Wow, That’s A Lot Of Downloaded Files… But, How Many Trade Secrets?

What’s the first thing a trade secret owner should do? Properly identify its trade secrets.

That identification can and should take place when a trade secret is developed. That identification can and should take place before any controversy (e.g., investigating an alleged misappropriation of the trade secret and commencing litigation) or opportunity (e.g., negotiating a confidentiality/non-disclosure agreement, license, sale or joint venture involving the trade secret) arises. 

What’s a sign that a trade secret owner may not yet have properly identified its trade secrets — i.e., may not yet truly know what they are? Shock value in a trade secret misappropriation complaint. 

More specifically, an allegation that an accused misappropriator improperly downloaded hundreds, thousands, tens of thousands or even hundreds of thousands of files often is included — indeed, emphasized — in a trade secret misappropriation complaint. Such an allegation casts the accused misappropriator in a bad light and, if true, can help tell an overall story. But, emphasizing the number of downloaded files — as opposed to the number of trade secrets at issue — actually may reflect a trade secret owner’s lack of clear appreciation for the specific trade secrets at issue.
  
With that, to more efficiently and effectively protect, enforce and otherwise leverage a trade secret, identify it. Today is a good time to do so.    

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Waymo v. Uber: Trade Secrets Matter And Unauthorized Acquisition Alone Can Justify Damages

Waymo LLC v. Uber Technologies, Inc. (N.D. Cal., Case No. 3:17-cv-00939) is garnering a lot of headlines because trade secrets matter. How much do they matter? According to Waymo, it is, or at one point was, entitled to $ 1.86B in trade secret damages.

Of course, to obtain any award of damages, Waymo first has to prove the Defendants’ — i.e., Uber Technologies, Inc.’s, Ottomotto LLC’s and Otto Trucking LLC’s (collectively, Uber’s) — liability.

In recently filed papers relating to jury instructions, Waymo asserts that it “has repeatedly asserted improper acquisition as an independent basis for Defendants’ liability.… At trial, therefore, misappropriation by acquisition will be a valid theory of liability that justifies both injunctive relief and damages. The jury should accordingly be instructed that acquisition alone can serve as the basis for liability under both the CUTSA [California Uniform Trade Secrets Act] and DTSA [federal Defend Trade Secrets Act].” (Docket No. (DN) 2077, p. 3.)

On the other hand, Uber asserts that “Waymo’s damages expert calculates damages solely based on Defendants’ alleged use of the Alleged Trade Secrets.” (DN 2076, p. 2 (emphasis in original).) Thus, “[t]he jury should not be led to believe that acquisition alone could be a form of misappropriation that could lead to damages.” (DN 2076, p. 10.)

Let’s assume that Waymo, through its damages expert, properly has disclosed and calculated damages based on misappropriation through, for example, unauthorized acquisition alone. Under those circumstances, Waymo should be permitted to attempt to prove, at trial, damages corresponding to unauthorized acquisition alone.

More specifically:

(1) Applicable law (a) recognizes that trade secret misappropriation can arise through unauthorized acquisition, disclosure or use and (b) sets forth the types of damages available for misappropriation. See, e.g., 18 U.S.C. §§ 1836(b)(3)(B), 1839(5); CUTSA, §§ 3426.1(b),  3426.3.

(2) Further, fundamental intellectual property (IP) rights include rights to control and benefit from the IP, even if those rights are not exclusive. Thus, if a misappropriator wrongly acquires a trade secret, the trade secret owner’s rights to control and benefit from its trade secret have been lost or reduced and the trade secret owner deserves to be compensated accordingly.

(3) As to real world examples, a trade secret owner’s existing contracts, such as licenses for the trade secret, supply contracts for a product made with the trade secret, joint development agreements where the trade secret is contributed capital, investor agreements that were executed because of the trade secret and loan agreements where the trade secret is collateral could all be negatively impacted, i.e., the trade secret owner could sustain actual loss, as a result of misappropriation by wrongful acquisition. Under such circumstances, corresponding damages should be awarded to the trade secret owner. Indeed, even if the misappropriator is required to return or destroy any copies of the trade secret it has, such actual loss still could be incurred and such damages still could be awarded.

(4) Finally, negative know-how, i.e., what not to do or use, can be a trade secret. See, e.g., UTSA, Comment to § 1. If such a trade secret wrongfully is acquired, the misappropriator can be unjustly enriched. For example, the misappropriator could avoid substantial investments of time and money in research, development and engineering. The trade secret owner would be permitted to attempt to prove such unjust enrichment and obtain a corresponding damages award.

In sum, damages are available for misappropriation through unauthorized acquisition, disclosure or use. There is no prohibition –- and there should not be any prohibition — on a legitimate damages theory based on misappropriation through “only” wrongful acquisition.

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SCOTUS Patent Scorecard Update

On May 22, 2017, the Supreme Court issued TC Heartland LLC v. Kraft Foods Group Brands LLC. Then, on May 30, 2017, the Supreme Court issued Impression Products, Inc. v. Lexmark International, Inc.

Briefly stated, TC Heartland clarifies where a patent suit can be filed and, as such, is patent neutral. Impression Products concludes “that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale[,]” and, as such, is not pro-patent.

Pundits who believe TC Heartland is not pro-patent, or is anti-patent, seemingly are disappointed that a single U.S. district court (Eastern District of Texas) might no longer serve as the trial court equivalent of the U.S. Court of Appeals for the Federal Circuit. Well, easy come, easy go. Indeed, a pronounced concentration of patent cases (read: power) in a single U.S. district court conjures up monarchical concern, regardless of any actual or perceived certainty or efficiency.

In the past 12 years, the Supreme Court has issued 31 patent decisions.

The tally: 18 decisions are not pro-patent; 7 decisions are pro-patent; and 6 decisions are patent neutral.

The DTSA: Happy Birthday, Data Data Everywhere, But Where’s The Common Sense?

The Defend Trade Secrets Act (DTSA) just celebrated its first birthday. Many of you know that because just about everybody is using 365 days as a reason to write about the DTSA.

Whether armed with a birthday or anniversary or some other real or perceived data point, pundits repeatedly are trying to explain the DTSA, if not the legal system, with data. That is a superficially appealing idea, especially for people who accept data as a purely objective measuring stick.  But, think about this: in a baseball game, who is the better hitter? The player who hits three frozen ropes that are caught and is 0-3, or the player who hits a dribbler, a bloop and a swinging bunt and ends up 3-3?  The same rationale applies to law; if you think you can glean what really happened when a statute was enacted and since merely because of numerical compilations of actions or outcomes, you do so at your own risk. You are looking at snapshots, texts and Tweets and not the full motion picture.   

With that, let’s look at what can be, what is and what is not when it comes to trade secrets and the DTSA. 

Trade secrets can be competitively valuable information (CVI). Let me repeat, can be. Not are. That is not lawyer-speak. That is reality – meaning, trade secrets can be CVI if they are properly identified and protected. And that means now. Not when or after you believe that someone has misappropriated them and not when or after a new statute (e.g., the DTSA) is enacted.   

The DTSA did not wave a magic wand over assets and make them viable trade secrets to be asserted in federal courts. The DTSA is a tool to protect trade secrets, a tool that facilitates access to federal courts and a tool that allows attorneys to work in an arena with which they are familiar, i.e., an arena where the Federal Rules of Civil Procedure and Federal Rules of Evidence apply.

Where on the “Goldilocks and the Three Bears” scale the DTSA falls misses the real point. Whether the number of DTSA cases has been too many, too few or just right, and whether certain relief (e.g., ex parte seizures and injunctions) has been sought or granted, is not what an owner of potential trade secrets ought to be concerned with. The real point is this: as an owner of potential trade secrets, what have you done about your potential CVI in the last year?

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SCOTUS Patent Scorecard Update

On Mar. 21, 2017, the Supreme Court issued SCA Hygiene Products v. First Quality Baby Products, LLC. SCA eliminates laches as a defense against damages where the patent infringement occurred within the 6-year period set forth in 35 U.S.C. § 286. So, score one for plain statutory language, stream-lined patent litigation (as to at least one defense) and patent owners.

In the past 12 years, the Supreme Court has issued 29 patent decisions.

The tally: 17 decisions are not Pro-Patent; 7 decisions are Pro-Patent; and 5 decisions are Patent Neutral.

The trend: Intellectual property (IP) rights continue to be front and center. The Supreme Court has averaged more than 2 patent opinions/year for the past 12 years. In 2016, Congress passed, and the President signed, the Defend Trade Secrets Act.

The takeaway: As to SCA, time periods and dates matter. So, when an IP right is born, do you have a plan, a time-line or a life-cycle in mind for that asset? Don’t shelve the asset; keep on top of it.

Please e-mail me to receive a complete copy of the SCOTUS Patent Scorecard.

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Don’t Leave Common Sense at the Office or Secrets in Your Car

Last week, a Secret Service laptop and other materials (e.g., a personal identity verification (PIV) card with access codes) were stolen from an agent’s vehicle parked in front of a New York residence.  (www.foxnews.com/politics/2017/03/17/secret-service-laptop-stolen-in-new-york.html.)  There are several valuable takeaways – literally and figuratively – from that incident.       

Let’s focus on one takeaway: common sense as a fundamental protective measure (PM) for trade secrets.

Sophisticated and organized PMs often are important for certain agencies or companies and their assets.  But, those PMs can be unduly stressed or to some extent rendered irrelevant if common sense is lacking.  

All of that bring us to the laptop, which reportedly has in place security features designed to prevent access to the laptop’s confidential contents. 

For any company whose employees travel — locally, domestically or internationally — consider these periodic, common-sense reminders to employees: (1) have possession or control of all devices that contain confidential information or trade secrets, (2) take on any trip only those devices necessary to the task at hand and (3) include on those devices only the confidential information or trade secrets necessary to the task at hand.  

Perfection is not realistic or required.  But, many agencies and companies can and should travel lighter.  

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SCOTUS Patent Scorecard Update

On Feb. 22, 2017, the Supreme Court issued Life Technologies Corp. v. Promega Corp. Briefly stated, Life Technologies limits patent infringement liability.
In the past 12 years, the Supreme Court has issued 28 patent decisions.
The tally: 17 decisions are not Pro-Patent; 6 decisions are Pro-Patent; and 5 decisions are Patent Neutral.
The trend: patent rights pruning continues.
The takeaway: companies that believe intellectual property (IP) rights are assets should consider whether their IP portfolio mix and operations account for that trend and then adjust accordingly.
Please e-mail me to receive a complete copy of the SCOTUS Patent Scorecard.

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SCOTUS Patent Scorecard Update: One Pro-Patent Decision, One Pro-Patent Quality Decision

On June 13 and 20, 2016, the Supreme Court added to its patent jurisprudence. One decision was pro-patent and one was anti-patent or, more optimistically, pro-patent quality.

Pro-Patent: In Halo Elecs., Inc. v. Pulse Elecs., Inc., the Court addressed the proper test for awarding enhanced damages under 35 U.S.C. § 284. The Court overruled the Federal Circuit’s two-part Seagate test, held that enhanced damages can be awarded at the district court’s discretion, noted that such damages “should generally be reserved for egregious cases typified by willful misconduct,” rejected the clear and convincing evidence standard in an enhanced damages inquiry, reiterated that the proper standard is preponderance of the evidence and rejected the Federal Circuit’s tripartite framework for appellate review.

Pro-Patent Quality: In Cuozzo Speed Techs., LLC v. Lee, the Court addressed whether the Patent Office’s determination to institute an inter partes review on grounds not specifically mentioned in the third party’s review request can be considered by a court. A court may not review a “mine-run claim” involving the Patent Office’s decision to institute inter partes review; however, a court may be able to review a constitutional question relating to that decision. The Court also addressed whether the Patent Office’s inter partes review regulation to construe a patent claim according to its broadest reasonable construction in light of the patent specification is proper. It is.

The snapshot takeaways are that plain statutory language matters, quality IP assets matter and consistency (within an agency) matters. Those takeaways should guide any company’s IP asset management program – which should include patents and trade secrets.

If anyone is interested in a complete copy of the U.S. Supreme Court Patent Scorecard from 2005-2016, then please e-mail me at dpelletier@pelletier-ip.com.

Theranos and Its Requests to Redact Trade Secrets

“Today, how prepared are you to substantiate that your assets are trade secrets?” That question originally was posed on February 7, 2016. Recent events involving Theranos, Inc. again illustrate how important that question is.

Theranos currently is dealing with some heavily publicized legal and regulatory problems involving its laboratories.

An article in today’s Wall Street Journal reports that: “CMS [Centers for Medicare and Medicaid Services] officials usually release sanctions letters to the public soon after sending them to lab owners. With Theranos, the agency has held off because the company requested redactions that it said are necessary to protect its trade secrets, according to people familiar with the matter. The agency hasn’t decided whether to grant the redaction requests, the people said.” (John Carreyrou and Christopher Weaver, “Regulators Propose Banning Theranos Founder Elizabeth Holmes for at Least Two Years,” April 14, 2016 Wall Street Journal, A1, A6.)

That excerpt prompts five trade secret-related questions.

First, has Theranos merely claimed trade secret status for information assets?

Second, are mere claims of trade secret status the cause of CMS’s non-decision regarding Theranos’ redaction requests?

Third, does CMS require substantiation, or has it requested substantiation or additional substantiation, for any claim of trade secret status?

Fourth, if Theranos has not yet shown that each asset can meet the applicable definition of “trade secret,” can it do so?

Fifth, will mere claims of trade secret status or a lack of substantiation for those claims result in CMS denying Theranos’ redaction requests?

These questions are intended to provoke thought within companies with information assets and potential trade secret assets. So, yes, just about every company.

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Saying “I’ve got a trade secret” Isn’t Enough

Who decides whether you have a trade secret?

To begin with, you are the first decision-maker. But, simply saying or believing that an asset is a trade secret is a hollow decision if it is not backed up by actions. In particular, you need to properly identify and protect your trade secret. Importantly, the time to do that is now – before there is a potential or actual opportunity or dispute.

In a transactional setting, another decision-maker might be a potential business partner who is conducting due diligence on your intellectual property portfolio. The potential partner will — or should — be investigating whether, in its opinion, the asset meets the legal requirements for a trade secret, including that you employed sufficient measures to protect the asset.

In litigation, another decision-maker and, as some might say, the ultimate decision-maker is the court, meaning the judge, jury or both. Based on the evidence presented, the court will decide whether your asset meets the legal requirements for and, as such, is a trade secret.

So, how might this transactional and litigation decision-making play out? It can play out in any number of different ways. Because of that uncertainty, the main focus for an asset owner should be: be ready for that decision-making.

A pending criminal case – actually, a murder case – illustrates that point. In fact, the case illustrates that you should be ready for that decision-making even if your assets are not front and center in the opportunity or dispute.

In the murder case, a Pennsylvania court rejected the defense’s attempt to gain access to the source code for software that was used in connection with the investigation that led to the murder charge. (Palazzolo, Joe, “Court Bars Review Of DNA Software,” Wall Street Journal, Feb. 6-7, 2016, A3.) The court ruled that the defense “failed to show that ‘production of the source code is a linchpin to undermining the Commonwealth’s case’ as it pertains to the DNA evidence.” (Id.) It further explained that production of the source code “could ‘have the potential to cause great harm’ to [Cybergenetics] by exposing its trade secrets.” (Id.)

With respect to Cybergenetics’ assets, two things are not clear: (1) the type of inquiry, if any, that was conducted to determine if Cybergenetics’ assets are trade secrets and (2) the support, if any, that Cybergenetics offered to show that its assets are trade secrets.

Suppose that the court alternatively (1) had ruled that “‘production of the source code is a linchpin to undermining the Commonwealth’s case’ as it pertains to the DNA evidence” (Id.), (2) was looking to craft an appropriate protective order and (3) ordered Cybergenetics to substantiate the need for a protective order or certain provisions or conditions in a protective order – i.e., substantiate that its assets are trade secrets. How prepared would Cybergenetics have been to promptly substantiate that its assets are trade secrets? The answer to that question is unknown.

So, let’s ask a better question. Today, how prepared are you to substantiate that your assets are trade secrets?

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