389 Ehmke, Enterprise Leasing Co. v. (1999), 306 E.I. du Pont de Nemours & Co. v. Christopher (1970), 18–19 E.I. du Pont de Nemours v. American Potash & Chemical Corp. (1964), 94 Electro-Craft Corp. v. Controlled Motion, Inc. (1983), 349, 350 Electronic Communications Privacy Act (1986), 75 electronic security. See also computer programs; computers trade secret protection plans and, 209–212 Eleventh Circuit on preemption in Georgia, 327 on preemption of breach of confidence, 147 employees. See also employment agreements agreements to forfeit deferred compensation in Massachusetts, 344–345 confidential relationship and, 34, 58–59 consultation compensation after termination in California, 243–244 in Michigan, 348 discouraging acceptance of competitive employment, 244 dishonesty of, 231 duties under Michigan law, 345–346 under New York law, 32, 363, 366 under Pennsylvania law, 374 reviewing in employment interview, 242
education, trade secret protection plans and, 204–205 as experts, 112 hiring, 240–254 concerns, 240–241 confidentiality and invention assignment agreement, 250–253 document collection, 241–242 interview, 242–244 noncompete agreements, 254 post-interview precautions, 244–249 restrictive covenants, 254 trade secret audits and, 201 trade secret protection plans and, 204 job assignment, 240–241 legal obligations to prior employers, 242 nondisclosure agreements and, 21 of plaintiff and discovery, 190 suit by former employer, 245 terminating, 254–263 compliance request letter to new employer, 262 employer “compliance request letter” response, 262 exit interview, 255–256 new employee proprietary information protection letter, 258–259 post-departure precautions, 258–259 post-termination investigation, 257–258 reminder letter to former employee, 261–262 sample termination certificate, 260–261 employers contacting former employer, 245 suit by former employer of new employee, 245 employment agreements, 55–57, 243 restrictive covenants, 243, 254 Enchura, H & R Block Eastern Tax Services, Inc. v. (2000), 97–98, 354 Engelhard v. Savin (1986), 85, 334 Enterprise Leasing Co. v. Ehmke (1999), 306 equitable defenses, 177–178 evidence notebook, 271–272 exclusive licensees and right to file suit to protect trade secrets, 139 Executive Order No. 12600 (“Predisclosure Notification Procedures for Confidential Commercial Information”), 231 existence of trade secret as mixed question of law and fact, 349, 391 as question of law, 313, 335, 337
457
458 Index existence of trade secret as mixed question of law and fact, 164n124 expedited preliminary injunction hearing, 102–103 Expert Resources, Inc., 113 experts confidentiality orders on, 110n332 court-appointed, 111 of defendant, 192–194 employees as, 112 finding, 111–118, 192–194 of plaintiff, 110–119 designation as consultants, 110 finding, 111–118 retainer letter, 118–119 in settlement process, 127 single, neutral expert, 111 use in California criminal prosecution, 293
F facilities protection plans, 206 tours of, 207 Fair Credit Reporting Act, 26n139 Fanberg, Chicago Lock Co. v. (1982), 175 Federal Acquisition Regulations (FAR), 221–222 limited rights, 224 unlimited rights, 223 Federal Arbitration Act, 180 Federal Bureau of Investigation (FBI), 271 federal courts, advantages of, 51 Federal Rules of Civil Procedure, 333 UTSA and, 231 Federal Rules of Criminal Procedure, 272–273 Federal Sentencing Guidelines, 197, 301–303 Federal Wiretap Act, 120n338 Fenton, New Lenox Industries, Inc. v. (2007), 150 fiduciary duty breach of, 51, 61–62 constructive trust as remedy, 125 preemption by UTSA, 147 in California, 316 Fifth Amendment and compensation for improper disclosure of trade secret information under FOIA, 219 Fifth Circuit on aerial photographs of DuPont factory, 45
preliminary injunctions based on inevitable disclosure, 381 Financial Accounting Standards Board, 198 Financial Services Modernization Act (1999), 26n139 fines for criminal RICO violation, 291 under Economic Espionage Act, 279 in mail fraud, 283 First Circuit, on anticompetitive effects of trade secret misuse, 180 Florida, 321–325 early disclosure of identification of trade secrets, 85, 129 elements of misappropriation claim, 49 inevitable disclosure doctrine, 94–95, 129 inevitable disclosure doctrine, 56n67, 93n243 noncompete agreements, 243n5 preemption, 145 of fraudulent misrepresentation, 150 Rules of Civil Procedure, 323 FOIA. See Freedom of Information Act (FOIA) foreign agent, in Economic Espionage Act, 275 foreign instrumentality, in Economic Espionage Act, 274–275 forum selection, 129–133 alternative claims and, 53 choosing a different defendant, 133 clauses in non compete agreements, 376 inevitable disclosure and, 131–132 noncompete agreements and, 130–131 preemptive action by defendant, 132–133 for quick discovery, 129–130 forum selection clauses in non compete agreements, 246n6 Fourth Circuit on burden of proof in North Carolina, 368 on preemption by Copyright Act, 386 on standing, 138–139 Fovia, Inc., Terarecon, Inc. v. (2006), 149 franchise of license agreement, 55 Franzen, Diodes, Inc. v. (1968), 83–84 fraudulent concealment doctrine in Texas, 34, 382 and tolling of limitations period, 163 fraudulent misrepresentation, 149–150 Freedom of Information Act (FOIA), 217 defendant’s use of, 189 and disclosure of trade secret by federal employee, 291–292
Index Freedom of Information Act (FOIA) (Continued) exemptions, 217–218, 233–237 exemption 3, 236–237 exemption 4, 234–236 narrow view of, 217 state counterpart laws, 218 UTSA and, 231, 237 FTI Forensic Services, 114
G General Motors Corp. v. Ignacio Lopez de Arriortua (1996), 75 Georgia, 325–328 early disclosure of identification of trade secrets, 85, 129 inevitable disclosure doctrine, 95 preemptions by UTSA breach of confidence, 147 tortuous interference claims, 151 reverse engineering, 167 statute of limitations, 160n100 Gerson Lehrman Group, 114 Goldstein, Paul, 157–158 Goldthread v. Davison (2007), 150, 310 government federal government and UTSA, 231 government, disclosure of information to, 172, 188, 189. See also contracts with federal government in Florida, 322 inadvertent disclosure by, 217 narrow view of what is protectable information, 217 state governments, 218–219 government, protecting information disclosed to, 216–237 in contracts with Federal Government, 221–230 preventing the federal government from disclosing, 231–237 challenging an agency’s preliminary decision to release trade secret information, 232–233 freedom of information act exemptions, 233–237 judicial challenge to an agency’s decision to release information, 233 statutes, 231–232 government as defendant, 54 Grappolini, Lucini Italia Co. v. (2002), 146–147
Greif, Inc. v. MacDonald (2007), 151 ground rules in criminal prosecutions, 272
H H & R Block Eastern Tax Services, Inc. v. Enchura (2000), 97–98, 354 Hauck Manufacturing Co. v. Astec Industries, Inc. (2004), 377 head start considering, in settlements, 128 experts on, 110 loss of as irreparable harm, 106 as measure of damages or injunctive relief, 37, 44, 122, 124, 160 in Massachusetts, 343 in Missouri, 356 in Wisconsin, 393 Hecny Transportation, Inc. v. Chu (2005), 150 hiring practices. See employees: hiring Horstmann, Re v. (1987), 179 Hug, Aetna Retirement Services, Inc. v. (1997), 94
I IBP, Inc., C&F Packing Co. v. (2000), 145 Idaho preemption of fraudulent misrepresentation, 150 Trade Secrets Act, 74 identification badges, 207 identification of trade secrets challenges to, 185–186 in criminal prosecutions, 272 with sufficient definiteness, 25, 83–87 in California, 83, 129, 311–312 in Delaware, 85, 129, 318 before discovery, 51–52, 84–85, 129 in Florida, 323 in Illinois, 334 in Michigan, 345 in Minnesota, 349 before settlement, 126 in Wisconsin, 391–392 Ignacio Lopez de Arriortua, General Motors Corp. v. (1996), 75 ILG Industries, Inc. v. Scott (1971), 166 Illinois, 328–335 early disclosure of identification of trade secrets, 85, 129 inevitable disclosure doctrine, 95, 131 on meaning of “not generally known,” 14
459
460
Index Illinois (Continued) preemption of breach of confidence, 146–147 of common-law misappropriation by UTSA, 148 of conversion claims, 149 of fiduciary duty, 147 statute of limitations, 135 Illinois readily ascertainability, 164n123 statute of limitations, 160n100 Illumination Station, Inc. v. Cook (2007), 148 implied-in-fact contract, 58 implied-in-law contract, 58–59 imprisonment for criminal RICO violation, 291 under Economic Espionage Act, 279 improper means of acquisition definition in California, 308 definition in Illinois, 329 examples of, 45 factual inquiry into, 45 in New York, 32 Restatement (Third) of Unfair Competition on, 27–28, 44–45 imputed and joint liability, 48 IMS ExpertServices, 114 independent development defense, 170–171 independent economic value, 12, 336 in Delaware, 319 direct of circumstantial evidence, 25 implied by secrecy, 10 independent economic value in UTSA, 10–14 Maine Supreme Court on, 13 in Maryland, 339 in Minnesota, 350 potential Restatement (Third) of Unfair Competition on, 24 Restatement (Third) of Unfair Competition, and, 24, 25 value determination in California Penal Code, 293 in federal criminal prosecution, 277 Indiana, 335–338 inevitable disclosure doctrine, 95, 129 Indiana inevitable disclosure doctrine, 56n67 inevitable disclosure doctrine, 56–57 as basis for preliminary injunctive relief, 91–101
in California, 312, 314 in Delaware, 319 in Florida, 325 and forum selection, 129, 131–132 in Georgia, 327 in Illinois, 331–332 in Indiana, 95, 336 in Maryland, 338–339 in Massachusetts, 343 in Michigan, 347–348 in Minnesota, 352 in Missouri, 354 in New Jersey, 98, 131, 359 in New Mexico, 98, 131 in New York, 364 in North Carolina, 368 in Ohio, 370 in Pennsylvania, 374 in Texas, 381–382 in Virginia, 386–387 in Washington, 388 in Wisconsin, 394 information, meaning of examples of protectable information, 6–8 in Restatement (Third) of Unfair Competition (1995), 24–25 in UTSA definition, 3–9 Ingram, Central Adjustment Bureau, Inc. v. (1984), 378 injunctions lead time, in Pennsylvania, 375 permanent, 122 in Indiana, 336–337 in Michigan, 347 in Pennsylvania, 375 in Texas, 382 temporary in Michigan, 347 injunctive relief. See also preliminary injunctive relief arbitration and, 182–183 in California, 313, 315 contested by defendant, 191 in Delaware, 319 in Georgia, 326 in Illinois, 330–331 in Massachusetts, 36, 37, 341 in Michigan, 347 in Minnesota, 350–351 in Missouri, 355–356 in Ohio, 369–370 settlement and, 127
Index injunctive relief (Continued) in Tennessee, 378 in Washington, 387 in Wisconsin, 392 injunctive relief in Illinois, 14n66 intangible property annual re-evaluation, 198 trade value, 24 intelligence gathering, 46 interference, intentional, preemption by the Copyright Act, 156 interference with prospective economic advantage, 65–66 negligent versus intentional, 66 Intermedics, Inc. v. Ventritex, Inc. (1993), 162 Intermet International Corp., CMI International, Inc. v. (2002), 96, 347 International News Service v. Associated Press (1918), 62, 63, 148 International Organization for Standardization, 197 International Tele-Services, Inc., Custom Teleconnect, Inc. v. (2003), 149, 152, 153 international tort theory, punitive and exemplary damages under, 53 Internet posting, secrecy and, 8 in California, 309 in Virginia, 385 Internet posting, secrecy and in Nevada, 8n38 invention disclosure and assignment agreements, 55, 205, 243 Iowa inevitable disclosure doctrine in, 95, 131 Supreme Court trade secret definition, 4 IPExperts, 115 irreparable injury in Florida, 323, 324 preliminary injunctive relief and, 104, 106–107 in California, 315 federal courts on, 105 in Massachusetts, 38, 343 in New York, 105, 365 in Texas, 383 TRO and, 103
J Jaffarian, Koontz v. (1985), 385 justification defense, 178–179
K Kansas preemption of unfair competition, 153 preemption standard, 145 Kentucky preemption of tortuous interference, 151 preemption of unfair competition, 153 Kentucky Oil Technology, N.V., Memry Corp. v. (2006), 139 Kevin Kennedy & Associates, Inc., 115 Kewanee Oil Co. v. Bicron Corp. (1974), 158 Kirgan, American Paper & Packaging Products, Inc. v. (1986), 171 Koontz v. Jaffarian (1985), 385 Kozinski, Alex, 64 Kremen II (2003), 64
L Labor Ready, Inc. v. Williams Staffing, L.L.C. (2001), 151 laches, 163, 178 Lebeck, Carboline v. (1997), 354 litigation, protection of trade secrets in, 353 criminal versus civil prosecution, 268 Lockhart, Bridgestone/Firestone Company v. (1998), 95, 336 Los Angeles County Bar Association Southern California Directory of Experts & Consultants, 118 lost profits awards. See damages Louisiana breach of fiduciary duty, 147 inevitable disclosure doctrine, 96, 129 noncompete agreements, 57, 89, 129, 130, 131, 246 preliminary injunctive relief, 89–90 Louisiana inevitable disclosure doctrine, 56n67 noncompete agreements, 129n381 Lucini Italia Co. v. Grappolini (2002), 146–147 Lumbermens Mutual Casualty Co., Bagley v. (2000), 148
M MacDonald, Greif, Inc. v. (2007), 151 mail fraud, 284 Maine economic value determination, 13 Maine statute of limitations, 160n100 MAI Systems Corp. v. Peak Computer, Inc. (1993), 314
461
462
Index Mandatory Victims Restitution Act (1996), 279–280 Mangren Research & Development Corp. v. National Chemical Co. (1996), 333 manufacturing security, 212–213 marketing material, disclosure in, 13, 22, 189, 190, 191 Marshalltown Trowell Co., Bendinger v. (1999), 93 Maryland, 338–340 elements of UTSA claim, 138 inevitable disclosure doctrine, 96, 129 Maryland inevitable disclosure doctrine, 56n67 Massachusetts, 1–2, 36–38, 37, 340–345 inevitable disclosure doctrine, 96, 129 inevitable disclosure doctrine, 56n67 misappropriation claim elements, 50 master, court-appointed, 192 mediation, 126 memory, use of, and misappropriation, 34, 45–46 in criminal prosecution, 274 in Illinois, 332 in New York, 300 in Ohio, 369 in Pennsylvania, 375 in Texas, 380 Memry Corp. v. Kentucky Oil Technology, N.V. (2006), 139 Merrill Lynch v. Zimmerman (1996), 355 MG Capital v. Sullivan (2001), 149 Michigan, 345–348 early disclosure of identification of trade secrets, 85 Freedom of Information Act, 346 inevitable disclosure doctrine, 96–97, 129 Michigan inevitable disclosure doctrine, 56n67 Micro Display Systems, Inc. v. Axtel, Inc. (1988), 149, 152, 153 MicroStrategy, Inc. v. Business Objects, S.A. (2004), 146 Mid-State Nurses, Inc., Smith v. (1991), 327 Milgrim, Roger, 138 Minnesota, 349–353 early disclosure of identification of trade secrets, 85, 129 inevitable disclosure doctrine, 97, 129 preemption of conversion claims, 149
of unfair competition, 152 of unjust enrichment, 153 Mirafi v. Murphy (1991), 55–56 misappropriation claims, 43–48 acquisition, use of disclosure, 46–47 actual, as base for preliminary injunctive relief, 88–89 as continuing tort under Restatement (First) of Torts, 135, 137 and statute of limitations, 160 definition in North Carolina, 367 elements of, 48–50 in Delaware, 318–319 in Florida, 49 in Massachusetts, 50 in Missouri, 354–355 in New Jersey, 49–50, 358 in New York, 50 in Ohio, 371 in Oregon, 49 in Tennessee, 49 in Virginia, 49, 384 in Wisconsin, 49 Florida case law, 321 improper means, 44–46 imputed and joint liability, 48 misappropriation, 43–44 in New York, 362 in North Carolina, 39 preemption by contract, 1534–154 Restatement (First) of Torts and, 29, 44, 135, 137 Restatement (Third) of Unfair Competition on, 27 as single claim in California, 307 under UTSA, 134–135, 137, 160, 162 threatened, as base for preliminary injunctive relief, 89–91 use by the defendant, 34–35 UTSA definition, 43 misappropriation claims elements of in Massachusetts, 50n40 Mississippi, 85 Missouri, 353–357 inevitable disclosure doctrine, 97–98, 129 inevitable disclosure doctrine, 56n67 statute of limitations, 160n100 monitors supervising implementation of injunctive relief, 192
Index Monolithic Power Systems, Inc., O2 Micro International, Ltd. v. (2007), 316 Morlife, Inc. v. Perry (1997), 316 Moseley, Continental Car-Na-Var Corp. v. (1944), 93 Motorola, Inc., National Basketball Association v. (1997), 155 Murphy, Mirafi v. (1991), 55–56
N NASA, 213 National Association of Securities Dealers (NASD), 197–198 National Basketball Association v. Motorola, Inc. (1997), 155 National Chemical Co., Mangren Research & Development Corp. v. (1996), 333 National Conference of Commissioners on Uniform State Laws, 3n7 National Stolen Property Act, 285–286 Nebraska, statute of limitations, 160n100 negative know-how, 4–5 courts and, 11–12 discovery and, 121 Restatement (Third) of Unfair Competition and, 24 NERA Economic Consulting, 116 Network Consulting Service, 116 Nevada Internet posting, 8n38 preemption of conversion claims, 149 of unfair competition, 152 of unjust enrichment, 153 New Jersey, 2, 33, 357–360 criminal prosecution, 298–299 elements of misappropriation claim, 49–50 inevitable disclosure doctrine, 98, 131 statute of limitations, 137 statute of limitations, 135n417, 160n101 New Lenox Industries, Inc. v. Fenton (2007), 150 New Mexico, inevitable disclosure doctrine in, 98, 131 New York, 2, 29, 31–32, 360–366 actual use requirement, 4n12 breach of confidence claims, 59 common-law misappropriation, 63 criminal prosecution, 299–300 elements of misappropriation claim, 50 inevitable disclosure doctrine, 98–99, 129
inevitable disclosure doctrine, 56n67 preliminary injunction, 105 statute of limitations, 137–138 tort of conversion, 65 New York Stock Exchange, 198 Ninth Circuit alternative test for granting preliminary injunctions, 105 definition of trade secret in FOIA exemption, 235 on economic value of religious scriptures, 12 interpretation of California law, 313 on ready ascertainability, 169 on secrecy, 175, 389 on tort of conversion, 64–65 unjust enrichment, 314 Ninth Circuit on employee’s privacy of e-mails, 210n23 on value of trade secret, 277n21 noncompete agreements, 55, 57, 177, 205, 245, 254 in Arizona, 306–307 in Arkansas, 93 in California, 89, 129, 130–131, 313, 316–317 defendant’s preemptive action, 132 in Delaware, 320 enforcement by prior employer, 245–246 enforcing, 130–131, 132, 243 in Florida, 94, 324–325 and forum selection, 129, 130–131 in Georgia, 328 in Illinois, 335 in Indiana, 337–338 inevitable disclosure and, 87, 92, 93, 94, 96 in Louisiana, 89, 129, 130–131 in Maryland, 339–340 in Massachusetts, 36, 96, 341, 344 in Michigan, 345, 348 in Minnesota, 352–353 in Missouri, 356 in New Jersey, 360 in New York, 366 in North Carolina, 369 in Ohio, 372 in Pennsylvania, 376 in Tennessee, 378 in Texas, 382–383 in Virginia, 386–387 in Washington, 390 in Wisconsin, 130, 393–394
463
464 Index noncompete agreements in California, 93n243 in Florida, 93n243, 243n5 in Louisiana, 129n381 nondisclosure agreements, 17, 21, 54–55, 190 discovery by defendant, 190 employees and, 20, 321, 374, 385 failure to use as lack of reasonable efforts to maintain secrecy, 172 visitors and, 207 nondisclosure agreements, 243n4 North Carolina, 2, 366–369 inevitable disclosure doctrine in, 99, 131 trade secret definition, 38–39 Northern American Mortgage, Conseco Financial Servicing Corp. v. (2002), 354 novelty of information, 5 in Arizona, 306 in Minnesota, 349 in New Jersey, 33, 358 in New York, 31, 361 Restatement (Third) of Unfair Competition on, 26 versus secrecy, in Virginia, 384 Nuodex, Inc., American Hoechst Corp. v. (1985), 94
O O2 Micro International, Ltd. v. Monolithic Power Systems, Inc. (2007), 316 Ohio, 369–373 elements of misappropriation claim, 48–49 inevitable disclosure doctrine, 99, 131 preemption of conversion claims, 149 statute of limitations, 160n100 Oklahoma, inevitable disclosure doctrine in, 129 Oklahoma, inevitable disclosure doctrine in, 56n67 Omnitech International, Inc. v. Clorox (1994), 147 Optic Graphics, Inc. v. Agee (1991), 339 Oregon elements of misappropriation claim, 49 inevitable disclosure doctrine, 100, 131 preemption of tortuous interference, 151
P Panduit Corp., Thomas & Betts Corp. v. (2000), 149 Paperwork Reduction Act, 217
patent applications and deliberate disclosures, 6, 18, 216 preemption of misappropriation claims by, 158–160 trade secrets and, 175, 187 patent protection versus trade secret protection, 9 Peak Computer, Inc., MAI Systems Corp. v. (1993), 314 Penalty Kick Management, Ltd. v. Coca-Cola Co. (2003), 147, 327 Pennsylvania, 373–376 inevitable disclosure doctrine, 100, 131 preemption doctrine, 146 Pennsylvania conversion of trade secrets, 65n115 PepsiCo, Inc. v. Redmond (1995), 91 Bridgestone/Firestone, Inc. v. Lockhart on, 336 and inevitable disclosure doctrine, 56, 92 Perry, Morlife, Inc. v. (1997), 316 person, definition of, 353 in Ohio, 369 Polaris Industries, Inc., Confold Pacific, Inc. v. (2006), 63, 148 Pooley, James, 202–204 Posner, Richard A. on common-law misappropriation, 63 trade secret definition, 4 possession, civil writ of, 68–69 “Predisclosure Notification Procedures for Confidential Commercial Information” (Executive Order No. 12600), 231 preemption doctrine in California, 310 in Delaware, 320 in Florida, 321 in Illinois, 333 in Minnesota, 351–352 in Pennsylvania, 374 in Tennessee, 377 in Virginia, 386 in Washington, 388–389 in Wisconsin, 392 preemptive action of defendant forum choice and, 132–133 preemption by the Copyright Act, 154–158 of ancillary state law claims, 156–157 of trade secret misappropriation claims, 157–158 preemption of misappropriation claims by contract, 154
Index preemptive action of defendant (Continued) preemption of state law claims by the UTSA, 143–153 breach of confidence, 146–147 breach of duty of loyalty, 147 breach of fiduciary duty, 147 common-law misappropriation, 147–148 conversion, 148–149 fraudulent misrepresentation, 149–150 tortuous interference, 151 unfair competition, 152 unfair trade practices, 152 preemption of misappropriation claims by patent applications, 158–160 prejudgment interest, 333 preliminary injunctive relief, 87–110. See also temporary restraining orders bases for relief, 88–101 actual misappropriation, 88–89 inevitable disclosure doctrine, 91–101 threatened misappropriation, 89–91 bond requirement, 104, 108–110128, 324 choosing an expert, 110–119 in Florida, 323 in Massachusetts, 343 obtaining, 104–108 balancing the hardships, 108 irreparable injury, 104, 106–107 likelihood of success, 107–108 privilege defense, 178–179 ProCD, Inc. v. Zeidenberg (1996), 155 Pro-Comp Management, Inc., R.K. Enterprises, L.L.C. v. (2004), 148 proper means of acquisition, independent development as, 170 property definition in New York Penal Law, 300 property right, trade secret and, 30 protection plans and practices, 195–237 good hiring precautions, 246–248 information disclosed to government, 216–237 contracting with the federal government, 221–230 preventing federal government for disclosing trade secret information, 231–237 rules of thumb, 216–221 legal requirements, 196–198 plans, 202–216 document security, 297–209
electronic security, 209–212 employee education and work practices, 204–025 facilities protection, 206 manufacturing security, 212–213 overview, 202–204 sample forms, 214–216 unsolicited inventions and ideas, 213–215 visitors, 207 trade secret audits, 198–202 protective order, 186 Protocol for Broker Recruiting, 26–27n139 Public Systems, Inc. v. Towry (1991), 92–93 Pulsar Ecoproducts, L.L.C., Chatterbox, L.L.C. v. (2007), 150 punitive damages. See damages: punitive
Q quasi-contract. See implied-in-law contract
R Racketeer Influenced and Corrupt Organizations (RICO) Act. See RICO claims Raytheon Co., CVD, Inc. v. (1985), 179–180 ready ascertainability defense, 168–170 definition, 168 Redmond, PepsiCo, Inc. v. (1995), 91 Bridgestone/Firestone, Inc. v. Lockhart on, 336 and inevitable disclosure doctrine, 56, 92 Reed Industries, Inc., Coca-Cola Co. v. (1988), 166 remedies, 122–125 replevin, civil writ of, 68–69 respondeat superior, doctrine of in Indiana, 336, 337 in Minnesota, 351 in Pennsylvania, 374 in Virginia, 385 Restatement (First) of Torts, 2, 29–35 determination of reasonable efforts to protect secrecy, 17 development cost, 10, 13 misappropriation under, 44, 47 as continuing tort, 135, 137 Optic Graphics, Inc. v. Agee (1991) on, 339 six-factor test of secrecy, 17, 171–172
465
466 Index Restatement (First) of Torts six-factor test of secrecy in New York, 29n147 Restatement (First) of Torts six-factor test of secrecy in Massachusetts, 37, 342 in New Jersey, 358–359 in New York, 362–363 in North Carolina, 39, 367 in Ohio, 371 similar provision in Illinois, 330 in Texas, 379–380 in Wisconsin, 391 state applications of, 29 Massachusetts, 36, 340 New Jersey, 2, 29, 357 New York, 2, 29, 360 Pennsylvania, 373, 375 Texas, 2, 29, 378–379 statute of limitations, 137 supplemented by Restatement (Third) of Unfair Competition (1995), 23 trade secret definition rejection by Tenth Circuit, 234 use by court in UTSA states, 29, 38, 354 use requirement in, 4, 10 Restatement (Third) of Unfair Competition, 2, 23–29 on breach of express contract, 55, 56 definition of trade secret, 3, 24 on duty of confidence, 59–60 on improper means of acquisition, 44–45 on memory and misappropriation, 46 on patents, 159 on privilege to disclose trade secret, 179 on ready ascertainability, 168–169 on trade secret as secret combination of known elements, 166 on use requirement, 5 Restatement (Third) of Unfair Competition on noncompete agreements, 92n237 restitution for breach of express contract, 54 in California, 315 criminal prosecution, 293 under criminal statutes, 267, 269, 293 under Economic Espionage Act, 279–280 restraining orders. See also temporary restraining orders interlocutory in Wisconsin, 391 restrictive covenants. See noncompete agreements
reverse engineering as defense, 6, 165–168 in criminal prosecution, 281 definition of, 165 exemption from improper means in California, 308 in Massachusetts, 343 reverse engineering lawfulness of, 6n20 Re v. Horstmann (1987), 179 RICO claims, 75–77, 290–291 in state trial courts, 76n171 in Pennsylvania, 374 Right-to-Know law (Penn.), 374 R.K. Enterprises, L.L.C. v. Pro-Comp Management, Inc. (2004), 148 Round Table Group, 116 royalty, reasonable, 38, 44, 123 in California, 316 in Florida, 324 in Georgia, 326 in Illinois, 331, 332 in lieu of compensatory damages, 124–125 in lieu of injunction, 123 in Massachusetts, 343 in Minnesota, 351 in New York, 365 in Ohio, 370 in Virginia, 384 in Washington, 387 Rucker, Ed Nowogroski Insurance, Inc. v. (1999), 389
S sample forms compliance request letter to new employer, 262 employee confidentiality and invention assignment agreement, 250–253 employer “compliance request letter” response, 263 government purpose rights, 228 invention and idea submission agreement, 215 letter in response to unsolicited invention or idea, 215 limited rights notice (Dec. 2007), 224 limited rights under DFARS, 225 new employee proprietary information protection letter, 259 reminder letter to former employee, 261–262
Index sample forms (Continued) restricted rights, 227 restricted rights notice (Dec. 2007), 226–227 restricted rights notice short form (June 1987), 227 SBIR data rights, 230 special license rights, 229 termination certificate, 260–261 visitor’s agreement, 216 Samsung Electronics America, Inc. v. Bilbruck (2006), 149 Sarbanes-Oxley Act, 196–197, 301 Savin, Engelhard v. (1986), 85, 334 Schlage Lock Co., Whyte v. (2002), 86 Scott, ILG Industries, Inc. v. (1971), 166 Sears, Roebuck & Co. v. Stiffel Co. (1964), 159 Second Circuit alternative test for granting preliminary injunctions, 105 on common-law misappropriation, 63–64 preemption by the Copyright Act, 155 on irreparable injury, 106 Second Circuit interpretation of Federal Arbitration Act, 184n217 secrecy, 175 general knowledge as defense, 174–177 and protected status, 8, 9, 187 a question of fact to be resolved at trial, 176 secrecy, maintaining in Arizona, 306 in California, 313 criminal prosecution and, 272 in Florida, 321 in Illinois, 330 in Indiana, 336 Internet and in California, 309 in Virginia, 385 lack of reasonable efforts by plaintiff as defense, 171–174 in Maryland, 338 in Michigan, 346 in New Jersey, 33, 358 in Ohio, 372 reasonable efforts for, 15–23 defendant and, 190–191 determination of “reasonable,” 16
examples of, 19–21 examples of inadequate measures, 22–23, 172–173 in Massachusetts, 37, 342 Restatement (Third) of Unfair Competition and, 25–26 in Tennessee, 377 in Virginia, 385 in Washington, 389 secrecy, maintaining Internet and in Nevada, 8n38 secrecy, test of in Illinois, 329–330 in Michigan, 346, 350 six-factor trade secret test of Restatement (First) of Torts, 17, 171–172 six-factor trade secret test of Restatement (First) of Torts in New York, 29n147 six-factor trade secret test of Restatement (First) of Torts in Massachusetts, 37, 342 in New Jersey, 358–359 in New York, 362–363 in North Carolina, 39, 367 in Ohio, 371 similar provision in Illinois, 330 in Texas, 379–380 in Wisconsin, 391 in Tennessee, 377 in Virginia, 385 settlement, 126–129 form, 128–129 process, 126–127 timing, 126 Seventh Circuit, 333 on determination of reasonable measures, 16 and inevitable disclosure doctrine, 331 interpretation of Illinois UTSA, 333 PepsiCo Inc. v. Redmond, 92 preemption by the Copyright Act, 155 preemption of fraudulent misrepresentation, 150 on threat of misappropriation of a trade secret, 91 Shellmar Products Co. v. Allen-Qualley Co. (1936), 330, 382 Silicon Valley Expert Witness Group, 116–117 Small Business Innovation and Research Program (SBIR), 229–230
467
468 Index Smith v. Mid-State Nurses, Inc. (1991), 327 software. See computer programs Southeast Foam Converting & Packaging, Inc., Dionne v. (1990), 384–385 special master, appointment of, 111 Sperry-Sun Well Surveying Co., Lachman v. (1972), 179 Standard Brands Inc. v. Zumpe (1967), 90, 96 standing, 138–139 statute of limitations, 133–138, 160–163 in Arizona, 306 beginning of, 161 in California, 307 computer tampering statute, 297 criminal prosecution, 293 in Delaware, 317 in Florida, 231 in Georgia, 325 in Illinois, 328 in Indiana, 335 mail and wire fraud, 284 in Maryland, 338 in Massachusetts, 37, 344 in Michigan, 345 in Minnesota, 349 in Missouri, 353 in New Jersey, 137, 359 in New York, 137–138, 363 non-UTSA states, 160 in North Carolina, 368 in Ohio, 369 in Pennsylvania, 373 procedural versus substantive, 135 Restatement (First) of Torts, 137 under Restatement (First) of Torts, 137 RICO actions, 77 in Tennessee, 376 in Texas, 382 tolling of, 163 for unauthorized access to computers, 71 under UTSA, 133–138, 160 variations among UTSA states, 135 in Virginia, 383 in Washington, 387 in Wisconsin, 390 statute of limitations in New Jersey, 135n417 Stiffel Co., Sears, Roebuck & Co. v. (1964), 159 stock exchanges and trade secret protection plans, 197–198
Stored Wire and Electronic Communications and Transactional Records Access Act, 120n338 strategic venue choices. See forum selection Stratman, Branson Ultrasonics Corp. v. (1996), 94 Sullivan, MG Capital v. (2001), 149 Supreme Court on necessary loss of secrecy of information disclosed to government, 219 on preemption by patent applications, 158 on trade secret identification, 185
T Tactica International, Inc. v. Atlantic Horizon International, Inc. (2001), 45–46 Tarancon Corp., Union Carbide Corp. v. (1990), 327 TASA, 117 Teklicon, 117 temporary exclusion orders by U.S. International Trade Commission, 78 temporary restraining orders, 43, 52, 101–104, 270 in Connecticut, 94 in Delaware, 319 in Florida, 95, 323 in New York, 365 reasons for not seeking a, 104 in Wisconsin, 391 Tennessee, 376–378 breach of confidence claims, 60 elements of misappropriation claim, 49 preemption of fraudulent misrepresentation, 150 preemption standard, 145 Teradyne, Inc. v. Clear Communications Corp. (1989), 334 Terarecon, Inc. v. Fovia, Inc. (2006), 149 Texas, 2, 33–35, 50, 378–383 criminal statute, 29n149 inevitable disclosure doctrine, 100–101 trade secret protection, 33–35 Texas Lawyer/American Lawyer Media, 118 theft claims award of double damages in Massachusetts, 36 preemption by Indiana UTSA, 337 Third Circuit federal standard for granting preliminary injunctions, 105 inevitable disclosure doctrine, 359
Index Thomas & Betts Corp. v. Panduit Corp. (2000), 149 Thunder Craft Boats, Inc., Bonito Boats, Inc. v. (1989), 18, 64, 158, 165 tortuous interference preemption by the Copyright Act, 156 preemption by UTSA, 151 in Georgia, 327–328 in Indiana, 337 in Michigan, 346–347 Towry, Public Systems, Inc. v. (1991), 92–93 trade shows, deliberate disclosures at, 18, 189, 190 TRO. See temporary restraining order Tucker Act, 219 Tuthill Corp., Wolfe v. (1988), 336 Twombly, Bell Atlantic Corp. v. (2007), 185
in Massachusetts, 37, 342 in New Jersey, 33 in New York, 31, 361 in Restatement (First) of Torts, 4 in Restatement (Third) of Unfair Competition, 24, 28 in Texas, 34, 380 understanding of the term, 47 use requirement in New York, 4n12 U.S. International Trade Commission filing complaint with, 275 investigation, 77–83 process, 81–83 and “substantial injury” to domestic industry, 79 Utah, inevitable disclosure doctrine in, 101, 131
U unclean hands doctrine, 177 unfair competition, 66–67 preemption by UTSA, 152 in Texas, 35, 381 uniformity of application of UTSA (Section8), 3n7 Union Carbide Corp. v. Tarancon Corp. (1990), 327 UNISIA JECS Corp., Chasteen v. (2000), 162 unjust enrichment, 69 in calculation of damages, 316, 356 development cost and, 124 in Massachusetts, 343 in Minnesota, 351 in New Jersey, 358 Ninth Circuit on, 314 in North Carolina, 368 in Pennsylvania, 375 preemption by the Copyright Act, 156 preemption by UTSA, 153 in Georgia, 327 in Michigan, 346 in Washington, 389 in Wisconsin, 392 unsolicited inventions and ideas sample invention and idea submission agreement, 215 sample letter in response to, 214–215 trade secret audits and, 202 trade secret protection plans and, 213–215 U.S. Attorney, contacting, 271 U.S. Copyright Office, 346 use requirement, 4–5
V Van Der Woude, Composite Marine Propellers, Inc. v. (1992), 147, 333 Ventritex, Inc., Intermedics, Inc. v. (1993), 162 Vermont Microsystems, Inc. v. Autodesk, Inc. (1996), 313–314 Virginia, 383–387 elements of misappropriation claim, 49 inevitable disclosure doctrine, 101, 129 Virginia inevitable disclosure doctrine, 56n67 visitors sample visitor’s agreement, 216 trade secret protection plans and, 207
W Washington, 387–390 inevitable disclosure doctrine, 101, 131 preemption of breach of confidence claims, 147 on value of customer list, 11 Western Publishing Co., Editions Play Bac v. (1993), 147 Whyte v. Schlage Lock Co. (2002), 86 Williams Staffing, L.L.C., Labor Ready, Inc. v. (2001), 151 wire fraud, 284 Wisconsin, 390–393 elements of misappropriation claim, 49 inevitable disclosure doctrine, 101, 131 noncompete agreements, 130
469
470 Index Wisconsin (Continued) preemption of breach of confidence, 147 of duty of loyalty, 147 preemption by UTSA, 144 secrecy, 175 Wohlgemuth, B.F. Goodrich Co. v. (1963), 91 Wolfe v. Tuthill Corp. (1988), 336
Y Young, Zotos International, Inc. v. (1987), 166
Z Zeidenberg, ProCD, Inc. v. (1996), 155 Zimmerman, Merrill Lynch v. (1996), 355 Zimmer v. CooperNeff Advisors, Inc. (2008), 181 Zotos International, Inc. v. Young (1987), 166 Zumpe, Standard Brands Inc. v. (1967), 90, 96 Zwerlein, ECT International, Inc. v. (1999), 175
