United States: Blast From The Past: A Look Back At Lessons Learned

Last Updated: May 17 2016
Article by Glenn Dassoff and Elena Garcia

This week, TSW revisits some cases that taught us valuable lessons in the complex and ever-changing trade secrets arena. As our readers know, trade secrets law keeps evolving due to new case law and the near certainty of a new federal cause of action, which will provide for federal jurisdiction where there was none, consistency throughout the country on enforcement of these claims, and a couple of new remedies. The risks to trade secret protection also continue to grow due to cybersecurity and social media considerations. In short, a business must balance several factors when determining how to best protect trade secrets, but it is sometimes the simple missteps that can sink a company's efforts to enforce its trade secrets. Here are some key takeaways learned over the years.

Get it in writing! In a 1989 case from the district court for the Eastern District of Virginia, Secure Services Technology, Inc. v. Time and Space Processing, Inc., the plaintiff sued the defendant for misappropriating plaintiff's proprietary handshake protocol for its secure facsimile machines. Plaintiff only sold its facsimile machines to government agencies, but one of these agencies then loaned a facsimile machine to defendant. The court found that even if the handshake protocol was a trade secret, plaintiff failed to take reasonable steps to maintain the secrecy of the protocol variations. Plaintiff sold the government all right, title, and interest in the facsimile machines and no rights were reserved. Plaintiff contended that there was an implied understanding with the government that the protocol variations were proprietary information, and that the government had a duty to protect it. However, the court noted that no markings were placed on the machine or in the related instructional material to indicate the presence of proprietary information. Thus, plaintiff forfeited any trade secret protection.

This may seem like a no-brainer, but putting third parties on express notice of the existence and scope of confidential information is a must-do before disclosing any trade secrets. A business may include confidentiality provisions in licenses, non-disclosure agreements or other appropriate documents.  The documents should include terms as to the permitted exclusive use of the trade secret and emphasize the other party's obligation of secrecy. Additionally, beware of any special language required by government agencies, or any other industry, in order to maintain proprietary rights.

Once a written agreement is in place, the work isn't over. In Gemisys Corp. v. Phoenix Am. Inc., the plaintiff licensed software to the defendant pursuant to a license agreement which had a confidentiality provision applicable to that which the plaintiff labeled "confidential." Unfortunately, the plaintiff didn't label any software confidential. Thus, the district court for the Northern District of California found that the plaintiff forfeited trade secret protection despite implementing other safeguards and a clear desire to protect its software.

In this case, decided in 1999, plaintiff went through all the right steps by including a confidential provision in the license; however it overlooked its own obligation under the license (i.e., marking and describing its software as "confidential"). Bottom line is that once you receive a promise to keep a secret, make sure to take note of your own obligations under the contract.

Come up with an overall IP strategy. As covered previously by TSW here, other parties have forfeited trade secret protections by including key information in patent applications. Specifically, the USPTO published a patent covering a previously protected bacon cooking process. Since the patent was public, the bacon cooking process was no longer secret, and the court concluded the cooking process was public information.

These are just a couple of the many cautionary tales out there. A company should consider the risks of disclosing a trade secret when securing other IP rights, such as patents and copyrights. Additionally, to avoid an unintended disclosure, a company should educate all employees as to the importance and scope of a trade secret, so that no one accidentally discloses a trade secret in a patent application, or even another type of filing (e.g., SEC filing).

These cases serve as an important reminder that sometimes it's just as important to implement basic protections for trade secrets as it is to keep up with new developments and trends.

Twitter: @TS_Watch

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.

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