Trade Secret Law
I. Is there a trade secret?
A. Knowledge that has value because . . . .
B. Subject matter?
1. Ex: IBM’s development of a new process for
creating a copper substrate on silicon chips
2. Ex: KFC recipe, Coke formula
3. Ex: Marketing, pricing, & product launch info.
Trade Secrets, cont.
C. Combinations of previously known elements?
1. Carbide reclamation furnace, Integrated Cash
Management case
D. “Negative know-how”?
1. Ex: Judy leads a research team at a
pharmaceutical company that is working to develop a
drug that will cure . . . .
Trade Secrets, cont.
E. Numed v. McNutt, Tex. Ct. of App., 1987
McNutt worked 10 years for Numed, a medical equipment leasing company,
rising to vice-president. He left Numed because he felt like he was being
squeezed out of decision making. After leaving, he started a medical
equipment leasing business of his own. He contacted many of Numed’s
customers, trying to get their business. Numed sued McNutt, claiming
that McNutt was misappropriating trade secrets he had learned while
with Numed. McNutt sought an injunction against Numed. The alleged
secrets were customer lists, contract renewal dates, & price lists . The
evidence, including testimony from other competitors, proved that the
names of customers was general knowledge in the industry, and that, if
someone in this business went to the hospitals and doctors’ offices and
asked, they would show you copies of their contracts.
Was this knowledge a trade secret?
Trade Secrets, security
measures
II. Reasonable steps to maintain security
A. Locks, ID’s, restricted access, passwords,
confidentiality agreements, etc.
B. Any relationship between I. and II.?
C. Basically, a duty to not be negligent in protecting
your property --- Cost/Benefit
D. Ex: DuPont case
Trade Secrets, security
measures
E. State of Texas v. Schalk, Ct. of Criminal App., TX,
1991
[Facts on MS Word document, posted on web with slides]
Trade Secrets, Misappropriation
III. Misappropriation
A. Electronic surveillance, “bugs,” planted spies,
burglary, trespass, bribery, and other things that are illegal
by themselves.
B. Actions that aren’t illegal by themselves. Ex.:
duPont case—aerial photography.
C. Breach of duty of confidentiality
a. Express
b. Implied
--Employees
--Other situations?
Trade Secrets, misappropriation,
cont.
D. Smith v. Snap-On Tools, p. 216
1. What was Smith’s idea?
2. What did old Smith do with his idea?
3. Any duty of confidentiality?
4. How could Smith have improved his chances?
Trade Secrets, misappropriation,
cont.
E. Integrated Cash Management Services v. Digital
Transactions, Inc., p. 217.
1. Vafa & Newlin & their first job after graduate
school.
2. What was the trade secret?
3. Did these guys also infringe ICM’s copyright on the
software? No, but why not?
4. These guys didn’t get stuck with a big $$$ damage
judgment as is often the case when trade secret
misappropriation is proved. Note the court’s injunction.
Trade Secrets, misappropriation,
cont.
F. Carter Products v. Colgate-Palmolive, U.S. Dist. Ct., MD, 1955
While working for Carter in 1949, 3 chemists invented a new chemical
composition for a soap, plus some associated techniques, that produced
the first shaving lather from a pressurized can. Before the invention,
shaving lather was produced by using a brush & water on a piece of soap
in a mug. The composition & techniques were kept secret by Carter,
and all 3 inventors owed a confidentiality obligation to Carter. Carter
began selling cans of the new product, called “Rise” saving cream.
Colgate-Palmolive bought cans of Rise and its chemists tried to reverse
engineer the composition and techniques, but they could not do so.
Colgate then hired one of the 3 original inventors to work as a chemist
for Colgate. Colgate did not specifically tell the guy to use Carter’s trade
secret, but it did know that he had worked on the project at Carter.
The chemist reproduced Rise at Colgate, and Colgate started selling it.
Carter sued the chemist and Colgate for trade secret misappropriation.
Carter also obtained a patent on the composition & techniques.
Conclusion and rationale?
Trade Secrets, misappropriation,
cont.
G. Hook v. Perdue Farms, Fla. Ct. of App., 2001
Hook invented a commercial method of preparing and serving rotisserie
chicken that was quicker, cleaner, and cheaper than earlier methods.
His method also included a secret blend of seasonings. Pizza Hut agreed
to co-develop the process with Hook for use in its KFC and Taco Bell
subsidiaries. The agreement required Pizza Hut to maintain the secrecy
of the process and to obtain confidentiality agreements from all third
parties. Pizza Hut brought in Perdue Farms to determine the feasibility
and cost of the process, requiring Hook to disclose his process to Perdue.
Pizza Hut lost interest in the project, but two years later Hook learned
that Perdue Farms was selling a “Tender Ready” chicken using his
process and blend of seasonings. Hook sued Perdue Farms for $$
damages for trade secret misappropriation.
Was Perdue guilty of misappropriation? Should Hook win?
Trade Secrets – Inevitable
Disclosure Doctrine
IV. The Inevitable Disclosure Doctrine (no proof of actual
misappropriation, but . . . .)
A. Former employer & new employer are competitors.
B. Employee’s position at the 2 companies are very similar.
C. New employer has not taken demonstrable steps that are
adequate to prevent misappropriation from occurring.
D. Employee was not bound by a “covenant not to compete” with
former employer (if so, the inevitable disclosure issue wouldn’t
even come up).
E. How courts have responded to this recently developed theory.
Trade Secrets – Inevitable
Disclosure
E. Pepsico v. Redmond, U.S. Ct. of App., 7th Cir., 1995 (applying Ill.
state law)
Redmond was general manager of Pepsico’s “new age and sports drink”
division for 10 years until 1994, when he accepted an offer to work for
Quaker Oats Co. as chief operating officer of its Gatorade and Snapple
divisions. Gatorade and Snapple drinks were directly competitive with
Pepsico’s “new age and sports drink.” In his former job, he had intimate
knowledge of pricing, distribution, & marketing strategies for Pepsico’s
drinks.
Conclusion & rationale?
Remedy?