How much is a secret worth?

A jury in Virginia District Court has awarded damages of US$919 million for trade secret misappropriation against a South Korean company, Kolon Industries. Returning a verdict finding that Kolon illicitly made use of 149 such secrets, this works out at over $6 million per secret.

Kolon competes with market leader DuPont in the lucrative market for aramid fibers.  If that chemical name does not set your whiskers twitching, you might be familiar with the DuPont trademarks Kevlar and Nomex, which are the best known examples of aramids. These high-strength, lightweight materials are used most famously in bulletproof armour (Kevlar) and fireproof clothing (Nomex), but nowadays can be found in everything from racing canoes to the laces on football boots.  

(If Kevlar football laces are the answer, what on earth could the question have been, Merpel wonders? The days of jumpers for goalposts are long gone indeed.)

As reported by  Bloomberg, DuPont alleged in their trade secrets action that Kolon had hired former DuPont executives and engineers as consultants, and then conspired with them to steal DuPont's trade secrets relating to the manufacture of these fibers. The jury agreed.

A 'Nomex' hood - perfect for concealing your
features if you're planning to indulge in a spot
of economic espionage.

It seems DuPont became particularly suspicious when Kolon hired former DuPont engineer Michael Mitchell, who had previously been in charge of DuPont's marketing of Kevlar. Following a complaint to the FBI (who handle such cases under their economic espionage jurisdiction), Mr Mitchell's home was searched, and the Feds found proprietary DuPont information on his computer. Last year, Mitchell pleaded guilty to theft of trade secrets and obstruction of justice, resulting in an 18 month prison sentence and an undoubted strengthening of DuPont's case against Kolon.

Given the size of the award (which represents about a third of Kolon Industries' annual turnover, and a full four years worth of its operating profits), it is not surprising that Kolon plans to appeal.

Kolon, responding to the jury's verdict, denies that it sought or solicited any trade secrets from the ex-DuPont consultants it hired, or that it was aware that any information it received was in fact a trade secret. Kolon also claims that at least some of the information was in the public domain, presumably in the hope of at least whittling down the number of items regarded as secrets on appeal, leading to a corresponding reduction in damages.

Letter from Amerikat: Birthday Bits 'n Bobs

The AmeriKat is celebrating her 2nd birthday this week (she will leave you to calculate her age in Kat years). During the past few days she has cast her mind back to reminisce over the past two years in music, film, politics, and law. When she was a fresh kitten, the radios were booming with Madonna, Queen, Beastie Boys and Peter Gabriel and movie theaters were welcoming audiences to watch Top Gun, Pretty in Pink and Aliens. And in law, in the January that the AmeriKat was born, Kodak lost a patent infringement case with Polaroid, a loss which signalled Kodak's exit from the instant camera business. Today, we may still have Madonna booming away, but this time it is through our iPods. Patent law has also come a long way from the instant camera days. Nowadays our patent wars focus on mobile phone technology, albeit still concerning their camera technology as well as their touch-screen capabilities. This brief journey down memory lane just goes to show that over the past two *cough* years, everything changes, but everything stays the same be it in music or in IP law.

Lawyer Barbie back in the Federal Circuit dealing with Bratz - Something else that has not changed all that much from last year is the continuation of the Barbie v Bratz battle (previously reported by the AmeriKat here) which last week heard the parties' opening arguments in Californian federal court before Judge Carter. Barbie's maker, Mattel, alleged that the maker of the Bratz doll - MGA Entertainment- stole the idea for the Bratz doll by entering into a deal with the designer of the doll who had previously worked for Mattel. Mattel subsequently filed for copyright infringement and trade secret violations, while MGA alleges unfair competition and also trade secret theft. The case being heard by the court last week follows the previously overturned $100 million verdict of Judge Larson in favor of Mattel. MGA appealed this 2008 ruling on the grounds of incorrect jury instructions and an overly broad injunction. The US Court of Appeals for the Ninth Circuit agreed holding that the federal court judge had erred in ruling that Mattel automatically owned the designer's sketch of the doll under the terms of the 'Employee Confidential and Inventions Agreement' between Mattel and the designer and remanded the case back to the federal court. At the end of 2010 both parties applied for summary judgment on the issue of copyright infringement for the first and second generation Bratz dolls. Judge Carter granted summary judgment in MGA's favor in respect of the second generation Bratz dolls, but the remaining issues, including breach of copyright for the first generation of Bratz dolls and the breach of confidence/trade secret claims, remained for trial.

Following Judge Larson's departure from the federal bench, Judge Carter will now be rehearing Mattel's claims, but unlike the first trial the court will be tasked with determining whether the Inventions Agreement entitles Mattel to the designer's ideas for names like "Bratz" together with sketches that he created outside working hours. Also, ripe for ruling is MGA's trade secret claim against Mattel. Last year, MGA filed a counterclaim alleging that Mattel conducted an elaborate corporate espionage scheme in which Mattel employees, including general counsel Robert Normile and their attorneys from Quinn Emanuel, engaged in a racketeering conspiracy in order to gain access to MGA's private showrooms to obtain confidential information of Mattel's competitor's plans. According to a report last year in Am Law Litigation Daily, Quinn Emanuel partner Michael Zeller said that MGA's claims were "second-rate tactics by desperate lawyers" that "won't survive the pleading stage." Well, apparently they have! Mattel's lawyers say that in so far as the information MGA shared was shared at toy fairs, this information does not constitute a trade secret and therefore MGA is not entitled to their claimed $475 million in damages. The trial continues.

MJ's estate increases litigious activities - Last week, Michael Jackson's estate sued a website who is selling a book written by the singer's mother, Katherine Jackson, alleging copyright infringement. As reported by the Associated Press, Howard Mann, who operates the domain name www.jacksonsecretvault.com (picture, right - a shot of the allegedly infringing website left) is on the recieving end of the suit that alleges that he and the website are infringing copyright and are also liable under unfair competition laws. The complaint is reported to allege that the site is using the late singer's likeness and sketches that he drew and is said to creating a fasle endorsement by virtue of the inclusion of a "special thanks" to the estate. In a statement, the estate's attorney Howard Weitzman said that

"The Estate had hoped Mann would voluntarily cease his conduct but that was not to be. People who trade off of Michael's personality, copyrights and trademarks should not be allowed to exploit the legacy of one of the world's most recognized talents for their own benefit."

For more information see these reports in Hollywood Reporter and AP.

Koons's Balloon Dog to pop gallery's bubble? - Artist Jeff Koons has claimed copyright infringement against San Francisco gallery Park Life over a set of bookends that look like Koon's Balloon Dog, i.e. they look like balloon dogs. What do we think IPKat readers? Can Koons claim copyright infringement for anything that resembles a balloon dog? The AmeriKat thinks his lawyers, reported to be Jones Day, must have a field day at children's birthday parties.... For a more in depth look at that saga please see this excellent article in the New York Times. For how to make a balloon dog or an allegedly infringing Koons dog, please click here. (Pictures below from left to right - Koon's Balloon Dog; Park Life's balloon dog bookends; a balloon dog)

USPTO renews its IP Australia vows - Last week USPTO and IP Australia announced the extension of their existing pilot Paris Convention Patent Prosecution Highway (PPH) agreement and the formation of a new PPH pilot agreement utilizing the Patent Cooperation Treaty (PCT-PPH) results. PPH agreements improve efficiency by allowing patent examiners to use work already undertaken in respect of the same claim or claims already reviewed at other patent offices and PCT Authorities. USPTO Director Kappos has stated that by including the PCT "more work can be shared between our two offices. This will benefit applicants by reducing patent pendency and improving quality.” According to the USPTO press release the addition of the PCT international phase work

"will greatly expand the usefulness of the PPH program to applicants and the offices. The new PCT-PPH pilot is scheduled to launch on January 24, 2011. The PPH pilot program and the PCT-PPH pilot program between the USPTO and IPAU are both currently scheduled to continue until April 13, 2012."

Pancake house drops suit against a house of God - Last year the AmeriKat reported on the trade mark suit filed by US eatery chain IHOP which stands for the International House of Pancakes against the International House of Prayer also known as IHOP. Unfortunately, however, there will be no courtroom fireworks in battle between pancakes and God, because four days before Christmas IHOP dismissed its case against the church citing "ongoing mediation with the defendants."

Diamonds Are Forever, But Are Trade Secrets?

Once again, let's talk about trade secret licensing, this time about the provision in a trade secret licence that sets out the duration for which the licensee undertakes to maintain the secrecy of the contents that have been disclosed. In particular, I sometimes encounter a provision whereby the licensee undertakes to keep the proprietary information in confidence for a fixed period of time, rather than for so long as the trade secret is not generally disclosed, without specifying any time limit.

I have always found this provision a bit puzzling. The reason lies in my understanding of the nature of trade secret protection. The fundamental characteristic of trade secrets is secrecy (Mark Lemley well stated this "so obvious that we forget it" point in his 2008 article, The Surprising Virtues of Treating Trade Secrets as IP Rights). If so, what would appear to follow is that the paramount interest of the proprietor of the trade secret is that it take all necessary steps to ensure that the trade secret is not disclosed, unless the proprietor chooses to do so.

In the licensing situation, unless the licensee is a rogue, it is presumed that the licensee has a similar interest in maintaining the secrecy of the proprietary contents. As such, the licensee will undertake not to take any action that might lead to the unauthorized disclosure of the trade secret, the occurrence of which redound to the presumed detriment of both parties. Woe to the licensee that either by design or negligence breaches this undertaking.

That is all well and good--until we encounter a provision in the license that goes something like this: " The licensee undertakes to maintain the confidentiality of the Trade Secrets for a period of five years from the execution date of this Agreement." At first blush, such a provision seems to be at odds with the bedrock foundation of trade secrets. If secrecy is the sine qua non of the right, then why would the licensor-proprietor agree in advance that its trade secret may lawfully be disclosed by the licensee as of a date certain in the future, irrespective of any consideration of (i) prior independent creation by the licensor; (ii) independent creation by a third party or (iii) disclosure through no fault of the licensee? Isn't this a prouncement of the premature death of the trade secret right?

After all, I cannot think of reasonable circumstances in which a patent, copyright or
trade mark licensor would knowingly grant the licensee the right to perform an act that would have the effect of impairing, perhaps fatally so, the licensed IP right. I have never encountered a provision that states that, after five years, a trade mark licensee is permitted to use the trade mark in any manner, whether or not such promiscuous use might ultimately lead to a cancellation claim for non-use or a claim that the mark has become generic and non-distinctive. And yet, with respect to a trade secret, it is not that unusual to enounter a provision that states that the proprietor agrees to the potential impairment, down the durational line, of the very right that it is licensing. It makes this Kat to want to ululate with bewilderment. What is going on here?

I have heard several explanations for the persistence of this provision in trade secret agreements, including the following:

1. The licensee has superior bargaining power and it is prepared to take it upon itself the obligation of confidentiality, and all that entails for the operation of the licensee, only for a fixed period of time.

2. The trade secret has commercial value only if this particular licensee succeeds in extracting value from it. If the licensee succeeds, it will likely have no incentive to allow the trade secret to be disclosed. If not, the trade secret has no continuing commercial value and its subsequent disclosure has no practical significance.

3. The technology under licence is so fast-changing that confidentiality will be of no consequence by the end of the period of duration specified in the licence. What the licensee is primarily obtaining is the potential for first mover advantage. The provision capping the time period for confidentiality provides the licensee with contractual peace of mind.

4. The technology under licence is less dynamic than in (3), but it is sufficiently so that, by the end of the time period specified in the licence, it will be impractical as an evidentiary matter to try and determine whether the licensee has "breached" its undertaking. The provision fixing the time period is designed to ease the evidentiary burden of both parties in advance.

I am certain that there must be other reasons, depending upon the circumstances and readers are invited to share their thoughts.

Underlying all of this is the transitory nature of the trade secret right. Trade secrets can remain confidential and hence continue to be valuable for scores of years, or they can evaporate in a moment. A trade secret licence can seek to bind the licensee to maintain the confidentiality of the trade secret for an indefinite period, provided that secrecy is preserved, or the proprietor can willingly agree that the period of secrecy will be limited in time. All of this makes getting one's professional arms around trade secrets so very, very challenging.

Trade secrets: still useful if properly deployed

Above: never mind microwaves -- they don't even make adverts like they used to ...

Trade secrets have been a lively topic for IPKat readers recently. Neil's posting on "Term of Trade Secret Protection: the Dirty Little Secret" (here) has generated some good comments, while Christopher F. Marki's "The Case Against Patents" (here, flagged on this weblog here) extols trade secrets in his own industrial sector as a far superior tool to patents has also sparked off some thoughts. The IPKat received the link to Marki's piece from Ron Camp (Kilburn & Strode), who now writes:

"I thought [Marki's post] might be of interest as one of the few examples I am aware of that sets out the usefulness of know-how, but I agree that the author is working in a specialist field where protection by know-how happens to be appropriate. The extent to which companies rely on trade secrets and know-how is normally something of an unknown quantity to outsiders, as otherwise it wouldn't be secret!

I guess it comes down to "horses for courses": the microwave field has long relied heavily on know-how. In the 1970s, the Plessey company managed to tweak what was a fairly standardised process for making ECL logic circuits to allow frequency dividers to operate at the then-astronomical rate of 1.2GHz, about twice as fast as the best the competition could manage. They had the field to themselves during the many years it took for the competition to catch up.

When I was with the patent department of what used to be a large UK-based multinational electrical company, we relied on both types of protection as appropriate for the technology and the needs of the business. A pile of patents (the more the better) was certainly absolutely essential for most businesses when it came to periodic cross-licence negotiations with competitors: individual patents were rarely significant per se (for the representative situation in that particular field of technology, see GEC Avionics' patent [1992] RPC 107). However, where the invention related to manufacture of an improved version of a known type of hi-tech component, and the means by which the component had been processed during manufacture to obtain the improvement was not apparent from inspection of the device, the usual practice was not to patent, because how would you police such a patent?

On the other hand, relying solely on know-how can be dangerous: I am aware of one business which -- due to bad advice from their own legal advisers who were not well versed in patents -- had traditionally relied solely on know-how, nearly came to grief when their new and highly innovative product fell foul of a competitor's patent: only the ability to file a US patent application 11 1/2 months after the first public disclosure of their new product gave them sufficient bargaining power to negotiate a cross-licence and stay in business.

A UK Intellectual Property Office web page here gives the following advice on the situations where trade secret protection might be appropriate:

If it would be difficult to copy the process, construction or formulation from your product itself, a trade secret may give you the protection you need.

My own experience is that a trade secret can also be appropriate where a manufacturing process involves a processing step that is very easy to perform but which no-one would think of performing. A process that requires specialist equipment to carry it out, is arguably more readily detectable than a process which involves the use of something that would be found in any manufacturing establishment and which would therefore not involve the "infringer" in the purchase and installation of equipment that he had not hitherto needed".

Thanks, Ron, for your valuable comments.

The Term of Trade Secret Protection: The Dirty Little Secret

Should trade secret protection be limited in time? On first glance, the correct answer would seem to be-- "no". Don't we teach students that one of the basic trade-offs between patents and trade secrets is that the patents provide robust protection for a fixed period of time while trade secret protection is valid only as long as the confidential information remains secret.

Like any risk that is further bathed in uncertainty, the owner of a trade secret lives in a quantum-like world where the next wave may bring with it unwanted disclosure of the information, either because of reverse engineering or malfeasance. Stated otherwise, hovering over the potential for an unlimited term of protection is the ever-present risk of disclosure. Win the jackpot, like say Coca-Cola, and the two converge, where the specific trade secret benefits from a seemingly limitless term of protection. Lose the lottery, and the owner of the erstwhile trade secret can only hope that it has extracted enough value, either by way of first mover advantage or otherwise, to justify the time and effort in adopting the trade secret route.

While the foregoing represents the canonical view of the question, it appears that there are challenges to this commonly-held wisdom. The first heresy comes from the world of legal practice. This Kat suspects that there are few readers who who have not encountered a clause in a grant for the right of use of a trade secret that provides for a fixed time limit for the secrecy undertaking. This form of clause seems more typically to emanate from the party who is the recipient of the disclosure, and that makes perfect sense. It is difficult to come up with circumstances in which the disclosing party has an interest in limiting the period of time that the recipient is obligated to maintain secrecy of the information. The only situation that I can come up with is where the disclosing party actually intends to compete with the recipient, and the contractual ability to disclose the trade secret might actually confer a competitive advantage on the disclosing party. But such a scenario seems pretty far-fetched.

The argument most typically raised by the recipient in favour of a fixed time limit for the secrecy undertaking is one of mutual convenience. The claim goes something like this:"Because of the rapidly changing circumstances in the industry in which the secret is being used, the contractual term for the secrecy obligation (say five years for purposes of discussion) provides a degree of certainty to both parties. In any event, within five years, the value of the information will be nil. But to avoid any possible dispute that there has been an unauthorized disclosure, the parties agree in advance on the period in which the trade secret will be protected. In so doing, both parties can then go with their business."

To be honest: I am not certain that I fully buy into this claim. But if confidential information falls within a rapidly changing technology, the disclosing party is often prepared to accept this time limation, especially where that party can try to leverage its consent on this point to obtain concessions on other contractual provisions. Whatever the reason, the facts on the ground of trade secret practice indicate that the holy canon extolling the value of a potentially unlimited term of protection frequently does not square with the behaviour of the parties.

Professor Mark Lemley, at the end of a wide-spanning defence of trade secret protection ("The Surprising Virtue of Treating Trade Secrets as IP Rights", Stanford Law Review, vol. 61, no. 2, November 2008), suggests another reason why an unlimited term for trade secret protection might not be appropriate. He writes (at p. 353):

"But is not clear that this indefinite term properly strikes the balance between providing incentives to invent and ensuring that the world benefits from the new invention. It may be that after a certain period of time the additional incentive from the prospect of secrecy is marginal, while the costs of maintaining secrcy are not. ...One possible implication of treating trade secrets as IP rights, then, is that the law should provide that trade secrets "expire" after a certain period [footnote omitted]."

Lemley argues that there are potential various advantages in providing legal incentives to maintain secrecy of inventions in certain circumstances. From this vantage, what is key is how to best calibrate these incentives. One way to conceptualize this calibration is establish a fixed period of time for protection of the trade secret, after which the value of the secrecy is outweighed by the various costs in maintaining such secrecy. Having raised the point, however, Lemley is very chary about actually proposing how such a time limit might work. He concludes that "[i]t may be too hard to decide on a start date, and therefore an end date, and compelling disclosure of informatiom at the end of the term may also prove problematic."

But, as we have described above, parties to a transaction involving a trade secret often themselves do a form of balancing act between maintaining secrecy and allowing ultimate disclosure. Stated otherwise, there is no reason to try and fix some set of principles for best calibrating the term of trade secret protection; parties are already reaching a private resolution to the issue. Merpel oberves that, given the nature of trade secret protection, that is the way that it should be.

When a School Boy's Trick Meets Strangers in a Train (on in the Air)

Trade secret law (or various other names for more or less the same type of right, including the law of confidential information) has enjoyed an uncertain role in the IP world. For many years, the topic was largely unaddressed in law school curricula and, when it was addressed, it was done so in a course which was separate from the standard IP offerings. I remember promoting such a course in the early 1990s. I managed to keep it in the program for two years, before budgetary and other constraints forced the course to be removed from the curriculum.

Against that backdrop, it seems to me that the past decade has witnessed an ever-increasing interest in the topic, even if its relationship with traditional IP still remains tenuous. In fact, I have found it easier and, in some senses, more natural, to weave considerations into various MBA courses that address the role of IP in the managerial context. In that setting, the distinctions between traditional IP and trade secrets largely melt away--business realities are stronger than academic categories.

One of the topics that has long interested me in connection with trade secrets is the question of whether, at least under Anglo-American law, a duty to maintain infomation in confidence as a trade secret can be created between otherwise total strangers. We are all familiar with the creation of the duty in the employer-employee relationship, and in the context of a contract between two parties. But what happens when the parties are otherwise total strangers? Can and should the law countenance a trade secret duty in such a situation?

The U.S. judgment that is frequently brought to support the proposition that a trade secret duty may be created in such a situation is E.I. du Pont de Nemours & Co. v Christopher, 431 F.2d 1012 (5th Cir. 1970). In this case, the defendants were hired by an unknown third party to take aerial photographs of new construction at a du Pont plant. When du Pont was unable to extract from the defendants information about who their client was, they sued on the ground that the defendants had wrongfully obtained the plaintiff's trade secrets, namely a secret but unpatented process for developing methanol, which was then sold to an undisclosed thirty party.

The trial summarily dismissed the claim, not finding that any duty to maintain trade secrets had been established. As argued by the defendants, there had been no actionable wrong. Thus the defendants had carried out all of their activities in public airspace, they had violated no government aviation standard, no undertaking to maintain confidentiality had been created, and the defendants had not engaged in any other fradulent or illegal conduct.

On appeal, the court overuled the trial court and held that the defendants were liable for unlawful misappropriation of the plaintiff's trade secret. In particular the court of appeals, ruling on its construction of the applicable state law, ruled "aerial photography of plant construction is an improper means of obtaining another's trade secret." The court emphasized that, in so doing, the defendants were liable for "improper means of discovery."

Find the Trade Secret

Thus, while one is permitted to learn the trade secret of another if he engages in reverse engineering (or at least lawful reverse engineering), "one may not avoid these labors by taking the process from the discover without his permission at a time when he is taking reasonable precautions to maintain its secrecy." Stated otherwise, "[t]o require du Pont to put a roof over the unfinished plant to guard its secret would impose an enormous expense to prevent nothing more than a school boy's trick" (emphasis added).

It is this last quote from the judgment that continues to attract attention 40 years later. This is because the reference to a mere "school boy's trick" introduces an overt element of commercial morality into the calculus for liability for making unauthorized use of a trade secret. But what is the ultimate legal source for this considertion of commercial ethics? After all, the court excuses du Pont from protecting its "highly secret" process, which is exposed while the plant was being completed, on the ground that to take precautions in such a circumstance was not cost-beneficial.

That is a curious position. If it was not economically justifiable for du Pont to prevent aerial photographs of the process, then why should the foray into ethics and morality impose a duty of confidentiality on the defendants? Read the judgment--once, twice, three times--and the puzzle remains: Since when does a "school boy's trick" give rise to such a duty?

Two final comments here. First, this judgment remains a centrepiece of U.S. law for the proposition that a duty to maintain infomation in confidence may be created even when the parties are total stangers. Secondly the underlying rationale, whereby the this duty derives from an appeal to commerial morality, embues trade secret with an ethical dimension of uncertain metes and bounds. Whether these two ongoing implications for trade secret law are desirable continues to be an open question.

But Were There Any Trade Secrets Between Them?

Letter from AmeriKat I - Trade Secrets and Pie

This past weekend the AmeriKat escaped the chaotically twirling streets of London to the south coast. Besides the golden sun warming her whiskers, the rise of temperatures indicated that summer is finally here and with it will bring a variety of monumental events, including the end of her two-year LPC slog. (picutre, left - the AmeriKat finally taking a break in the sun) But to the AmeriKat, the most important of the summer events is her trip back to the mother land in July. The AmeriKat is already anticipating the very American activities that will be preoccupying her first holiday this year, not least relinquishing her daily work meals of cup o' soups for proper sustenance. She is already salivating over the green chile rellenos to be devoured in New Mexico, the cheesecake to be savoured in New York, and the most American of all the desserts - apple pie in Nebraska. Mmm...pie....

Trade Secrets à la Mode

Pie has also been on the mind of a Californian appeals court, but this time in the form of trade secrets. At the end of April, a district appeals court ruled that that the customers of one company who misappropriated trade secrets from another company are not themsleves liable for that misappropriation.

The case was brought by Silvaco Data Systmes, a software company that develops and manufactures computer applications for electronic design automation (EDA), against Intel alleging that Intel had misappropriated its trade secrets. How? Silvaco's arguement went like this. In 2000, Silvaco filed a lawsuit against rival competitor, Circuit Semantics, Inc ("CSI") alleging that with the assistance of two former Silvaco employees, CSI misappropriated trade secrets in one of their products, SmartSpice, which CSI used in their own product, DynaSpice. Silvaco subsequently won the case against CSI and an accompanying injunction which prohibited the continued use of the technology. Silvaco then brought actions against the purchasers of CSI's software including Intel, claiming that by using CSI's software, these end-users had misappropriated the trade secrets under the California Uniform Trade Secrets Act (UTSA) and other miscellaneous provisions under the Civil Code. Under UTSA misappropriation of a trade secret occurs when a person when a person knows or has reason to know that the trade secret was acquired by improper means and uses that trade secret. Intel argued that running the software only executed the source code and did not therefore 'use' the trade secrets embodied in the source code, nor did executing the source code mean that Intel had acquired knowledge of any trade secrets embodied in the source code.

Before turning to what the court decided, the AmeriKat would like to refer all readers to footnote 2 of the judgment. Herself a keen observer of all things civil procedure, footnote 2 is an almost page-long tirade of the misuse and abuse of replicated court documents. Although the majority of "the case was decided largely on the pleadings" the court stated, "it somehow generated an appendix over 8,000 pages in length. So seldom have so many trees died for so little." The tirade amusingly continues as such which had the AmeriKat giggling on the train all the way to Winchester.

Despite the civil procedure tirade, the three-judge Court of Appeal for the state of California's Sixth Appellate District affirmed the lower court's ruling which affirmed Intel's arguments that executing the software did not constitute misappropriation of any trade secrets in the source code; they themselves could not 'use' an 'invisible' source code when they ran the progam. Because Intel did not therefore 'use' the trade secrets under UTSA, it therefore followed that they could not be liable for misappropriation. In explaining this, the court invoked the pie simile:

"One who bakes a pie from a recipe certainly engages in the "use" of the latter; but one who eats the pies does not, by virtue of that act alone, make "use" of the recipe in any ordinary sense, and this is true even if the baker is accused of stealing the recipe from a competitor, and the diner knows of that accusation. Yet this is substantially the same situation as when one runs software that was compiled form allegedly stolen source code. the source code is the recipe from which the pie (executable program) is baked (compiled)."

The court also held that under UTSA misappropriation required the defendant to acquire "knowedge of the trade secret." Intel did not possess that knowledge because they never had access to the source code, only the product that executed the source code. Pie simile ever at the ready, the court explained:

"Intel appears to have been in substantially the same position as the customer of the pie shop who is accuse of stealing the secret recipe because he bought a pie with the knowledge that a rival baker had accused the seller of using the rival's stolen recipe. The customer does not, by buying or eating the pie, gain knowledge of the recipe used to make it."

A strong factor in the court coming to this decision was the public policy consideration that consumers who use a product cannot be held to 'use' the trade secrets in its composition. Otherwise, every innocent software purchaser (that means you!) would face misappropriation claims which would obviously constitute a chilling effect on innovation.

Christopher Ottenweller, a partner who lead the team representing Intel stated that he thought

"the court drew a very important line that is intended to promote competition by
limiting misappropriation to those entities that are involved in the
misappropriation - not commerical customers who purchase products on the open
market."

Pie and trade secrets never tasted so good....

Trade secrets, a seminar and a chance to say "hello"

LATE PLUG: this seminar, which is free and takes place this coming Monday, already has over 90 participants signed up -- but it's still possible to squeeze in some more. Contact Sarah Turner at the link below if you'd like to attend. There will be some delicious mince pies and some first-rate networking.

If you can't come, don't despair entirely. This seminar is going to be video'd and, if it comes out all right, the video will be made available to all. The IPKat will be wearing a respectable tie, just in case ...

"Protection of trade and other secrets: a property right, equitable right or contractual obligation? Does it matter?" That's the title of the IP Finance weblog seminar, which will be conducted by Neil Wilkof (Herzog Fox & Neeman, Tel Aviv) and Robert Anderson (Lovells LLP, London).

This seminar will be well worth attending. IP Finance team member Neil -- in the course of a series of posts on this weblog on IP-based business strategies in a changing world -- has asked questions about the juridical nature of the trade secret and its role in modern business. He and Robert Anderson will engage in what should prove a most enlightening debate.

The seminar (which should last for about 45 minutes) will start at 1pm on Monday 14 December 2009. Lovells has kindly agreed to host the event in its London office: that's Atlantic House, 50 Holborn Viaduct, London EC1A 2FG (nearest tubes are St Paul's, Farringdon or Chancery Lane). The seminar will be followed by some appropriately tasty light refreshments and a golden opportunity for some prime networking.

If you're coming, there's nothing to pay. Just email Sarah Turner here. Good news if you're in practice and could do with CDP points: Lovells are arranging for them.