1 CHAPTER 1 Understanding Trade Secrets Protecting
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1 CHAPTER 1 Understanding Trade Secrets Protecting Trade Secrets: A Practical Guide to Law and Strategy 2 What Comes to Mind? Trade Secrets 3 Trade Secrets Are Everywhere Cell phone plans, software algorithms, gym memberships, restaurant
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01
1 CHAPTER 1 Understanding
Trade Secrets Protecting Trade Secrets: A Practical Guide to Law and Strategy<br>
Trade Secrets Protecting Trade Secrets: A Practical Guide to Law and Strategy<br>
02
2 What Comes to Mind? "Trade Secrets"<br>
03
3 Trade Secrets Are Everywhere Cell phone plans, software algorithms, gym memberships, restaurant recipes, business strategies, customer lists<br>
04
4 This Course:
Doctrine + Strategy Learn the law, then build a plan
Seven chapters, seven stages
Each chapter = doctrine + application<br>
Doctrine + Strategy Learn the law, then build a plan
Seven chapters, seven stages
Each chapter = doctrine + application<br>
05
5 The TSPP Trade Secret Protection Plan
Your semester-long deliverable
A professional-grade plan for a real client<br>
Your semester-long deliverable
A professional-grade plan for a real client<br>
06
Your Client: Pico Salsa Small food startup in Albuquerque
Fermented salsa, proprietary process
Enthusiastic founders, informal culture 6<br>
Fermented salsa, proprietary process
Enthusiastic founders, informal culture 6<br>
07
7 Course Roadmap ✓ Ch. 1: Foundations — what is a trade secret?
✓ Ch. 2: Identify — build a trade secret inventory
✓ Ch. 3: Risk — assess threats and value
✓ Ch. 4: Internal — mitigate employee risks
✓ Ch. 5: External — mitigate third-party risks
✓ Ch. 6: Enforce — misappropriation, remedies, litigation
✓ Ch. 7: Plan — synthesize the TSPP capstone<br>
✓ Ch. 2: Identify — build a trade secret inventory
✓ Ch. 3: Risk — assess threats and value
✓ Ch. 4: Internal — mitigate employee risks
✓ Ch. 5: External — mitigate third-party risks
✓ Ch. 6: Enforce — misappropriation, remedies, litigation
✓ Ch. 7: Plan — synthesize the TSPP capstone<br>
08
8 Next:
The Legal Definition What makes a trade secret?<br>
The Legal Definition What makes a trade secret?<br>
09
9 THE THREE-ELEMENT TEST The Foundation of Trade Secret Law<br>
10
10 All Three Elements Required If any element fails: no trade secret protection<br>
11
11 Element 1: Information The broadest element –
Formulas, patterns, compilations, programs, devices, methods, techniques, processes<br>
Formulas, patterns, compilations, programs, devices, methods, techniques, processes<br>
12
12 Element 2: Economic Value
from Secrecy Value must derive FROM secrecy
Not just secret – valuable BECAUSE secret
'Not generally known' + 'Not readily ascertainable'<br>
from Secrecy Value must derive FROM secrecy
Not just secret – valuable BECAUSE secret
'Not generally known' + 'Not readily ascertainable'<br>
13
13 Element 3: Reasonable Efforts 'Reasonable under the circumstances'
Totality of efforts – not perfection
This is the element you will return to most<br>
Totality of efforts – not perfection
This is the element you will return to most<br>
14
14 The Three-Element Test Information
+ Economic Value from Secrecy
+ Reasonable Efforts
= Trade Secret<br>
+ Economic Value from Secrecy
+ Reasonable Efforts
= Trade Secret<br>
15
15 UTSA § 1(4) "Information . . . that derives independent economic
value, actual or potential, from not being generally
known to . . . other persons who can obtain economic
value from its disclosure or use; and is the subject of
efforts that are reasonable under the circumstances
to maintain its secrecy."<br>
value, actual or potential, from not being generally
known to . . . other persons who can obtain economic
value from its disclosure or use; and is the subject of
efforts that are reasonable under the circumstances
to maintain its secrecy."<br>
16
16 DTSA: Same Three Elements 18 U.S.C. § 1839(3)
Federal framework since 2016
Substantively ~90% identical to UTSA<br>
Federal framework since 2016
Substantively ~90% identical to UTSA<br>
17
17 ELEMENT 1:
INFORMATION The Broadest Element<br>
INFORMATION The Broadest Element<br>
18
18 "Information" Is Broad Formulas, patterns, compilations, programs, devices, methods, techniques, processes<br>
19
19 Technical Information Formulas, algorithms, source code, manufacturing processes, prototypes, engineering specifications<br>
20
20 Business Information Customer lists, pricing strategies, marketing plans, sales forecasts, supplier terms, financial data<br>
21
21 Negative Know-How Failed experiments, dead-end research
Saves competitors time and money
Often overlooked but highly valuable<br>
Saves competitors time and money
Often overlooked but highly valuable<br>
22
COMMON MISTAKE Physical Objects ≠ Trade Secrets A machine is not a trade secret
But the process for building it can be
The information embodied in the object is what receives protection 22<br>
But the process for building it can be
The information embodied in the object is what receives protection 22<br>
23
23 General Ideas ≠ Protectable "Use barcodes for authentication” — too vague, too abstract
General concepts in the public domain cannot be claimed as trade secrets<br>
General concepts in the public domain cannot be claimed as trade secrets<br>
24
24 Specific Implementation
= Protectable Particular algorithms, design details, technical specifications, proprietary methodologies, implementation choices<br>
= Protectable Particular algorithms, design details, technical specifications, proprietary methodologies, implementation choices<br>
25
Altavion v. Konica Minolta (2014) 226 Cal. App. 4th 26
California Court of Appeal 25<br>
California Court of Appeal 25<br>
26
26 ELEMENT 2: ECONOMIC
VALUE FROM SECRECY The Distinguishing Feature<br>
VALUE FROM SECRECY The Distinguishing Feature<br>
27
27 Value Must Derive
From Secrecy Not just valuable AND secret
Valuable BECAUSE secret
The causal link is essential<br>
From Secrecy Not just valuable AND secret
Valuable BECAUSE secret
The causal link is essential<br>
28
28 Two Prongs "Not generally known" to competitors
"Not readily ascertainable" by proper means<br>
"Not readily ascertainable" by proper means<br>
29
29 Value Can Be Actual or Potential No need to prove current monetization
Potential competitive advantage suffices
Early-stage secrets qualify<br>
Potential competitive advantage suffices
Early-stage secrets qualify<br>
30
30 ELEMENT 3:
REASONABLE EFFORTS Where Cases Are Won and Lost<br>
REASONABLE EFFORTS Where Cases Are Won and Lost<br>
31
31 "Reasonable Under the
Circumstances" Totality of efforts – not perfection
Proportional to value and risk
Systematic, documented, consistent<br>
Circumstances" Totality of efforts – not perfection
Proportional to value and risk
Systematic, documented, consistent<br>
32
Fail-Safe v. A.O. Smith No NDAs, no confidentiality markings
Voluntary disclosure to business partner
Court: no reasonable efforts 32<br>
Voluntary disclosure to business partner
Court: no reasonable efforts 32<br>
33
Howley (Goodyear) Strict visitor policies, signed NDAs
No-camera rules, escorted access
Court: reasonable efforts despite espionage 33<br>
No-camera rules, escorted access
Court: reasonable efforts despite espionage 33<br>
34
34 Reasonable Efforts Spectrum Fail-Safe (Failure) Howley (Success) • No NDAs with anyone
• No confidentiality markings
• Voluntary disclosure
• No access restrictions
• Zero systematic measures • NDAs with all employees / visitors
• Confidentiality markings on docs
• Strict visitor and camera policies
• Escorted access, compartmentalized
• Multiple layers, consistently applied<br>
• No confidentiality markings
• Voluntary disclosure
• No access restrictions
• Zero systematic measures • NDAs with all employees / visitors
• Confidentiality markings on docs
• Strict visitor and camera policies
• Escorted access, compartmentalized
• Multiple layers, consistently applied<br>
35
Quick Check What are the three elements
of a trade secret? 35<br>
of a trade secret? 35<br>
36
1. Information
2. Economic Value from Secrecy
3. Reasonable Efforts 36<br>
2. Economic Value from Secrecy
3. Reasonable Efforts 36<br>
37
37 Three-Element Test Checklist Handout 01 — use throughout the course
Apply to every information asset you analyze this semester<br>
Apply to every information asset you analyze this semester<br>
38
38 Element 1 Checklist ✓ Can you describe the information specifically?
✓ Is it concrete enough to use or apply?
✓ Does it exceed general industry knowledge?
✓ Is it more than a general idea or concept?<br>
✓ Is it concrete enough to use or apply?
✓ Does it exceed general industry knowledge?
✓ Is it more than a general idea or concept?<br>
39
39 Element 2 Checklist ✓ Would a competitor gain advantage from this information?
✓ Is the information actually secret (not generally known)?
✓ Could a competitor easily figure it out through proper means?
✓ Does the secrecy itself create the competitive value?<br>
✓ Is the information actually secret (not generally known)?
✓ Could a competitor easily figure it out through proper means?
✓ Does the secrecy itself create the competitive value?<br>
40
40 Element 3 Checklist ✓ Has the owner restricted access to need-to-know?
✓ Are NDAs or confidentiality agreements in place?
✓ Does the owner use physical or electronic security?
✓ Are documents marked confidential?
✓ Is there employee training on trade secret obligations?
✓ Has the owner avoided unnecessary public disclosure?<br>
✓ Are NDAs or confidentiality agreements in place?
✓ Does the owner use physical or electronic security?
✓ Are documents marked confidential?
✓ Is there employee training on trade secret obligations?
✓ Has the owner avoided unnecessary public disclosure?<br>
41
41 TRADE SECRETS vs.
OTHER IP Patents, Copyrights, Trademarks<br>
OTHER IP Patents, Copyrights, Trademarks<br>
42
42 Trade Secrets vs. Patents Trade Secrets Patents • No registration required
• Potentially infinite duration
• Must remain secret to retain
• Reverse engineering = loss
• No disclosure to government
• Lower cost to establish • Registration with USPTO required
• 20-year maximum term
• Must disclose to public
• Reverse engineering = no defense
• Public disclosure in application
• Significant cost (~$15K-$50K+)<br>
• Potentially infinite duration
• Must remain secret to retain
• Reverse engineering = loss
• No disclosure to government
• Lower cost to establish • Registration with USPTO required
• 20-year maximum term
• Must disclose to public
• Reverse engineering = no defense
• Public disclosure in application
• Significant cost (~$15K-$50K+)<br>
43
43 If Reverse Engineering
Is Easy → Patent Product can be bought and analyzed
Competitor will discover the secret
Patent provides protection even after discovery through reverse engineering<br>
Is Easy → Patent Product can be bought and analyzed
Competitor will discover the secret
Patent provides protection even after discovery through reverse engineering<br>
44
44 If Secrecy Can Be
Maintained → Trade Secret Internal process not visible in product
Long-term competitive advantage
No disclosure to government required
Potentially infinite duration<br>
Maintained → Trade Secret Internal process not visible in product
Long-term competitive advantage
No disclosure to government required
Potentially infinite duration<br>
45
45 UTSA vs. DTSA Overview UTSA (State) DTSA (Federal) • Enacted 1979, 48 states + DC
• State court jurisdiction
• No interstate commerce required
• No ex parte seizure
• No whistleblower provision • Enacted 2016, federal
• Federal court jurisdiction
• Requires interstate commerce
• Ex parte seizure available
• Whistleblower immunity (§ 1833(b))<br>
• State court jurisdiction
• No interstate commerce required
• No ex parte seizure
• No whistleblower provision • Enacted 2016, federal
• Federal court jurisdiction
• Requires interstate commerce
• Ex parte seizure available
• Whistleblower immunity (§ 1833(b))<br>
46
46 DTSA Does NOT Preempt UTSA Both can be pleaded in same lawsuit
18 U.S.C. § 1838
Most plaintiffs plead both<br>
18 U.S.C. § 1838
Most plaintiffs plead both<br>
47
DEEP DIVE Kewanee Oil Co. v.
Bicron Corp. (1974) 416 U.S. 470 — Supreme Court of the United States 47<br>
Bicron Corp. (1974) 416 U.S. 470 — Supreme Court of the United States 47<br>
48
48 Harshaw Chemical Co. Leading manufacturer of synthetic crystals
for detecting ionizing radiation<br>
for detecting ionizing radiation<br>
49
49 17 Years and $1 Million
in R&D Developed 17-inch crystal — no one else could grow one this large<br>
in R&D Developed 17-inch crystal — no one else could grow one this large<br>
50
50 Employees Left, Formed Bicron Former Harshaw employees departed
Had signed nondisclosure agreements
Formed competing company Bicron<br>
Had signed nondisclosure agreements
Formed competing company Bicron<br>
51
51 Bicron Grew Its Own 17-Inch Crystal Within months of forming the company
Achievement that took Harshaw 17 years
Strong circumstantial evidence of misappropriation<br>
Achievement that took Harshaw 17 years
Strong circumstantial evidence of misappropriation<br>
52
Issue Does federal patent law preempt state trade secret law? DEEP DIVE 52<br>
53
53 Sixth Circuit:
Yes — Preempted State cannot protect what federal patent law covers
Trade secret law conflicts with patent system's disclosure incentive<br>
Yes — Preempted State cannot protect what federal patent law covers
Trade secret law conflicts with patent system's disclosure incentive<br>
54
54 Holding No — State trade secret law is NOT preempted by federal patent law DEEP DIVE<br>
55
55 Different Purposes Patent: incentivize disclosure of inventions to the public
Trade secret: promote commercial ethics and encourage invention<br>
Trade secret: promote commercial ethics and encourage invention<br>
56
56 Three Categories of
Trade Secrets (1) Clearly patentable information
(2) Possibly patentable information
(3) Not patentable information<br>
Trade Secrets (1) Clearly patentable information
(2) Possibly patentable information
(3) Not patentable information<br>
57
57 If Preempted → Gap in Protection Valuable but unpatentable information would be left completely unprotected
No rational basis for this result<br>
No rational basis for this result<br>
58
58 Kewanee Establishes
Coexistence Patent and trade secret law operate as parallel protection systems
The choice between them is strategic<br>
Coexistence Patent and trade secret law operate as parallel protection systems
The choice between them is strategic<br>
59
59 REASONABLE EFFORTS
IN PRACTICE Case Illustrations and Historical Roots<br>
IN PRACTICE Case Illustrations and Historical Roots<br>
60
Peabody v. Norfolk (1868) 98 Mass. 452
Supreme Court of Massachusetts 60<br>
Supreme Court of Massachusetts 60<br>
61
Vickery v. Welch (1837) 36 Mass. 523
Supreme Court of Massachusetts 61<br>
Supreme Court of Massachusetts 61<br>
62
62 Historical Foundation Trade secret law predates the UTSA by more than 150 years
Peabody (1868) + Vickery (1837) establish core principles still in use<br>
Peabody (1868) + Vickery (1837) establish core principles still in use<br>
63
63 HYPOTHETICAL:
SOLARSPARK Applying Element 3 to a Startup<br>
SOLARSPARK Applying Element 3 to a Startup<br>
64
SolarSpark: A Startup
With Problems • Source code on an unprotected shared drive
• Employees sign NDAs that are never explained or enforced
• Pitches investors without mentioning confidentiality
• Loses a laptop at a coffee shop 64<br>
With Problems • Source code on an unprotected shared drive
• Employees sign NDAs that are never explained or enforced
• Pitches investors without mentioning confidentiality
• Loses a laptop at a coffee shop 64<br>
65
65 Identify the Failures What went wrong?
What would you fix?
10 minutes — group exercise<br>
What would you fix?
10 minutes — group exercise<br>
66
Quick Check Could SolarSpark's source code
still qualify as a trade secret? 66<br>
still qualify as a trade secret? 66<br>
67
67 Probably Not
Element 3 (reasonable efforts)
likely fails under totality test<br>
Element 3 (reasonable efforts)
likely fails under totality test<br>
68
68 Next: Session 2 How trade secrets are lost
Reverse engineering, independent discovery
Combination secrets
Preview of the TSPP project<br>
Reverse engineering, independent discovery
Combination secrets
Preview of the TSPP project<br>
69
69 SESSION 2 Loss of Secrecy and Combination Secrets<br>
70
Quick Check Name the three elements
of a trade secret 70<br>
of a trade secret 70<br>
71
71 Today: How Protection
Is Lost Reverse engineering, independent discovery, voluntary disclosure + combination secrets
The flip side of the three-element test<br>
Is Lost Reverse engineering, independent discovery, voluntary disclosure + combination secrets
The flip side of the three-element test<br>
72
72 HOW TRADE SECRETS
ARE LOST Lawful and Unlawful Paths<br>
ARE LOST Lawful and Unlawful Paths<br>
73
73 Lawful Means of Discovery Not all loss of secrecy = misappropriation
Some paths are perfectly legal and provide no legal recourse<br>
Some paths are perfectly legal and provide no legal recourse<br>
74
74 Path 1: Reverse Engineering Buy the product, take it apart
"Proper means" under UTSA and DTSA
Lawful discovery — no misappropriation<br>
"Proper means" under UTSA and DTSA
Lawful discovery — no misappropriation<br>
75
75 Easy to Reverse-Engineer?
Consider Patent If competitors can discover the secret through product analysis, trade secret protection is fragile
Patent may be the better choice<br>
Consider Patent If competitors can discover the secret through product analysis, trade secret protection is fragile
Patent may be the better choice<br>
76
76 Path 2: Independent Discovery Competitor develops same information through its own research
No copying, no theft, no liability
Parallel innovation is lawful<br>
No copying, no theft, no liability
Parallel innovation is lawful<br>
77
77 Path 3: Voluntary Disclosure Owner shares without restrictions
Public presentations, unprotected pitches
Once public, Element 2 fails permanently
Trade secret status cannot be recovered<br>
Public presentations, unprotected pitches
Once public, Element 2 fails permanently
Trade secret status cannot be recovered<br>
78
78 Path 4: Compelled Disclosure Government regulation, litigation discovery, subpoenas, FOIA requests
Protective orders can mitigate but disclosure risk remains<br>
Protective orders can mitigate but disclosure risk remains<br>
79
Quick Check Name three lawful paths to
losing trade secret protection 79<br>
losing trade secret protection 79<br>
80
80 1. Reverse engineering
2. Independent discovery
3. Voluntary disclosure
(Also: compelled disclosure)<br>
2. Independent discovery
3. Voluntary disclosure
(Also: compelled disclosure)<br>
81
81 COMBINATION SECRETS When Public Elements Create Private Value<br>
82
82 Combination Secrets Individual elements may be known
But the specific combination, sequence, or compilation may not be
The whole can be greater than its parts<br>
But the specific combination, sequence, or compilation may not be
The whole can be greater than its parts<br>
83
Pico Salsa Application Fermentation is a known technique
Chili peppers are publicly available
But Ferment-X combines specific: temperatures, timing, cultures, ratios
That combination IS the trade secret 83<br>
Chili peppers are publicly available
But Ferment-X combines specific: temperatures, timing, cultures, ratios
That combination IS the trade secret 83<br>
84
COMMON MISTAKE Overbroad Combination Claims Not everything is a combination secret
The combination must add something beyond what is generally known in the industry
Generic business practices ≠ trade secret 84<br>
The combination must add something beyond what is generally known in the industry
Generic business practices ≠ trade secret 84<br>
85
85 HYPOTHETICAL:
MEGASPICE Multiple Vulnerabilities in One Company<br>
MEGASPICE Multiple Vulnerabilities in One Company<br>
86
MegaSpice: Multiple Vulnerabilities • Proprietary chili pepper blending process
• Filing a partial patent on one component
• Marketing 'secret sauce' in advertising
• Sharing details with new supplier — no NDA
• Product samples to culinary schools — no restrictions
• Final product is somewhat reverse-engineerable 86<br>
• Filing a partial patent on one component
• Marketing 'secret sauce' in advertising
• Sharing details with new supplier — no NDA
• Product samples to culinary schools — no restrictions
• Final product is somewhat reverse-engineerable 86<br>
87
87 What Undermines Secrecy? Identify every risky practice
Propose fixes
15 minutes — group exercise, 10 min debrief<br>
Propose fixes
15 minutes — group exercise, 10 min debrief<br>
88
88 Partial Patent ≠ Total Loss Aspects not disclosed in the application may remain protectable as trade secrets
Patent + trade secret can coexist for different aspects of the same product<br>
Patent + trade secret can coexist for different aspects of the same product<br>
89
Quick Check Does 'secret sauce' marketing
help or hurt a trade secret claim? 89<br>
help or hurt a trade secret claim? 89<br>
90
90 LOOKING AHEAD From Chapter 1 to Chapter 2<br>
91
91 If You Can't Name It,
You Can't Protect It Next: Building a Trade Secret Inventory
Chapter 2 moves from abstract rights to concrete identification<br>
You Can't Protect It Next: Building a Trade Secret Inventory
Chapter 2 moves from abstract rights to concrete identification<br>
92
92 Before Next Class Read: Pico Salsa Fact File, Parts I and II
Company background + technical and business assets
Begin thinking: what qualifies?<br>
Company background + technical and business assets
Begin thinking: what qualifies?<br>
93
93 Chapter 1 Mastery Checklist ✓ Define trade secret under UTSA and DTSA
✓ Three-element test: Information, Economic Value, Reasonable Efforts
✓ Distinguish trade secrets from patents, copyrights, trademarks
✓ Patent vs. trade secret: the strategic choice (Kewanee)
✓ Reasonable efforts spectrum (Fail-Safe → Howley)
✓ Loss of secrecy: reverse engineering, independent discovery, disclosure
✓ Combination secrets: public elements, secret compilation
✓ Altavion: general idea vs. specific implementation<br>
✓ Three-element test: Information, Economic Value, Reasonable Efforts
✓ Distinguish trade secrets from patents, copyrights, trademarks
✓ Patent vs. trade secret: the strategic choice (Kewanee)
✓ Reasonable efforts spectrum (Fail-Safe → Howley)
✓ Loss of secrecy: reverse engineering, independent discovery, disclosure
✓ Combination secrets: public elements, secret compilation
✓ Altavion: general idea vs. specific implementation<br>
94
94 Next:
Chapter 2 Identifying and classifying Trade Secrets<br>
Chapter 2 Identifying and classifying Trade Secrets<br>
95
95 TSPP STAGE 1 Orientation and Team Formation<br>
96
TSPP The Trade Secret
Protection Plan Your semester-long deliverable:
A professional-grade plan for a real client
Six stages → five attachments + executive summary
The kind of document a practicing attorney delivers 96<br>
Protection Plan Your semester-long deliverable:
A professional-grade plan for a real client
Six stages → five attachments + executive summary
The kind of document a practicing attorney delivers 96<br>
97
TSPP Pico Salsa: Your Client Small fermented salsa startup in Albuquerque
Proprietary process, customer list, informal culture
Enthusiastic founders: Miguel (CEO), Rachel (COO)
Your job: build a plan that protects them 97<br>
Proprietary process, customer list, informal culture
Enthusiastic founders: Miguel (CEO), Rachel (COO)
Your job: build a plan that protects them 97<br>
98
TSPP Stage 1 Deliverable:
Team Charter Roles, communication plan, work allocation
Due before Chapter 2
(If using individual work: review deliverable
sequence for the semester) 98<br>
Team Charter Roles, communication plan, work allocation
Due before Chapter 2
(If using individual work: review deliverable
sequence for the semester) 98<br>
99
TSPP The Three-Element
Test = Your Foundation Every TSPP stage builds on Chapter 1
You will use this framework all semester
Information + Economic Value + Reasonable Efforts 99<br>
Test = Your Foundation Every TSPP stage builds on Chapter 1
You will use this framework all semester
Information + Economic Value + Reasonable Efforts 99<br>
100
To request the full slide deck, please email kerri.hughes@cap-press.com<br>