Authored by York M. Faulkner
Reprinted with permission from the IP Litigator, Published by Aspen Law & Business
In Moore v. Kulicke & Soffa Industries, [318 F.3d 561 (3d Cir. 2003)], the U.S. Court of Appeals for the Third Circuit recently held that under Pennsylvania law, a trade secret plaintiff bears the burden of proving that the defendant did not independently develop the allegedly misappropriated trade secret. Acknowledging that no Pennsylvania state court had previously addressed the issue, the federal court reasoned that independent development is not an affirmative defense that must be proven by the defendant. Instead, a defendant accused of trade secret misappropriation bears only the burden of producing some evidence of independent development. If the defendant meets that burden, then the burden shifts to the plaintiff to persuade the court that there was no independent development.
The issue arose in a diversity action in federal court governed by Pennsylvania law. There, the defendant, Kulicke & Soffa Industries (K&S), was a manufacturer of wire bonding equipment used to make the intricate connections among the small wires in computer chips. The plaintiff, Moore, was an engineer who had proposed to K&S an improved design for the bonding machines to enhance the machines' speed and accuracy. At the time, K&S told Moore than it had no interest in his proposal. Later, however, Moore discovered that K&S had made improvements to its machines using techniques similar to those he had proposed to K&S. Moore unsuccessfully brought a trade secret misappropriation action against K&S in federal district court, where the jury returned a verdict in favor of K&S.
On appeal, the issue gravitated to whether the jury had been properly instructed on the burden of proving independent development. At the conclusion of trial, the district court instructed the jury:
If you find that the plaintiff has proven by a fair preponderance of the evidence that the defendant used the plaintiff's trade secret, and that the defendant did not arrive at the relevant wire bonding technique through independent invention, then you should find in favor of the plaintiff. [Id. at (565) (emphasis added).]
Moore argued that independent development is an affirmative defense that must be proven by K&S and that the instruction improperly shifted the burden of proof to him. He further contended that the instruction inappropriately required him to prove a negative—that K&S had not independently developed the improved bonding techniques used in its machines—and that Pennsylvania courts typically avoid burdening a party with proving a negative, especially when that party has only limited access to the relevant evidence.
The court, however, was satisfied that the discovery rules give trade secret plaintiffs, such as Moore, sufficient access to the evidence needed to prove their cases. Moreover, the court agreed with K&S that the burden issue turns on whether the proof of independent development is intrinsic or extrinsic to proving the elements of trade secret misappropriation. The court reasoned that if proof of independent development was extrinsic to the elements of trade secret misappropriation, the issue would be properly characterized as an affirmative defense. The court noted, for example, that a statute of limitations defense is an affirmative defense, because the plaintiff's timing in bringing suit has little to do with the underlying elements of the cause of action.
In ruling, however, that independent development is intrinsic to the plaintiff's cause of action, the court recited the following elements of trade secret misappropriation under Pennsylvania law:
(1) the existence of a trade secret; (2) communication of the trade secret pursuant to a confidential relationship; (3) use of the trade secret, in violation of the confidence; and (4) harm to the plaintiff. [Id. at 566 (emphasis added).]
The court agreed with K&S that proof of independent development merely rebuts the third element of trade secret misappropriation—"use of the trade secret." [Id.] The court explained that independent development is necessarily linked to the use element of trade secret misappropriation because, "unlike the patent system, which provides a remedy for any use of the techniques similar to the patented technique, trade secret misappropriation protects against the wrongful use of the trade secret itself." [Id. at 567 (emphasis added).] Thus, a plaintiff must prove that the defendant wrongfully used the trade secret, which, in the court's view, includes demonstrating that the defendant did not independently develop the trade secret.
The court was satisfied that Pennsylvania law "suggests that the courts would not place the burden of proving independent development on the defendant for policy reasons." [Id. at 572.] Placing that burden on the plaintiff, the court reasoned, was consistent with its perception that "the Pennsylvania Supreme Court has already made it difficult for plaintiffs to recover in a claim for trade secret misappropriation." [Id.] The court was further reassured that its ruling was consistent with the "independent creation" doctrine in copyright law, which places the burden of proving no independent creation of a copyrighted work on the plaintiff. [Id. at 573.]
The court conceded that not all authorities would agree with its decision. For example, the Court noted that Callmann suggests that "when the defendant has had access to the trade secret, the burden is on him to establish an independent development defense." [2 R. Callmann, The Law of Unfair Competition, Trademarks and Monopolies § 14.40 (4th ed. 1993).] Alternatively, Milgram suggests that "where defendant is possessed of substantial capacity to independently derive matter claimed secret by plaintiff, plaintiff may retain the burden of proving that defendant in fact misappropriated plaintiff's matter." [4 Milgram on Trade Secrets, § 15.01  [d] [v] (2002).]
Thus, the commentators suggest that the court's announced rule might be too rigid. Instead, where the burden of proof falls should fairly depend upon the facts of each case. Nevertheless, until a Pennsylvania court holds otherwise, a trade secret plaintiff in Pennsylvania must prove that the defendant did not independently develop the allegedly misappropriated trade secret.
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