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Ssshhh . . . Trade Secrets

If you have developed a product, add another duty to your list of obligations: examining other similar products, patent filings, etc. to determine whether a competitor is misappropriating trade secret information. If you do not monitor the filings or if you do and fail to prosecute trade secret misappropriation claims, you may lose the right to sue for trade secret misappropriation.

A trade secret is secret information that gives the owner a competitive business advantage simply because the competitors do not know this information. A trade secret can be anything that the owner derives value from based upon its secrecy such as a formula, pattern, physical device, idea, process or compilation of information. Trade secrets can include recipes, pricing information, and client lists, all dependent upon maintaining their secrecy. For example, it is claimed that only a very small handful of people within the Coca-Cola company know the recipe and that the written recipe is maintained in a vault.

A trade secret owner must make some efforts to maintain the secrecy of the information. A person who acquires a trade secret improperly, such as by theft, bribery, or breach of a confidentiality agreement. or who publishes the secret has "misappropriated" the trade secret. However, someone who acquires the information without misappropriating it has not violated any law. For example, if a disgruntled employee decides to publish your company's secret formula online, that employee has likely misappropriated the trade secret but a competitor who sees the post and then begins using the formula has not misappropriated your trade secret and your only recourse is against the employee, not the competitor. Trade secret misappropriation is governed by state law.

In one recent case, a developer in Palo Alto created a new type of firewall technology. He met with another developer to discuss licensing this technology, but the discussions fell through. The two developers signed a confidentiality agreement which provided that the second developer was supposed to return documents containing trade secrets. Shortly thereafter, the second developer filed a patent application for firewall technology and began selling it a year later. The application was in the same field of firewall technology. The patent was published, meaning its development was made known to the public, and there were numerous press releases and articles describing it during the next few years.

Five years after publication, the first developer sued for trade secret misappropriation and patent infringement. The second developer claimed that the suit was not valid because the first developer should have discovered the acts of misappropriation within three years of being aware of the "injury." A plaintiff in a trade secret misappropriation case must "conduct a reasonable investigation after becoming aware of an injury." Also, a plaintiff in such a claim is "charged with knowledge of the information that would have been revealed by such an investigation." The court found that the first developer knew about the breach of the confidentiality agreement (because he never received his documents) and yet he failed to act promptly. The first developer also admitted he knew about the second developer's work because of all the publicity surrounding it and failed to act.

The first developer had no explanation as to why he was unable to bring a claim within the appropriate time period and why he could not have discovered the misappropriation sooner. Therefore, the first developer had no way to sue for trade secret misappropriation. This case is a great reminder that developers should examine competitive products and related patent filings in their field to determine whether a competitor is misappropriating their trade secret information.

For more information on how to protect your trade secrets, or other forms of intellectual property, please contact the experienced IP lawyers at MYERS BERSTEIN LLP today.

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