**Trade Secrets** William Fisher (2017.12.04)
  Remedies
    Injunctions
      debate over length and breadth
        majority rule: mimic likely duration of the TS
        minority rule: permanent
      not available after plaintiff obtains a patent
      DTSA forbids injunction preventing defendants from hiring employees on the basis of the “inevitable disclosure” doctrine
        Follows the law of CA in this respect
      DTSA permits order of ongoing royalty in lieu of injunction
    Damages
      actual damages
        plaintiff’s lost profits, or
        defendant’s gains
      consequential damages
      Reasonable royalty
        Available under DTSA as alternative to actual damages
      punitive damages
        DTSA authorizes exemplary damages, up to double actual damages, if TS was “willfully and maliciously misappropriated”
          May be recovered only if plaintiff has previously informed employees of whistleblower immunity
      attorneys’ fees
    Statute of Limitations
      3 years, under both UTSA and DTSA
    Civil Seizure Procedure
      Added by DTSA
      Court may issue ex party order to seize a TS if “ necessary to prevent the propagation or dissemination of the trade secret that is the
subject of the action.”
      Strict requirements
        an order pursuant to Fed. R. Civ. P. 65 or other equitable relief would be inadequate;
        an immediate and irreparable injury will occur if seizure is not ordered;
        harm to the applicant from denial of a seizure order: (1) outweighs the harm to the person against whom seizure is ordered; and (2) substantially outweighs the harm to any third parties by such seizure;
        the applicant is likely to succeed in showing that the person against whom the order is issued misappropriated or conspired to misappropriate a trade secret through improper means;
        the person against whom the order will be issued has possession of the trade secret and any property to be seized;
        the application describes with reasonable particularity the property to be seized and, to the extent reasonable under the circumstances, the property’s location;
        the person against whom seizure is ordered would destroy, move, hide, or otherwise make such property inaccessible to the court if put on notice; and
        the applicant has not publicized the requested seizure.
    Criminal penalties
      Economic Espionage Act
        requirements
          trade secret
            related to a product that will be placed in interstate commerce
          misappropriation
          state of mind
            knowledge that the information is proprietary
            intent to benefit non-owner
            intent to injure owner
        penalties
          forfeiture
            mandatory for defendant’s gains
            optional for property used to commit the offense
          fines
            up to $500K for individual
            up to $5M for organization
          imprisonment
            up to 10 years
  Case Studies
    Chocolate
      see Fromer
    Coca-cola
      Coke website
      "The Vault" video
    Software
      Companies sell copies of object code, keep source code secret
      Courts ruled that public distribution of object code does not forfeit TS protection, so long as source code is hard to reverse engineer
        Data General v. DCI (Del. 1971)
        Telex v. IBM (CA10 1975)
        Q-Co Industries (SDNY 1985)
      Appropriate to an era in which software is custom-made by vertically integrated hardware suppliers for large commercial customers
      Reliance on this approach is likely to increase in the wake of _Alice_ (SCOTUS 2016)
      Limitations of this Approach
        Gradual improvement of decompilers makes possible reverse engineering
        No protection against “piracy” of object code
        Limited protection against “downstream” consumers
        Consumers’ demand for access to source code
    Google’s search algorithm
    Autonomous cars
  Policy
    Justification #1: Welfare
      (a) TS law stimulates innovation
        Criticism: patent law seems better for this purpose (Bone)
          ▪ term limit
▪ duty to disclose
▪ protects only significant advances
▪ doesn't impede mobility  of skilled labor
          Rebuttal: permissibility of reverse engineering allows the TS to “leak,” with the beneficial result of reducing impediments to downstream innovation
        Possible residual role for stimulating innovation with respect to:
          intermediate results of  ongoing research;
          nontechnological commercial information;
          unpatentable but not easily  reverse engineered innovations
      (b) Avoid socially wasteful investments in:
        (i) security precautions (Lemley)
          Criticism: current rules seem poorly aligned with this objective
          Rebuttal: Channeling function of the precautions (Lemley)
        (ii) rent seeking
          Industrial espionage
      (c) facilitate socially beneficial partial disclosures of information
        e.g., to (potentially mobile) employees
        e.g., to potential contractual partners
        Provides a way to avoid Arrow’s paradox
      Undermined by comparative studies of US states
    Justification #2: Fairness
      (a) respect natural property rights acquired through labor
      (b) respect customary standards of commercial morality
      Criticism: Holmes & Brandeis in INS v. AP
    Justification #3: Personhood
      (a) Protect persons' right to control dissemination of their ideas
        “Just as a person’s sense of herself is intimately connected with the stream of ideas that constitutes consciousness, her public persona is determined in part by the ideas she expresses and the ways she expresses them. To require public disclosure of one’s ideas and thoughts -- whether “personal” or other matters -- would distort one’s personality and, no doubt, alter the nature of one’s thoughts. It would seriously interfere with the liberty to live according to one’s chosen life plans. This sort of thought control would be an invasion of privacy and personality of the most intrusive sort. If anything is private, one’s undisclosed thoughts surely are.” Paine
      (b) Foster relationships of trust, confidence and teamwork
        “Shared knowledge and information of varying types are central to work relationships and communities -- academic departments  and disciplines, firms, teams -- as well as other organizations. The possession of common ideas and information , to the exclusion of those outside the relationship or group, contributes to the group’s self-definition and to the individual’s sense of belonging. By permitting and protecting the sharing of confidences, trade secret principles, among other institutions, permit “special communities of knowledge” which nurture the social bonds and cooperative efforts through which we express our individuality and pursue common purposes.” Paine
      Limitations of the argument
        only applies to individuals
        impediments to mobility of skilled labor
  Requirements for Liability
    Impermissible Activities
      Breach of Confidence
        confidential relationship
        implied confidentiality obligations
          reliance on commercial custom and tacit understandings
      Illegal Conduct
        e.g., fraudulent misrepresentations; phone taps
      Secret was discovered through “improper means”
        Legal but immoral means (e.g., overflights)
        DTSA defines “improper means” as “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain
secrecy, or espionage through electronic or other means”
    Permissible Activities
      Independent research
      Reverse Engineering
      Under DTSA: revelation of a TS to a government agency by a whistleblower
    Liability of 3rd parties
      Traditional rule: liability attaches if D knew or had reason to know of the secrecy and that improper means were used to gain access to it
      DTSA liberalizes requirements for 3rd-party liability (18 U.S.C. §1839(5))
        Misappropriation includes:
          1. 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
          2. disclosure or use of a trade secret of another without express or implied consent by a person who—
            used improper means to acquire knowledge of the trade secret;
            at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was—
              derived from or through a person who had used improper means to acquire the trade secret;
              acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or
              derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or
            before a material change of the position of the person, knew or had reason to know that—
              the trade secret was a trade secret; and
              knowledge of the trade secret had been acquired by accident or mistake
      e.g., Google v. Uber (ongoing)
  Requirements for protection
    (1) Information must have been “secret” initially
      limited disclosures to partners permitted
      unclear whether obscurity is sufficient
      OK if components are public so long as the combination remains secret
    (2) Plaintiff must have made reasonable efforts to keep it secret
    (3) The information must be commercially valuable
    (4) For the DTSA, the secret must be related to “a product or service used in, or intended for use in, interstate or foreign commerce.”
      18 U.S.C. §1836(b)(1)
  Subject matter
    Restatement Definition: a process or device for continuous use in the operation of a business
      information pertaining to contents of or manufacture of a product
      process of treating or preserving materials
      information relating to business operations
      customer lists
      computer programs
    Uniform Trade Secrets Act (UTSA) expands subject matter to include
      single or ephemeral events
      negative information
    Defend Trade Secrets Act (DTSA) adopts similarly capacious coverage
      “All forms and types of financial, business, scientific, technical, economic, or
engineering information, including patterns,
program devices, formulas, designs,
techniques, processes, procedures, programs,
tangible or intangible, and whether or how
memorialized physically, electronically,
photographically, or in writing”
        18 U.S.C. §1839(3)
  History
    Largely created by English and American common-law courts in early 19th century
    Common-law roots
      breach of confidence
      misappropriation
      unfair competition
      unjust enrichment
      trespass
    Stages in the USA
      Late 19th century: "property theory"
      1939-1980: First Restatement of Torts dominates the field
        Sections 757-758
        Multifactor test, demotes security precautions to a "factor"
      1980-2016: UTSA dominates the field
        text of UTSA
        Massachusetts is one of the few holdouts
      1996: Economic Espionage Act
      2016: federal Defend Trade Secrets Act (DTSA)
        No preemption of state laws
        Effective May 11, 2016
    International Coverage
      TRIPS art. 39 requires recognition of trade secrets
      but implementation outside common-law countries remains thin