What is trade secret litigation? Here are some basics.
What is a trade secret?
Generally, a trade secret is any information that derives value from not being publicly known or readily ascertainable by a competitor (by proper means), and that a party uses reasonable efforts to keep secret. Examples include information such as:
- Customer lists;
- Marketing plans;
- Terms of agreements with customers;
- Terms for suppliers;
- Technical information such as product design information (including information about what designs did not work);
- Technical data about product performance;
- Manufacturing methods and processes; or
- Chemical formulas.
What is trade secret litigation?
Trade secret litigation typically involves a claim that a party is using trade secrets or confidential information in violation of some duty owed to the owner of those trade secrets. The scope and nature of trade secret protection can vary from state to state.
What types of trade secret cases get litigated?
Although disputes sometimes arise based on “theft” of trade secrets through industrial espionage, most trade secret cases are between two parties that had a pre-existing relationship. The accused thief obtained the information honestly, but is accused of using the information in violation of a duty to the owner. The most frequent cases involve a non-disclosure agreement between two companies (e.g., based on a supplier relationship, joint development agreement, or due diligence investigation), or a concern that a former employee will improperly disclose or use trade secret information.
How is the strength of a trade secret case assessed?
The first inquiry is into the nature of the asserted misuse of information: was it in violation of a contract or other duty? This inquiry includes an investigation of why one party believes the other is using its trade secrets, and what duty or agreement existed between the parties. The second inquiry goes to the trade secrets themselves. As a general rule, trade secrets must be identified with a fair degree of specificity—
something more than general know-how.
Once trade secrets are identified, their strength can be assessed in terms of specific value, whether reasonable efforts have been made to keep them secret, and whether they are in fact secret rather than being publicly known.
As with other types of litigation analyses, an assessment of a trade secret case must also include an assessment of how sympathetic the parties will appear to a judge or jury, an analysis of the alleged thief and its likely litigation posture, and the possibility of a counterclaim.
What are the remedies in trade secret litigation?
Injunctions preventing future use of a trade secret are often granted. An injunction may prevent sales of a product forever or for a duration equivalent to the amount of time required to produce an equivalent product. Monetary damages are also available, and they can be measured in several ways: actual damage to the owner (e.g., the owner’s lost profits) or the amount by which the alleged thief unjustly benefited from the misappropriation (e.g., its profits). In some cases, damages may be doubled and attorneys’ fees awarded if the misappropriation was extreme.
Do I need to make any filing with the government before suing?
No. Unlike patents, copyrights, and trademarks, there is no registration required. Indeed, such public disclosures would be inconsistent with the principle that trade secrets must be kept secret.
Do I have to disclose my trade secrets in order to sue?
Most trade secret (and other technology) cases are litigated under a protective order prohibiting use of designated confidential information for any purpose other than in the litigation. These orders also typically limit access to certain designated trade secrets or other highly sensitive materials to outside counsel and experts, although specified individuals within the opposing company may sometimes be allowed access to these materials (subject to the order to use the information only in the litigation).
Typically, protective orders may allow for the filing of certain materials with the court under seal. Notwithstanding these protections, however, there is always a risk of inadvertent disclosure or undetected improper use.
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