trade secrets_american cases

8/11/2019 Trade Secrets_American Cases

http://slidepdf.com/reader/full/trade-secretsamerican-cases 1/29



Trademark Law

Trade Secrets [American Cases]

3

For customer information to be protectable, it must be a particularsecret of the business, of value to the employer and wrongfullyappropriated by the employee

o In this case, the actual lists were merely distillations ofcommercial lists created from the very general knowledgethat users of compressed air are potential customers forair driers

o Van failed to show that this information was any more thanthe recorded results of Rapp’s acquisition of genera lknowledge and skill in this field

Alleged trade secret/confidential info: “idea and original concept”and “mechanical secrets” of the Van deliquescent desicant air drier– not a trade secret

o This was conceived and patented by Nortono The inventor is put to his election; he can keep his secret

hidden and run the risk of independent discovery byothers, or he can disclose his secret to the world by LettersPatent and receive in return form the government amonopoly for 17 years

o The air driers were also sold on the open market anddescribed and covered extensively in the trade literatureand Van’s own advertising media

o Public sale of the article or the description thereof inliterature available to the public will destroy any tradesecret which the inventor might have had

The widespread publication and advertising in this case and thepublic sale of the air driers destroyed Van’s right to maintain acause of action upon a breach of duty not to disclose its “tradesecrets”

It was only the chemical composition which was a secret, andremained so even after Rapp’s departure – the secret formula ofNorton’s desicant was never revealed to Rapp

It was only Rapp’s industriousness which enabled him to come upwith an acceptable formula for a desicant to use in the drier whichhe was privileged to construct

Van has either sold his secret to the public o r has traded it throughits agent, Norton, to the public for a 17-year monopoly

Court is unqualified to determine whether General’s d rier isinfringing upon Norton’s patent, any relief thereupon must comefrom the federal court

KEWANEE OIL CO. V. BICRON CORP. 416 U.S. 470 (1974)

Argued January 9, 1974; Decided May 13, 1974

FACTS : Harshaw Chemical Co., an unincorporated division of petitioner,

over a period of years, developed certain processes in the growthand encapsulation of synthetic crystals and purification of rawmaterials, some of which processes were considered to be tradesecrets; it eventually succeeded for the first time in growing a 17 -inch crystal of a type useful in the detection of ionizing radiation.

The individual respondents, former employees of Harshaw who.while working there. had signed agreements not to disclose tradesecrets obtained as employees, formed or later joined respondentBicron Corp., which competed with Harshaw in producing crystals;Bicron, soon after its formation, also grew a 17 - inch crystal.

Petitioner brought this diversity action seeking injunctive relief anddamages for misappropriation of trade secrets. The District Court,applying Ohio trade secret law, granted a permanent injunction.

The Court of Appeals reversed on the ground that Ohio's tradesecret law conflicted with the federal pat ent laws.

HELD : Ohio's trade secret law is not preempted by the federal patentlaws.

(a) The States are not forbidden to protect the kinds ofintellectual property that may make up the subject matter oftrade secrets; just as the States may exercise regulatory powerover writings, Goldstein v. California, so may they regulate withrespect to discoveries, the only limitation being that regulation inthe area of patents and copyrights must not conflict with theoperation of federal laws in this area.

(b) Abolition of trade secret protection would not result inincreased disclosure to the public of discoveries in the area of

nonpatentable subject matter, and the public would not bebenefited by disclosure of such discoveries. (c) The federal patent policy of encouraging invention is not

disturbed by the existence of another form of incentive toinvention such as trade secret protection, and, in this respect, thetwo systems are not in conflict.

(d) Nor is the patent policy that matter once in the public domainmust remain there incompatible with the existence of trade secretprotection.

(e) Nor is there any conflict between trade secret law and thepatent policy of disclosure whether a trade secret concerningpatentable subject matter is in the category of discovery which is(1) clearly unpatentable, (2) doubtfully patentable, or (3) clearlypatentable. As to the first category, the patent alternative is not



Trademark Law


4

available, and trade secret law will encourage invention andprompt the innovator to proceed with the discovery andexploitation of his invention, and to license others to exploitsecret processes. As to the second category, the risk and cost ofeventual patent invalidity may impel the inventor not to seekpatent protection regardless of the existence of trade secret law,and the encouragement by the elimination of trade secret

protection of patent applications by some with doubtfullypatentable inventions is likely to have a deleterious effect onsociety and patent policy. As to the third category, trade secretlaw, which affords weaker protection than the patent laws,presents no reasonable risk of deterrence from patent application.

(f) There being no real possibility that trade secret law will conflictwith federal patent policy, partial preemption as to clearlypatentable inventions would not be appropriate, and could wellunnecessarily burden administration of trade secret law by States.

Reversed and remanded for reinstatement of District Court Judgment.

COMPUTER ASSOCIATES INTERNATIONAL, INC. V. ALTAI, INC.

982 F. 2d 693 - Court of Appeals, 2nd Circuit 1992 Judge Walker

Emergency Recit:Arney, a former employee of petitioner Computer Associates (CA), copied30% of the latter’s ADAPTER source code , an integrated componentprogram of CA-SCHEDULER, a job-scheduling program for IBM mainframecomputers, in developing a similar component program, OSCAR, foranother computer company, respondent Altai’s ZEKE, ZACK and ZEBBprograms. At the time of development, only Arney knew that he was

committing copyright infringement. When Altai found out, its President,Williams immediately eliminated the parts which pertained to theADAPTER’s source code, and revamped a new program, producing OSCAR3.5. The issue was whether the actual knowledge gained from theADAPTER source code from OSCAR 3.4 constituted a violation of tradesecrets in the creation of OSCAR 3.5. The Court remanded the case forfurther proceedings to determine whether CA was injured by Altai’sunlawful use of the trade secrets in creating OSCAR 3.5, and if so, to beawarded damages for trade secret misappropriation and injunctive reliefon its trade secret claim.

FACTS :

(Lifted from Previous Case) Plaintiff Computer Associates International,Inc. ("CA"), incorporated under the laws of the State of Delaware,

brought this action in August 1988 alleging that defendant Altai, Inc.("Altai"), incorporated under the laws of the State of Texas, had copiedsubstantial portions of CA's SCHEDULER program into Altai's owncomputer software programs known as ZEKE, ZACK, and ZEBB.

The focal point of CA's claims of both copyright infringement and tradesecret misappropriation is a discrete portion of Altai's programs calledOSCAR, which CA contends was copied from a portion of its CA-

SCHEDULER program known as ADAPTER. CA-SCHEDULER is a job scheduling program for IBM mainframecomputers. As one of a group of CA's data center automation products,CA-SCHEDULER's functions are to create a schedule that specifieswhen the computer should run various tasks, and to control thecomputer as it progresses through that schedule. CA begandevelopment of CA-SCHEDULER in mid-1981, and first installed it at acustomer location in August 1982. This version of CA-SCHEDULERincluded ADAPTER, as did all subsequent versions of CA-SCHEDULER.

Part of CA-SCHEDULER is an operating system compatibilitycomponent called ADAPTER, which connects CA-SCHEDULER with the

three different operating systems used on IBM mainframe computers:

DOS/VSE, MVS and VM/CMS. The ADAPTER component enables CA-SCHEDULER to be run on any of the IBM operating systems. Without

the specialized technology provided by ADAPTER, CA would have hadto develop, support, and market three separate versions of each of its

products, such as CA-SCHEDULER, so that the product could be usedon a customer's computer regardless of which of the three IBMoperating systems it used. ADAPTER is not a separate CA product; it isnot marketed as such, and it has no capability of acting as anindependent product. Rather, it is a component part of CA-SCHEDULER, as it is of several o ther CA products.

ADAPTER was designed and written in 1979 for use with a group ofCA's programs called the DYNAM line. CA included a separate copyrightnotice on ADAPTER with 1979 as the date of first publication. Since

1979, there have been several revisions and changes to ADAPTERcode. CA never registered ADAPTER in the copyright office as aseparate computer program.

ADAPTER is not an independently marketed product of CA; it is awholly integrated component of CA-SCHEDULER and has no capacityfor independent use.

OSCAR is Altai's operating-system compatibility component. It wasfirst developed in 1984 in a VSE version for use with Altai's ZEKE

program. The first version, called OSCAR 3.4, was developed byClaude F. Arney III, who copied approximately 30% of OSCAR's sourcecode from the source code of ADAPTER, which he had taken from CAwhen he left CA to go to work for Altai as a programmer. Like CA'sADAPTER, Altai's OSCAR is not a separate product; it is not marketed

as such, and it has no capability of acting as an independent product.



Trademark Law


5

It was Altai’s President, Williams, who recruited Arney, his long -standing friend, to assist Altai in designing an MVS version of ZEKE.Although Williams did not know that ADAPTER was a component of CA-SCHEDULER, Arney was intimately familiar with the various aspects ofADAPTER, and had even been allowed to take home a copy ofADAPTER’s source code. When Arney left CA in 1984, he took with himthe source codes for both VSE and MVS versions of ADAPTER, in

knowing violation of the CA employee agreements that he had signed. Arney went to work creating OSCAR at Altai's offices using theADAPTER source code, which was completed in 3 months. No one atAltai, with the exception of Arney, affirmatively knew that Arney hadthe ADAPTER code, or that he was using it to create OSCAR/VSE.However, Williams, whose office was adjacent to Arney, frequentlyvisited Arney and asked him questions during the creation ofOSCAR/VSE.

From 1985 to August 1988, Altai used OSCAR 3.4 in its ZEKE product,as well as in programs entitled ZACK and ZEBB. In late July 1988, CAfirst learned that Altai may have appropriated parts of ADAPTER. Afterconfirming its suspicions, CA secured copyrights on its 2.1 and 7.0versions of CA-SCHEDULER. CA then brought this copyright and tradesecret misappropriation action against Altai.

Altai concedes that Arney copied from CA's ADAPTER, but claims thathe did it without the knowledge of anyone at Altai. Altai further claimsthat once it was alerted to and had confirmed the illegal copying, rightafter this action was begun, it rewrote the OSCAR program toeliminate any of the claimed infringements. Arney was entirelyexcluded from the process, and his copy of the ADAPTER code waslocked away. Williams put 8 other programmers on the project, theresult of which was entitled OSCAR 3.5, which Altai shipped to itscustomers.

While Altai and Williams acted responsibly in correcting the copying ofthe program, copyright infringement had occurred. Further, whether

Altai was successful in its attempted "cleanup" of OSCAR is one of theprincipal issues in this lawsuit.

ISSUE :1) W/N Altai was liable for copyright infringement in developing

OSCAR 3.5. No, both literal and non-literal elements of the program

were purged and not substantially similar to ADAPTER.2) W/N Altai was liable for misappropriating CA’s trade secrets

in developing both OSCAR 3.4 and OSCAR 3.5. Pre-emptive Ruling. Remanded to District Court for

further proceedings.

RATIO :

In copyright infringement, the plaintiff may prove the same byshowing either direct evidence or by showing that 1) the defendanthad access to the plaintiff's copyrighted work and 2) that defendant'swork is substantially similar to the plaintiff's copyrightablematerial. Since it is assumed that OSCAR 3.5 was made with theknowledge of ADAPTER source code, the issue rests on whether or notOSCAR 3.5 is substantially similar to that of ADAPTER.

It is well-settled that literal elements of computer programs, such astheir source and object codes, are the subject of copyright protection.After the rewrite, Altai made sure that the literal elements of itsrevamped OSCAR program were no longer substantially similar to theliteral elements of CA’s ADAPTER.

A program's structure includes its non-literal components such asgeneral flow charts as well as the more specific organization of inter-modular relationships, parameter lists, and macros. In addition tothese aspects, CA contends that OSCAR 3.5 is also substantially similarto ADAPTER with respect to the list of services that both ADAPTER andOSCAR obtain from their respective operating systems.

Copyright protection extends beyond a literary work's strictly textualform to its non-literal components. However, copyright protectscomputer programs only "to the extent that they incorporateauthorship in programmer's expression of original ideas (expression),as distinguished from the ideas themselves (ideas).

In order to determine whether the non-literal elements of two or morecomputer programs are substantially similar, the Court applied theAbstraction-Filtration-Comparison Test.

In ascertaining substantial similarity under this approach, a courtwould 1) first break down the allegedly infringed program into itsconstituent structural parts. 2) Then, by examining each of these partsfor such things as incorporated ideas, expression that is necessarilyincidental to those ideas, and elements that are taken from the publicdomain, a court would then be able to sift out all non-protectable

material (filtering out the unprotected aspects of an allegedly infringedprogram, in this case, ADAPTER). Left with a kernel, or possiblekernels, of creative expression after following this process ofelimination, the court's last step would be 3) to compare this materialwith the structure of an allegedly infringing program. The result of thiscomparison will determine whether the protectable elements of theprograms at issue are substantially similar so as to warrant a finding ofinfringement.

However, we vacate the district court's preemption ruling with respectto CA's trade secret claim, and remand the case to the district court forfurther proceedings.

We agree with CA that the district court failed to address fully thefactual and theoretical bases of CA's trade secret claims. The district

court relied upon the fact that Arney — not Altai — allegedly breached



Trademark Law


6

a duty to CA of confidentiality by stealing secrets from CA andincorporating those secrets into OSCAR 3.4. However, both may beliable for violating CA’s right of confidentiality based under a wrongfulacquisition theory based on the Restatement (First) of Torts, Sec. 757(1939):

o One who discloses or uses another's trade secret, without aprivilege to do so, is liable to another if… (c) he learned the

secret from a third person with notice of the fact that it was asecret and that the third person discovered it by impropermeans or that the third person's disclosure of it was otherwisea breach of his dut y to the other…

Actual notice is not required for such a third party acquisition claim;constructive notice is sufficient. A defendant is on constructive noticewhen, "from the information which he has, a reasonable man wouldinfer [a breach of confidence], or if, under the circumstances, areasonable man would be put on inquiry and an inquiry pursued withreasonable intelligence and diligence would disclose the [breach]."

The district court found that, prior to CA's bringing suit, Altai was noton actual notice of Arney's theft of trade secrets, and incorporation ofthose secrets into OSCAR 3.4. However, by virtue of Williams' closerelationship with Arney, Williams' general familiarity with CA'sprograms (having once been employed by CA himself), and the factthat Arney used the ADAPTER program in an office at Altai adjacent toWilliams during a period in which he had frequent contact withWilliams regarding the OSCAR/VSE project, Williams (and through himAltai) may well have been on constructive notice of Arney's breach ofhis duty of confidentiality toward CA.

While we agree with the district court that OSCAR 3.5 did not containany expression protected by copyright, it may nevertheless still haveembodied many of CA's trade secrets that Arney brought with him toAltai. Since Altai's rewrite was conducted with full knowledge ofArney's prior misappropriation, in breach of his duty of confidentiality,

it follows that OSCAR 3.5 was created with actual knowledge of tradesecret violations. Thus, with regard to OSCAR 3.5, CA has a viable trade secret claim

against Altai that must be considered by the district court on remand.This claim is grounded in Altai's alleged use of CA's trade secrets in thecreation of OSCAR 3.5, while on actual notice of Arney's theft of tradesecrets and incorporation of those secrets into OSCAR 3.4, when Altaiwas first informed by CA’s complaint in August 1988.

CA may be unable to recover damages for its trade secrets which areembodied in OSCAR 3.4 since Altai has conceded copyright liability anddamages for its incorporation of ADAPTER into OSCAR 3.4. CA may notobtain a double recovery where the damages for copyrightinfringement and trade secret misappropriation are coextensive.

However, additional trade secret damages may well flow from CA'screation of OSCAR 3.5.

If the district court finds that CA was injured by Altai's unlawful use ofCA's trade secrets in creating OSCAR 3.5, CA is entitled to an award ofdamages for trade secret misappropriation, as well as consideration bythe district court of CA's request for injunctive relief on its trade secretclaim.

CAPITAL ASSET RESEARCH V. FINNEGAN 160 F.3d 683 (1998)United States Court of Appeals, Eleventh Circuit. CAPITAL ASSETRESEARCH CORPORATION, petitioners,vs. Roger FINNEGAN, Breen Capital Holdings, Inc., respondent.No. 97 – 9285. Nov. 13, 1998.

Barkett, Circuit Judge:

Summary: Purchaser of tax liens on real property brought action againstpurchaser's former employee and competitor which hired formeremployee, alleging misappropriation of trade secrets. Following bench trial,the United States District Court for the Northern District of Georgia, No.1:96-CV-453-GET, G. Ernest Tidwell, J., entered judgment for purchaser,and defendants appealed. The Court of Appeals, Barkett, Circuit Judge,held that information about purchaser's process for evaluating amount tobe bid on a tax deed did not amount to trade secret.

Reversed and remanded.

FACTS:

Roger Finnegan and Breen Cap ital Holdings Corp. (“Breen”) appeal anadverse judgment entered after a bench trial holding that they violated theGeorgia Trade Secrets Act of 1990. The district court held that Finneganand Breen had misappropriated from Finnegan's former employer, CapitalAsset Research Corp. (“CARC”), protected information regarding theeconomic value of certain real property in Fulton County, Georgia. Thedistrict court enjoined Finnegan from having any dealings with theseproperties for one year and awarded CARC attorneys' fees and costs. Onappeal, Finnegan and Breen challenge the district court's finding that theinformation in question was a trade secret under Georgia law as well asthe relief ordered by the district court. We reverse, concluding that the



Trademark Law


7

district court erred in deeming the information Finnegan allegedly tookfrom CARC a trade secret under Georgia law.

CARC, a Florida corporation, and Breen, a New Jersey corporation, aresizeable institutional players in the business of purchasing tax liens fromstate and local governments. CARC's business in Georgia consists primarilyof purchasing tax executions (or liens) and tax deeds on real properties forwhich property taxes are owed. CARC acquires a tax lien on the propertyby paying the delinquent taxes. If the property owner subsequently fails tosatisfy the lien, and foreclosure proceedings take place, CARC bids on thedeed to the property itself at public auction. Both CARC and Breen look togenerate capital and profit by acquiring properties at bargain rates.

In September 1994, CARC hired Finnegan to establish CARC's business inthe State of Georgia, particularly to negotiate bulk contract purchases oftax liens on behalf of CARC and to facilitate the acquisition of tax deeds.Through his own company, T. D. Investments (“TDI”), Finnegan helpednegotiate a contract with Fulton County, Georgia for CARC's bulk purchaseof delinquent tax executions for the tax years 1988 through 1993.

After Finnegan's employment relationship with CARC began to deterioratein 1995, Finnegan met with Douglas Breen on several occasions during thelatter half of that year to discuss the possibility of employment with Breen.Finnegan ultimately signed on as an employee of Breen in January 1996.Despite this change in employment, TDI remained under contract withCARC until March 1996 in order to administer the foreclosure process onthe Fulton County tax executions which CARC had already purchased withFinnegan's assistance. Finnegan therefore remained involved in CARC'sday-to-day operations in Georgia until this time.

In February 1996, CARC filed this diversity action in federal district courtagainst Finnegan,FN1 alleging breach of contract and both actual andthreatened violation of the Georgia Trade Secrets Act of 1990, O.C.G.A. §10 – 1–760, et seq. (1997) (“the Act”). On May 7, 1996, Fulton Countyplaced for auction a number of the tax deeds on properties for whichFinnegan did the tax execution and foreclosure work for CARC. At theauction, Finnegan served as Breen's agent and competed with CARC forthe purchase of the tax deeds. Finnegan outbid CARC on twenty-fourproperties. CARC subsequently alleged that Breen acquired those twenty-four properties as a result of Finnegan's misappropriation of trade secretinformation from CARC, and further claimed actual damages from thatmisappropriation in the amount of just over $30,000.

FN1. The complaint also names Breen as a defendant, but for simplicity'ssake, we shall refer to both Finnegan and Breen collectively as “Finnegan.”

After a bench trial, the district court found against CARC on its allegationsof breach of the non-compete clauses of its contract with Finnegan, butconcluded that Finnegan had misappropriated a computer diskette fromCARC containing information which constituted a trade secret under theAct. After finding that Finnegan had used the information to CARC'sdisadvantage, the district court awarded CARC $30,694.93 in damages andentered an injunction enjoining Finnegan from having any dealings for oneyear with the properties included in CARC's $27 million portfolio of taxexecutions. Subsequently, the district court awarded CARC attorney's feesand costs in the amounts of $46,504.75 and $3,090.00 respectively.Finnegan appealed the district court's judgment on CARC's trade secretclaim and the relief entered pursuant to it.

ISSUE : whether the information Finnegan acquired is a trade secret.

HELD: No.

Because we reverse the district court's finding that CARC proved thatits “property information” is a trade secre t under the Act, we also reversethe district court's award of attorneys' fees to CARC. We need not addressFinnegan's contention that the year-long injunction which the district courtimposed against him (and which has since expired) was legally invalid.

REVERSED and REMANDED.

RATIO:

A claim for misappropriation of trade secrets under the Georgia TradeSecrets Act requires a plaintiff to prove that “(1) it had a trade secret and(2) the opposing party misappr opriated the trade secret.” The partyasserting the existence of a trade secret has the burden of proving thatthe information so qualifies and that the accused party violated the Act.The Act defines a “trade secret” as

information, without regard to form, including, but notlimited to, technical or nontechnical data, a formula, apattern, a compilation, a program, a device, a method, atechnique, a drawing, a process, financial data, financialplans, product plans, or a list of actual or potential



Trademark Law


8

customers or suppliers which is not commonly known by oravailable to the public and which information:

(A) Derives economic value, actual or potential, from notbeing generally known to, and not being readilyascertainable by proper means by, other persons who canobtain economic value from its disclosure or use; and

(B) Is the subject of efforts that are reasonable under thecircumstances to maintain its secrecy.

Even if all of the information is publicly available, a unique compilation ofthat information, which adds value to the information, also may qualify asa trade secret.

FN2. We apply the clearly erroneous standard to a district court'sdetermination that a particular type of information is a trade secretbecause such determination involves a question of fact. Camp Creek, 139

F.3d at 1410 – 11 (citing Wilson v. Barton & Ludwig, Inc., 163 Ga.App. 721,724 – 25, 296 S.E.2d 74 (1982)).

With reference to the alleged trade secret asserted by CARC, the districtcourt found that

The district court found that CARC gave TDI a diskette containing CARC'sinformation about the properties for sale during the May 1996 tax liensale. TDI entered the data on the properties into TDI's computers. Thus, atleast until March 18, 1996, TDI had a great deal of relevant information onthe properties for sale during the May 1996 tax lien sale. From this finding,the district court concluded that Finnegan violated the Georgia TradeSecrets Act by misappropriating and using the property informationconcerning the $27 million portfolio that was available for purchase duringthe May 7, 1996 tax lien sale.

The testimony regarding the “method” or “formula” which constitutesCARC's alleged trade secret describes the process by which CARCevaluates the amount to be bid on a tax deed. That process involves theconsideration of the following information: the assessed value of theproperty; the valuation reports on the property produced by third-partyreal-estate information database services; the attributes of the propertyand the neighborhood based on “drive -bys” of the si te by CARCemployees; and a prediction of the property owner's likelihood of

redeeming the tax liens and making interest payments based on the

specific owner's payment record and CARC's national averages of taxredemption*687 behavior. After compiling this information to arrive at avaluation of the property, CARC factors in its own financial constraintsimposed by its institutional lenders to determine the maximum bid price atwhich it believes it can make a reasonable profit on the purchase of thetax deed at auction. CARC claims as trade secrets its compilation ofproperty-specific information, its national database on tax redemption

behavior, and its final bid guidelines for tax deeds sold at auction.

There is no question that the vast bulk of the information CARC uses inthis process is available to the public or that the method utilized by CARCis the same basic method by which any informed buyer would prepare tosubmit an intelligent bid at any auction. The official assessed values ofproperties for tax purposes are a matter of public record. CARC derives itshistorical information about the property and the quality of theneighborhood, according to CARC's Vice –President, “just by reading thenewspapers and being in tune with the local realty market,” methodswhich are clearly available to the public. The private computer databasescontaining relevant information about the properties are fee services

provided by third parties and are commonly used throughout the realestate industry. And, obviously, anyone is free to drive by and physicallyobserve the neighborhoods and the properties. Finally, because thespecific properties scheduled to be sold at auction are advertised in thenewspaper four weeks prior to the auction, a person experienced in thetrade has sufficient time to compile the information from these publicsources before the auction. Thus, as CARC's Vice – President admitted, aperson interested in purchasing at auction any of the tax deeds to theproperties in CARC's tax lien portfolio could utilize these public sources ofinformation in the several weeks leading up to the auction to make acompetitive bid.

The only considerations left which could comprise trade secret informationare the property owner's re-demption records, and the amount that CARCwas prepared to bid on each property at the auction. Neither of theseconsiderations finds adequate support in the record to qualify as a tradesecret. First, the payment records of the owners of the propertiesunderlying the tax executions are a matter of public record. It is true thatthe testimony at trial established that the public records do not indicatethe dates on which the owners made payments. That information can begleaned from local government computer records of the redemptiontransactions, something not made public and actually discarded by theagencies on a regular basis. CARC purchases the agencies' computerrecords in order to ascertain this information and asserts that suchinformation is a valuable predictor for redemption behavior. However, not

only could these records also be purchased by others, but, more



Trademark Law


9

pertinently, CARC does not provide any evidence of how the informationgleaned from them works as a predictor or why that information ismeaningful in the valuation of a tax deed. The same lack of evidencehampers CARC's claim that its database of nationwide tax redemptionbehavior warrants trade secret status. Although CARC's witnesses testifiedthat its nationwide statistics are useful predictors of whether and how longit might take an individual property owner to pay off the tax debt owing on

his or her property, those witnesses failed to explain specifically how thatinformation would be useful to valuing the tax deed to the property.Consequently, on this record, it is impossible for a court to say that eitherform of tax redemption behavior information meets the definition of atrade secret under the Act.

CARC failed to explain, beyond the most general of assertions, how acompetitor, armed with its own in-formation about the value of theunderlying properties and its own financial considerations, could reapeconomic value from knowledge of CARC's “bid guidelines.” The problemwith this argument is that CARC's method —assembling public informationabout the value of a property and deciding what bid amount represents the

permissible financial risk —is simply not a trade secret. It is something thatany sufficiently informed and experienced bidder can and would do.Therefore, CARC's compilations of information in the form of its “bidguidelines” are not “ ‘unique combination[s], afford[ing their possessor] acompetitive advantage.’

AMP, INC. V. FLEISCHHACKER 823 F.2d 1199

FACTS : The plaintiff, AMP Incorporated, brought this action against a

former employee, James Fleischhacker, and one of its competitors,Molex, alleging unfair competition and misappropriation of tradesecrets.

AMP is the world's leading producer of electrical and electronicconnection devices while Molex is a principal competitor of AMP'sComponents & Assemblies Division.

In 1984, Molex hired defendant James Fleischhacker, formerly theDivision Manager of AMP's Components & Assemblies Division, tofill the position of Director of Marketing for Molex's CommercialProducts Division. Mr. Fleischhacker joined AMP in 1973. He rapidlyadvanced through the corporation and in 1982 was namedManager of the Components & Assemblies Division, the position heheld until he resigned in 1984.

As Division Manager, Mr. Fleischhacker supervised approximately1200 people who were responsible for the manufacture and sale of10,000 different component parts.

His duties included reviewing and approving business programs,interfacing with group management, implementing strategicpolicies and plans, and developing personnel.

His primary energies, however, were devoted to motivating and

coordinating the efforts of others. He was told that he had thepotential of rising higher within AMP's corporate structure and evenof becoming president of the corporation. His honesty, integrity,loyalty, discretion, and judgment were consistently rated as goodto excellent in formal evaluations and by the testimony of his co-workers.

In 1982, Molex created the Director of Marketing position, in itsCommercial Products Division. Molex made a written offer ofemployment to Mr. Fleischhacker at the end of 1983, which heaccepted in February 1984.

AMP’s allegations: Molex's hiring of Mr. Fleischhacker involves themisappropriation of AMP's trade secrets and other confidentialinformation, and the solicitation and hiring of AMP personnel. AMPmaintains that it i s inevitable that Mr. Fleischhacker and other AMPpersonnel hired by Molex will use and disclose AMP trade secretsand confidential information for the benefit and unjust enrichmentof Molex.

ISSUE : W/N the products of AMP constitute protectable trade secrets.

HELD : No.RATIO :

In the Illinois law of trade of secrets, there is a distinction between1) the protection afforded an employer who has bound hisemployee by an enforceable post-employment restrictive covenantnot to compete and 2) one who relies exclusively upon common

law restrictions against disclosure of confidential information. While an enforceable restrictive covenant may protect material,such as confidential information revealed to an employee duringthe course of his employment, which does not constitute a tradesecret, an employer's protection absent a restrictive covenant isnarrower and extends only to trade secrets or near-permanentcustomer relationships.

Mr. Fleischhacker signed a confidentiality agreement when he firstbecame employed at AMP whereby he agreed inter alia: “To keepconfidential during and subsequent to the period of saidemployment, x x x all information relating to the Company'sbusiness, its research or engineering activities, its manufacturingprocesses or trade secrets, its sources of supply or lists ofcustomers and its plans or contemplated actions.



Trademark Law


10

The Illinois courts have held unenforceable nearly identicalprovisions in confidentiality agreements because 1) they containno limitation on the duration of the nondisclosure provision,instead restricting disclosure "during and subsequent to the periodof said employment," and 2) they contain no geographicallimitation or other kind of limit on the parties to whom theemployee is prohibited from disclosing information.

Confidentiality agreements without such limitations constituteunreasonable restraints on trade which unduly restrict the freeflow of information necessary for business competition.

Mr. Fleischhacker is not subject to any enforceablecontractual restrictions. Therefore, AMP was first required toestablish the existence of genuine trade secrets in order forinjunctive relief to be warranted.

It is generally recognized in Illinois that at the termination ofemployment, an employee may not take with him confidential,particularized plans or processes developed by his employer anddisclosed to him while the employer-employee relationship existed,which are unknown to others in the industry and which give theemployer an advantage over his competitors. On the other hand,an employee is free to take with him general skills and knowledgeacquired during his tenure with his former employer.

District Court found that AMP had failed to establish any protectibletrade secrets with respect to the products manufactured by itsComponents & Assemblies Division. The electronic componentsproduced were low technology commodity products which could beeasily reproduced, and that much of the AMP product informationpossessed by Mr. Fleischhacker was already known to virtually allof AMP's competitors and easily available from widely circulatedpublic sources.

AMP has again refused to specify precisely what trade secrets itbelieves to be at risk by identifying particular documents or othersources of information, relying on its by now familiar refrain thatMr. Fleischhacker has misappropriated "confidential business andtechnical information."

No relief was warranted because AMP had not shown any likelihoodthat Mr. Fleischhacker would compromise any of the informationknown to him.

The general information identified by AMP did not constituteprotectable business secrets. Where the parties have entered intoa restrictive covenant not to compete, the scope of protectionafforded a former employer is quite broad and may extend to thetype of generalized confidential business information to which AMPpoints.

When Mr. Fleischhacker resigned, he hurriedly packed his personal

papers and belongings under the surveillance of an AMP employee

and did not deliberately take with him anything of a confidentialnature. AMP has offered no proof to the contrary. While the districtcourt did find that in his hurry to depart the premises, Mr.Fleischhacker had inadvertently removed an AMP report whichcontained confidential information relating to operations in Japan,b there was no evidence that either he or Molex had ever used thereport to AMP's detriment.

To restrain Mr. Fleischhacker from making use of or relying on hisindependent recollections of generalized business and technicalinformation to which he had access while employed at AMP issimply untenable. Illinois law simply does not authorize such relief.

Any other result would severely impede employee mobility andundermine the competitive basis of our free economy. The hiringof a close competitor's executives is a usual and permissiblepractice in any industry.

The practical effect of any grant of injunctive relief in favor of AMPwould be to prohibit Mr. Fleischhacker from working in theconnector industry. AMP contends that the injunctive relief wouldonly remove him from the conflicting position he now holds. Molex,however, obviously hired Mr. Fleischhacker as a result of hisexpertise, skill, and experience as a Director of Marketing in theconnector industry. It is unlikely that Mr. Fleischhacker would be ofmuch use to Molex in a position wholly unrelated to the duties heperformed at AMP.

An employer is always free to protect its interests through areasonable, restrictive covenant not to compete. But when anemployer has failed to take such a simple step on its own, a courtwill not raise to trade secret status "the fruits of ordinaryexperience in ... business, thus compelling former employees toreinvent the wheel as the price for entering the competitivemarket."

In the enforcement of post-employment restrictive covenants notto compete (under Illinois law), a plaintiff seeking to enforce sucha covenant must first establish the existence of a protectiblebusiness interest. Once a protectible interest is shown, "irreparableinjury is presumed to follow if the interest is not protected." Thisprinciple, however, has no application in cases where the employerhas not sought contractual protection.

AMP had failed to show any likelihood that Mr. Fleischhacker wouldcompromise any of AMP's confidential business information knownto him. AMP presented no evidence that he had disclosed or usedAMP confidences since he began working at Molex. AMP furtherfailed to prove that "any confidences, if obtained, would be usefulto Molex or would give it any advantages over AMP in themarketplace. Even if AMP had established the existence of

particular, protectible trade secrets, no injunctive relief was



Trademark Law


11

warranted because it had failed to show that any such informationhad been misappropriated or was at risk of misappropriation.

Finally AMP challenges the district court's judgment in favor ofdefendant Molex on its unfair competition claim. While the districtcourt found that in the past Molex had indeed hired employeesfrom AMP as well as from its other competitors, it concluded thatthere was simply no evidence that Molex had systematically

pursued those employees to gain the confidences of AMP.Similarly, the district court found that Molex had come intopossession of an AMP internal document, the "MTA Plan," in 1980,but concluded that there was no evidence that the document wasobtained through improper means or that Molex had benefitedfrom its possession of the document to the detriment of AMP.

DYNAMICS RESEARCH CORPORATION V. THE ANALYTIC SCIENCESCORP.9 Mass. App. Ct. 254(Product : Missile Guidance System "Software/computation")

PARTIES

Master/ Dynamic - claims that the former employee should be barred fromusing his knowledge to the competitor (injunct them not to use theemployee and subsequent products made from his skill). Its project TIRASwhich uses 3 secrets as he claims but failed to substantiate this claims onwhy they are trade secrets.Analytic and former employee Bicknell (a very very intelligent person) -claims that the use of the Bicknell's skill was common knowledge to theindustry that the inactions of Dynamic in just letting him go when heresigned without any debriefing is a sign that there was really no tradesecretHELD: There is no trade secret here1. What they are doing was common knowledge to the industry as

evidence by requiring them to know the system and that all theirengineers are capable of answering when asked about the system.(imagine IT people using JAVA, C# or something )2. Uniqueness without more is not a trade secret. It has to have amodicum of originality. Thus being common knowledge . (They basicallyclaim that they can't use the language (of the data eg. binary) becausethey created something from it)3. Being the only product in the market cannot be a basis for trade secretswithout other evidence (anti-monopoly,)4. Dynamic's secret is really just painting a picture from factory to finishand its in the brochure or can be asked from the engineers

5. They let bicknell go no fuss, no debriefing or anything it looked like theywere even eager, thus belies the claim of trade secret, because if it was asecret you will do everything so that they won't divulge your secrets.6. although he didn't sign the non-disclosure the court stated that i t is onlyeffective if there was something not to disclose anyways, if it is not a tradesecret then non-disclosure is not effective.

RELIGIOUS TECHNOLOGY CENTER V. WOLLERSHEIM796 F.2d 1076 (1986)FACTS

Church of Scientology (Church)o A person’s behavior and well -being are improved by

removing “engrams” from the unconscious mindo Engrams are impressions recorded by the unconscious

mind in times of trauma in this or in previous liveso Engrams return in moments of similar stress to the

detriment of the person’s behavioro Removing engrams from the unconscious permits the

person’s analytical mind to function unhindered Engrams are located and purged through “ a uditing”

o “auditing” requires the use of the Church’s t echnology andadvanced technology

o an “auditor” directs a set of structured questions and drillat the Church adherent

o the adherent’s responses are measured on a “Hubbard E -meter” which reflect changes in “skin voltage”

o the aim is to detect the “buttons” which indicate aconscious or subconscious response to the rundown and

enable the adherent to identify his or her engramso the adherent must proceed through a series of

sophisticated technologies of closely structuredquestions and answers to reach “a higher spiritualexistence”

Because premature exposure of an adherent to these materials willproduce harmful effect, the Church makes it a point to keep thematerials in a secure place

Mayo, a close associate of the Church founder, Hubbard, assistedin the preparation of t he Church’s higher level materials

o However, Mayo and the other senior Church officers had adispute and so Mayo left the church and thereafter

established the Church of New Civilization (New Church)



Trademark Law


12

o The beliefs, counseling, and training of the new church areessentially identical to those offered by the Church

Sometime in December 1983, a certain Robin Scott, and twoothers, stole certain higher level materials from Church offices inDenmark

o Scott was subsequently convicted of burglary While the stolen materials were returned, the Church maintains

that copies were made and that the new church later acquiredthese copies

o In fact, the district court found that these higher levelmaterial s offered by the new church are “essentiallyidentical” to the stolen Church materials

Nov 4, 1985, the Church files the present suit against the NewChurch on the basis of Racketeer Influenced and CorruptOrganization Act (RICO) claim and misappropriation of tradesecrets

o Church alleges that in later October 1985, it learned thatthe new church intended to disseminate the contents ofthe materials stolen by Scott in a non-confidential setting

o And that a certain Wollersheim, former adherent of theChurch who then had a pending tort action against theChurch, had obtained copies of the said higher levelmaterials

That Wollersheim obtained them during thedeposition of Singer and Ofshe

That in turn, Singer obtained the same fromSchlosser

Schlosser testified that she received them from anadherent of the new church

The district court granted a temporary restraining order effectively

preventing the new church from disclosing the confidentialmaterials and requiring the new church’s members to return thematerial

o To the district court, the case was one of a “stolendocument case”

o The court reasoned out that the adherent must have beenexposed to the materials and thus, they may sufferirreparable harm from the unsupervised dissemination ofthe materials, thus justifying the issuance of thepreliminary injunctive relief

o That district court also held that the materials constitutedmisappropriated trade secret but that the Church was

not arguing commercial disadvantage as an injury

ISSUES :(1) Availability of injunctive relief under RICO – Not available(2) WON religious materials constitute a protectable trade secret – No.

RATIO

(1)A. The Church’s basis for federal jurisdiction is 18 Y.S.C Sect. 1964(Civil RICO). However, there have been no determination yet asto whether civil RICO actually permits private party to secureinjunctive relief Civil RICO is directed at “racketeering activity” which is any act

"chargeable" under several generically described state criminallaws; any act "indictable" under numerous specific federal criminalprovisions, including mail and wire fraud ; and any "offense"involving narcotics or bankruptcy or securities fraud "punishable"under federal law.

o Civil RICO prohibits the use of income derived from a"pattern of racketeering activity" in relation to an"enterprise" engaged in or affecting interstate commerce.18 U.S.C. Sec. 1962(a).

A "pattern" of racketeering activity "requires atleast two acts of racketeering activity." 18 U.S.C.Sec. 1961(5).

Despite efforts by courts to limit the application of RICO to privatedamages actions, the reality remains that suits alleging therequisite predicate acts are entitled to federal court jurisdiction,even if the acts are far removed from what is usually regarded as

“organized crime” o Civil RICO jurisdiction requires no prior criminal convictions

for predicate acts nor any showing of “racketeering injury” Here, the Church alleges that the higher level materials are its

trade secret which the new church misappropriated throughseveral acts of mail or wire fraud constituting a pattern ofracketeering activity

o That the new Church, in conspiracy with Wollersheim, is an “enterprise” within the context of civil RICO

B. As regards the availability of injunctive relief to a private partyunder civil RICO, there is a disunity of views. Thus, this Court mustdecide as a matter of first impression

Court resorts to rules on statutory construction



Trademark Law


14

o information, including a formula, pattern, compilation,program, devise, method, technique, or process, that:

derives independent economic value , actual orpotential, from not being generally known to thepublic or to other persons who can obtaineconomic value from its disclosure or use; and

is the subject of efforts that are reasonable underthe circumstances to maintain its secrecy

Here, the district court held that the Church’s higher levelmaterials were a trade secret

o The distri ct court relied heavily on the Church’s concededlyelaborate efforts to maintain the secrecy of its materials

However, this Court is of the opinion that the Church’s contentionthat the disputed materials are “religious scripture” was notreconciled with the California statute’s reference to “economicvalue” as an element of protectable t rade secret

In both the Restatement of Torts or the new California statute, tobe protectable as “trade secret”, the confidential material mustconvey an actual or potential commercial advantage, presumablymeasurable in dollar terms

o Trade secret cannot be based on the spiritual advantagethe Church believes its adherents acquire over non-adherents by using the materials in the prescribed manner

Even the Restatement, Sec tion 757 defines “trade secret” asinformation which is “used in one’s business, and which gives himan opportunity to obtain an advantage over competitors who donot know or use it”

There is no California decision existing that construed the definitionof “trade secret” under the Civil Code

o But references have been made in relation to “independent

economic value” which, according to one case decided bythe Minnesota Supreme Court, is the “statutory elementthat carries forward the common law requirement ofcompetitive advantage…this does not mean…thatthe owner of the trade secret must be the only onein the market…if an outsider would obtain a valuableshare of the market by gaining certain information,then that information may be a trade secret if it isnot known or readily ascertainable”

This Court is convinced that the California courts will follow theMinnesota court’s view because incidentally, California criminal lawhas the same wording as the Civil Code when it defines “tradesecret” as “informati on which is secret and which is not generallyavailable to the public, and which gives one who uses it an

advantage over competitors who do not know of or use the tradesecret”

Here, as found by the district court, the new church offers itsservices to its adherents at a price substantially less than thatcharged by the Church

Also, the Church alleged no competitive market advantage frommaintaining the secrecy of its higher level materials

o In fact, to do so would raise doubts as to its claim that it isa religion and not a “for -profit corporation”

On the contrary, what the Church alleges is that its preceptsrequire that adherents be audited in a structured manner withexposure to higher level materials only when the auditorsconsiders the adherent ready for such

The injury inflicted upon the Church by the new church’smisappropriation of the so- called “secret” is the “religious harm”

o Meaning, the value of the confidential materials is spiritual,not commercial

o Thus, the materials cannot be said to have an

“independent economic value” necessary to qualify as aprotectable trade secret

HELD : Church is not entitled to an injunction either under civil RICO orunder the California secrets law

RIVENDELL FOREST PRODS. V. GEORGIA-PACIFIC CORP. 28 F.3d 1042 (10th Cir. 1994)

FACTS:

Rivendell and GP are both engaged in the lumber business Cornwell was originally employed by Rivendell and later on by GPo While working for Rivendell, he was contacted by an

executive of GP two months later, he was hired by GP todevelop a new computer software for GP, which wouldconsolidate its entire Distribution Division (consisted ofabout 100+ distribution centers)

Rivendell has a computer software system which it developed overthe years, and which it claimed to be a trade secret underColorado law

o Computer software took nine years to develop at almost$1M



Trademark Law


15

o Cornwell, though not a computer expert, worked forRivendell i n the software’s development, knew it well, andhad a significant role

o This system enabled Rivendell to provide its customerswith special service, and to manage its distribution centersas no competitor could do

o The system enabled Rivendell employees to give

immediate answers to customers’ questions and phoneinquiries as to prices, quantities, places, and delivery timeof various lumber sizes and types without anycomputations = no delay and call back needed

o At that time, no other wholesaler could provide suchservice and management, and this gave Rivendell a largeadvantage over its competitors

Rivendell filed a suit against GP, alleging wrongful appropriation ofthis trade secret under the Colorado Trade Secret Act

o Cornwell worked for GP filed a motion for summary judgment with the trial court

case was heard on affidavits and depositions TC granted GP’smotion for summary judgment, ruling there was no trade secret

ISSUE:WON Rivendell’s computer system was a trade secret appropriated by GP

HELD:REVERSED and REMANDED for further proceedings

RATIO: Trade secret – means the whole or any portion or phase of any

scientific or technical information, design, process, procedure,formula, improvement, confidential business or financialinformation, listing of names, addresses, or telephone numbers, orother information relating to any business or profession which issecret and of value

To be a trade secret, the owner thereof must have taken measuresto prevent the secret from becoming available to persons otherthan those selected by the owner to have access thereto forlimited purposes

Misappropriation of a trade secret:1) Acquisition of a trade secret of another by a person who

knows or has reason to know that the trade secret wasacquired by improper means; or

2) Disclosure or use of a trade secret of another without

express or implied consent by a person who:

a) Used improper means to acquire knowledge of thetrade secret

b) At the time of the disclosure or use, knew or hadreason to know that his knowledge of the tradesecret was:i) Derived from or through a person who had

utilized improper means to acquire it;

ii) Acquired under circumstances giving rise to aduty to maintain its secrecy or limit its use; oriii) Derived from or through a person who owed a

duty to the person seeking relief to maintain itssecrecy or limit its use

Elements to identify a trade secret:1) The extent to which the information is known outside the

business2) The extent to which it is known to those inside the

business3) The precautions taken by the holder of the trade secret to

guard the secrecy of the information4) The savings effected and the value to the holder in having

the information as against competitors5) The amount of effort or money expended in obtaining and

developing the information6) The amount of time and expense it would take for others

to acquire and duplicated the information In this case, the issue as to whether there was a trade secret was

complicated by the TC’s method for its factual examination of theasserted trade secret

A trade secret, such as the one claimed in this case, can consist ofa combination of elements which are in the public domain

o The general principle that a trade secret can exist in acombination of characteristics and components, each ofwhich, by itself, is in the public domain, but the unifiedprocess, design, and operation of which, in uniquecombination, affords a competitive advantage and is aprotectable secret

Protection of a trade secret is against breach of faith andreprehensible means of learning another’s secret

GP appropriated Rivendell’s system

ROHM AND HAAS CP., V. ADCO CHEMICAL CO.689 F.2d 424Rohm and Haas Company v. ADCO Chemical Company



Trademark Law


16

FACTS : Prior to the development of the process claimed to be trade secret,

Rohm and Haas had sold latex paint vehicles made using a processdisclosed in a patent

In 1955, Rohm and Haas embarked on a research campaign todevelop a “second generation” latex paint vehicle “with improvedqualities”.

As a result of a 7-year effort, it developed and used the processesinvolved here

Rohm and Haas used the vehicle in the manufacture of 4 highlysuccessful products. Other manufacturers tried to offer vehiclescompetitive with the plaintiff’s but failed. It contends that onlyrevelations by one of plaintiff’s former employees , Joseph Harvey,enabled ADCO to produce these vehicles

Joseph Harvey joined Rohm and Haas as a laboratory technician.He worked under its scientists in the development of latex paints,including those incorporating the process involved here . Plaintiff’slab notebooks in Harvey’s handwriting contain repeateddescriptions of the process which he carried out pursuant to theplaintiff’s instructions. Harvey was also given access to itscommercial process descriptions which detailed the process

In the employment agreement, Harvey acknowledged that "anybusiness or trade secrets, including secret processes ofmanufacture of Rohm and Haas Company, are the property ofRohm and Haas Company" and agreed "not to divulge suchinformation to outsiders or other unauthorized persons either whileemployed by Rohm and Haas Company or afterwards."

Harvey was reminded at his exit interview that he possessedconfidential information and that he should contact plaintiff if hehad any question concerning the extent of his obligation topreserve confidentiality but he never contacted plaintiff.

In 1968, ADCO and Thibaut & Walker (related corporations

engaged in the manufacture and sale of various chemicals)initiated a program to copy 2 of Rohm and Haas’ products whichwere made using the subject process. They hired Victor Meyer(Ph.D. Chemist) as independent consultant since 1963

After 2 years of work, Dr. Meyer advised ADCO and Thibaut &Walker that he had successfully developed a match for Rohm andHaas’ products. He attempted to implement the process he haddeveloped on a commercial scale but he failed. However, they stillpromoted their matching products at a paint show.

In order to fill orders from customers, defendants purchasedplaintiff’s products, repackaged them as their own and sold themwithout informing customers of the substitution

During the said show, defendants’ president was referred by a

former employee of Rohm and Haas to Harvey, who was seeking

employment at that time. The president immediately contactedHarvey and after one interview, was hired to develop latex paintcompounds

Harvey’s first assignment was to duplicate one of plaintiff’sproducts made using the subject process which had been theobject of Dr. Meyer’s research efforts. He prepared a laboratoryreplication of the product using the process he learned for making

plaintiff’s products Within a few weeks, defendants sent samples to prospectivecustomers and ord ered Harvey to duplicate the “Harvey process”on a commercial scale. However, it was unsuccessful due to hisown mathematical errors so defendants called in Dr. Meyer andothers to make the “Harvey process” work

Defendants were subsequently successful in duplicating the “Harvey process” on a commercial scale and the Meyer processwas set aside and were able to sell duplicate of plaintiff’s productsusing the “Harvey process”. Rohm and Haas filed a suit.

The district court rejected the trade secret claim stating thatplaintiff had failed to show that the process was a trade secret

ISSUE : WON there is a trade secretHELD : The judgment of the district court will be reversed. The case will beremanded for entry of judgment for plaintiff and for proceedings consistentwith this opinion to grant the plaintiff all relief to which it is entitled.

RATIO : The plaintiff claimed that its trade secret was misappropriated with

the help of its former employee by its competitors. The law of bothPennsylvania and New Jersey establish five basic elements of theclaim:(1) the existence of a trade secret,

(2) communicated in confidence by the plaintiff to the employee,(3) disclosed by the employee in breach of that confidence,(4) acquired by the competitor with knowledge of the breach ofconfidence, and(5) used by the competitor to the detriment of the plaintiff.

New Jersey requires that the plaintiff show that he tookprecautions to maintain the secrecy of the trade secret. On theother hand, Pennsylvania requires that the plaintiff show that thetrade secret is of value to him and is important in the conduct ofhis business, and that the plaintiff has a right to the trade secretby reason of discovery or ownership

Here, Plaintiff showed that it had discovered the Process andretained all rights to it. The Process was of great value and

importance to plaintiff, serving as the basis of four highly

http://www.rohmhaas.com/








Trademark Law


17

successful products. It also showed that it disclosed the Process toHarvey in confidence. However, Harvey revealed the secret inviolation of his duty to preserve its confidentiality. Plaintiff alsoestablished that the secret was acquired by defendants withknowledge that its revelation was wrongful and that defendantsused the secret to the detriment of plaintiff. Thus there is nodispute that plaintiff had established at trial all of these elements

of its trade secret claim. The only element remaining is theexistence of a trade secret. As to the EXISTENCE of a TRADE SECRET

o New Jersey and Pennsylvania have adopted the definitionof a trade secret provided in the Restatement of Torts:A trade secret may consist of any formula, pattern, deviceor compilation of information which is used in one'sbusiness and which gives him an opportunity to obtain anadvantage over competitors who do not know or use it.

o Here, plaintiff proved that it used the Process in itsbusiness to obtain a distinct advantage over itscompetitors, including defendants.

o Apart from defendants, plaintiff was the only manufacturerto use the Process and as a result it could offer foursuperior products. Other competitors had tried and failed toput competing products on the market. Only afterdefendants acquired the "Harvey process" could they fielda match for the plaintiff's products.

o Under both New Jersey and Pennsylvania law, these factswere sufficient to establish that the alleged secret is in factthe secret of a particular employer, and not a matter ofgeneral knowledge within the industry. Plaintiff, havingthus proven the existence of a trade secret as well as everyother element of his trade secret claim, was entitled torelief.

o Harvey's background and the testimony of defendants'agent as to Harvey's grasp of the "Harvey process," supra,leave little doubt that memory, not ability, was the sourceof Harvey's revelation. On this record, regardless of thespecificity of plaintiff's definition of its trade secret, thelegal conclusion drawn by the district court (plaintiff hadnot defined its alleged trade secret sufficiently to remove itfrom "the kind of information that goes with knowledge,skill and experience in the field is more likely to accompanythe employee without protection) is without basis, and isthus an error of law.

o The trade secret law of Pennsylvania and New Jersey isdirectly contrary to the legal conclusion drawn by thedistrict court. The law of these states provides that even

though each and every element of plaintiff's Process isknown to the industry, the combination of those elementsmay be a trade secret if it "produces a product superior tothat of competitors."

o Under both New Jersey and Pennsylvania law, plaintiff isentitled to such an injunction. It also appears that bothNew Jersey and Pennsylvania permit the recovery of

defendants' profits or plaintiff's damages resulting fromdefendants' wrongs.

BARNETT V, SHIDLER 338 F.3d 1125HARVEY BARNETT, INC., a Florida corporation; Infant SwimmingResearch, Inc., a Florida corporation, Plaintiffs-Appellants, v. AnnSHIDLER, individually and d/b/a Infant Aquatic Survival; JudyHeumann, individually and d/b/a Infant Aquatic Survival; AlisonGeerdes, individually and d/b/a Infant Aquatic Survival,Defendants-Appellees.

338 F.3d 1125FACTS :

In 1966, Dr. Harvey Barnett, the founder and president of ISR,began to develop the Infant Swimming Research program ("ISRprogram"), which plaintiffs describe as a " scientific, behavioralapproach to pediatric drowning prevention."

ISR's program utilizes a method known as "swim, float, swim,"and contains nearly two-thousand "prompts and procedures"for teaching infants as young as six-months old how to survivein the water. In addition, the ISR program maintains safetyprotocols to keep children safe during instruction and providesa "BUDS" Record Sheet allowing parents to monitor children'sbodily functions, diet, and sleep in order to evaluate physicalresponses to the ISR program.

In a five-week course, ISR trains and certifies instructors. ISR-certified instructors teach survival skills to infants in privatelessons, ten minutes a day, five days a week for three to fourweeks. Instructors receive a videotape entitled "Prompts andProcedures," which illustrates how to use behavioralconditioning in teaching infants and covers other water-safetyissues. ISR's program also includes the ISR Master InstructorSystem, in which individuals become certified as MasterInstructors to train other potential ISR instructors

Dr. Barnett has written various books detailing some of thetechniques and methods used in ISR's aquatic-survival

program, including Precision Strokes for Little Folks, published



Trademark Law


18

in 1974. More than ten years later, he wrote, but neverpublished, a manual entitled The Science of InfantSwimming, which is used to help instructors understand "thepsychology of infants and young children, their anatomy, andthe physics involved as their small bodies move through thewater." (Appellants' Br. at 5.) In 1989, ISR began publishingthe "Parent Resource Book," now in its ninth edition, an

educational book distributed to parents regarding the dangersof infant drowning and the theory and processes used by ISR.

Judy Heumann, Ann Shidler, and Alison Geerdes,defendants in the instant case, are former ISR instructors wholeft the company in early 2000. ISR trained Heumann as aninstructor and Master Instructor in 1984 and 1987,respectively. Shidler was trained as an instructor in 1990, andas a Master Instructor in 1993, and Geerdes was trained as anISR instructor and worked for less than a year before leavingISR. She is not a Master Instructor. Defendants paid feesranging from $5,000 to $10,000 for the instruction.

While employed by ISR, Heumann, Shidler, and Geerdes eachsigned a "Nondisclosure and Confidentiality Agreement" and alicense agreement containing a further "Confidentiality ofInformation" provision as well as a "Covenant Not to Compete."

Notwithstanding these agreements, on leaving ISR in 2000,the three former employees started Infant Aquatic Survival("IAS"), a new company devoted to teaching infant and childswimming in Colorado.

Defendants' program is allegedly similar to the ISR program inthat it utilizes the same "swim, float, swim" method,implements some of the same safety protocols, uses a DailyHealth Data Sheet similar to the BUDS sheet, uses acomparable registration form, and distributes a comparableparent resource book to parents of children enrolled in the IASprogram. It is uncontested that defendant Shidler's husbandsought to reserve the names Harvey Barnett, Inc. and InfantSwimming Research, Inc. with the Colorado Secretary of State.On more than one occasion, defendants falsely advertised thattheir program, IAS, had been in business since 1990

ISR filed in district court a complaint against the defendants,alleging state-law claims of misappropriation of trade secrets,breach of contract, and unjust enrichment, as well as unfair

competition and deceptive trade practices under the CCPA,

along with federal claims of trademark infringement andmisleading trade practices under the Lanham Act.

ISR then sought a preliminary injunction to prevent thedefendants from teaching the ISR program to other instructors.

District court denied ISR's request for a preliminary injunction

as to Heumann and Shidler. In a summary judgment, District court concluded that the ISR

program was not a trade secret as a matter of law anddismissed ISR's misappropriation-of-trade-secrets claim. Thedistrict court further concluded that both the covenant not tocompete and the confidentiality provision in the licenseagreement were not enforceable, and dismissed ISR's breach-of-contract claim. As to ISR's remaining claims —trademarkinfringement and misleading trade practices under the LanhamAct, and violations of the CCPA — the court concluded that,because ISR failed to advance sufficient evidence on eachelement, those claims must be dismissed as well.

ISSUE : WON the District Court erred in ruling that the ISR program

was not a trade secretHELD :

In sum, we REVERSE the district court's decision granting summary judgment in favor of defendants on ISR's claim of misappropriation oftrade secrets, and on its claim of breach of contract, and we REMANDfor further proceedings consistent with this opinion . 19 We AFFIRM thedistrict court's decision in all other respects.

RATIO Colorado has adopted the Uniform Trade Secrets Act, which

defines a trade secret as "any scientific or technicalinformation, design, process, procedure, formula, [or]improvement... which is secret and of value."

In order "[t]o be a `trade secret' the owner thereof must havetaken measures to prevent the secret from becoming availableto persons other than those selected by the owner to haveaccess thereto for limited purposes." Trade-secret status is aquestion of fact.

Factors considered in determining whether a trade secret existsinclude:

o (1) the extent to which the information is knownoutside the business; (2) the extent to which it is

http://openjurist.org/338/f3d/1125/harvey-barnett-inc-v-shidler#fn19






Trademark Law


19

known to those inside the business, i.e., by theemployees; (3) the precautions taken by the holder ofthe trade secret to guard the secrecy of theinformation; (4) the savings effected and the value tothe holder in having the information as againstcompetitors; (5) the amount of effort or moneyexpended in obtaining and developing the information;

and (6) the amount of time and expense it would takefor others to acquire and duplicate the information. In Rivendell, we held, consistent with Colorado law, that

information can be a trade secret notwithstanding the fact thatsome of its components are well-known. "[A] trade secret canexist in a combination of characteristics and components eachof which, by itself, is in the public domain, but the unifiedprocess, design and operation of which, in unique combination,affords a competitive advantage and is a protectable secret."

In arriving at its conclusion that the ISR program is not a tradesecret as a matter of law, the district court determined that (1)"[v]ariations of the swim, float, swim method are known bothinside and outside the children's aquatic business," (2) ISR didnot take precautions to guard the secrecy of its information"until at least 1996, after hundreds of instructors had beentrained and thousands of students taught," (3) "[p]arents andbystanders were allowed to watch and videotape lessons," and(4) "a variation on ISR's methods could be created through aperusal of commercially available child psychology, child health,and swimming instruction books." Ultimately, the court foundthat "ISR allowed its program to become part of the publicdomain before seeking protection... [and] the Prompts andProcedures, based on principles of behavioral conditioning, wasalready in use to teach children swim, float, swim throughoutthe nation" and thus "as a matter of law ... ISR has noprotectable trade secret."

Our review leads us to conclude that the district courtimproperly looked at components of the ISR program inisolation, rather than as a whole, in determining that ISR doesnot possess a trade secret. This runs afoul of the analyticalapproach set forth in Rivendell.

ISR's position is that the ISR program, as a whole, is a tradesecret.

In failing to follow our holding in Rivendell — that a trade secretcan exist in a combination of characteristics, each of which,considered separately, is in the public domain, but, takentogether, may yield a competitive advantage that results in aprotectable trade secret — the district court applied an

inappropriate standard. We do not suggest that had the district

court merely stated that it was also considering its findings inthe aggregate, that would have beensufficient. Rivendell's requirement of analysis in the aggregate ismore than a formality. It is a substantive component of trade-secret analysis integral to a court's ultimate conclusionregarding the existence of material facts for trial.

On our review of the record, we conclude that

a Rivendell analysis sets in relief numerous genuine issues ofmaterial fact precluding summary judgment. In support of the first and second factors used by Colorado

courts to determine the existence of a trade secret — theextent to which the information is known outside the businessand to those inside the business — ISR submitted fouraffidavits attesting to the uniqueness of the ISR program. First,Tom Werts, an aquatic safety consultant with over thirty yearsof experience, including a position as the National Director ofWater Safety for the American Red Cross, stated in hisaffidavit: "The ISR program and the techniques used by itsinstructors are unique. They are not taught by other aquaticorganizations. The ISR program is a behavioral approach topediatric drowning prevention." Second, in his affidavit, Dr.Barnett stated that the ISR program "is not simply teachingchildren to swim. The ISR Program is a unique and speciallydesigned behavioral approach to pediatric drowningprevention." Third, Lisa Grether, a current ISR instructor,averred that the ISR program uses trade secrets and is unique.Finally, Dr. David Carr, who, in his role as an advisory boardmember for the State of Florida, had the opportunity toevaluate various infant-swimming programs for certification inFlorida, submitted an affidavit in which he claimed that "Dr.Barnett's program was the only program which offered abehavioral approach to pediatric drowning prevention" and thatthe ISR program is "unique unto itself" and "not capable ofbeing copied simply by watching from poolside."

In further support of the first and second factors, ISR points totestimony from two current ISR instructors, Carol Gnam andCindy Asay, who relayed repeated admissions by Shidler andHeumann regarding the uniqueness of the ISR program. ISRalso elicited testimony from David Dubois, one of defendants'experts, stating that he knows of no other aquatic programwhose specific goal is to certify instructors, in a five-week timeframe, to teach infants and toddlers aquatic survival skills.

In support of the third factor — the precautions taken by theholder of the trade secret to guard the secrecy of theinformation — ISR presented Dr. Barnett's affidavit, franchise

agreements, and license agreements. In his affidavit, Dr.



Trademark Law


20

Barnett averred that "ISR has protected the confidentiality of allof the ISR research and materials since the 1970's by franchiseagreements with confidentiality restrictions and later by therestrictions of the license agreements." As for the franchiseagreements, they contained a "Confidentiality of Information"provision providing that "[f]ranchisee shall not at any time or inany way divulge, disclose, or communicate to any person or

organization in any manner whatsoever any informationconcerning any matters affecting or relating to the business ofFranchisor." Moreover, license agreements, prior to 1996,contained a "Confidentiality of Information" provision stating:

o LICENSEE shall not at any time or in any way divulge,disclose or communicate to any person or organizationin any manner whatsoever any information concerningany matters affecting or relating to the business ofLICENSOR.... LICENSEE further agrees not to write forpublication any article concerning Infant SwimmingResearch teaching and data techniques and theory,infant swimming or infant and young child aquaticactivities and drowning accidents and ... not to train orendeavor to train instructors or assistants in the sameor similar methods or techniques without SPECIFICWRITTEN CONSENT FROM LICENSOR.... Upontermination of this agreement, LICENSEE will surrenderall documents pertaining to LICENSOR'S business,technique, advertising and trade secrets.

Beginning in 1996, the Confidentiality of Information sectionprovided that "Licensee acknowledges that the materialscontain trade secrets of Licensor and as such provide acompetitive advantage." (1 id. at 74.)

Based on our review of the evidence, we conclude that ISR hasraised genuine issues of material fact as to the contestedfactors .8 ISR submitted evidence that its program is unique inthat it instructs individuals, in a five-week period, how to teachaquatic-survival skills to infants as young as six-months old.ISR further submitted evidence showing that, through franchiseagreements and license agreements, it has taken precautionsto guard the secrecy of its program . 9 Factual issues remain inregard to whether the nuanced ISR program is distinguishablefrom standard infant-swimming programs and whether ISRtook reasonable precautions to guard the secrecy of its allegedtrade-secret program. Indulging all inferences in favor of ISR,we hold that summary judgment is not appropriate on the

question of whether the ISR program, viewed comprehensively,is a trade secret.

ROCKWELL GRAPHIC SYSTEMS, INC. V. DEV INDUSTRIES 925 F.2d 174 (1991)

FACTS: Present is a suit for misappropriation of trade secrets Rockwell graphic system is a manufacturer of printing presses

used by newspapers, and of parts for those presses they filed acase against DEV industries, Fleck (president of DEV industries andformer employee of Rockwell) and Peloso (former employee ofRockwell)

The case was in federal court because of allegations of RICO(Racketeer Influenced and Corrupt Organizations (thinkmafia/organized crime they were prosecuted under this statute)) for misappropriation such as break of fiduciary duty

o District Court judge found that there was no violation ofRICO

o It also found that Rockwell has no trade secrets because itfailed to take reasonable precautions to maintain secrecy Hence present appeal Additional facts found by the SC:

o Rockwell does not always manufacture the parts itself ofthe printing press

When an owner of the printing press needs aparticular part OR if it anticipates demand for thepart, it will subcontract the manufacture of theprinting press to an independent manufacture shopcalled “VENDOR”

It will give the vendor a “piece partdrawing” indicating materials, dimensions,tolerances and methods of manufacture without this, the vendor cannotmanufacture the part

o Rockwell did not even try to patentthe piece parts

o Rockwell employed fleck and peloso in responsiblepositions which gave them access to piece part drawings

Fleck left Rockwell in 1975 and 3 years later, joined DEV as its president

Peloso joined DEV the following year after it wasfired by Rockwell when the security guard caughthim removing part drawings from rockwell’s plant











Trademark Law


22

obtained the plaintiff's trade secret by a wrongfulact, illustrated here by the alleged acts of Fleckand Peloso in removing piece part drawings fromRockwell's premises without authorization, inviolation of their employment contracts andconfidentiality agreements, and using them incompetition with Rockwell. Rockwell is unable to

prove directly that the 100 piece part drawings itgot from DEV in discovery were stolen by Fleck andPeloso or obtained by other improper means. But ifit can show that the probability that DEV couldhave obtained them otherwise -- that is, withoutengaging in wrongdoing -- is slight, then it willhave taken a giant step toward proving what itmust prove in order to recover under the firsttheory of trade secret protection. The greater theprecautions that Rockwell took to maintain thesecrecy of the piece part drawings, the lower theprobability that DEV obtained them properly andthe higher the probability that it obtained them

through a wrongful act; the owner had taken painsto prevent them from being obtained otherwise

o The second emphasizes the desirability of encouraginginventive activity by protecting its fruits from efforts atappropriation that are, indeed, sterile wealth-redistributive-- not productive -- activities.

Under the second theory of trade secret protection,the owner's precautions still have evidentiarysignificance, but now primarily as evidence that thesecret has real value. For the precise means bywhich the defendant acquired it is less important

under the second theory, though not completelyunimportant; remember that even the secondtheory allows the unmasking of a trade secret bysome means, such as reverse engineering. IfRockwell expended only paltry resources onpreventing its piece part drawings from falling intothe hands of competitors such as DEV, why shouldthe law, whose machinery is far from costless,bother to provide Rockwell with a remedy? Theinformation contained in the drawings cannot havebeen worth much if Rockwell did not think itworthwhile to make serious efforts to keep theinformation secret.

o The approaches differ, if at all, only in that the seconddoes not limit the class of improper means to those that fita preexisting pigeonhole in the law of tort or contract orfiduciary duty -- and it is by no means clear that the firstapproach assumes a closed class of wrongful acts, either.

It is easy to understand therefore why the law of trade secretsrequires a plaintiff to show that he took reasonable precautions to

keep the secret a secret. If analogies are needed, one that springsto mind is the duty of the holder of a trademark to take reasonableefforts to police infringements of his mark, failing which the markis likely to be deemed abandoned, or to become generic ordescriptive (and in either event be unprotectable). 1 McCarthy,Trademarks and Unfair Competition § 17:50, at pp. 778-80 (2d ed.1984). The trademark owner who fails to police his mark bothshows that he doesn't really value it very much and creates asituation in which an infringer may have been unaware that he wasusing a proprietary mark because the mark had drifted into thepublic domain, much as DEV contends Rockwell's piece partdrawings have done.

But only in an extreme case can what is a "reasonable" precaution

be determined on a motion for summary judgment, because theanswer depends on a balancing of costs and benefits that will varyfrom case to case and so require estimation and measurement bypersons knowledgeable in the particular field of endeavor involved.On the one hand, the more the owner of the trade secret spendson preventing the secret from leaking out, the more hedemonstrates that the secret has real value deserving of legalprotection, that he really was hurt as a result of themisappropriation of it, and that there really was misappropriation.On the other hand, the more he spends, the higher his costs. Thecosts can be indirect as well as direct. The more Rockwell restrictsaccess to its drawings, either by its engineers or by the vendors,the harder it will be for either group to do the work expected of it.Suppose Rockwell forbids any copying of its drawings. Then a teamof engineers would have to share a single drawing, perhaps bypassing it around or by working in the same room, huddled overthe drawing. And how would a vendor be able to make a piece part-- would Rockwell have to bring all that work in house? Suchreconfigurations of patterns of work and production are far fromcostless; and therefore perfect security is not optimum security.



Trademark Law


23

METALLURGICAL INDUSTRIES V. FOURTEK 790 F.2d 1195(1986)

GEE, Circuit Judge:

FACTS OF THE CASE:

Brief description of the scientific process: ◦ Tungsten carbide is a metallic compound of great value in

certain industrial processes. Combined with the metal cobalt, itforms an extremely hard alloy known as "cemented tungstencarbide" used in oil drills, tools for manufacturing metals, andwear - resistent coatings.

◦ Because of its great value, reclamation of carbide from scrapmetals is feasible. However, the alloy's extreme resistence tomachining made reclamation difficult.

◦ Late 1960's to early 1970's: zinc recovery process — was

devised, a solution based on carbide's reaction with zinc athigh temperatures.▪ This is generally recognized as the modern method of

carbide reclamation . Metallurgical Industries, in the business of reclaiming carbide

since 1967, used the primitive "cold -stream process." In the mid -1970's, Metallurgical began to consider using the zinc recoveryprocess .

Negotiations led to a contract authorizing Therm -O-Vacrepresented by appellee Irvin Bielefeldt to design and constructtwo zinc recovery furnaces. ◦ The furnace arrived. ◦ Dissatisfied with its performance, Metallurgical modified it

extensively.◦ Efforts proved successful and the modified furnace soon began

commercial operation. After Therm -O-Vac went bankrupt, Bielefeldt and three other

former Therm -O-Vac employees — Montesino, Boehm, and Sarvadi— f ormed Fourtek, Incorporated. Fourtek agreed to build a zincrecovery furnace for appellee Smith International,Incorporated (Smith) . The furnace Fourtek providedincorporated the modifications Metallurgical had made in itsfurnaces. Smith has been unable to use this furnace commercially,

however, because a current shortage of carbide scrap prevents itseconomically feasible operation.

Metallurgical nevertheless brought a diversity action againstSmith, Bielefeldt, Montesino, Boehm, and Sarvadi. ◦ In its complaint, Metallurgical charged the defendants with

misappropriating its trade secrets .

RATIO:

DEFINING A "TRADE SECRET"

Matters of general knowledge in an industry cannot beappropriated by one as his secret.

Smith emphasizes the absence of any secret because the basiczinc recovery process has been publicized in the trade.Acknowledging the publicity of the zinc recovery process,however, we nevertheless conclude that Metallurgical'sparticular modification efforts can be as yet unknown to theindustry.That the scientific principles involved are generally known

does not necessarily refute Metallurgical's claim of tradesecrets.

The evidence also shows Metallurgical's efforts to keep secret itsmodifications. Security measures taken to conceal the furnacesfrom all but authorized personnel. Company policy, moreover,required everyone authorized to see the furnace to sign a non -disclosure agreement.One's subjective belief of a secret's existence suggests that the

secret exists. Security measures, after all, cost money; amanufacturer therefore presumably would not incur thesecosts if it believed its competitors already knew about theinformation involved.

He may, without losing his protection, communicate it toemployees involved in its use. He may likewise communicateit to o thers pledged to secrecy.... Nevertheless, a substantialelement of secrecy must exist, so that except by the use ofimproper means, there would be difficulty in acquiring theinformation.

A holder may divulge his information to a limited extent withoutdestroying its status as a trade secret. To hold otherwise wouldgreatly limit the holder's ability to profit from his secret. Ifdisclosure to others is made to further the holder's economicinterests, it should, in appropriate circumstances, be considered alimited disclosure that does not destroy the requisite secrecy.

Whether we are dealing with a limited disclosure here.



Trademark Law


24

Two reasons why Metallurgical's disclosures to others arelimited and therefore insufficient to extinguish the

secrecy Metallurgical's other evidence has suggested.First, the disclosures were not public announcements;rather, Metallurgical divulged its information to only twobusinesses with whom it was dealing. Second, thedisclosures were made to further Metallurgical's

economic interests.Metallurgical therefore revealed itsdiscoveries as part of business transactions by which itexpected to profit.

The Texas Supreme Court quoted the Restatement's definition ofa trade secret: A trade secret may consist of any formula, pattern,

device, or compilation of information which is usedin one's business, and which gives him anopportunity to obtain an advantage overcompetitors who do not know it. It may be achemical compound, a process of manufacturing,treating or preserving materials, a pattern for amachine or other device or a list of customers.

Metallurgical met the burden of showing the value of itsmodifications. The zinc recovery process gave Metallurgical anadvantage over its two competitors by aiding in the production ofthe highest quality reclaimed carbide powder. The modificationsthat led to the commercial operation of the zinc recovery furnaceprovided a clear advantage over the competition.

Another requisite is the cost of developing the secret device orprocess . No question exists that Metallurgical expended muchtime, effort, and money to make the necessary changes. It clearlyhas met the burden of demonstrating the effort involved in makinga complex manufacturing process work.

EXISTENCE OF A CONFIDENTIAL RELATIONSHIP

Deciding whether a confidential relationship existed betweenMetallurgical and Bielefeldt must naturally precede an inquiry intohis possible breach of Metallurgical's confidence.

Restatement of Torts: ◦ One who discloses or uses another's trade secrets,

without a privilege to do so, is liable to the other if... (b) his disclosure or use constitutes a breach ofconfidence reposed in him by the other indisclosing the secret to him.

A breach of confidence may also be a breach of contract

which subjects the actor to liability.

The record contains testimony of Metallurgical's president, IraFriedman, that he informed Bielefeldt of the confidentialityMetallurgical expected. Although these references are few, theywould have sufficed to allow a reasonable jury to have believedthat a confidential relationship existed betweenMetallurgical and Bielefeldt.

OBTAINING SECRETS FROM ANOTHER

At this point we must devote separate attention to Smith, whichstands in a different light from Bielefeldt. It had no significantdealings with Metallurgical and apparently was not heavily involvedin the design of the furnace it purchased. The question thereforebecomes whether Smith as purchaser, and thus asbeneficiary of Bielefeldt's alleged misappropriation, can alsobe held liable for it.

The law imposes liability not only on those who wrongfullymisappropriate trade secrets by breach of confidence but also, incertain situations, on others who might benefit from the breach: ◦ One who discloses or uses another's trade secret,

without a privilege to do so, is liable to the other if ... (c)he learned the secret from a third person with notice ofthe facts that it was a secret and that the third person'sdisclosure of it was otherwise a breach of his duty to theother....

◦ One has notice of facts under the rule stated in thisSection when he knows of them or when he should knowof them.... He should know of them if, from theinformation which he has, a reasonable man would inferthe facts in question, or if, under the circumstances, areasonable man would be put on inquiry and an inquirypursued with reasonable intelligence and diligence woulddisclose the facts.

Under this standard, we believe a reasonable jury could findthat Smith should have inquired into the relationshipbetween Bielefeldt and Metallurgical. Bielefeldt told Smith ofhis current involvement in then -pending litigation withMetallurgical regarding trade secrets. There is no indication that itever investigated the danger that Bielefeldt was wrongfullymisappropriating the ideas of others. TUnder § 757(c), Smithmight therefore be held accountable, provided it used anytrade secrets conveyed.

DISCLOSURE OR USE OF A TRADE SECRET

Wrongful misappropriation occurs if one "discloses or uses

another's trade secret without a privilege to do so...."



Trademark Law


25

Smith's liability can arise, however, only if it in turn used thesecrets gained from Bielefeldt. "Use," as it turns out, is not soeasily defined. Smith claims that it never used any secrets gainedbecause its inability to procure substantial quantities of scrapcarbide prevented commercial operation of the furnace Fourtekprovided.

If Smith has not put the furnace into commercial operation

to produce carbide powder it can then use, then nocommercial use has occurred. Because Metallurgical failedto provide any evidence that Smith has so far benefittedfrom any misappropriation, directed verdict in Smith's favorwas proper. Should it in future seek to profit from use or sale of

IVAN PARAMANANDAM V. VICTORIA HERRMANN827 N.E.2d 1173 (2005)Judge Crone

FACTS : In October 2002, appellee Victoria Herrmann established Dynamic

Scales as a sole proprietorship with the assistance of her husband,John, who had experience in the scales marketing business.

The Herrmanns were acquainted with appellant IvanParamanandam, who had worked in the scales business withJohn's father.

In November 2002, Victoria hired Ivan's consulting firm, ScorpionConsultants, to develop a website for Dynamic Scales' online retailstore, giving at Ivan’s request the password to make changes tothe same. He used his own copy of Frontpage software to design

the website, contacting and securing the consent of scalemanufacturers, for which Dynamic Sales was distributor, to displayproduct photos and information on the website.

With John's assistance, Ivan registered approximately 400 domainnames, among them Mall88.com, and developed 6,000corresponding keywords, all of which would direct potentialcustomers to Dynamic Scales' online store via internet searchengines such as Yahoo! or Google.

Eventually, Dynamic Scales developed the largest online retailstore in the scale industry.

After suffering from a heart attack, Ivan sought a higher salaryfrom Victoria and to be allowed to work from home. Victoriarefused, and Ivan terminated his business relationship with theHerrmanns in December 2003.

At the end of December, the Herrmanns learned that Ivan hadstarted his own online retail store, Scaleable Scales.com. Asidefrom the company information and logo on its homepage, Ivan'swebsite was practically identical in both content and appearance toDynamic Scales' website. The Herrmanns discovered that Ivan hadappropriated the Mall88.com domain name for his own business.

They also discovered that internet searches conducted using

Dynamic Scales' name or toll-free number as search terms wouldyield results that listed Dynamic Scales' company information butwere actually linked to Ivan's website at Mall88.com.

Dynamic Scales filed suit against Ivan and Michael, who allegedlyoperated Scorpion Consultants, Mall88.com, and ScaleableScales.com in partnership with Ivan. Dynamic Scales' complaintalleged that "[t]he information contained on [its] website" and"domain names developed, created, and maintained by and forDynamic Scales" were trade secrets under the Uniform TradeSecrets Act ("UTSA"), which Ivan had misappropriated.

ISSUE :

1)

W/N preliminary injunction in favor of Dynamic Scales againstappellants Scorpion Consultant, Mall88.com, Scaleable Scales.comwas proper for the latter’s alleged misappropriation of tradesecrets.

No. Order granting preliminary injunction reversed.

RATIO : The issuance of a preliminary injunction is within the sound

discretion of the trial court, and the scope of appellate review islimited to deciding whether there has been a clear abuse ofdiscretion, measured by several factors: 1) whether the plaintiff'sremedies at law are inadequate thus causing irreparable harm

pending the resolution of the substantive action if the injunctiondoes not issue, 2) whether the plaintiff has demonstrated at leasta reasonable likelihood of success at trial by establishing a primafacie case, 3) whether the threatened injury to the plaintiffoutweighs the threatened harm the grant of the injunction mayinflict on the defendant, and 4) whether, by the grant of thepreliminary injunction, the public interest would be disserved. Inorder to grant a preliminary injunction, the moving party has theburden of showing, by a preponderance of the evidence, that thefacts and circumstances entitle him to injunctive relief.

The Indiana Code, Section 24, authorizes injunction of actual orthreatened misappropriation of trade secrets.

As the plaintiff, Dynamic Scales was required to identify the trade

secrets and carry the burden of proving that they exist. According

T d kL



Trademark Law


26

to Dynamic Scales' complaint, the alleged trade secrets consist of"the information contained on [its] website" and the "domainnames developed, created, and maintained by and for DynamicScales”.

John Herrmann’s testified, however, that “…you could be verysecretive and we chose not to be secretive. We chose to show allour cards to our competition… it’s left out for the general public to

see. So we chose not to hide a bunch of information”. The recordsindicate that the only relevant information that did not appear onthe website was the price of its products, which Appellants Ivan etal. are not alleged to have misappropriated.

As for the domain names, there is simply no evidence thatDynamic Scales made any efforts to keep them secret. In fact, therecord indicates that Dynamic Scales intended for the domainnames to be readily available to potential customers searching theinternet as a means of directing them to its online retail store.

By definition, information is a trade secret only if it is the subjectof reasonable efforts to maintain its secrecy.

Here, Dynamic Scales made no efforts to maintain secrecy of theinformation contained on its website or its domain names.

Appellants Ivan et al. might well have tampered with or infringedcertain proprietary interests regarding Dynamic Scales' websiteand domain names, but any recovery must be pursued under adifferent legal theory.

Dynamic Scales failed to establish a prima facie case thatAppellants misappropriated trade secrets and that the trial courttherefore abused its discretion in granting the preliminaryinjunction. Accordingly, we reverse.

E.I. DUPONT DENEMOURS & CO. V. CHRISTOPHER431 F.2d 1012 (1971)United States Court of Appeals, Fifth Circuit. E.I. duPONTdeNEMOURS & COMPANY, Inc., petitioners,vs.Rolfe CHRISTOPHER et al.,, respondent.No. 28254. July 20, 1970

GOLDBERG, Circuit Judge:

Summary: Plaintiff brought suit alleging that defendants had wrongfullyobtained photographs revealing plaintiff's trade secrets which they thensold to undisclosed third party and plaintiff asked for damages andtemporary and permanent injunctions. The United States District Court for

the Eastern District of Texas, Joe J. Fisher, Chief Judge, denied defendants'motion to dismiss for failure to state claim, and defendants tookinterlocutory appeal. The Court of Appeals, Goldberg, Circuit Judge, heldthat aerial photography of plant construction would be under Texas law an

‘improper means' of obtaining another's trade secret for which there wouldbe a cause of action. Decision affirmed and case remanded.

FACTS:

This is a case of industrial espionage in which an airplane is the cloak anda camera the dagger. The defen-dants-appellants, Rolfe and GaryChristopher, are photographers in Beaumont, Texas. The Christopherswere hired by an unknown third party to take aerial photographs of newconstruction at the Beaumont plant of E. I. duPont deNemours &Company, Inc. Sixteen photographs of the DuPont facility were taken fromthe air on March 19, 1969, and these photographs were later developedand delivered to the third party.

DuPont employees apparently noticed the airplane on March 19 andimmediately began an investigation to determine why the craft was circlingover the plant. By that afternoon the investigation had disclosed that thecraft was involved in a photographic expedition and that the Christopherswere the photographers. DuPont contacted the Christophers that sameafternoon and asked them to reveal the name of the person or corporationrequesting the photographs. The Christophers refused to disclose thisinformation, giving as their reason the client's desire to remainanonymous.

Having reached a dead end in the investigation, DuPont subsequently filedsuit against the Christophers, al-leging that the Christophers hadwrongfully obtained photographs revealing DuPont's trade secrets which

they then sold to the undisclosed third party. DuPont contended that it haddeveloped a highly secret but unpatented process for producing methanol,a process which gave DuPont a competitive advantage over otherproducers. This process, DuPont alleged, was a trade secret developedafter much expensive and time-consuming research, and a secret whichthe company had taken special precautions to safeguard. The areaphotographed by the Christophers was the plant designed to producemethanol by this secret process, and because the plant was still undercon-struction parts of the process were exposed to view from directlyabove the construction area. Photographs of that area, DuPont alleged,would enable a skilled person to deduce the secret process for making*1014 methanol. DuPont thus contended that the Christophers hadwrongfully appropriated DuPont trade secrets by taking the photographsand delivering them to the undisclosed third party. In its suit DuPont asked

T d kL



Trademark Law


27

for damages to cover the loss it had already sustained as a result of thewrongful disclosure of the trade secret and sought temporary andpermanent injunctions prohibiting any further circulation of thephotographs already taken and prohibiting any additional photographing ofthe methanol plant.

ISSUE : whether aerial photography of plant construction is an impropermeans of obtaining another's trade secret.

HELD: Yes.

The decision of the trial court is affirmed and the case remanded to thatcourt for proceedings on the merits.

ON PETITION FOR REHEARING AND PETITION FOR REHEARING EN BANC

PER CURIAM:The Petition for Rehearing is denied and no member of this panel norJudge in regular active service on the Court having requested that theCourt be polled on rehearing en banc, (Rule 35 Federal Rules of AppellatePro-cedure; Local Fifth Circuit Rule 12) the Petition for Rehearing En Bancis denied.

RATIO:

The Supreme Court of that state has declared that ‘the undoubtedtendency of the law has been to recognize and enforce higher standards ofcommercial morality in the business world.’ In Hyde Corporation v.Huffines, the court has quoted articles stating that the proper means ofgaining possession of a competitor's secret process is ‘through inspectionand analysis' of the product in order to create a duplicate.Later anotherTexas court explained:

‘The means by whic h the discovery is made may be obvious, and theexperimentation leading from known factors to presently unknown resultsmay be simple and lying in the public domain. But these facts do notdestroy the value of the discovery and will not advantage a competitorwho by unfair means obtains the knowledge without paying the priceexpended by the discoverer.’

We think, therefore, that the Texas rule is clear. One may use his

competitor's secret process if he discovers the process by reverse

engineering applied to the finished product; one may use a competitor'sprocess if he discovers it by his own independent research; but one maynot avoid these labors by taking the process from the discoverer withouthis permission at a time when he is taking reasonable precautions tomaintain its secrecy. To obtain knowledge of a process without spendingthe time and money to discover it independently is improper unless theholder voluntarily discloses it or fails to take *1016 reasonable precautions

to ensure its secrecy.

In the instant case the Christophers deliberately flew over the DuPontplant to get pictures of a process which DuPont had attempted to keepsecret. The Christophers delivered their pictures to a third party who wascertainly aware of the means by which they had been acquired and whomay be planning to use the information contained therein to manufacturemethanol by the DuPont process. The third party has a right to use thisprocess only if he obtains this knowledge through his own research efforts,but thus far all information indicates that the third party has gained thisknowledge solely by taking it from DuPont at a time when DuPont wasmaking reasonable efforts to preserve its secrecy. In such a situationDuPont has a valid cause of action to prohibit the Christophers fromimproperly discovering its trade secret and to prohibit the undisclosed thirdparty from using the improperly ob-tained information.

In the instant case DuPont was in the midst of constructing a plant.Although after construction the finished plant would have protected muchof the process from view, during the period of construction the tradesecret was exposed to view from the air. To require DuPont to put a roofover the unfinished plant to guard its secret would impose an enormousexpense to prevent nothing more than a school boy's trick. We introducehere no new or radical ethic *1017 since our ethos has never given moralsanction to piracy. The market place must not deviate far from our mores.We should not require a person or corporation to take unreasonableprecautions to prevent another from doing that which he ought not do inthe first place. Reasonable precautions against predatory eyes we mayrequire, but an impenetrable fortress is an unreasonable requirement, andwe are not disposed to burden industrial inventors with such a duty inorder to protect the fruits of their efforts. ‘Improper’ will always be a wordof many nuances, determined by time, place, and circumstances. Wetherefore need not proclaim a catalogue of commercial improprieties.Clearly, however, one of its commandments does say ‘thou shall notappropriate a trade secret through deviousness under circumstances inwhich countervailing defenses are not reasonably available.’

Having concluded that aerial photography, from whatever altitude, is an

improper method of discovering the trade secrets exposed during

TrademarkLaw



Trademark Law


28

construction of the DuPont plant, we need not worry about whether theflight pattern chosen by the Christophers violated any federal aviationregulations. Regardless of whether the flight was legal or illegal in thatsense, the espionage was an improper means of discovering DuPont'strade secret.

CHICAGO LOCK CO., V. FANBERG , 676 F.2d 400 (1982)

FACTS : Since 1933 the Chicago Lock Company, a manufacturer of various

types of locks, has sold a tubular lock, marketed under theregistered trademark "Ace," which provides greater security thanother lock designs.

Tubular Ace locks are frequently used on vending and bill changingmachines and in other maximum security uses. The distinctivefeature of Ace locks is the secrecy and difficulty of reproductionassociated with their keys.

Chicago "has a fixed policy that it will only sell a duplicate key for

the registered series `Ace' lock to the owner of record of the lockand on request of a bona fide purchase order, letterhead or someother identifying means of the actual recorded lock owner." Inaddition, the serial number-key code correlations are maintainedby the Company indefinitely and in secrecy, the Company does notsell tubular key "blanks" to locksmiths or others, and keys to Acelocks are stamped "Do Not Duplicate."

If the owner of an Ace lock loses his key, he may obtain aduplicate from the Company. Alternatively, he may have aproficient locksmith "pick" the lock, decipher the tumblerconfiguration, and grind a duplicate tubular key. The locksmithwill, to avoid the need to "pick" the lock each time a key is lost,record the key code along with the serial number of the customer'slock.

Enough duplicate keys have been made by locksmiths thatsubstantial key code data have been compiled.

Appellant Victor Fanberg has published a number of locksmithmanuals for conventional locks. Fanberg advertised in a locksmith

journal, Locksmith Ledger, requesting that individual locksmithstransmit to him serial number-key code correlations in theirpossession in exchange for a copy of a complete compilation whenfinished. A number of locksmiths complied and a two-volumepublication of tubular lock codes, including those of Ace locks,entitled "A-Advanced Locksmith's Tubular Lock Codes."

The District Court found that Fanberg "had lost or surrenderedcontrol over persons who could purchase the books," meaning thatnonlocksmiths could acquire the code manuals.

The books contain correlations which would allow a personequipped with a tubular key grinding machine to make duplicatekeys for any listed Ace lock if the serial number of the lock wasknown. Thus, Fanberg's manuals would make it considerably easier

for a person to obtain (legitimately or illegitimately) duplicate keysto Ace locks without going through the Company's screeningprocess.

Fanberg did not nor the Company did not grant, permission tocompile and sell the key codes. Nor did the individual locksmithsseek authorization from the Company or their customers beforetransmitting their key code data to Fanberg.

Chicago filed a trademark infringement and unfair competitioncomplaint against the Fanbergs.

District court found that the Company's high security policy for itsAce tubular locks, of which the confidential key code data were apart, was a "valuable business or trade secret-type asset" of theCompany, and that the Fanbergs' publication of their compilation

of these codes so undermined the Company's policy as toconstitute "common law unfair competition in the form of an unfairbusiness practice. The court enjoined the Fanbergs from publishingor distributing any lists of key code correlations for the Company'sregistered series Ace tubular locks.

ISSUE : W/N the correlations compiled in the book of Fanbergconstitute trade secrets.

HELD : No.

RATIO : One who discloses or uses another's trade secret, without a

privilege to do so, is liable to the other if: 1) he discovered thesecret by improper means; or 2) he learned the secret from athird person with notice of the facts that it was a secret andthat the third person discovered it by improper means.

Trade secrets are protected in a manner akin to privateproperty, but only when they are disclosed or used throughimproper means. Trade secrets do not enjoy the absolutemonopoly protection afforded patented processes, forexample, and trade secrets will lose their character as privateproperty when the owner divulges them or when they arediscovered through proper means.

TrademarkLaw



Trademark Law


29

"It is well recognized that a trade secret does not offerprotection against discovery by fair and honest means such asby independent invention, accidental disclosure or by so-calledreverse engineering.

Thus, it is the employment of improper means to procure thetrade secret which is the basis of liability.

Did the Fanbergs' procurement of these individual locksmiths'

reverse engineering data constitute an "improper means" withrespect to Chicago Lock Company? "Improper means" connotes the existence of a duty to the

trade secret owner not to disclose the secret to others. Theprotection accorded the trade secret holder against thedisclosure or unauthorized use of the trade secret by those towhom the secret has been confided under the express orimplied restriction of disclosure or nonuse."

The individual locksmiths DO NOT owe a duty of nondisclosureto the Company. However, in their fiduciary relationship withlock owners, individual locksmiths are reposed with aconfidence and trust by their customers, of which disclosure ofthe customers' key codes would certainly be a breach. This

duty, however, could give rise only to an action by "injured"lock owner against the individual locksmiths, not by theCompany against the locksmiths or against the Fanbergs.

Imposing an obligation of nondisclosure on lock owners herewould frustrate the intent of California courts to disallowprotection to trade secrets discovered through "fair and honestmeans." Further, such an implied obligation upon the lockowners in this case would, in effect, convert the Company'strade secret into a state-conferred monopoly akin to theabsolute protection that a federal patent affords. Such anextension of California trade secrets law would certainly bepreempted by the federal scheme of patent regulation.

The Company's serial number-key code correlations are notsubject to protection because the Company has not shown abreach of any confidence reposed by it in the Fanbergs, thelocksmiths, or the lock purchasers - i.e., it has failed to showthe use of "improper means" by the Fanbergs.

trade secrets_american cases

Documents