TRADE SECRET SEGMENT PROF JANICKE JULY 2010 SOURCES

TRADE SECRET SEGMENT PROF. JANICKE JULY 2010

SOURCES OF LAW • 45 STATES: UNIFORM TRADE SECRETS ACT – CIVIL • TEXAS: CASELAW DOCTRINES BASED ON 1 st REST. OF TORTS (1939); ALSO CRIMINAL STATUTE TEX. PENAL CODE § 32. 05 2010 Trade Secret Segment 2

• FEDERAL: – GOVERNMENT CIVIL ACTIONS AND CRIM. PROCEEDINGS – ECONOMIC ESPIONAGE ACT (1997) – NO PRIVATE CIVIL ACTION 2010

WHAT IS A “TRADE SECRET” • (1) ANY COMPETITIVELY VALUABLE INFORMATION • (2) THAT’S NOT WIDELY KNOWN OR EASILY FOUND OUT • (3) THAT THE POSSESSOR HAS TAKEN REASONABLE STEPS TO KEEP FROM DISCLOSURE 2010 Trade Secret Segment 4

EXAMPLES • MFG. METHODS • MFG. MATERIALS • BUSINESS PLANS 2010 Trade Secret Segment 5

• USE, OR EVEN PLANNED USE, IN POSSESSOR’S BUSINESS IS NOT NEEDED • SECRECY OF INDIVIDUAL COMPONENTS OR STEPS IS NOT NEEDED 2010 Trade Secret Segment 6

THE PROBLEM OF CUSTOMER LISTS • HAS CAUSED A CASE LAW QUAGMIRE • OFTEN ARE EASILY LEARNED BY RIGHTFUL MEANS; HENCE NOT A “TRADE SECRET” • CAN BECOME A SECRET BY ADDING PURCHASE HISTORY, PLANS, CONTACTS, ETC. 2010 Trade Secret Segment 7

HARD-TO-GET REQUIREMENT • LIBERALLY CONSTRUED TO HELP TRADE SECRET OWNER • EXAMPLE: OBSCURE PUBLICATION OR SUPPLIER NAME 2010 Trade Secret Segment 8

REASONABLE-MEASURES-FORSECRECY REQUIREMENT TYPICAL: • EMPLOYEE AGREEMENTS • MARKING DOCUMENTS AND DRAWINGS “CONFIDENTIAL” • CIRCULATING WRITTEN POLICY • POSTING WRITTEN POLICY 2010 Trade Secret Segment 9

TYPICAL MEASURES (CONT’D): • LIMIT TYPES OF EMPLOYEES WHO HAVE ACCESS • LIMIT ACCESS TO PROJECT MEMBERS • EXIT INTERVIEWS 2010 Trade Secret Segment 10

• PROTECTIVE MEASURES CAN BE BY IMPLICATION RATHER THAN EXPRESS, BUT RISKY TO LITIGATE 2010 Trade Secret Segment 11

OWNERSHIP OF ON-THE-JOB DEVELOPMENTS • CONTRACT PROVISION CONTROLS, IF THERE IS ONE • IF THERE IS NO CONTRACT PROVISION, RESULT GOES BY THE EQUITIES • GENERAL SKILLS OF A CALLING ARE ALWAYS OK FOR EMPLOYEE TO TAKE WITH HIM – DEFINING THESE IS DIFFICULT 2010 Trade Secret Segment 12

WHAT IS “MISAPPROPRIATION” • USING UNDER WRONGFUL CONDITIONS: – OBTAIN RIGHTFULLY, BUT USE IN BREACH OF AGREEMENT [MANY CASES] – OBTAIN BY FRAUD OR INDUCING A BREACH OF CONFIDENCE [A FEW CASES] 2010 Trade Secret Segment 13

WHAT IS NOT • COPYING AN OPENLY AVAILABLE PRODUCT • REVERSE ENGINEERING OF AN OPENLY AVAILABLE PRODUCT • WHOLLY INDEPENDENT DESIGN • ADOPTING THE DESIGN, AFTER DISCLOSURE UNDER CONTRACT OF NONCONFIDENCE 2010 Trade Secret Segment 14

MOST CASES INVOLVE RIGHTFUL LEARNING, AND THEN MISAPPROPRIATING TYPICAL PATTERNS: • EMPLOYEES LEARN, THEN JUMP • JOINT VENTURE PARTNER LEARNS, THEN VENTURE TERMINATES • POTENTIAL BUYER OF BUSINESS LEARNS, AND SALE FALLS THROUGH 2010 Trade Secret Segment 15

TYPICAL PATTERNS (CONT’D): • HARDER TO DECIDE: EXECUTIVE DRIVES THE DEVELOPMENT, THEN JUMPS • HARDER TO DECIDE: VENDOR, AGENT, ADVISOR CONTRIBUTES THE SECRET – THEN USES FOR OTHER CLIENTS 2010 Trade Secret Segment 16

HARDEST CASES: • FLY-OVERS ONE DECIDED CASE • TRAILING SHOULD BE OK • TRASH COLLECTING MAY BE OK ON THE TRADE SECRET FRONT; PERILOUS ON CRIMINAL FRONT; AND BAD PRESS 2010 Trade Secret Segment 17

REMEDIES • INJUNCTION • BETTER VIEW: IF INFO HAS BEEN MADE PUBLIC BY OWNER, INJUNCTION SHOULD BE LIMITED TO LEAD-TIME – TIME IT TOOK P minus TIME IT TOOK D IS A ROUGH RULE OF THUMB 2010 Trade Secret Segment 18

DAMAGES • ARE AVAILABLE – COMPENS. AND PUNITIVE [UTSA: TREBLING] • CAN BE UNJUST ENRICHMENT OR P’S LOSS OF BUSINESS • HIGH SETTLEMENT RATE • TR. SEC. CASES SOMETIMES INVOLVE PRELIM. INJUNC. HEARING – SELDOM GO TO TRIAL 2010 Trade Secret Segment 19

INJUNCTION AGAINST WORKING FOR A PARTICULAR COMPETITOR • CAN BE HANDLED PER CONTRACT • WHERE NO CONTRACT, THIS TYPE OF INJUNCTION IS COMMONLY SOUGHT TO PROTECT THE SECRET – ARGUMENT: WORKING FOR “THEM” WILL INHERENTLY DIVULGE – COUNTER-ARGUMENT: NEED TO EARN A LIVING 2010 Trade Secret Segment 20

NON-COMPETE INJUNCTION WHERE NO CONTRACT PROVISION • POSSIBLE SOLUTIONS: – INJUNCTION REQUIRES KEEPING PERSON ON PAYROLL AND WORKING – INJUNCTION REQUIRES PROVIDING MINIMUM CONSULTING FEES AND POSSIBLE WORK – INJUNCTION LIMITED TO COMPETITOR DIVISION MOST LIKELY TO CAUSE BREACH 2010 Trade Secret Segment 21

SPECIAL PROBLEM: CONTINUING TO ENJOIN WRONGDOER WHEN OWNER HAS PUBLISHED • COMMONLY UNDERSTOOD: NONWRONGDOERS ARE RELIEVED OF COVENANTS WHEN OWNER PUBLISHES • WHEN A WRONGDOER MOVES TO DISSOLVE: – SHOULD PREVIOUS WRONGDOER NOW BE THE ONLY ONE PRECLUDED FROM USE? 2010 Trade Secret Segment 22

SPECIAL PROBLEM: STATUTE OF LIMITATIONS • ONE VIEW: MISAPPROPRIATION IS AN ONGOING TORT, NEW VIOLATION EVERY DAY • HENCE, ONLY OLD MISUSES ARE CUT OFF; DAMAGES AND INJUNCTION ARE AVAILABLE FOR RECENT/FUTURE VIOLATIONS 2010 Trade Secret Segment 23

SPECIAL PROBLEM: STATUTE OF LIMITATIONS • ANOTHER VIEW: ORIGINAL MISAPPROPRIATION STARTS THE ONLY CLOCK; WHEN IT RUNS, ALL ACTION IS BARRED • TEXAS SOLUTION: SINGLE WRONG, SINGLE RUNNING -- BUT FROM DISCOVERY DATE (KNEW OR SHOULD HAVE KNOWN) 2010 Trade Secret Segment 24