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


    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...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT