Trade Secrets II Intro to IP – Prof Merges

Agenda Misappropriation – “Reasonable precautions” – Rockwell Graphics – Improper means: DuPont v. Christopher – Confidential relationship: Smith v. Dravo – Reverse engineering: Kadant v. Seeley

Rockwell Facts Posner opinion

Prof/Judge Richard Posner

Goss Graphic Systems, Inc. (formerly Rockwell) designs, manufactures, and markets Web offset printing press systems. The company offers newspaper press systems for newspaper publishers; commercial press systems for brochures, books, etc. It also provides after sales service and replacement parts for its equipment. Founded, 1885, based in Illinois.

Rockwell facts Piece part drawings Assembly drawings Vendors (subcontractors); customers

Elements of a Trade Secret Action Eligible Subject Matter – Information that derives economic value from being kept secret – Must be secret Reasonable Precautions to Keep Secret Misappropriation

Trial Court Held: Drawings did not contain trade secrets No “reasonable efforts” to maintain secrecy

Posner opinion Reviews precautions Rockwell did take – Vault, confidentiality agreements “The mere fact that Rockwell gave piece part drawings to vendors... Did not forfeit trade secret protection” – p. 51

Two conceptions of TS law: p. 51 Tort-oriented/commercial ethics: deter efforts at “sterile” wealth redistribution – i.e., theft Encourage inventive activity: incentive, “property”-like orientation

Role of precautions Shows that info must have been taken wrongfully – evidence of bad acts by defendant Evidence of real value; shows info is worth protecting through legal system

Rockwell Graphics “Secrecy Continuum” Perfect Secrecy No Secrecy Tell No One Publication Don’t Publish/ No Efforts Share with Confidentiality

Elements of a Trade Secret Action Eligible Subject Matter – Information that derives economic value from being kept secret – Must be secret Reasonable Precautions to Keep Secret [P. 36, UTSA; compare Rest. 3d p. 54] Misappropriation

The handwritten recipe that launched a fast-food dynasty and made Colonel Harland Sanders world famous is locked away at KFC headquarters—its contents so guarded that not even the chain’s top executive knows the ingredients.... Only a few people know the recipe and are sworn to secrecy. The employees have access to the recipe because of their roles making sure suppliers and KFC live up to Sanders’ culinary legacy. Two companies supply the herbs and spices, but their knowledge of the recipe is limited. Each supplier formulates only part of the ingredients... and neither supplier knows the other’s identity. The Colonel’s own handwritten recipe is tucked away in a safe at KFC headquarters. As a backup, KFC has portions of the recipe locked away in safety deposit boxes at undisclosed places elsewhere around the country.

Disclosure of Trade Secret: P. 58 Publication Revealed when sell product Disclosure by third party Inadvertent disclosure Government-required publication

Improper means DuPont v. Christopher Overflight not per se illegal Was it wrongful?

DuPont Tests difference between 2 conceptions of TS law mentioned by Posner – Tort/ethics – Property/incentive

DuPont holding Overflight is “improper means” TS law in Texas supports “higher standards of commercial morality in the business world”

Confidential Relationship Smith v. Dravo

Dravo Classic “squeezeout” case Interested buyer obtains info from would-be seller; then squeezes that seller out by entering the business/making the product themselves

Confidential relationship Why necessary? – Secrecy; reasonable precautions: duty Established here? – Implied duty: Steel Car Co. case, p. 69 – Compare Omnitech p. 70; Rest 3d., p. 71

A Transactional View of Property Rights, 20 Berkeley Tech. L.J (2005) Robert P. Merges

Reverse Engineering Kadant v. Seely Machine

Corlew’s work history Reverse engineering of nozzles and other items 1.7 years to duplicate?

Restatement of Torts § 757 A trade secret may consist of any formula, pattern, device, or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a chemical compound, a process of manufacturing, treating, or preserving materials, a pattern for a machine or other device or a list of customers.