Posts in Trade Secrets

The U.S. Court of Appeals for the Third Circuit on Monday said in a precedential decision that Jiangsu Tie Mao Glass Co. Ltd. (TMG) should have shown up sooner in a trade secrets misappropriation lawsuit brought against it by PPG Industries if it wanted to have a chance at winning. But by failing to enter the litigation until after PPG asked the district court to enter default judgment and award damages for unjust enrichment, “its protestations were and are too little and much too late,” said the appellate court.

An “NNN” agreement is short for Non-Disclosure/Non-Use/Non-Circumvention agreement, which means the information cannot be shared with anyone, it cannot be used in any way, and “behind-the-back” or design around tactics are forbidden. In recent years, signing NNN agreements has become widely adopted and is now the standard initial step in dealings with Chinese companies, particularly original equipment manufacturers (OEMs). An NNN Agreement is much more than just a Non-Disclosure Agreement (NDA). An NDA focuses narrowly on preventing secret information from being revealed to a third party or to the public, which is not sufficient for OEMs in China. In contrast, an NNN agreement not only contains confidentiality provisions, but also prevents misuse of confidential information.

One of the most frustrating questions I get from clients asks “what is the difference between ‘confidential’ and ‘proprietary’ information?” Or, “how do I help employees distinguish between either of those terms and real ‘trade secrets?’” Then there are people, including some judges, who trivialize the importance of some useful business information by saying it doesn’t “rise to the level of a trade secret.” That last one makes no sense these days, as we’ll see shortly. But first let’s identify the source of this nomenclature problem: it’s an outfit you’ve probably never heard of called the American Law Institute.

Corporate espionage is as old as the day is long. The modern digital world has made it easier than ever to gain access to sensitive “secret sauce”, such as software, customer and vendor lists, business methods, techniques, formulas and recipes. With a significant shift to a remote working environment and the relative ease of employee portability, protecting and defending confidential information and trade secrets must be at the top of the priority list for any organization. In May 2022, in Appian v. Pegasystems, a jury awarded likely the largest sum in the history of Virginia state court proceedings, finding that Pegasystems was liable for $2 billion-plus in damages to Appian for planting a corporate spy at Appian for over 10 years…. While the facts of the Appian case are not particularly unusual, the measure of damages is quite stunning.

Editor’s Note: Dean A. Pelletier of Pelletier Law, LLC co-authored this article with Erik Weibust.

Legal, technology, business, and academic professionals currently are debating whether an invention autonomously generated by artificial intelligence (AI) should be patentable in the United States and elsewhere. Some proponents of patentability argue that if AI, by itself, is not recognized as an inventor, then AI owners will lack protection for AI-generated inventions and AI innovation, commercialization, and investment (collectively, AI innovation) will be inhibited as a result. Some of those proponents further argue that, without patent protection as an option, AI owners increasingly will opt for trade secret protection, which by design reduces public disclosure of corresponding inventions and, as such, still will inhibit AI innovation. Some opponents of patentability, on the other hand, argue that patenting AI-generated inventions will promote those inventions and discourage human-generated inventions, thereby reducing human innovation and ultimately competition, because patent ownership will become concentrated, or more concentrated, in fewer entities—in particular, large, well-funded entities.

“The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help,” said President Ronald Reagan during a press conference on August 12, 1986. This is one of President Reagan’s most often quoted quips, and for a reason. The Government can certainly help people in times of need, but it can also be a scary bureaucracy, particularly when it shows up unannounced and uninvited. Fast forward 31 years and the 12 most terrifying words in the English language for any business should be: “I’m from China, and my company would like to partner with yours.”

At this moment, there is a fellow riding a bus in London who will determine the fate of your secrets. To be more precise, he’s on the Clapham bus; but he has no name. In fact, he’s a fictional character originally imagined by 19th Century journalist Walter Bagehot, who thought that “public opinion” was best described as the “opinion of the bald-headed man at the back of the omnibus.” The idea was picked up by the English courts as a metaphor for the “reasonable person” standard that is applied in all sorts of cases, from criminal to personal injury to contract interpretation. It also has special application to trade secrets, which we’ll get to in a minute.

Your company (or your client) creates an innovative idea that is going to blow the market away. While still safeguarding your invention as a trade secret, you file a patent application with the United States Patent and Trademark Office (USPTO) and get the product ready for launch. After product development, a key designer leaves the company for a competitor. Not long after you issue a press release on your innovative product, that competitor launches a copycat product. Do you have to wait for the patent to (hopefully) issue prior to filing suit against the competitor? Or can you take immediate action on trade secret misappropriation grounds? Ultimately, it depends on where you file suit.

What does the invasion of Ukraine have to do with COVID-19? Would you believe intellectual property is the link? Stay with me on this; it’s an interesting story. Recently, it was confirmed that the Main Intelligence Department of the Ministry of Defense of Ukraine – apparently with some help from volunteer hackers – managed to breach the network of Russia’s most guarded nuclear power facility and make off with extremely valuable trade secrets. The Beloyarsk Nuclear Power Plant contains the world’s only two operational “fast breeder” reactors. More than 20 countries, including the U.S., Japan and France, have been working for decades on this technology, which is supposed to be able to extract close to 100% of the energy from uranium, compared to about 1% for light water reactors. In other words, this is a process that can produce large amounts of energy while completely consuming the fuel and creating virtually no nuclear waste. Whoever is able to commercialize it will make a fortune. So far, no one has come close to the Russians.

The end of even the best employer-employee relationship can be fraught with challenges, not the least of which is the possibility that the employee may — unintentionally or with malice — depart with valuable trade secrets, proprietary data, or sensitive information. To minimize the likelihood of such misappropriation, employers should establish, communicate, and follow clear policies and procedures at each stage in the hiring, employment, and separation process: When recruiting employees, at regular intervals during an individual’s employment, when the employment relationship is terminated, or if evidence of theft or misappropriation is uncovered during routine and follow-on investigations. Trade secrets are protected under the federal Defend Trade Secrets Act (DTSA), which defines a trade secret as business or technical information that derives value from not being generally known or readily accessible to the public through proper means and which the owner has taken reasonable measures to protect. Trade secrets are also covered by numerous state laws, the overwhelming majority of which have been based on the model Uniform Trade Secrets Act.

Intellectual property (IP) theft, especially of trade secrets, remains a significant threat to advanced U.S. industries, global competitiveness, and national security. It is foundational to the U.S. trade dispute with China, given state-sponsored efforts to steal as much American know-how as possible. Yet, instead of new laws and regulations, the United States has relied mainly on tariffs in an indirect effort to convince China to curb these illegal practices. That is, until now. As Congress and the Biden administration prepare to finalize competitiveness bills and set the country’s annual defense budget, they have an opportunity to advance another bill that will benefit American businesses and workers by combatting the Chinese threat to U.S. industries—the SECRETS Act, introduced last summer by Sens. John Cornyn (R-TX), Chris Coons (D-DE), and Todd Young (R-IN).

Trust is getting a lot of attention these days. Of course, it’s always been important in the United States. We declare trust in God on our currency, Scouts have to be trustworthy, and we even seem to trust the algorithm behind cryptocurrencies. On the other hand, we worry about what feels like a decline, if not complete rupture, in social trust. For businesses that depend on controlling the confidentiality of data shared with employees and outsiders, these are perilous times. Our most important assets are stored and transmitted through digital systems that are imperfect; and that’s without accounting for the frailties of the people with access to those assets. Information security has come a long way since I started my career in the 1970s. There were no networks to worry about then, no powerful computers in the pockets of employees. Data was transmitted on paper. You just needed to watch the front door and photocopier. Employees with their badges as markers of trust could go pretty much anywhere they wanted within the facility.

Patents and trade secrets are both valuable assets that companies can utilize to protect their innovations and establish competitive advantages in the market. Strategic IP portfolio development and management leverages both patents and trade secrets where they are most effective with the goal of maximizing protection while minimizing costs.

In its second appeal to the U.S. Court of Appeals for the Federal Circuit (CAFC) regarding the sealing of documents in several related cases against Apple, Uniloc scored a win when the CAFC said today that the United States District Court for the Northern District of California failed to comply with its original remand instructions, constituting an abuse of discretion. The appellate court for a second time ordered the district court “to make particularized determinations as to whether the third-party licensing information sought to be sealed should be made public.”