ENCYCLOPEDIA OF LABOR AND EMPLOYMENT LAW AND ECONOMICS, Dau-Schmidt, Harris & Lobel, eds., Edward Elgar Publishing, 2009
San Diego Legal Studies Paper No. 08-059

ORLY LOBEL, University of San Diego - School of Law, Harvard Law School
Email: lobel@sandiego.edu

This chapter, for the forthcoming Encyclopedia of Labor and Employment Law and Economics, provides an overview of legal and economic analysis of contractual and regulatory constraints on the use of knowledge, skill and information acquired during the employment relationship. Three interrelated areas of employment regulation are discussed: (1) Covenants not-to-compete; (2) trade secrets and non-disclosure agreements; and (3) employee inventions, including pre-invention patent assignment agreements. Drawing both on theoretical literature and empirical analyses of different parts of the labor market, the chapter considers the effects of employment-based intellectual property ('EIP') law on market innovation and mobility and analyses recent studies of high velocity markets in relation to EIP law.

Paul A. Tedesco

Introduction

Universities, contract research and early stage companies involved in drug discovery or development of platform technologies will often partner with larger firms. Patent applications are usually inappropriate during these preliminary phases, yet most of these collaborations require considerable transfer of files and data between and among different entities...a challenge for protecting trade secrets and other intellectual property.

As a company or university, when you think about protecting your data you will normally think immediately about the data itself. So you will most likely direct your protection processes toward the immediate protection of your data. You will watch the content of your data determining if the data is critical and needs to be protected. Not all of your data needs to be protected. You would monitor all of your outbound information that could be in many different formats. You would also monitor the output for you to meet the regulatory requirements. You would monitor your user and content based information, allowing specific users to use only specific information.

Faiveley Transport Malmo AB v. Wabtec Corp. (8/22/08)

The court granted in part and denied in part Faiveley's motion for a preliminary injunction. The information at issue (data set forth in manufacturing drawings) did constitute trade secrets. Such information was not widely known outside the business; the evidence showed that no other company had succeeded in producing a complete BFC TBU unit. In addition, Faiveley took ample measures to protect the confidentiality of the information and devoted substantial resources to developing the BFC TBU. It would take considerable resources to duplicate Faiveley's technologies and such information was very valuable to Faiveley. While Wabtec claimed that it produced the manufacturing drawings through a bona fide reverse engineering process, that process was tainted by Faiveley's know-how.

Spectrum sought $21.2 million in lost profits as of August 2006, and CKI was seeking royalties of $1 million. Each said its damages were continuing to accrue. They also sought attorney fees.

Plaintiff Spectrum Creations, a seller of lamps, light fixtures, and other home decorating products, claimed that lamp designer Carolyn Kinder International (CKI) failed to provide all the designs called for in their 2003 design services agreement.
CKI had longstanding design services agreements with The Uttermost Co., a competitor of Spectrum, but in early 2003, Spectrum had approached CKI and Uttermost about a possible three-way agreement under which they could sell lamps to Home Depot, where Spectrum's principal had connections in the buying department.
Negotiations over the potential three-way agreement fell through, but Uttermost did allow CKI to enter into what it described as a limited design services agreement with Spectrum.
Later, besides claiming that CKI breached the agreement, Spectrum claimed that Uttermost violated Spectrum's copyrights by selling certain CKI-designed lamps to Home Depot from 2004 to 2006.
Spectrum sued CKI and Uttermost for conspiracy, copyright infringement, tortious interference, breach of fiduciary duty, common law unfair competition and trade secret misappropriation. Against CKI, it also asserted breach of contract.
The defense denied the allegations, and CKI counterclaimed against Spectrum for breach of contract, alleging nonpayment of royalties.
The case was tried to the bench.
The parties agreed to obtain a decision on liability before proceeding to the damages phase of trial.
Those rulings were on Feb. 13, 2008. The damages phase was not reached, because on or about May 14, the parties settled. Under the settlement, Spectrum and CKI released their claims against each other without payment. Spectrum must pay Uttermost's court costs, but is allowed to continue producing and selling CKI-designed products and need not pay royalties on them.

Radiant Skincare sought damages for lost profits and unjust enrichment, as well as punitive damages.

In 2002, plaintiff Radiant Skincare Clinic began providing non-surgical aesthetic services.
In 2004, Linda Moore, one of the founding partners, left to start a competing business, Rejuvenate Inc. Radiant Skincare claimed that Moore used its customer list to seek clients for her new business.
Radiant Skincare sued Moore and Rejuvenate for breach of contract and misappropriation of trade secrets. Plaintiff's counsel contended that Moore solicited customers from Radiant Skincare's customer list in violation of a written agreement and the Uniform Trade Secrets Act.
Moore contended that she had a right to contact the customers on the list because she had treated them personally. She also contended that she did not solicit them, but merely told them about her new business.

663 S.E.2d 743, 2008-1 Trade Cases P 76,184, 8 FCDR 1907

Franchisee brought action against franchisor, alleging that
franchisor wrongfully terminated franchise agreements. The Superior Court, Cobb
County, Robinson, J., granted partial summary judgment in favor of franchisee,
denied franchisee's motion for judgment on the pleadings, and denied franchisor's
motion for summary judgment. Appeal was taken.

Holdings: The Court of Appeals, Johnson, P.J., held that:

(1) covenant not to compete was unenforceable;

(2) post-termination covenant not to compete was unenforceable; and

(3) non-disclosure restriction was enforceable as to franchisor's trade secrets.

Affirmed.

Cargill and Can claimed $10.4 million in damages as a result of the alleged misappropriation of trade secrets and breach of the confidentiality agreement.

On Jan. 31, 2007, Matt Budine, Brian Sundberg and Luciana Jonkman left plaintiff Cargill Incorporated to form their own dairy-nutrition consulting business, Progressive Dairy Solutions Inc. The employees had worked in Cargill's dairy feed division, and were allegedly unhappy with Cargill's feed-formulation practices.
Cargill and Can Technologies, a subsidiary, sued Budine, Sundberg, Jonkman and Progressive Dairy, alleging misappropriation of trade secrets, conversion, breach of confidentiality agreements and breach of loyalty. The plaintiffs alleged that the former employees departed with nutritional data and customer feed formulas.
A temporary restraining order was issued for production of computer data. Immediately upon filing the lawsuit, Cargill launched a massive press campaign designed to advise the dairy industry that a suit had been filed and the reasons for litigation. The company also sent over 300 letters to dairy customers to advise them of the litigation and alleged reasons.
The defendants denied misappropriation of trade secrets or confidential information.
They filed a counterclaim, alleging that Cargill had engaged in unfair business practices, and that the true motive behind the lawsuit was to launch a press-and-media campaign designed to crush the defendants' new business and disparage their reputations.
The counterclaim is still pending before the court.

VerdictSearch California Reporter Vol. 7, Issue 36

Cargill and Can claimed $10.4 million in damages as a result of the alleged misappropriation of trade secrets and breach of the confidentiality agreement.

On Jan. 31, 2007, Matt Budine, Brian Sundberg and Luciana Jonkman left plaintiff Cargill Incorporated to form their own dairy-nutrition consulting business, Progressive Dairy Solutions Inc. The employees had worked in Cargill's dairy feed division, and were allegedly unhappy with Cargill's feed-formulation practices.
Cargill and Can Technologies, a subsidiary, sued Budine, Sundberg, Jonkman and Progressive Dairy, alleging misappropriation of trade secrets, conversion, breach of confidentiality agreements and breach of loyalty. The plaintiffs alleged that the former employees departed with nutritional data and customer feed formulas.
A temporary restraining order was issued for production of computer data. Immediately upon filing the lawsuit, Cargill launched a massive press campaign designed to advise the dairy industry that a suit had been filed and the reasons for litigation. The company also sent over 300 letters to dairy customers to advise them of the litigation and alleged reasons.
The defendants denied misappropriation of trade secrets or confidential information.
They filed a counterclaim, alleging that Cargill had engaged in unfair business practices, and that the true motive behind the lawsuit was to launch a press-and-media campaign designed to crush the defendants' new business and disparage their reputations.
The counterclaim is still pending before the court.

VerdictSearch California Reporter Vol. 7, Issue 36

JON CHESTO; By JON CHESTO, The Patriot Ledger

BOSTON - A Boston energy company that makes synthetic gas from construction and demolition debris faces a legal fight from a pair of firms that claim their patents and trade secrets have been misappropriated.

Quantum Catalytics LLC of Fall River and Texas Syngas Inc. sued Ze-gen Inc. in Boston federal court on Aug. 22, claiming Ze-gen improperly uses patents and trade secrets that belong to Quantum and Texas Syngas.

The technology in question converts coal or wood waste into a synthetic gas through a chemical process involving molten metal. The process is considered to be a much cleaner way to harness energy from coal or wood than traditional burning, which can unleash smog- causing pollutants.

If the technology eventually gains widespread acceptance, it could make this country less dependent on foreign fuel sources by using fuel for power plants or transportation from domestic resources or waste.

Michael Sydow, the chief executive of Texas Syngas, said in an interview that Ze-gen has built its business on the work of Texas Syngas, Quantum and a former Fall River company, Molten Metal Technology Inc.

Quantum acquired Molten Metal patents in a bankruptcy sale in the late 1990s. Sydow said Texas Syngas eventually signed an exclusive license agreement with Quantum to use the Molten Metal technology, a deal that made Quantum a co-owner of Texas Syngas.

"There's been about $200 million spent developing this technology and Ze-gen is attempting to use it for free," said Sydow, who said Texas Syngas is changing its name to NC12 and is now run out of a Cambridge office.

The suit resembles one that was originally filed in a Texas federal court. Sydow said that suit was rejected because of jurisdictional issues.

Bill Davis, the CEO of Ze-gen, said his company will vigorously defend itself against the latest suit. He said Ze-gen will file a prompt response in Boston federal court.

"It's not the first time we have been sued by this particular collection of characters," Davis said. "It's a frivolous case. It has been brought by 'patent trolls' whose motives are to extort money from the company."

In their lawsuit, Quantum and Texas Syngas claim that Davis and Ze-gen hired individuals who had firsthand knowledge of the Molten Metal technology. The plaintiffs also allege that an employee who worked for a consultant for Texas Syngas was later hired by Ze-gen so Ze-gen could get gasification technology now used in a Ze-gen plant in New Bedford.

Sydow said Davis originally tried to reach a licensing agreement with Quantum, but the two sides couldn't agree on financial terms. "We own all of this intellectual property," Sydow said. "We don't think Ze-gen has any right to use any of it."

The Ze-gen and Quantum/Texas Syngas plants in New Bedford and Fall River are used for demonstrations and research. However, the companies hope to open their own commercial plants in the near future. Davis said his company wants to open a commercial plant in New England by the end of 2009. Meanwhile, Sydow said his firm is developing a commercial plant in Louisiana.

E.I.P.R. 2008, 30(8), 309-319)
European Intellectual Property Review

TRADE SECRETS AND THE ROME II REGULATION ON THE LAW APPLICABLE TO NON-CONTRACTUAL OBLIGATIONS

Christopher Wadlow.

Discusses the protection of trade secrets in private international law, focusing on the impact of Regulation 864/2007 (Rome II). Notes what is determined by the applicable law and details the approach of the travaux preparatoires and Regulation to unfair competition. Reflects on the problems that lack of a harmonised trade secrets law poses for the practical application of the three alternative rules in art.4, including the difficulty of applying the common personal law rule, establishing what constitutes damage and determining the "proper law" of the tort.

8/26/2008 Legal Intelligencer

Darin W. Snyder and David S. Almeling

Trade secret litigation presents a unique issue in intellectual property litigation. With all other types of intellectual property, the subject matter is identified in publicly available material -- a registered copyright or trademark, an issued patent or a publicly available product. Trade secrets, by definition, are not publicly available or publicly defined. Accordingly, an issue in all trade secret cases is that plaintiffs must identify their alleged trade secrets.

Yet there is no consensus about when or how plaintiffs must identify their trade secrets. Courts are, however, increasingly requiring plaintiffs to identify with particularity each allegedly misappropriated trade secret during the early stages of discovery. This trend helps litigants to focus their dispute and courts to resolve the litigants' conflict.
Plaintiffs often assert that there is no way to identify each trade secret before they conduct discovery. They also often argue that they need not identify the allegedly misappropriated trade secrets because defendants 'know what they took.' Neither of these arguments is persuasive because plaintiffs must possess -- before filing suit and long before any discovery -- a good-faith basis for alleging that they possess a trade secret that has been misappropriated. Even when they acknowledge their duty to identify the trade secrets, plaintiffs often want to keep their options open by delaying identification for as long as possible and by drafting their identification as expansively as possible. They argue that discovery is broad and should not be cabined by when or how they identify their trade secrets.

Defendants, conversely, often want plaintiffs' identification to be as early and precise as possible. They maintain that such identification assists the court in framing the scope of the litigation in general and discovery in particular, enables defendants to prepare their defenses, and prevents meritless suits from progressing to the burdensome discovery stage.

SURESNES, France, (BUSINESS WIRE)

After investigation, Siemens admitted having found a list of 3216 customer names from Germany, Switzerland and Austria, as mentioned by the FAZ article. Siemens did not provide any explanations regarding how such trade secret was made available to Siemens PLM, nor how this sensitive information had been exploited, despite its presence on their intranet.

INDIAN GOVERNMENT COMMITTEE SAYS "NO" TO DATA EXCLUSIVITY

by Shamnad Basheer on http://spicyipindia.blogspot.com/

After multiple deliberations spanning more than 3 years, a government committee has finally submitted its report on regulatory data protection and Article 39.3 of TRIPS. It finds that Article 39.3 does not require "data exclusivity" and that, at the present moment, it may not be in India's national interest to grant "data exclusivity" to pharmaceutical drug data. It relies heavily on the Doha Declaration to support this interpretation.

It argues that a "trade secrecy" form of protection is sufficient to comply with Article 39.3 and that India already provides for this (via common law principles). However, it cautiously recommends that since there has been no instance thus far of common law trade secrecy provisions applying to the government, this position be made more explicit in the Drugs and Cosmetics Act.

I had submitted a report to the Committee arguing that the US and EU claim that Article 39.3 requires data exclusivity is a false one and directly at odds with TRIPS negotiating history. However, my reading of Article 39.3 also suggested that a "trade secrecy" form of protection is not sufficient to comply with Article 39.3.

No doubt, this Article is perhaps the most contentious of all TRIPS provisions therefore the most "flexible" one--reflective, perhaps of the fact that pharma companies weren't as concerned about this Article at the stage of TRIPS negotiation [agro chemicals were pushing harder for this] and there were various disagreements between the US, EU and Japan on this, the three industrial superpowers that dictated the wordings of most of the TRIPS provisions. The compromise position was therefore a very watered down provision, that is now the subject of much interpretation and debate.

The various flexibilities notwithstanding, I argued that Article 39.3 spoke about two distinct standards:
i) Protection against unfair commercial use
ii) Protection against "non disclosure"

Therefore, it is non-sensical and against well known canons of treaty interpretation to argue that the first standard (protection against unfair commercial use) is the same as the second one (non disclosure). And yet, this is exactly what the government report argues ---that the term "unfair commercial use" means a trade secrecy form of protection [or a protection against "disclosure"). These are two separate standards, and quite clearly, "unfair commercial use" cannot represent a mere protection against non disclosure.

In sharp contrast with the above recommendation pertaining to pharmaceutical data, the Committee recommends the grant of a 3 year exclusivity term for agro chemicals and a 5 year term for traditional medicines.

I will comment on this in greater detail, once I've seen the committee report. In the meantime, I'm banking on the accuracy of Sarah Hiddleston's report in the Hindu (she's been doing a great job thus far on various pharma patent issues):

"In an important win for the domestic pharmaceutical industry, a government committee has concluded that there is no need to change the laws that govern drug registration in the country. It has recommended against allowing pharmaceutical companies exclusive rights to clinical trial and other test data they submit when registering a new drug for sale in the country. Instead, it proposed that data be treated as a trade secret under common law. However, it suggested that this might be reviewed after an unspecified period of debate.

The Satwant Reddy Committee, an inter-departmental group, was constituted in February 2004 to review the protection of undisclosed information in the light of intellectual property rights set down by the World Trade Organisation. It submitted its report to the Ministry of Chemicals and Fertilizers on May 31 -- the day its chairman, Satwant Reddy, stepped down from office.

It noted that the country was entitled to determine the appropriate method of implementing WTO intellectual property rights recommendations but pointed out that there was a need for transparent legal mechanisms to protect undisclosed test data. As such, it recommended separate provisions for three different sectors. So while it advocated that test data for pharmaceutical drugs be protected as a trade secret under common law, it has recommended giving three years of exclusive rights to test data for companies registering new agro chemicals and five years of exclusive rights to test data for companies registering new traditional medicines. This would effectively give a company that first registers a new product sole access to the market for the duration of the right.

The domestic pharmaceutical industry will avoid the delays, costs, and the ethical black hole of retesting a generic drug. This is because the drugs regulator, which judges how safe and effective a drug is, will continue to be able to refer to the clinical trial data of an original drug to approve generic versions that are chemically the same (bio equivalent).

Multinational pharmaceutical companies, backed by the US and the EU, had lobbied for a five-year data protection term to recoup investments in clinical trials and encourage innovation. They claimed that Indian practice constituted ``unfair commercial use'' and contravened the internationally agreed guidelines laid down by the World Trade Organisation on intellectual property.

The domestic pharmaceutical industry and public interest groups had opposed this. They argued that it was a means for foreign owned pharma companies to avoid competition and make extra profits on drugs with expiring patents or drugs that were not patented because they lacked innovation. They maintained that WTO intellectual property rights, which award patents for innovation, were being deliberately confused with the separate process of registering drugs.

In committee reasoned, that "there was enough flexibility in the [WTO] TRIPS [trade related aspects of intellectual property rights] Agreement for a country to determine the appropriate means of protecting test data.'' It cited paragraph 4 of the Doha declaration, which states that the WTO Agreement should be "interpreted and implemented in a manner supportive of WTO members' right to protect public health and... promote access to medicines." It also recommended that in order to ensure confidentiality of data, additions should be made to the Drugs and Cosmetics Act 1940 to specify third party liability for unauthorized use and make data protection enforceable through courts.

However, the committee kept the door open for higher standards of data protection for a pharmaceutical innovator in the future. It suggested a five-year data exclusivity model for discussion with 14 safeguards to prevent excessive monopolies and enable the government to override data protection in the case of a public health emergency.

G.S. Sandhu, Joint Secretary, Department of Chemicals and Fertilizers, which authored the report, said that the future model for pharmaceuticals was not a recommendation but a base from which discussion should begin. He stressed the importance of as wide a debate as possible and said that critical upgrades were necessary in the infrastructure and technical skills of the drug regulator before higher standards of protection could be considered."

By Brezis, Mayer Belmaker, R H
Recent events and reports increasingly suggest misalignment between the interests of the pharmaceutical industry and those of public health. Johnson & Johnson illegally and effectively promoted Propulsid off-label for children despite internal company documents raising safety concerns. Death in drug trial has been described as a "trade secret." On Vioxx, Topol wrote: "Sadly, it is clear that Merck's commercial interest exceeded its concern about the drug's toxicity" (2). More and more concerns are raised by scholars and major journal editors about the type and the quality of published evidence, often biased towards efficacy of new products.
This year, similar concerns have been expressed by the editors of The New England Journal of Medicine, commenting that an original article on Vioxx did not accurately represent the safety data available to the authors. Since 2001 Merck has been denying the risk of myocardial infarction, spending around $160 million/year in advertising Vioxx. Merck sent a note to its sales representatives, ordering: "Do not initiate discussions on [this topic]" and instructing them to show doctors asking about Vioxx and myocardial infarction a pamphlet prepared by its marketing department, indicating that Vioxx was associated with reduced cardiovascular mortality (10). Topol concluded: "Sadly, it is clear to me that Mercks commercial interest (...) exceeded its concern about the drug's (...) toxicity" (2). When fighting a pharmaceutical giant, it may not be wise to be so outspoken: While Merck's CEO received over $30 million in bonus and stock options in 2004, Topol was recently fired from his position at the Cleveland Clinic.

International Aspects of Trade Secrets Law
by Karen A. Magri

There is no global law of trade secrets or even a definition of what constitutes a trade secret. Moreover, unlike the case for patent, copyright, and trademark law there are no comprehensive international treaties pertaining to trade secrets. NAFTA (Art. 1711) and TRIPs (Art. 39) provide only brief attention to the topic. Prior to these agreements, Article 10bis of the Paris Convention (covering unfair competition) provided a potential source of support for international standards of trade secret protection, but the language of this provision is only poorly-suited for this purpose.

What does appear to be universally accepted is that to be protected as a trade secret, the subject matter must be kept "secret" - although there is some variation in how that term is construed. The RESTATEMENT OF TORTS provides a definition that represents a fairly good approximation of the international consensus: "As a general rule, a trade secret can be any information not commonly known in the relevant industry that is used in connection with a business to obtain a competitive advantage and the information is secret, is identifiable, and is not readily ascertainable." This general rule being stated, it is cautioned that the subject matter that can be protected as a trade secret will differ among nations, with some (e.g., the Philippines) providing no legal protection for trade secrets at all.

As the leading exporter of technology (including trade secrets) worldwide, the United States is increasingly concerned with strengthening international standards for the protection of trade secrets. The United States has been aggressive in demanding stronger trade secret protection of American technology by foreign countries. These efforts have been relatively successful: the United States prevailed in bringing intellectual property issues under the rubric of international trade and the GATT. In addition, many Asian nations have enacted new trade secret laws (often providing legal recognition of trade secrets for the first time) as a result of threats by the United States to impose trade sanctions for failing to provide adequate protection of American intellectual property within their borders.

Nonetheless, those in the American legal and business communities may find identification of the law of trade secrets in foreign jurisdictions to be elusive. As is true in the United States, legal protection of trade secrets in other nations can be derived from many diverse sources of law. For example, a cause of action for misappropriation of trade secrets may lie in contract law, tort law, unfair competition law, criminal law, and the laws governing employee/employer relations and fiduciary obligations. The amorphous nature of trade secrets law often presents a challenge, and potential pitfalls, to American businesses that seek to operate in foreign jurisdictions or enter international markets.

By Sharon Gaudin
September 12, 2008 (Computerworld) A former Intel Corp. design engineer has been charged with theft of trade secrets from the chip maker while secretly working for rival Advanced Micro Devices Inc.

Biswamohan Pani was charged in U.S. District Court in Boston in late August.

According to an affidavit filed with the courts, Pani began working at the Hudson, Mass., facility, where Intel does research and product development, in 2003. One of the projects Pani worked on was the design of the Itanium processor.

According to the affidavit, investigators found no reason to believe that AMD was involved in the alleged theft of trade secrets.

"At this point, there has been no evidence that AMD knew that Pani had downloaded Intel's files, had encouraged Pani to do so or that it received those files at all," wrote FBI Special Agent Timothy Russell in the affidavit. "It appears at this point that Pani obtained Intel's trade secrets to benefit himself in his work at AMD without AMD's knowledge."

Michael Silverman, a spokesman for AMD, said in an e-mail to Computerworld that the company is cooperating fully in the investigation. AMD no longer employs Pani.

Intel spokeswoman Claudine Mangano said the company cannot comment on an ongoing investigation. "We're aware of the charges," she added. "Upon learning of the potential issues involving this individual, Intel asked the Department of Justice and the FBI to investigate. We will continue to cooperate."

Pani resigned from Intel in late May, saying that he was going to work at a hedge fund and take accrued vacation time until his last official day on June 11, according to the affidavit. However, Pani began working for AMD on June 2, during that vacation period when he was still employed by Intel, according to the affidavit.
Between June 8 and June 10, while working for both chip makers, Pani allegedly remotely accessed and downloaded 13 top secret documents from an encrypted system at Intel. Some of the downloaded documents allegedly include design details on Intel's newest chips.
http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9114592

Tata Motors argument before the Calcutta High Court of treating The Tata Nano project as a commercial project for the purpose of disclosure of its pact with West Bengal Industrial Development Corporation (WBIDC) and treating the same as Trade Secret has not gone down well.
The argument is contrary to their argument of the project being a "public project" for the purpose of land acquisition and now the plea of project being treated as a private one for non disclosure of the entire agreement.

Live Mint "The Wall Street Journal" Reports:

Confusing the Singur issue

Tata Motors argued in court that the agreement between the three parties was a trade secret and hence should not be revealed in its entirety.

Tata Motors is opportunistically treating the proposed car plant at Singur as a public project in one instance and as a private commercial one in another. It should be asked to decide.
The Calcutta high court on Friday passed an interim, two-week stay on an order by the West Bengal information commissioner, asking the state government to make public the agreement on the Nano project between the government, the West Bengal Industrial Development Corporation (WBIDC) and Tata Motors.
Parts of the agreement are already available for public viewing on the state industrial body's website. But a right to information activist asked for the entire details of the agreement, including certain annexures, to be made public. Tata Motors argued in court that the agreement between the three parties was a trade secret and hence should not be revealed in its entirety.
The implicit assumption here is that the deal between Tata Motors and West Bengal involves a private commercial project. We see no reason to dispute that. It is quite likely that the relevant annexures in the agreement have details on the project economics that Tata Motors would rather not share with the outside world, especially its competitors.
But this does not quite square up with the fact that the company is planning to put up its project on 997 acres that have been forcibly acquired from farmers in Singur. In this instance, the state government has made use of an antiquated and unfair colonial law that allows it to take over land for public purpose.
We have argued earlier in these columns that in the rare cases that the state should be allowed to take over private land, it should be restricted to those projects that satisfy the technical definition of a public good -- non-rival (more than one person can use it at the same time, as in the case of a street lamp) and non-excludable (where it is impossible to leave any "consumer" out, as in national defence).
The Tata Nano project cannot be treated as a public project in one context (land acquisition) and as a commercial project in another (disclosure of its pact with West Bengal). Such duality gives development a bad name.
Should the Tata-WBIDC agreement be kept secret?

Durham biotech company Serenex Inc. has won a $57.5 million judgment against a former contract worker and others who, a judge says, spied on Serenex and stole its trade secrets.
Judge Donald Stephens handed down the judgment Sept. 2 in Wake County Superior Court against Yunsheng Huang, Tongxiang Zhang, Beijing Gylongli Sci. & Tech. Co. Ltd., and GYLL BioMedTech Inc. In addition to misappropriating trade secrets, the court concluded, the defendants also engaged in an unfair and deceptive trade practice.
Serenex filed the lawsuit in June 2007, saying that Huang, a former contract chemist, had stolen trade secrets and funneled them to Zhang, a Chinese businessman. The two Chinese companies in the lawsuit at one time were listed as having offices at Huang's Apex residence.

Serenex, which develops cancer drugs, was bought by pharma giant Pfizer earlier this year.

http://www.bizjournals.com/triangle/stories/2008/09/01/daily17.html

This case illustrates some interesting possibilities. First, it is likely a company will reveal its wrongful use of its competitor's proprietary information through electronic "fingerprints." A company that utilizes a competitor's proprietary information in its business probably has committed it to electronic form, and, if you are the plaintiff, you may well be able to find it. As a closer examination of this decision demonstrates, the tools available to scan files and identify key words and other patterns are mind-boggling.

Worldwide: China´s National IP Strategy 2008
Feasible Commitments Or Road To Nowhere Paved With Good Intentions?

Danny Friedmann

China's State Council promulgated a national intellectual property strategy [1]. In the policy document there is a lot of talk about doing everything more efficient and more effective. Great, but how to achieve these laudable goals?
Over the last two decades, and especially around the time China ascended to the World Trade Organisation (WTO) in 2001, China impressively improved its system of IP protection and enforcement. However, it's aspirations to make the enforcement "hard as steel and definitely not soft as bean curd" as China's premier Wen Jiaobao aspired for in 2006 [2], have not yet materialised. In the so called Compendium of China's National Intellectual Property Strategy [3], an extensive list of aspirations and measures, China is vowing to develop itself into a country with a relatively higher level of intellectual property right creation, utilisation, protection and administration by 2020.
So what exactly is a national IP strategy? Are all desired goals and commitments in there? What is missing? And how to achieve the goals set out in the strategy?
What is a national IP strategy?

From our friends at IPfrontline

Tuesday, September 16, 2008
by: William A. Nolan

Departing employees can all too often spawn trade secret litigation in the chemical industry. This longtime issue is now frequently combined with the newer issues associated with electronic discovery. A recent example is provided by a lawsuit between two rival chemical companies.

Software Licensing Agreements

Bro-Tech Corp. v. Thermax, Inc., Case No. 05-2330, is a trade secrets case involving Bro-Tech, a designer and manufacturer of Purolite products for purifying air and water. Bro-Tech sued Thermax, one of its competitors, when some of its former employees went to work for Thermax. Thermax counterclaimed, asserting that Bro-Tech was interfering with its contractual relationships by making false accusations of trade secret misappropriation.

Bro-Tech alleges that the defendants stole proprietary Bro-Tech information, generally the basis of nearly any trade secrets case. What is different about this case compared to "old fashioned" trade secrets cases is that both parties, to effectively advocate their positions, must work through a staggering volume of electronic evidence.

Earlier in the case, the parties had agreed to an order that Thermax had to return any Bro-Tech electronic files in its possession and purge any copies of them. At issue earlier this year was whether Thermax had breached that order. Bro-Tech sought full production of Thermax's servers, located on two continents, for examination by its forensic computer expert. Thermax took the position that, at least initially, it would produce only those electronic documents containing certain indications of possible relevance based on file names or key word and other electronic searches. Also, Thermax asserted that it should, before producing the files, be permitted to inspect them to remove any attorney/client privileged information.

The judge held that the defendants should in fact be able to protect their attorney/client privileged documents and, further, that production of the entire contents of the servers was, at least, premature, pending some initial showing of a need for that based on a narrower production. In a move fairly typical of these cases, the court set out in its order details for working through this process.

This case illustrates some interesting possibilities. First, it is likely a company will reveal its wrongful use of its competitor's proprietary information through electronic "fingerprints." A company that utilizes a competitor's proprietary information in its business probably has committed it to electronic form, and, if you are the plaintiff, you may well be able to find it. As a closer examination of this decision demonstrates, the tools available to scan files and identify key words and other patterns are mind-boggling.

Second, no matter which side of litigation you are on, you will benefit by establishing electronic control over your electronic information. One illustration in this case is the importance to the defendants of having properly maintained attorney/client privileged information so they could effectively protect it from discovery, as the judge has allowed. Every company's stated objective should be to establish the same level of control over electronic records that it has over physical inventory. Given the exponentially increasing volume of electronic files, this is necessarily a long-term goal, but an essential one.

Third, a closer examination of the case illustrates the extreme complexity of these issues in litigation - issues that few lawyers, let alone nonlawyer managers, had dealt with at all until the last few years. Companies need to establish response plans for litigation so they are prepared to enlist the necessary expertise immediately upon the institution of litigation to most effectively (and cost-effectively) handle these critical litigation issues.

Squire, Sanders & Dempsey LLP

The plaintiffs sought $171,000 for lost profits, $320,000 for punitive damages, and an unspecified amount for general damages and costs incurred to replace the defendants' services.
In January 2003, plaintiffs Huong Que Inc. and Con Tu purchased a calendar-publishing business from Mui Luu and Cu Tu Nguyen, who were also retained as managing agents. Instead of working for the plaintiffs, Luu and Nguyen worked with their cousins and other business associates to establish a competing calendar company, according to reports, using the plaintiffs' customer list to solicit customers.
The plaintiffs sued Luu and Nguyen for breach of contract, breach of the covenant of good faith and fair dealing, misappropriation of trade secrets, interference with prospective economic advantage, unfair competition and unjust enrichment.
The defense argued that Luu and Nguyen did nothing wrong because they were not "owners" of the competing calendar company.
Luu and Nguyen cross-complained for defamation and invasion of privacy.
The plaintiffs won a temporary restraining order and preliminary injunction, which the defendants appealed, but lost when the court of appeal affirmed the lower court's decision in a published opinion, Huong Que Inc. v. Luu(2007) 150 Cal.App.4th 400.
On the cross-complaint, Luu and Nguyen sought an unspecified amount for harm to reputation and general damages.

12 No. 3 J. Internet L. 3 (September, 2008)

Elizabeth A. Rowe

Late on a Friday afternoon in October, Wal-Mart executives discover that the content of their sales circulars for the entire Christmas season has just been posted on fatwallet.com, a bargain-shoppers discussion forum. The posted content includes Wal-Mart's closely guarded sale prices. Fearing that competitors may use the valuable pricing information to compete unfairly, Wal-Mart's attorneys immediately contact the operators of the Web site to request that they remove Wal-Mart's trade secret information.

The operators refuse. They contend, correctly, that since the information is not copyrighted they have no obligation to remove it under the Digital Millennium Copyright Act (DMCA), which does not cover trade secrets. The information remains posted throughout the weekend and for another four days until Wal-Mart obtains a temporary restraining order from the court to have the material removed. By then, however, overjoyed shoppers have distributed the circulars all over the Internet, and using this information, Wal-Mart's competitors are modifying their planned promotions. [FN1]
This article explores, for the first time, an existing void in trade secret law. When a trade secret owner discovers that its trade secrets have been posted on the Internet, there is currently no legislative mechanism by which the owner can request that the information be taken down. The only remedy to effectuate removal of the material is to obtain a court order, usually either a temporary restraining order or a preliminary injunction. When a trade secret appears on the Internet, the owner often loses the ability to continue to claim it as a trade secret and to prevent others from using it. Accordingly, trade secret owners bear the burden of being vigilant and acting quickly if there is to be any chance of preserving the trade secret status of the information. The current requirement of a court order for a takedown is not only costly but also too slow for trade secret owners because of the speed with which users distribute information over the Internet. Obtaining a temporary order from a court would likely take no fewer than several days.

Given that secrecy is vital to preserving trade secret status, time is of the essence to trade secret owners, and each hour that a trade secret is available on the Internet is an hour too long. In order to address this time-lapse problem, this article explores a proposal for trade secret takedown legislation similar to that which provides for the immediate removal of suspected copyright violations under the DMCA. A takedown provision for trade secrets would provide self-regulation and privatized enforcement in an effort to permit trade secret owners to save their trade secrets from near-certain death on the Internet. A takedown provision would offer an expedited process for disabling access to trade secret information in the interim period between discovery of the misappropriated material and issuance of a ruling by a court.

Compliments of our friend and global trade secret expert R. MARK HALLIGAN
Protection of US Trade Secret Assets.pdf

ABSTRACT
In order to protect the economic interests of the United States, the Economic Espionage Act was enacted in 1996. Although intended to prevent and deter trade secret theft, the EEA is limited to criminal prosecutions. Critical amendments to the EEA are required to create a civil cause of action in the new information-based economy and the international marketplace. The following proposed amendments to the EEA provide a federal civil cause of action, allowing companies to protect trade secret assets and to ensure the continued growth and protection of trade secret assets in the international marketplace.

By Emily Ngo, amNewYork Nation/World Editor

The famed formula behind its soda -- under wraps for 122 years and stowed in an Atlanta bank vault -- is rarely accessed. Executives won't even disclose how many employees know the formula, acknowledging only that the number is low.

"The mystique of the secret formula is part of the brand's DNA," said Phil Mooney, director of Coca-Cola's archives department. "We don't provide much specific information about it."

Despite plots to sell the recipe to rival companies and claims of replication, Coca-Cola's original formula remains among the world's best-kept trade secrets. The beverage behemoth isn't the only brand to legally protect its economic advantages.

Kentucky Fried Chicken's original "11 herbs and spices" recipe, handwritten by Col. Sanders 68 years ago, was transferred earlier this month from a Louisville safe to an undisclosed location. The yellowing parchment is now protected by motion sensors and laser beams, said KFC spokeswoman Laurie Schalow.

http://www.amny.com/business/am-recipes0918,0,4747234.story

Intellectual Property - The Basis for Venture Capital Investments
Mario W. Cardullo

Venture capitalists want to maximize returns and minimize risks. The risks they must consider in reference to the intellectual property include: market, financial, management and technological. A new technology enterprise cannot normally afford litigation. It needs to devote its money, time and resources to technology development and commercialization. The threat of an expensive lawsuit may be sufficient to reduce the probability of venture capital financing. Patent lawsuits cost about $500,000 per claim if brought to trial, and trade secret suits cost from $300,000 to $500,000. Thus, intellectual property in the form of a trade secret may be more attractive to venture capital investors than a "weak" patent that may be open to litigation.
An example of the impact of intellectual property and its strengths is how companies that work with new enterprises value these properties. Catalyst Venture Partners is a group that "works with companies to get them ready for external investment whether that investment is sourced from individuals or institutions." Catalyst Venture Partners works only with enterprises "that have exceptional intellectual property and are in a position to achieve fast growth."

BY JOHN CURRAN

MONTPELIER -- Calling transparency the best antidote to influence buying, two groups involved in mental health called on the state Wednesday to close a loophole in disclosure laws that allows drug companies to make donations to doctors without publicly identifying the recipients.
The Vermont Psychiatric Association and the Vermont Association for Mental Health want the Legislature to eliminate a "trade secret" exemption that allows the companies to report who's getting gifts, donations and other payments from them but bans the state from releasing some of the information because it's considered proprietary.
The groups said Wednesday that they'll press for a publicly accessible database listing the donations, gifts and payments to doctors, so patients can find out what companies may have given to their doctors.

The Business Review (Albany) - by Adam Sichko

The Capital District Physicians' Health Plan Inc. has sued a former employee for $10 million, alleging that he stole company secrets and gave them to his new employer, a rival health insurer.

A hearing is set for Sept. 24 for Thomas Ryan, former director of underwriting at CDPHP, to challenge a temporary restraining order that CDPHP obtained against him. The order prevents Ryan from doing work for his new employer, MVP Health Care Inc., until he proves that he did not distribute any proprietary information or trade secrets to MVP or other competitors.

MVP is CDPHP's largest competitor.

CDPHP sued Ryan last month in state Supreme Court in Saratoga County. Earlier this week, the case was moved to U.S. District Court in Albany, N.Y.

As CDPHP's top underwriter, Ryan would have had access to claims data that insurance carriers use to set premium rates for their policies. In its lawsuit, CDPHP contends that such data, if distributed to a competitor, could be used to undercut CDPHP's rates.

A direct mail advertiser, which conducted advertising campaigns for television broadcasters, filed suit against broadcasters, alleging copyright infringement, breach of contract, and misappropriation of trade secrets. Broadcasters filed motion for summary judgment.

Holdings: The District Court, Robert W. Pratt, Chief Judge, held that:

(1) advertiser's method for laying out mailers did not constitute a trade
secret;

(2) even if advertiser's method of laying out mailers was a trade secret,
advertiser did not establish misappropriation of trade secrets claim; and

(3) even if advertiser's proprietary method for laying out direct mailers was
subject to copyright protection, broadcasters did not infringe advertiser's
copyright.

Motion granted.

by Benjamin K. Riley, Spring/Summer 2008. (cite: ABA Business Torts Journal: Trade Secrets Issue. Vol. 15 Num. 3; posted 09/16/2008; © 2008 Benjamin K. Riley) is available to IPO and ABA IP Section members with passwords.

Trade Secrets vs. Patents in Biotech Industry: The Indian Scenario

Praveen K. R. Singh & Shweta Dubey

Being a knowledge-based industry, the biotech industry needs a strong intellectual property (IP) regime. However, as the industry pushes the horizons of knowledge, the present IP regime seems to be falling behind for various reasons including ordre public and morality. This is the harsh reality, especially in the case of patent protection. As such, it has been argued that trade secrets can be used as an alternative to patent protection. With the everlasting monopoly that the trade secrets offer, there are many perils in the trade secret protection, such as reverse engineering and economic espionage. The situation in India is even graver, as there is no specific legislation for trade secret protection and they are covered under the law of contract. However, the biotech industry can be benefited if the trade secrets are used in tandem with the patent protection. Another alternative can be sui generic protection for biotech inventions which focuses on the specific issues in the industry and is an amalgamation of the best of patent and trade secret protection, keeping in mind the need to balance the community's interests with inventor's rights.

pr-usa.net

Federal Judge's Decision Based on Rocket's Alleged Concealment of Wrongdoing

ISLANDIA, N.Y. - In CA's case against Rocket Software, Inc. seeking damages of at least $200 million and preliminary and permanent injunctions for misappropriation of CA software products for DB2®, a federal judge denied Rocket's motion to dismiss as untimely CA's claims for copyright infringement and misappropriation of trade secrets.

In a 33-page decision, the Honorable Arthur D. Spatt determined that CA reasonably relied upon Rocket's "affirmative representations of independent development and its detailed, emphatic denials of copying." The Court also noted that Rocket's assurances, if untrue "would work a deception capable of lulling the plaintiffs into believing their suspicions were baseless."

The Court thus rejected Rocket's statute of limitations defense to CA's trade secret claims, finding that "Rocket stated that it conducted a thorough investigation and affirmatively denied use of the plaintiffs' code, further inhibiting CA's discovery" of the alleged misappropriation.

Developing countries told to protect creative goods, output from universities
Business World, MANILA, PHILIPPINES

Developing countries must catch up with their richer counterparts in terms of protecting and promoting the creation of intellectual property, such as research findings, industrial designs, and crop species, or else risk losing out bilions of dollars in revenue to the more IP-savy nations, experts said in a forum yesterday.
To do so, the protection of said goods must be taught not just to lawyers, but to the rest of the academe, government officials and private firms.
"Ninety-seven percent of patents registered now are owned by developed countries...IP accounts for 80% of corporate wealth in the United States," World Intellectual Property Organization (WIPO) Worldwide Academy dean Mpazi Sinjela said in a forum.
Trade secrets, patents for technology, and other IP goods make up $30 billion-$70 billion of the assets of top firms such as CocaCola, Microsoft, and Nokia, Mr. Sinjela said.

By Zakaria Abdul Wahab

SINGAPORE, Sept 23 (Bernama) -- The trade secrets of Singapore government's huge sovereign wealth fund and foreign investment arm are out.

The workings of the fund, the Government of Singapore Investment Corporation or better known as GIC, was made public by its Deputy Chairman and Executive Director Dr Tony Tan when he presented the first "Report on the Management of the Governments Portfolio for the Year 2007/08" here today.

The release of the 48-page report is a significant milestone in GICs 27-year history as it described how GIC is managed, how it invests its funds and develops its people and how its portfolio has performed globally since it was set up in 1981.

GIC, one of the world's largest fund management companies, boasts a portfolio of US$100 billion.

The Singapore government has another similar huge foreign investment arm in Temasek Holdings which manages a portfolio of over US$134 billion.

Tan said he had hinted about the report when he attended the World Economic Forum meeting in Davos, Switzerland, in January, where he stated that the GIC was preparing to put out a formal document to provide more information on its purpose, processes, governance, goals and values.

He said the GIC, a professional fund management company responsible for investing Singapore's reserves, believed such clarity and disclosure would benefit and raise the understanding of both the Singapore public and the international investment community.

Introducing a Takedown for Trade Secrets on the Internet
Elizabeth A. Rowe ,Wisconsin Law Review, Vol. 2007, No. 5, 2007

When a trade secret owner discovers its trade secrets have been posted on the Internet, there is currently no legislative mechanism by which the owner can request that the information be taken down. The only remedy to effectuate removal of the material is to obtain a court order, usually through a temporary restraining order or a preliminary injunction."

The author in an earlier article explored and analyzed the tremendous danger to trade secrets that have been posted on the Internet. Indeed, the trade secret status is most often lost forever. Accordingly, upon discovering a posting of secret information, trade secret owners must act swiftly to attempt to prevent the imminent destruction.

This Article builds on that earlier work, proposing legislation, similar to that provided for copyright law under the Digital Millennium Copyright Act (DMCA), which would offer an expedited process for disabling access to trade secret information in the interim period between discovery of the misappropriated material on the Internet and the issuance of a ruling by a court.

By Amie Shak

Schaumburg-based Motorola Inc. named four former software engineers employed at its Libertyville and Schaumburg offices in a lawsuit filed Tuesday alleging the theft of $600 million in trade secrets with plans to take them to China, officials said.

Hanjuan Jin, 37, of Schaumburg was indicted by a federal grand jury in April on three counts of theft of trade secrets and is facing charges of computer fraud and abuse, misappropriation of trade secrets and breach of fiduciary duty in the lawsuit.

Federal authorities said U.S. customs agents seized sensitive proprietary information from Jin as she attempted to board a flight to China on Feb. 28, 2007, at O'Hare International Airport. That included more than 1,000 documents, both electronic and paper, belonging to Motorola. Authorities said they also found $30,000 in her luggage.

The release of the classified engineering information on three computer networking products would have cost Motorola $600 million over the next three years, officials said.

by William Patry on The Patry Copyright Blog

Sometimes copyrighted works contain trade secrets or confidential information. Out of concern with making such material available for public disclosure, particularly in software, the Copyright Office has issued regulations that permit the deposit of less than all of the work. (In the case of secure tests, there is no deposit left behind). What if the claimant doesn't take advantage of this redaction option? Is trade secret protection lost?

Trade secret protection is purely a matter of state law, and nothing in the Copyright Act deals with the question. There is not a lot of case law on point. In Computer Corp. v. Serena Software Int'l, Inc., 77 F. Supp.2d 816, 819-820 (E.D. Mich. 1999), the court, in denying defendant's motion for summary judgment, let the issue go to the jury, but seemed of the view protection was not lost. Other courts have come out the other way. See e.g. Tedder Boat Ramp Systems, Inc. v. Hillsborough County, Florida, 54 F. Supp.2d 1300 (M.D. Fla. 1999); Cinebase Software, Inc. v. Media Guaranty Trust, Inc., 1998 U.S. Dist. LEXIS 15007, at *29 (N.D. Cal. Sept. 24, 1998)(but preserving trade secrets for redacted material); Phillips v. Avis, Inc., 1996 U.S. Dist. LEXIS 7342, at *7 (N.D. Ill. May 29, 1996)(New York law).

SOURCE Entrepreneur Media, Inc.

IRVINE, Calif., Sept 24, 2008 /PRNewswire via COMTEX/ -- To protect the integrity of one of the most recognized and relied upon sources of business information for entrepreneurs and franchisors, Entrepreneur Media, Inc. (EMI) today filed a lawsuit against former employees who it alleges stole its franchise ranking concept, known as the Franchise 500(R).

The dispute centers on the behavior of Rieva Lesonsky, the former Editorial Director for the consumer publisher. Shortly after voluntarily ending her 26-year employment with EMI in April 2008, Lesonsky created a company, SMB Connects, and is performing freelance editorial work for AllBusiness.com that duplicates EMI's signature rankings.
EMI claims that Lesonsky began contacting its customers and soliciting them to complete an application for an "Annual Franchise 300 Ranking" with AllBusiness.com. The application was substantially similar to the one EMI has used for its Franchise 500(R) rankings for the last thirty years.

The information EMI collects from its list of over 1,800 franchisors nationwide is highly valued by EMI's audience. In addition, EMI considers that information and the exclusive formula it uses to calculate its rankings to be trade secrets. Further, EMI claims that the use of "Franchise 300" violates its own federally-registered trademarks for "FRANCHISE 500(R)".

By Townsend, Virgie

Millions of pages of documents have been hidden from the public in a high-profile federal court antitrust case between two computer giants, illustrating how parties are able to essentially secretly litigate disputes in public courts. A model holds an Intel chip In 2006. Intel has been accused of unfair trade practices.

In September 2006, Delaware District Court Judge Joseph Farnan Jr. approved a protective order in AMD v. Intel, a long-running case in which the computer hardware behemoth Intel is being sued by its chief microprocessor rival over alleged anti-trust practices. With the protective order, Farnan effectively vaulted vast portions of evidence in the case. Predicting that "hundreds of millions of pages of documentation" would accumulate, Farnan moved to safeguard the companies' trade secrets, and make discovery documents easier to produce to the litigants.

Two years later, some reporters and lawyers say it's one of the most sweeping protective orders they've seen. So much so that many basic details of the allegations against Intel are still scant - even though AMD filed suit against Intel in 2005, and two foreign trade commissions have ruled against Intel in the last several years for violating antimonopoly or antitrust regulations.

What is known: AMD claims Intel monopolized the microprocessor industry by providing exclusivity agreements and rebates rewarding only loyal customers. Courts have generally decided loyalty rebates are exclusionary and a violation of anticompetitive practices when a competitor would have to price the product below their cost of production to be able to compete with the seller.

The paper titled Trade Secrets and Non-Traditional Categories of Intellectual Property as Collateral by Jeffrey D. Dunn & Paul F. Seiler
Presented to UNCITRAL ,Second International Colloquium on Secured Transactions: Security Interests in Intellectual Property Rights speaks of utilizing the full value of Intellectual Property assets in obtaining financing.
The authors state:
"Consistent with the need to permit asset owners to utilize the full value of their assets in obtaining financing, the authors advocate that national secured transactions laws should encompass non-traditional intellectual property within their secured transaction legal regimes in lieu of inconsistent and uncertain mechanisms that are sometimes embedded in special statutes whose primary goals are to regulate these types of assets. The rationale behind this approach is the notion that an asset's value is enhanced by its ability to be collateralized in a loan transaction, and that the legal mechanism that permits the creation and enforcement of the security right in such property must consist of broad, easily-followed and understood rules of general application."

With reference to Trade Secrets the paper states:
"Trade secrets can be very valuable as intangible economic assets of a company and are theoretically available for secured financing if a country's laws recognize and protect such secrets. This type of property can be encumbered under general secured transactions laws that allow for the taking of a security interest in a company's general intangibles and the perfection of the secured creditor's claim by the filing of a descriptive public record of the collateral and the security interest in a central location.
Although it is possible to take a security interest in trade secrets as a general intangible asset of a business enterprise, there are conceptual and practical problems in doing so because the nature of the property is secretive. Disclosure of the secret (either in the public filing for the security interest or to the secured creditor) could eliminate its legal protection and therefore its value as collateral. Commentators have suggested that this problem can be overcome by describing the trade secret in general terms in the public filing (for example, "Formula for [name of product]"). Some have also suggested that the trade secret be maintained in a writing held in escrow for the lender."

The paper discusses various types of non-traditional intellectual property which have general, but not necessarily universal, recognition under the laws of many nations with well-developed commercial and financial systems and how such categories of property could be treated under a general secured transactions law that is a very interesting and important analysis as it reiterates the absence of universal IP regime.

As I was trolling the Pierce Law print collection on interesting trade secret things to blog I noticed several books out of Europe in the late 1990s dealing with "commercial secrets".Thereafter there we few to no books on the topic. Without sitting down with the UTSA, I wonder whether trade secrets are a part of the larger area of commercial secrets. I noticed stories on the web about a new law in Russia and the term being used in China. With most law students keyword searches are the gold standard - so I wonder whether to counsel them to include commercial secrets as alternative search terms. Here's the scoop on the Russian law...

Russia has recently adopted its new Federal Law on Commercial Secrets.On its face, the Commercial Secrets Law appears to pool together a number of basic rules on commercial secrets which can be found in certain existing laws and regulations such as the Civil Code, the Labor Code, Law on Banks and Banking Activity, RSFSR Government Resolution No.35 of 5 December 1991, as well as to introduce a number of new rules. However, the Law also goes farther by clarifying and strengthening certain provisions in the existing rules.

The Commercial Secrets Law determines which information is regarded as a commercial secret. A commercial secret is confidential information (i) which has actual or potential commercial value because it is unknown to third parties, (ii) to which there is no free access on legal grounds and (iii) with respect to which the owner has introduced a commercial secret regime (i.e., has taken measures to maintain the confidentiality of the information).

Historically, certain data could not be considered a commercial secret. RSFSR Government Resolution No. 35 of 5 December 1991 contained a list of such data, which included such items as the foundation documents of a legal entity; information on the number of employees, the payroll system, availability of vacancies; information on environmental pollution; and other items.

The Commercial Secrets Law broadens this list. For example, persons engaged in entrepreneurial activity cannot treat the following information as a commercial secret (and thus cannot refuse to disclose it): violations of Russian law, and findings on liability for such violations; the list of persons entitled to act on behalf of a legal entity without a power of attorney; the indebtedness of an employer with respect to salary and social payments.

The purpose of such broadening is to make companies more transparent and simplify the work of tax and law enforcement authorities. In addition, a commercial secret owner cannot refuse to disclose the commercial secret to judicial and law enforcement authorities.

Russian law recognizes and provides specific protection measures for other types of "secrets," such as, for example, state, bank, audit and advocate secrets.

The Commercial Secrets Law provides specific protection measures for commercial secrets. Moreover, it states that information shall be treated as a commercial secret provided that the holder of such information has taken all necessary measures to protect its confidentiality. Conversely, if the information owner has failed to undertake all such measures, the information may not be protected as a commercial secret.

The Commercial Secrets Law lists the following measures that an owner must undertake to protect its confidential information:

* determine the list of data to be treated as a commercial secret;
* limit access to the protected information;
* keep a record of all persons allowed access to the protected information and/or to whom the protected information has been disclosed;
* include a confidentiality clause in employment contracts and agreements with third parties; and
* affix a "Commercial Secret" notice to documents containing commercial secrets; and this notice should contain information on the owner (for a legal entity Ц full name and address, for an individual entrepreneur Ц first name, last name, patronymic and residential address).

Of course, in addition to now being legally required for commercial secret protection in Russia, such steps are prudent for any owner of confidential business information.

By Gene Slowinski, Edward Hummel and Robert Kumpf

Technology is the currency of the new millennium. Firms that develop and/or acquire proprietary positions in leading edge technologies create a solid foundation for growth. However, the days when one firm internally creates all of the technology it needs to compete in the market place are over. Even simple products contain a bewildering number of sophisticated technologies as customers demand capabilities only dreamed about a few years ago.

To gain access to this technology a company can (a) develop the technology internally (b) obtain it from outside parties via license/purchase or (c) jointly develop the technology with an external firm. This article focuses on the third possibility, developing technology through a joint development agreement. Specifically, we will describe the issues and identify industry practices surrounding protecting the firm's intellectual assets (IA) during interactions with outside parties.

The number of collaborative research and development agreements is increasing rapidly. Industrial Research Institute member firms are engaging small high technology companies, Federal Laboratories, Universities, international firms and competitors in ways not dreamed of just five years ago. Central to these collaborations is the need to share proprietary intellectual assets to meet the objectives of the collaboration. Equally important is the need to protect that information from unintended use.

The nature of intangible assets such as know how and trade secrets is a barrier to their protection. They are easily shared, travel effortlessly in peoples' minds, and resist being categorized into neat little piles labeled proprietary and non-proprietary knowledge. To complicate matters further, know-how is fun to talk about. Business and technical people are naturally drawn into discussions of how a particular technology works, or the reasons why one technology will outperform another in the marketplace. While these conversations are interesting, employees may inappropriately divulge proprietary information. In this article we will not distinguish between "know how", which is information or skills required to do something useful, or "trade secrets", which are valuable information the firm takes specific actions to protect. In particular there are statutory definitions of "trade secrets" that are not especially relevant to this discussion (see sidebar). The real issue is protecting proprietary information, i.e., valuable knowledge a firm wishes to protect from unintended use.

Continue reading "Protecting Know-How and Trade Secrets in Collaborative R&D Relationships"

Reg Wydeven

A trade secret can be one thing that separates a business from its competitors. That one nugget of knowledge that makes a company's product stronger, faster, lighter or just otherwise better can be worth millions of dollars.

That's why companies work so hard to protect their trade secrets. The law provides helpful tools to help protect trade secrets. Things like patents, copyrights, trademarks and service marks all protect proprietary information. In |addition, businesses can use nondisclosure, confidentiality or noncompete agreements with employees and other businesses they contract with to guard their confidential information.

Some businesses have trade secrets that are so valuable they take extra-protective precautions above and beyond what the law provides.

Take, for example, |Col. Harland Sanders' |secret original recipe of 11 herbs and spices. In 1940, Sanders developed the formula at his tiny restaurant in southeastern Kentucky and used it to launch the Kentucky Fried Chicken chain in the early 1950s.

Last month, for the first time in decades, officials removed the handwritten formula from KFC's corporate offices. While only temporary, the removal is to allow for security to be beefed up to guard the 68-year-old yellowing sheet of paper that contains one of the country's most famous corporate secrets.

Like something out of a Hollywood movie, the recipe was placed in a lock box that was handcuffed to security expert Bo Dietl, who climbed aboard an |armored car that was |escorted by off-duty police officers.

For more than 20 years, the recipe has been tucked away in a file cabinet equipped with two combination locks. To reach the cabinet, the keepers of the recipe would first open up a vault and unlock three locks on a door that stood in front of the cabinet. Vials of the herbs and spices are also stored in the secret filing cabinet.

by Jay Dratler

This article analyzes the state of the law protecting intellectual property rights in computer software, discusses current business practices used in attempting to deal with that body of law, and proposes legislative solutions to facilitate commerce in software. Although there are aspects of copyright law that impede fluid com- merce in software, notably the first-sale doctrine discussed below, this article focuses primarily on the problems associated with trade secret law.
The second section of this article gives an overview of protection of computer software by patents, copyrights and trade secret law. The third section discusses the significant gap in protection of software between patents and copyrights. It then discusses how trade secret law, albeit imperfectly, fills that gap. The fourth section discusses the traditional requirements for trade secret protection, their applicability to computer software and their inappropriateness to the software business as currently conducted.
The final section proposes legislative solutions to the problem of a legal system that seems not to fit the needs of the software industry.

New York Law Journal

A New York judge has ruled that Quinn Emanuel is entitled to arbitration of its claim for $13 million in unpaid legal fees from social networking company ConnectU, which the law firm represented in a high-profile trade secrets suit against rival Facebook. The settlement terms were confidential, but whatever the amount, the ConnectU founders quickly expressed unhappiness with it and fired the firm. The judge ruled the arbitration provision of the retainer agreement was "enforceable and valid on its face."

Giftware company brought action against competitor seeking temporary
restraining order and against giftware manufacturer that was in receivership,
receivers of manufacturer's assets, and competitor, alleging interference with
contractual and prospective relations, promissory estoppel, violation of Lanham
Act, copyright infringement, deceptive trade practices and misappropriation of
trade secrets in violation of Minnesota law, conversion of goods and good will,
violation of Minnesota Franchise Act, unfair or inequitable practice in violation
of Minnesota law, breach of contract, and rescission of share purchase agreement.
The District Court denied motion for injunctive relief. While plaintiff's appeal
was pending, competitor moved to dismiss.

Holdings: The District Court, Michael J. Davis, J., held that:

(1) company's allegations were sufficient to state claim for interference with
contractual relations against competitor under Minnesota law;

(2) company's allegations sufficiently stated a claim against competitor for
tortious interference with prospective relations under Minnesota law;

(3) company did not have standing to allege trademark infringement claim against
competitor under Lanham Act;

(4) company's allegations were sufficiently particular to state claim against
competitor under Minnesota Deceptive Trade Practices Act; and

(5) company sufficiently alleged that it was franchisee of giftware
manufacturer, for purposes of claims under Minnesota Franchise Act.

Motion granted in part and denied in part.

An employer brought action against former employees and independent
contractors alleging various causes of action, including violation of the South
Carolina Trade Secrets Act, breach of employment agreement, and conspiracy. The
Circuit Court, Georgetown County, Benjamin H. Culbertson, J., granted defendants'
motion to dismiss for lack of personal jurisdiction. Employer appealed.

Holding: The Court of Appeals, Huff, J., held that nonresident defendants were
not subject to personal jurisdiction in South Carolina.

Affirmed.

Niemi v. NHK Spring Co., Ltd. (9/19/08)

The trial court dismissed the claims against Spring, the parent corporation of New Mather Metals, Inc. ("NMM"), for lack of personal jurisdiction and awarded summary judgment to NMM on all of Niemi's claims. The 6th Circuit upheld the trial court's dismissal of the claims against Spring, but held that there was sufficient evidence to create fact issues on the trade secret and promissory estoppel claims. Given that Niemi's averment of an oral confidentiality agreement was probative evidence and not refuted, the experts' opinions afforded facially significant evidence of the reasonableness of Niemi's reliance on such an agreement. When Niemi's statement was viewed in light of customary practice and the parties' lengthy relationship, a fact issue began to emerge. A jury could find that Niemi's efforts to maintain the confidentiality of his trade secret were reasonable.

Broward Daily Business Review
Vol 49, No. 188 (September 5, 2008_

SPIES ON THE RISE : CONCERN OVER PROTECTING TRADE SECRETS, AVOIDING FRAUD LEADS FIRMS TO HIRE PRIVATE INVESTIGATORS TO ASSIST THEM

Tresa Baldas
baldas0@yahoo.com

A blend of advanced technology, increased litigation and rising fears about trade secrets theft and financial fraud is driving law firms and corporate counsel to the doors of former FBI agents and ex-prosecutors with a knack for solving crimes.
These private investigators report calls for help from law firms and corporate general counsel have increased substantially in recent years.
Attorneys are looking for assistance on a wide range of problems, including corporate espionage, intellectual property theft and workplace discrimination claims.
At the core of many of these problems is a mountain of computer evidence too technical and too overwhelming for attorneys to dissect on their own, lawyers say.
'Most lawyers do not have the technological experience or the accounting expertise to do almost any of the stuff that these guys do,' said attorney Alan Brudner, head of litigation and investigations of the U.S. division of UBS Investment Bank, a subsidiary of Swiss financial services firm UBS.
Brudner said his reliance on former federal agents has grown in recent years. In his 13 years with UBS, he's gone from calling on private investigators only rarely to calling them once a month. He said that's largely the result of increased government regulation, investigations and inquiries into the banking industry.
'They're credible,' he said of the hired help. 'They've got experience. They know their way around the courthouse and understand how evidence is used and presented in court. There's always a value in talking to these guys.'

David J. Murphy, James Pooley
Trade Secrets Report, August 2008

In a closely watched decision issued on August 7, 2008, the California Supreme Court in Edwards v. Arthur Andersen unanimously determined that a provision in an employment agreement restricting an employee from serving customers or competing with a former employer was invalid under California Business & Professions Code section 16600, which contains California's general statutory prohibition for noncompetition agreements. As the Supreme Court held, noncompetition agreements between an employer and employee that even just "partially" or "narrowly" restrict an employee's ability to practice the employee's trade or profession are prohibited, contrary to what the Ninth Circuit and other federal courts had previously approved as reflecting California law.

The Supreme Court's Decision: Rejection Of The Narrow Restraint Doctrine

Arthur Andersen's noncompetition agreement restrained Edwards from: (1) performing work for clients he had previously serviced at Andersen for 18 months following the termination of his employment; and (2) soliciting any client of his office for 12 months after his termination. Arthur Andersen argued that "only contracts that totally prohibit an employee from engaging in his or her profession, trade or business are illegal," based on the "narrow restraint" exception found in Ninth Circuit decisions. See Campbell v. Trustees of Leland Stanford Jr. Univ., 817 F.2d 499 (9th Cir. 1987) (preventing use of certain psychological tests); IBM Corp. v. Bajorek, 191 F.3d 1033 (9th Cir. 1999) (restricting work for only one competitor); General Comm. Packaging v. TPS Package 126 F.3d 1131(9th Cir. 1997) (restricting work for only one customer and related entities introduced through that relationship). The Court rejected Arthur Andersen's argument and the Ninth Circuit's interpretation of California law, explaining under 16600's plain terms, no "restraint" on lawful competition would be tolerated; and it was no answer to say that a restriction was not a "prohibition."

429 PLI/Pat 383 (February, 1996)

Conducting Intellectual Property Audits 1996
TRADE SECRET AUDITS: RISKS OF LOSS AND STRATEGIES FOR PROTECTION
Jeffrey Anne Tatum
D. Peter Harvey

I. What Material is Protectable as a Trade Secret?
A. The Definition of a Trade Secret.
The definition of a trade secret has evolved from that found in the first Restatement of Torts in 1939 [FN2] through the Restatement of the Law of Unfair Competition published just last year.
In most cases, the courts have concluded trade secrets must (1) be not generally known or ascertainable by proper means (2) have economic value, and (3) be the subject of reasonable precautions to maintain their secrecy. These elements are codified in the Uniform Trade Secrets Act's definition of a trade secret as:
"(1) Information, including a formula, pattern, compilation, *393 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." (Uniform Trade Secrets Act §1(4), 14 Uniform Laws Annot. 438 (1990)).
By including within the definition information which has either "actual or potential" economic value, the Uniform Trade Secrets Act eliminated a distinction which had grown up in the cases as a result of the original Restatement's emphasis that the *394 information must be "used in one's business". This distinction led to differing treatment in some of the cases between trade secrets, on the one hand, and confidential business information, on the other.
The new Restatement of the Law of Unfair Competition (1995) accepts the elimination of this distinction, providing as follows:
"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." (id. at §39.)
In addition to clarifying that a trade secret need not be actually in the process of being exploited to enjoy protection as such, this new definition makes it clear that the information need not be actually usable in business; the phrase "other enterprise" broadens the *395 qualifying use or potential use, so long as it can lead ultimately to an economic advantage for its owner.

Secrecy and Unaccountability: Trade Secrets in Our Public Infrastructure
David S. Levine

Trade secrecy - the intellectual property doctrine that allows businesses to keep commercially valuable information secret for a potentially unlimited amount of time - is increasingly intruding in the operation of our public infrastructure, like voting machines, the Internet and telecommunications. A growing amount of public infrastructure is being provided by private entities that are holding critical information about their goods and services secret from the public. This Article examines this phenomenon, which is largely unexplored in legal scholarship, and identifies a significant conflict between the values and policies of trade secrecy doctrine and the democratic values of accountability and transparency that have traditionally been present in public infrastructure projects.

This Article argues that in this conflict trade secrecy must give way to traditional notions of transparency and accountability when it comes to the provision of public infrastructure. Although there are good reasons for trade secrecy in private commerce, when applied to public infrastructure, the basic democratic values of transparency and accountability should prevail, especially given that the application of trade secrecy doctrine to public infrastructure projects causes some unanticipated outcomes, like hiding information that could be useful for the public at large and for the improvement of the specific infrastructure project at issue. This Article examines the background and history of trade secrecy and contrasts its values with those of democratic government. It then shows the increasing impact of trade secrecy on public infrastructure through three examples. Finally, the Article suggests some potential remedies to this sphere of increasingly conflicting values.

By David Yates

The suits filed by or against rare coin dealers in recent years could fill up even the largest of penny jars.

The newest suit, The American Eagle Reserve LLC vs. Justin A. O'Neal, was filed Sept. 4 in Jefferson County District Court. Dozens of suits involving coin companies have been filed in the county the last year alone.

In its suit, TAER alleges one of its former employees stole company trade secrets in hopes of making a pretty penny. TAER is petitioning the court for an injunction to restrain O'Neal from contacting its customers.

Court documents show that TAER and O'Neal entered into a confidential services, trade secrets and employment agreement on March 24, 2008.

"In part consideration for entering into an agreement, Plaintiff agreed to... train, employ and give the Defendant access to confidential and secret customer lists and information concerning rare and collectible coins," the suit says.