Authored by Jia (Wenjia) Lu and E. Robert Yoches
The best way to avoid trade-secret liability is to ensure that your company's employees do not misuse another company's information. As a practical matter, however, employees in large companies may not always be as careful as the company would like. In fact, even if the company’s employees were all careful, another company may still sue for misappropriation either from good-faith belief that something illegal has happened, or to gain a competitive advantage. In any case, a company that must defend a charge of trade-secret misappropriation should know the best strategies.
The plaintiff in a trade-secret case lawsuit must prove three facts: (1) it has some valuable business information that it has kept secret; (2) the information is not generally known; and (3) the defendant has used that secret. A defendant may attack each showing, but some attacks are better than others.
A trade-secret defendant’s best strategy is to show it only used its own or public information. Independent development is a complete defense to misappropriation because it destroys the plaintiff’s third required showing.
The key advantages of an independent-development defense are (1) it does not matter how the plaintiff defines its trade secrets, and (2) the defendant controls the evidence. Unlike patent cases, a trade-secret defendant may not know the precise trade secrets at issue until late in the case, which allows plaintiffs to keep defendants off balance. If a company can show it never used any of the plaintiff’s information, then it does not matter how the plaintiff defines its secrets.
In addition, the defendant can use its own documents, financial records, and electronic files to show that it made no use of the plaintiff’s information, so it does not need to rely on the plaintiff’s production of documents. If the defendant can also show that it completed its development before the alleged acts of misappropriation, then the defendant has an easier time showing it misappropriated nothing from the plaintiff.
In Insight Development Corp. v. HP (our firm represented HP), HP defeated Insight's claim of misappropriation on a motion for summary judgment. The court found that the undisputed facts demonstrated that HP had developed the technology-at-issue without any of insight's materials, and had actually completed development before the meetings at which Insight claimed to have given HP the secrets. HP prevailed by referring to its own development documents.
Because one cannot claim as its trade secret information that is already in the public domain, a defendant should look for public documents (for example books, articles, and patents) that show the trade secrets the plaintiff identifies are actually not secret at all. Although this defense depends on a trade-secret definition from plaintiff, a defendant does not have to rely on the plaintiff's documents for this defense.
This strategy can be especially effective if the court requires the plaintiff to define its trade secrets early in the case. California, for example, requires that plaintiffs provide a specific identification of its trade secrets before beginning discovery. Not every court has such a requirement, however, which makes this approach more difficult.
A third defense is to show that the plaintiff did not take proper efforts to keep the information secret. For example, if the plaintiff gave the alleged secrets to someone who was not required to keep the information secret, or if the plaintiff allowed persons to get documents or on-line files with the information without restriction, it has not properly protected the information. Such information is no longer a trade secret of the plaintiff's.
Companies lost trade secret cases for any number of reasons. Some companies included the information in patent applications that were later published. Others failed to instruct their employees to keep the information secret, and the employee shared it with persons outside the company. Still others sent the information in question to customers, suppliers, or co-developers without any confidentiality agreements. Confidentiality agreements are not always necessary, though, because sometimes there is a legal requirement to keep information secret just because of the relationship that a person or other company has with the owner of the information.
This defense unfortunately depends on the plaintiff's definition of trade secrets and on information the plaintiff provides. If the plaintiff changes its definition or resists discovery, a defendant may have a hard time proving this defense.
If your company faces charges of trade-secret misappropriation, immediately secure the appropriate development documents and meet with the key employees to begin planning your defense. Even if your company may have used information from another company, there is no misappropriation if the information is public or was not secret. Quick action in gathering information may make the difference between winning and losing a trade-secret misappropriation case.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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