Trade secret disputes are the worst. I read about a recent dispute in Texas where Texas Advanced Optoelectronic Solutions Inc. (TAOS) sued and was awarded $57 Million against Intersil Corp. The dispute was over a technology that allows video displays to automatically adjust their brightness based on ambient light around them.
While that verdict may have settled the score, consider that the dispute arose over acquisition negotiations back in 2004. For eleven years (seven in active litigation) the parties have been fighting. Back in 2004, the parties entered into negotiations for Intersil to purchase TAOS and entered into a confidentiality agreement. However, the negotiations broke off. About a year later, Intersil entered the market with its own product (and apparently, all of TAOS' confidential information).
Next up, Berkshire Hathaway's billion dollar NCAA bracket challenge has been cancelled this year reportedly over another alleged trade secret dispute. Berkshire Hathaway held the contest last year together with Quicken Loans, offering $1B to anyone who could guess every single bracket correctly. The mess arose because Yahoo! originally wanted to do a billion dollar bracket challenge and hired SCA Promotions to put it together. When they had trouble getting underwriting for the contest, SCA Promotions approached Berkshire Hathaway (apparently, without Yahoo!'s consent?) and told Berkshire Hathaway about the idea. From what I can find, Berkshire Hathaway never signed a confidentiality agreement with SCA Promotions or Yahoo!
These two disputes seem quite different, don't they? In the first case (TAOS), there is little question that a trade secret is involved. Whatever processes and equipment are required to make a video display adjust based on ambient light is not common knowledge, and likely cost a lot of money to develop. On the other hand, office NCAA brackets are nearly universal and often (i.e., always) have prizes. For a refresher on the elements of trade secrets, see my earlier post. While it may have had a clever schtick, I'm not sure it quite meets the elements of a trade secret. It certainly did not if SCA and Yahoo failed to use reasonable efforts to protect it.
So the question is how do you avoid both of these types of lawsuits?
In another prior post, I gave the following suggestions to lower your risk of trade secret theft:
What steps can you take to avoid having a potential suitor steal your trade secrets?
1) Always have a confidentiality agreement in place before discussing non-public information about your company.
2) Even with a confidentiality agreement, try to avoid disclosing your trade secrets with specificity to third parties.
3) Have non-compete agreements in place with all of your employees and contractors to avoid having them leave to rebuild your system for a competitor.
4) Consider investigating the background of the company, whether through a litigation search, Internet search or both.
Based on these recent disputes, I would suggest a couple more:
5) As an acquisition target, control your own data room where you put all documents to be shared during a negotiation and implement controls to limit access, downloading and printing of materials from it.
6) Make it clear to everyone when you claim a trade secret in something, and be reasonable.
7) Treat trade secrets like secrets (after all it is a requirement for keeping them).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
