Update On Trade Secret Law

1. Introduction

   Despite the widespread adoption of the Uniform Trade Secrets

   Act, trade secret principles continue to develop primarily

   through the common law. It is this reliance on a few broadly

   stated rules, whether from the Uniform Act or from the

   Restatement (of Torts or, since 1995, of Unfair Competition),

   that distinguishes trade secret law from the other three main

   forms of intellectual property, each of which is based on a

   federal statute. That reliance also reflects the policy

   tension, present in most trade secret cases, between the need

   to support investment in useful data and the need to respect an

   individual's right to pursue his or her career. As the

   information age continues to unfold, we can expect the stream

   of case law to continue.

   What follows is a sampler of developments during the last

   year, with cases reported through February 2008. The cases

   chosen are those which seem to provide useful clarification of

   issues likely to come up repeatedly in the intellectual

   property lawyer's caseload.

2. Uniform Act Preemption (or

   "Displacement") of Alternative Claims

   One of the most interesting and meaningful issues considered

   by courts is the extent to which the Uniform Trade Secrets Act

   preempts - or "displaces" in the statutory

   terminology - other theories of state law that might

   apply to misappropriation of information. This is based on

   section 7 of the UTSA which, with some variation among the

   states, provides that the statute "displaces conflicting

   tort law, restitutionary law and any other law . . . providing

   a civil remedy for misappropriation of a trade secret."

   Most courts dealing with the question have applied section 7

   rigorously to achieve the Uniform Act objective of providing a

   single cause of action to replace an unnecessary variety of

   claims.

   We can expect continuing developments in this critically

   important, but controversial, aspect of the Uniform Act. A

   recent split decision by the Wisconsin Supreme Court, in

   Burbank Grease Services, LLC v. Sokolowski, 717 N.W.2d

   781 (Wis. 2006), gave preemption a narrow reading, allowing

   plaintiffs the option of pursuing alternative claims where

   trade secrets cannot be proved. The early response has been to

   brand this approach as a "minority view" and wrong.

   Chatterbox, LLC v. Pulsar Ecoproducts, LLC, 2007 WL

   1388183 at *3 (D. Idaho 2007) (reviewing case law). See also

   Patriot Homes, Inc. v. Forest River Housing, Inc., 489

   F.Supp.2d 865 (N.D. Ind. 2007) (plaintiff has no

   "election" to pursue alternative claims where Uniform

   Act applies).

3. Proving Trade Secrets

   One essential element of a plaintiff's burden to prove

   trade secret misappropriation is that the information provides

   competitive value. This is true whether the controlling law is

   the Uniform Trade Secrets Act or the common law as expressed in

   the 1939 Restatement of Torts or the 1995 Restatement of Unfair

   Competition. In practice, however, plaintiffs sometimes

   overlook the need to provide specific evidence on this issue,

   with severe consequences. See, for example, Yield Dynamics,

   Inc. v. TEA Systems Corp., 154 Cal.App.4th 547, 66

   Cal.Rptr.3d 1 (Cal.App. 2007) (affirming judgment for

   defendant; in software dispute, plaintiff failed to address the

   specific routines allegedly misappropriated by demonstrating

   that their "net value" to defendant - after

   accounting for the inefficiency of the appropriation -

   was more than trivial). See also Global Water Group, Inc.

   v. Atchley, 244 S.W.3d 584 (Tex.App. 2008) (JMOL properly

   granted to set aside plaintiff jury verdict when plaintiff

   offered insufficient evidence to show that its claimed secret

   formula provided competitive value).

   Value also matters in cases involving compilations of

   information, such as customer databases. One case has

   emphasized the difference between a simple list of customers

   and addresses, which may not qualify as a trade secret, and

   compilations of other customer-related data such as

   correspondence, historical costs, and the like. San Jose

   Construction, Inc. v. S.B.C.C., Inc., 155 Cal.App.4th, 67

   Cal.Rptr.3d 54 (Cal.App. 2007) (where the latter sort of

   information is concerned, the existence of a protectable trade

   secret is more likely to be a triable question of fact,

   precluding summary judgment). See also Lydall, Inc. v.

   Ruschmeyer, 282 Conn. 209, 919 A.2d 421 (Conn. 2007)

   (injunction against use or disclosure of entire combination

   secret is overbroad as to individual components which cannot

   qualify as trade secrets).

4. Litigation Strategy

   One important aspect of pre-litigation strategy is whether

   and when to send a letter to someone who might be misusing your

   technology. Among other things, you may risk triggering the

   running of a limitations period. Recent signals from the courts

   on this issue are mixed. Compare Epstein v. C.R. Bard,

   Inc., 460 F.3d 183 (1st Cir. 2006) (complaint dismissed

   where in an early letter a licensor "wondered out

   loud" about the legitimacy of the licensee's continued

   sales after expiration of the license) with the more forgiving

   attitude of the court in Porex Corp. v. Haldopoulos, 284

   Ga.App. 510, 644 S.E.2d 349 (Ga.App. 2007). There the plaintiff

   had sent two letters, the first saying it had "strong

   reason to believe" a misappropriation had occurred, the

   other claiming it was "inconceivable" that the

   defendant had been able honestly to establish a competing

   business so quickly. The court denied summary judgment, noting

   that the plaintiff had only discovered the

   "objective" facts indicating a misappropriation more

   than five years later, when it toured the defendant's

   facilities while considering a potential acquisition.

   Of course, no matter how long you wait around while secret

   information is being misused, you may not have a fatal

   limitations problem if your state recognizes trade secret

   misappropriation as a "continuing tort," allowing the

   plaintiff to recover damages at least for the limitations

   period. See Harry Miller Corp. v. Mancuso Chemicals

   Ltd., 469 F.Supp.2d 303, 318 (E.D. Pa. 2007).

   Once you have sued, you would do well to continually assess

   the merits of your case, and be prepared to dismiss if the

   emerging facts belie your original, reasonable assumptions. The

   consequence of forging ahead may be an attorneys' fee award

   based on continued prosecution of a claim that was properly

   filed at first. See CRST Van Expedited...