This article has been written by Ayush Tiwari, a student of Symbiosis Law School, NOIDA. This article elaborates on what trade secrets are, the statutes that deal with them, and how they hold importance in the present world with the help of case studies.
It has been published by Rachit Garg.
In the modern business world, trade secrets, such as customer and product information, production processes, and pricing, are highly valued and sought after by competitors. In order to steal some of their most significant intangible assets, their trade secrets, U.S. companies are subject to increasing and persistent danger from individuals, other businesses, and foreign governments. Such perpetrators’ tools, strategies, and methods vary significantly, but they increasingly entail the use of cyberspace and advanced technology that allow hostile actors to easily take and move huge amounts of information while remaining anonymous.
Globalization has been identified as a key driver of the rise in trade secret theft. In many respects, trade-secret theft is a foreseeable outcome of increasing global markets. When major multinational corporations grow their international operations, they virtually always encounter supplier accountability and theft protection concerns. Each additional piece of data or information sent overseas disrupts a company’s supply chain, endangers its valuable intellectual property, and makes it vulnerable to theft. Therefore, it is essential for companies to take adequate measures to protect their valuable trade secrets from theft or misuse. Regulatory data protection refers to the legal framework available to companies to protect their trade secrets and intellectual property from being stolen or misused. There is tremendous legislative interest in minimizing the existing challenges of trade secret theft and economic espionage faced by US corporations. In this blog article, we will discuss the key concepts of trade secrets and regulatory data protection, outline the relevant laws and regulations, and explore the best practices for protection.
What are Trade Secrets / Regulatory Data Protection
A trade secret is a knowledge such as a formula, pattern, compilation, program, device, method, technique, or process whose confidentiality provides a unique and substantial value. To put it another way, a trade secret is valuable and important as long as it is kept hidden. While the knowledge may be valuable or beneficial to others, trade secret holders can monopolize the information to maximize their own gain by maintaining its confidentiality.
There is no method for registering or evaluating trade secrets. Trying to force a trade secret owner to register and submit its trade secrets to a regulating body such as the US Patent and Trademark Office (USPTO) would be detrimental as it would defeat the sole purpose of keeping them as trade secrets. Due to the lack of oversight authority, a trade secret holder will inter alia be required to demonstrate the legitimacy of its trade secrets if forced to file a trade secret misappropriation case. The trade secret will be examined by the court to see if it meets the jurisdictional criteria for trade secret protection under the Uniform Trade Secrets Act (“UTSA”) or other state statutes.
To be protected as a trade secret under the UTSA, the information must fulfill three key conditions.
- Initially, the confidentiality of a trade secret must have some economic worth to it.
- Second, the information must not be easily accessible or discoverable.
- Finally, the trade secret holder must take reasonable measures to keep the knowledge secret.
Economic value from secrecy
A trade secret must have economic worth since it is not widely recognized in the business. Factors including the value of the knowledge to the trade secret holder, the value to rivals and the amount of work or money put into developing the knowledge may be considered in determining whether such knowledge or information has economic worth as a result of confidentiality. If knowledge is useful to a company because it keeps competitors distant, it may be protected as a trade secret.
Not easily accessible or discoverable
To keep a genuine trade secret, the knowledge must not be generally known or easily discoverable by another person using proper techniques. The knowledge must not just be secret but also capable of remaining secret. Certain factors are taken into account when deciding whether the information is known or discoverable. These include the ease with which the information could be obtained, duplicated, or reverse-engineered; the extent to which the information is known to people outside the business; and the extent to which the information is known within the business. If information is known, easily found, or replicated, it will not be protected as a trade secret. Moreover, if a method, process, or technique can be easily reverse-engineered, it may not qualify as a valid trade secret.
Reasonable measures to keep the knowledge secret
Thirdly, and probably most importantly, the holder of a trade secret must always take reasonable measures to keep its trade secrets confidential. To ensure that reasonable efforts are maintained, a company should implement a combination of protective measures, such as limiting access to trade secrets to only essential personnel, marking documents as confidential, marking sensitive areas as restricted, placing physical barriers, restricting computer access through the use of passwords and other measures, and requiring confidentiality agreements for every employee who can come across the information while working.
Economic Espionage Act of 1996
The Economic Espionage Act of 1996 (EEA), approved by Congress in 1996, was a very important part of trade secret law in the U.S. The EEA’s legislative history illustrates congressional worries about rising foreign and local economic espionage against US corporations, which drove the creation of a more comprehensive governance framework to safeguard trade secrets. American businesses and the government have invested billions of dollars in research and development. Yet, the gains derived from these investments may be for nothing if a rival can simply acquire the trade secrets without incurring development costs. For years, numerous foreign governments and their companies have been attempting to gain a competitive edge by stealing trade secrets, the intangible intellectual property of innovators in the United States.
The EEA is a federal law that makes it a crime to steal or attempt to steal trade secrets. The EEA prohibits the theft of trade secrets and thereby prevents the benefiting of foreign governments, organizations, or agents and also protects trade secrets against misappropriation. Under the EEA, individuals or companies that steal or misuse trade secrets can face criminal penalties, including fines and imprisonment. Some of the important provisions given under the EEA are:
The provision of “economic espionage” given in the EEA, Section 1831, penalizes anyone who misappropriates, attempts to misappropriate, or conspires to misappropriate trade secrets with the intention or knowledge that the act would benefit a foreign government, instrumentality, or agent. Such misappropriation must be conducted ‘knowingly,’ which means that the person must have understood that the information taken was important to its owner and that the owner had taken precautions to keep it secret. According to the EEA’s legislative history, a ‘benefit’ acquired by foreign espionage comprises not only an economic benefit but also a ‘reputational, strategic, or tactical benefit.’ Any ‘entity that is significantly owned, controlled, supported, directed, managed, or dominated by a foreign government’ is considered a ‘foreign instrumentality.’ As a result, a foreign company that acts in espionage without proof of sponsorship or direction from a foreign government may not face prosecution under Section 1831. However, even if an individual or organization does not aim to benefit a foreign entity by stealing trade secrets, they may be held accountable under Section 1832‘s more broad criminal trade secrets provision.
Theft of trade secrets
The EEA’s “theft of trade secrets” provision, Section 1832, has a broader scope. The following are the main components of an EEA claim for theft of trade secrets:
- deliberate and intentional theft, appropriation, destruction, alteration, or duplication of
- a trade secret about a product or service used or planned to be utilized in interstate or foreign commerce
- with the intention of converting the trade secret and
- with the aim or knowledge that such activity would cause harm to the owner.
After examining these extra parts, they reveal some key distinctions between Sections 1832 and 1831. Firstly, Section 1832 does not necessitate that the offense benefits or intends to benefit a foreign entity; it is a general regulation. Section 1832 also requires that the theft benefit be received financially by someone other than the trade secret owner, whereas Section 1831, the foreign economic espionage provision, includes misappropriation for any purpose, including non-economic benefits such as reputational, strategic, or tactical benefits. Proving that the offender meant to cause harm to the owner of a trade secret “does not need the government to establish malice or bad intention, but just that the actor knew or was aware to a reasonable certainty that his behavior would create some detriment to the legitimate owner.”
Penalties authorized under the EEA
Economic espionage and trade secret theft are punishable by significant criminal fines and imprisonment under the EEA. Economic espionage has a maximum penalty of $5 million and 15 years in jail for individuals; for companies found guilty of this conduct, the appropriate maximum penalty is the greater of
- $10 million or
- three times the value of the stolen trade secret.
Individuals can be fined up to $250,000 and imprisoned for up to 10 years for stealing trade secrets for commercial gain, while companies can be penalized up to $5 million. The EEA also permits criminal or civil forfeiture of “any property used, or meant to be used, to commit or aid” an EEA violation, as well as “any property constituting, or derived from, any proceeds acquired directly or indirectly as a consequence of” an EEA violation. Offenders must additionally compensate victims of trade secret theft.
Furthermore, federal district courts are required to enter protective orders or take other measures ‘as may be required and appropriate to maintain the confidentiality of trade secrets, in accordance with the provisions of the Federal Rules of Criminal and Civil Procedure, the Federal Rules of Evidence, and all other applicable laws’ during every prosecution or proceeding under the EEA.
The EEA also empowers the Attorney General to file a civil action to obtain appropriate injunctive remedies for any infringement of the EEA’s trade secret protection provisions. However, victims of trade secret theft do not have a private civil cause of action under the EEA.
Statutory Exemptions under EEA
The EEA expressly allows for two exceptions to the prohibited conduct under Section 1833, which are:
- any otherwise legitimate activity carried out by a United States governmental agency, a state, or a political subdivision of a state; or
- reporting a suspected violation of the law to any governmental institution of the United States, a state, or a political subdivision of a state, if that entity has lawful authority over the violation.
The first exemption allows the government to engage in otherwise legal ‘investigative, protective, or intelligence activities’ involving the trade secret. The second exemption authorizes law enforcement to report suspected criminal activities.
Extraterritorial Application of the EEA
Under Section 1837 of the EEA, trade secret offenses that occur within as well as outside the United States may be subject to criminal prosecution by the federal government. The United States Supreme Court has said in the case of Morrison v. National Australia Bank Ltd. (2010) that “it is a longstanding principle of American law that legislation of Congress, unless a contrary intent manifests, is intended to apply solely within the geographical authority of the United States.” With this in mind, Congress clearly outlined the conditions under which it intended the EEA’s prohibitions against economic espionage and theft of trade secrets to apply internationally. If either violation is committed, it may be prosecuted.
- the offender is a U.S. citizen or permanent resident alien, or a legal entity in the United States, or
- An act in furtherance of the violation is undertaken within the United States.
Non-preemption of Other Federal and State Legislation
While the EEA was adopted in part to address the shortcomings of previous federal laws protecting trade secrets, the Act clearly says that it does not preempt or replace any other criminal or civil remedies available under other federal or state laws for trade secret misappropriation. So, federal prosecutors may file criminal charges under the following statutes in addition to or instead of the EEA, presuming that the activity implicated in the EEA violation is also in contradiction to these federal criminal statutes:
- the Computer Fraud and Abuse Act, which punishes anybody who gains unauthorized or excessive access to certain computers with the purpose of defrauding;
- the National Stolen Property Act (NSPA), which forbids interstate transportation of tangible stolen “goods, wares, or merchandise,” as well as the knowing receipt of such property under Sections 2314 and 2315; and
- the Federal Wire Fraud Act, which makes it illegal to employ wire, radio, or television communications to carry out a fraudulent scheme under Section 1343.
Landmark case laws under the EEA
US v. Aleynikov (2012)
Following a jury trial in the United States District Court for the Southern District of New York, Sergey Aleynikov was found guilty of having stolen and transferred some of the proprietary computer source code being used in his employer’s high-frequency trading system in violation of Section 2314 of the NSPA and Section 1832 of the EEA. Aleynikov reportedly encrypted the code and sent it to a German server before downloading it to his own computer. He carried a flash drive and a laptop containing the source code with him when he flew to some other state to attend meetings at his new place of employment. On appeal, Aleynikov contends that his actions did not violate any statute.
The court of appeals ruled that Aleynikov’s actions did not violate either the NSPA or the EEA. The source code did not qualify as “goods,” “wares,” or “merchandise” under the NSPA. The NSPA did not apply to the theft and subsequent interstate transmission of purely intangible property. Aleynikov reportedly stole purely intangible property represented in a purely intangible format by uploading the source code; the object taken had to be a good, ware, or merchandise at the moment of the crime. Because Section 1832(a) only pertained to things “produced for” or “placed in” interstate or international commerce, and the source code pertained to a system that the employer did not plan to sell or license to anybody, there was no EEA infringement.
United States v. Xu (2013)
Bo Zhang (also known as “Steven Zhang”), the defendant in this case, was accused of trade secret misappropriation under the EEA and the NSPA. Zhang was a former employee of Skyworks Solutions Inc., a US-based semiconductor company, and was suspected of stealing trade secrets pertaining to Skyworks’ technique for manufacturing power amplifiers used in mobile phones and other wireless devices.
The indictment claims that Zhang downloaded hundreds of sensitive and proprietary files containing Skyworks’ trade secrets and brought them along with him when he left the company to establish his own business in China. Zhang’s acts, according to the government, were part of a bigger strategy to assist the Chinese government’s aspirations to create its own semiconductor sector and compete with American corporations. Zhang was convicted of stealing trade secrets in 2018 and sentenced to nearly four years in prison. The case is noteworthy because it underscores the United States’ growing attempts to pursue people and companies implicated in trade secret theft, especially those with links to foreign governments.
The case of United States v. Xu is comparable to the case of United States v. Aleynikov as they both include charges of EEA trade secret theft. These instances highlight the rising worry about overseas espionage and intellectual property theft.
Defend Trade Secrets Act of 2016 (DTSA)
The Defend Trade Secrets Act of 2016 (DTSA) is another federal law that provides companies with more effective tools to protect their trade secrets. President Obama signed the DTSA into law on May 11, 2016, and it went into effect immediately. It was approved by the Senate and House of Representatives on April 11 and 27, 2016, respectively. It extends to any act of trade secret misappropriation committed on or after the effective date. Prior to this, civil trade secret protections were controlled mostly by state law, with practically every state (except New York and Massachusetts) depending on a version of the Uniform Trade Secrets Act. The DTSA amended the EEA’s Section 1831 to create a civil remedy for trade secret misappropriation. New 1836(b) specifically authorizes a trade secret owner to file a civil action in federal court if the trade secret is connected to a product or service utilized or intended to be utilized in interstate or foreign commerce. As a result, claimants can now pursue trade secret misappropriation claims in federal court with greater ease. Civil claims were formerly exclusively allowed under state law. Hence, many actions were brought in state court. Some of the most important provisions of DTSA are:
Non-preemption of Other Federal and State Legislation
While the DTSA creates a new federal cause of action for trade secret owners, it does not supersede existing state trade secret law systems. In practice, this implies that a trade secret owner can file simultaneous state and federal claims in federal court for trade secret misappropriation. Because state trade secret statutes may provide a slightly different remedy than the DTSA, it is essential to explore filing simultaneous state and federal trade secret claims to ensure that the employer has access to all viable causes of action. When considering bringing dual claims under the DTSA and state trade secret legislation, one has to always take into account that the definition of “trade secret” differs between the state and federal legislation.
Definition of trade secret and misappropriation
The DTSA defines the terms “trade secret” and “misappropriation” uniformly under Section 1839 of the Act.
Under the DTSA, a trade secret is defined as “patterns, plans, compilations, program devices, formulae, designs, prototypes, methods, techniques, processes, procedures, programs, or codes.”
- The owner has taken reasonable precautions to keep the information hidden; and
- Because of their secrecy, they have independent economic worth.
The DTSA removes variations in trade secret definitions from state to state by universally yet loosely defining a trade secret. Furthermore, the term is purposefully broad in order to safeguard a wide range of confidential information
Furthermore, misappropriation is defined in the Defend Trade Secrets Act as
“Theft, misrepresentation, bribery, breach or incitement of violation of a duty to preserve secrecy, or espionage by electronic or other means; or the disclosure or utilization of a trade secret by a person who used improper methods to obtain it or knew the secret was improperly or inadvertently acquired.”
Misappropriation, on the other hand, does not cover reverse engineering, independent derivation, or any other legal form of acquisition.
The definitions of “misappropriation” and “improper means” in the DTSA are pretty similar to those used in Sections 1(1) and 1(2) of the UTSA, indicating an apparent intention to retain the present body of law as guidance in future actions.
Statute of Limitations under the DTSA
Claims under Section 1836(d) of the DTSA have a three-year statute of limitations. This time begins when “the misappropriation… is discovered or should have been detected by the exercise of reasonable diligence.” The DTSA typically applies to trade secret misappropriation that happened on or after the date of the Act’s implementation (May 11, 2016), or that began prior to the Act’s enactment and continued after the Act went into effect. As stated in Adams Arms v. Unified Weapon Sys. (2016), a trade secret owner may collect under the DTSA if the misappropriation happens both prior to and following the effective date if the whole misappropriation occurs within the three-year limitations period.
Courts have also always required the plaintiffs to prove a direct nexus between the stolen trade secrets and the damages claimed. In Texas Advanced Optoelectronic Solutions, Inc. v. Renesas Electronics America, Inc. (2016), for example, the Federal Circuit overturned the district court’s damages award determination because the plaintiff’s expert did not apportion damages by trade secret but rather attributed all profits to the misappropriation of all trade secrets. As a result, the Federal Circuit determined that the nexus between both the misappropriated trade secrets and the damages awarded was inadequate. Similarly, the Fourth Circuit upheld a lower court’s summary judgment against the plaintiff because there was insufficient evidence to sustain a conclusion of proximate causation. A similar problem might explain why the eventual settlement amount in the famous Waymo v. Uber (2018) case was significantly lower than the original damage requested by Waymo, with docket entries not released under seal, providing insufficient evidence that Uber may have used any of the information acquired from Waymo.
Ex parte seizure
The ex parte seizure remedy is one of the most powerful and unique instruments available to trade secret holders under Section 1836(b)(2)(a) of the DTSA. It authorizes a court to issue an order allowing law enforcement to seize misappropriated trade secrets without hearing from the opposing party. But since Congress was worried that this instrument would be overly powerful in interfering with the accused parties’ everyday operations, the statute requires courts to issue such an order only in ‘extraordinary circumstances,’ such as when the accused party refuses to comply with a standard injunctive order and no other remedies are available. After the issuing of a seizure order, the court must convene a seizure hearing at which the party that obtained the order bears the burden of proving the facts underlying the order.
A civil seizure may be authorized only under extraordinary circumstances, and the moving party must show all of the following:
- An order under Fed. R. Civ. P. 65 or other equitable remedies would be insufficient.
- If a seizure is not ordered, immediate and irreversible harm will ensue.
- Damage to the applicant from the refusal of a seizure order (1) outweighs the harm to the individual against whom the seizure is authorized and (2) outweighs the harm to any third parties caused by such a seizure.
- The petitioner is likely to succeed in demonstrating that the individual against whom the order is issued misappropriated or attempted to misappropriate a trade secret through deceit or improper means.
- The individual who will be served with the order has ownership of the trade secret and any items to be seized.
- The application explains the matter to be seized in reasonable detail and, to the degree reasonable under the circumstances, the matter’s location.
- If given notice, the individual against whom seizure is ordered would destroy, relocate, hide, or otherwise make such matter inaccessible to the court.
- The petitioner has not made the requested seizure in public knowledge.
The DTSA’s “immunity” provision, which exempts whistleblowers from penalties for any trade secret disclosure made to attorneys or government authorities “solely for the purpose of exposing or investigating a suspected violation of law.” According to the recent case of Unum Grp. v. Loftus (2016), if an accused party uses an affirmative defense, the court will examine whether there are any facts in the record suggesting that the accused party is actually using the information for such a purpose. If this is the case, the burden will shift to the trade secret owner to demonstrate that the accused party intends to use or disclose the claimed trade secrets for an unprotected purpose.
Businesses suing former workers for trade secret misuse under the DTSA have punitive damages and attorney’s fees available to them. Nevertheless, in order to take advantage of these remedies, an employer must inform its workers of the availability of whistleblower immunity in any contract or other employment agreement signed after the DTSA’s adoption under Section 1833(b)(3). As a result, employers should seriously consider amending their employment policies and agreements in the future to include either the mandatory notification or a cross-reference to a policy document that contains a statement concerning whistleblower immunity under the DTSA.
Article 39 of TRIPS
There is no international convention or treaty that particularly protects trade secrets. Nevertheless, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was one of the agreements agreed upon during the Uruguay Round of Multilateral Trade Negotiations (which finished with the signing of the Marrakesh Agreement and marked the establishment of the World Trade Organization (WTO). TRIPS specifies minimum levels of protection for patents, copyrights, trademarks, and trade secrets that each WTO signatory state must provide to fellow WTO members’ intellectual property. TRIPS compliance is required for WTO membership. TRIPS makes no specific mention of “trade secrets.” Yet, in order to “provide effective competition protection,” TRIPS does refer to “undisclosed information protection” and uses a definition that is comparable to the old trade secret definition stated above.
Article 39 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) requires signatory countries to provide adequate protection for trade secrets. The agreement sets out certain principles that countries must adhere to when protecting trade secrets, such as preventing the unauthorized disclosure of trade secrets, providing remedies for trade secret misappropriation, and protecting against the misuse of confidential information.
Article 39 defines “undisclosed information” as information that
- is secret in the sense that it is not commonly known among or readily available to those within the circles that ordinarily deal with the type of information in issue, either as a body or in the specific arrangement and assembly of its components.
- has commercial worth due to its secrecy; and
- has been subjected to reasonable efforts under the circumstances to keep the information secret by the person lawfully in charge of it.
It should be noted that, unlike the federal EEA, which offers a detailed list of the many sorts of information that may be regarded as a trade secret, Article 39 lacks such clarity, and hence the term “information” may be interpreted broadly or narrowly by WTO members. But nonetheless, TRIPS Article 39 is the first time that trade secret protection has emerged in a global treaty. The TRIPS Agreement mandates that member states should establish trade secret laws that are similar to US trade secret laws. This is notable given that trade secret law did not exist or was poorly developed in many countries prior to the TRIPS Agreement.
Trade Secrets v. Patents
Trade secrets and patents are two different forms of intellectual property protection. Patents protect inventions, such as processes and products, while trade secrets protect confidential information, such as customer lists and pricing information. The key difference between the two is that trade secrets may include, but are not limited to, the sorts of innovative discoveries that are patentable in the United States. For example, the creator of a new kind of production equipment—or a new way to use such equipment—might have the option of filing for a patent or keeping the innovation a trade secret. One advantage of patent protection is that, unlike trade secrets, a patent grants its owner a monopoly that rivals cannot legally overcome by reverse-engineering or finding the innovation independently. Patents, on the other hand, require public disclosure of the innovation and expire after a specific period of time, which is typically 20 years, whereas trade secrets can be protected indefinitely. Trade secrets may also include non-patentable financial or business information, such as supplier lists. The relatively broad scope of prospective trade secret (as opposed to patent) protection may have gained significance as there are limited sorts of innovations that might be patented, notably in the software and biotechnology industries.
Best practices for trade secrets protection
It is crucial for companies to take protective steps to protect their trade secrets or else they cannot enforce trade secret misappropriations in courts if they were themselves negligent in taking adequate safety measures. Some best practices for protecting trade secrets and regulatory data are laid down as follows:
- Developing a comprehensive trade secrets policy to protect confidential information.
- Limiting access to sensitive information to only those who need it.
- Establishing procedures for handling confidential information.
- Requiring employees to sign confidentiality agreements.
- Using encryption to protect sensitive data.
- Implementing physical security measures, such as access control systems.
- Training employees on the importance of trade secret protection.
- Regularly monitoring the use of trade secrets.
- Implementing data security measures, such as encryption.
- Conducting audits to identify potential trade secret violations.
- Proactively enforcing trade secret policies.
- Taking legal action against any individuals or companies that misuse trade secrets.
Companies leveraging Trade Secrets for competitive advantage
Many companies use trade secrets to maintain a competitive advantage in their industry. Companies that have great relationships with consumers are more likely to keep those customers and expand their business in the long run. Similarly, firms with unique technologies or other distinctive intellectual property may charge more for their products and services.
As a result, utilizing trade secrets may be a strong tool for businesses to gain an advantage over their competitors. Companies may gain a significant competitive advantage by concentrating on developing and safeguarding their trade secrets. Trade secrets are a company’s intangible assets that stem from the knowledge and experience of its personnel. It may provide a competitive advantage to an organization by assisting it in developing new goods and services, improving operations, and attracting and retaining consumers. There are several advantages to leveraging trade secrets. For example, it may assist a corporation in saving money. When a corporation has trade secrets, it may avoid making costly errors. Second, trade secrets can assist a business in increasing sales and market share. They may also create novel services and products that attract the customer’s attention and promote sales growth in order to keep their products ahead of the competition. Third, trade secrets may help an organization increase its profitability.
For example, tech giant Apple famously guards its trade secrets, such as product designs and manufacturing processes, to ensure that its products remain ahead of the competition. Pharmaceutical companies also rely on trade secrets to protect their formulas and processes from competitors.
Apple v. Samsung
Apple and Samsung’s legal battle over alleged trade secret theft began in 2011 and lasted nearly a decade. Apple filed the lawsuit, claiming that Samsung infringed on its patents and copied key design features from its iPhone and iPad devices.
The action was brought in many jurisdictions, including the United States, South Korea, and Germany, and the two companies made numerous claims and counterclaims. One of the primary concerns in the lawsuit was whether Samsung infringed on Apple’s trade secrets by copying the shape, design, and functionality of the iPhone and iPad.
In 2012, a jury in the United States determined that Samsung had actually infringed on Apple’s patents and awarded over $1 billion in damages.
However, the dispute was prolonged in several courts worldwide, with each party claiming wins and suffering losses along the way.
One of the main issues in the case was whether Samsung had copied Apple’s design elements in violation of trade secret laws. Apple alleged that Samsung had replicated the “look and feel” of its devices, including the iPhone and iPad’s rounded edges and grid of icons. On the other hand, Samsung claimed that these design elements were not unique to Apple and hence were not protected as trade secrets.
The courts in the various countries had different opinions on this issue. In some cases, Samsung was found to have violated Apple’s design patents and trade secrets, while in others, it was considered not guilty.
The Apple v. Samsung case emphasizes the need for trade secret protection for companies, especially in the technology industry, where innovation and design are vital to success. It also highlights the difficulties companies face when attempting to protect their trade secrets in a global economy where legal standards and enforcement methods might vary significantly.
Motorola v. Integrated Circuit Systems (ICS)
Motorola filed a lawsuit against ICS and several executives who left Motorola while working in its Timing Solutions operations to establish a new ICS operation in July 1999. According to Motorola’s complaint, ICS did this to get access to Motorola’s commercial and technical trade secrets, and the managers who departed had broken fiduciary obligations and stolen trade secrets. Despite the fact that ICS and the former Motorola executives denied the allegations, a settlement was reached on March 27, 2000, in which Motorola agreed to: dismiss the lawsuit in exchange for the defendants’ agreement to make an undisclosed monetary payment, refrain from using or disclosing Motorola confidential information, as well as for a limited time period, refrain from using certain design technologies, and restrict further hiring and solicitation of Motorola employees.
Amazon.com v. Walmart
Walmart filed a lawsuit against Amazon.com in a US court, alleging that Amazon was luring executives and employees of Walmart, as well as their consultants, in order to get access to Walmart’s trade secrets. In 1999, the dispute was resolved. Amazon agreed to shift some of its workers to positions where their knowledge of Walmart’s operations would be useless. Restrictions were also imposed on programs where former Walmart employees participated in Amazon’s operations.
PPG Indus. v. Jiangsu Tie Mao Glass Co. 2022
This is a significant Third Circuit case concerning trade secret damages based on the avoided cost of development. Plaintiff claimed it spent more than $8 million developing a specialty glass for airplane windows over a period of 35 years. The defendant allegedly stole the designs by hiring one of the plaintiff’s workers, who supplied all of the design materials. When the defendant failed to appear, the district court provided a default judgment for an injunction and monetary damages based on avoided costs of development.
The question on appeal was whether the plaintiff’s research & development (R&D) expenditures were a fair representation of the defendant’s avoided development expenses. First, the court dismissed the defendant’s allegation that it “obtained no commercial benefit” because no product that included the designs was ever launched. The Court found that unjust enrichment damages might be calculated based on a defendant’s saved expenditures rather than merely profits obtained. Second, it rejected the defendant’s contention that there was no “nexus” between development expenditures and the value of the misappropriated material and that there was no proof of use of the material. The Court reasoned that the defendant had completely bypassed R&D and tried to proceed with production, which is the “use” of the trade secrets under Third Circuit precedent. Third, it rejected the defendant’s contention that the damage calculation improperly compensated the plaintiff for its expenditures rather than calculating the defendant’s averted costs. The Court found that the plaintiff’s development expenses might be used to demonstrate the defendant’s saved expenditures. Finally, the Court dismissed the defendant’s claim that granting damages in addition to an injunction amounted to “double recovery.” The Court concluded that the damages for previous usage did not conflict with the injunction barring future use.
Importance of Trade Secret Protection
Nowadays, firms understand the significance and value of trade secrets. In today’s corporate environment, major and small businesses in a wide range of industrial sectors are more likely to consider trade secrets to be very important than all other kinds of IP protection. In practice, trade secrets have numerous distinct advantages over other forms of intellectual property protection. For example, they are broad in nature, including nearly any economically significant information subjected to sufficient measures to ensure confidentiality. They are also a “Do-It-Yourself” intellectual property right; companies may use internal mechanisms (such as contracts and security processes) to safeguard their information from the start rather than waiting for the government evaluation and approval necessary for patents and trademarks. Trade secret protections are also flexible; for example, enterprises do not need to file a new application to cover changes to a trade secret; instead, they incorporate them into their current protections.
From a social viewpoint, trade secrets can also be deemed ‘innovation-friendly.’ Also, trade secret regulations in the United States often allow for independent discovery, reverse engineering, and other fair acts that are deemed important to innovation.
Trade secrets are an important asset for companies in the modern business world. Trade secrets are used by businesses to secure an edge over their rivals and valuable intellectual property. As a result, businesses must take precautions to safeguard their trade secrets against theft or misuse. Trade secrets can be shared with workers and business partners as long as companies secure their trade secrets with contracts or other reasonable measures. Companies should implement comprehensive trade secret policies, use non-disclosure agreements, and take legal action against any individuals or companies that misuse trade secrets. In conclusion, trade secret protection is essential for companies to protect their intellectual property and maintain their competitive advantage.
What exactly is a trade secret?
Trade secrets are intellectual property (IP) rights on confidential information having commercial value. The same may be licensed or sold.
How are trade secrets safeguarded?
Trade secrets, unlike patents, are protected without registration; that is, trade secrets do not require any paperwork in order to be protected. A trade secret can be kept private indefinitely unless it is discovered or legally obtained by others and made available to the public.
What kind of information can be protected by trade secrets?
In general, trade secrets can be any sensitive business knowledge that gives a firm a competitive advantage and is undisclosed to others.
What are the requirements for protecting a trade secret?
To qualify as a trade secret, the information must be:
- economically valuable as it’s a secret,
- known only to a small set of people, and
- subject to reasonable efforts taken by the legal holder of the information to keep it secret, such as the usage of confidentiality agreements with business partners and workers.
Is it possible to buy and sell trade secrets?
Trade secrets are intellectual property rights that can be assigned or licensed to others. The owner of a trade secret has the authority to grant a third party access to and use of the trade secret information. However, because trade secret information is hidden, it is not always easy for outsiders to determine if the information in question fits the standards for trade secret protection.
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