Versata Software Inc. licensed its automotive configuration software to Ford Motor Co. The license agreement contained an affirmative acknowledgment that Versata owned the Intellectual Property related to the software, including trade secrets. The license agreement had fairly standard language that prohibited Ford from reverse engineering the software. Ten years later, after updates to the underlying technology for the software, Ford bid Versata adieu and decided not to renew the license. No surprise, Ford developed similar software on its own. No further surprise, Versata sued Ford for violating the anti-reverse engineering clause in the license. In ruling on cross-motions for summary judgment, the court held that the language of the reverse engineering clause was ambiguous when it comes to the current version of the software. So the parties are going to have to go to trial on the interpretation of the clause.

WHY YOU SHOULD KNOW THIS. The Versata anti-reverse engineering language may have been fine at the beginning of the license agreement. But over time, the underlying technology changed and the language did not. To avoid Versata’s dilemma, license agreements should permit updates to defining the scope of Intellectual Property in software license agreements to reflect updates in the technology.

Public information can’t be a trade secret because it’s, well, public. But a combination of public information arranged or organized in a unique, economically advantageous way, can be a trade secret. That’s what Diego DeAmezaga learned to his chagrin. Diego worked for AirFacts, Inc. a software company that licenses auditing software for air fare comparisons. Diego worked painstakingly and expertly to create flow charts that AirFacts used in its software development. When Diego left AirFacts, he attached the flow charts to his resume. AirFacts brought suit against Diego for trade secret misappropriation under the Maryland Uniform Trade Secrets Act (MUTSA). The Maryland District Court dismissed the complaint. The Fourth Circuit Court of Appeals reversed the dismissal. The Court held that the flow charts had independent economic value separate from the public information they contained. AirFacts had taken reasonable measures to keep the flow charts secret by requiring employees to sign confidentiality agreements and giving only a few employees access to certain accounts. So the public information in the flow charts were trade secrets.

WHY YOU SHOULD KNOW THIS. The beauty of trade secrets is that they can encompass a wide range of economically advantageous methods, formulas, business process etc. There’s even room from taking information that everyone knows or is readily accessible and finding new ways to use it. Mark Halligan, the trade secret law guru, calls this the “Combination Analysis”. When does the Combination Analysis qualify as a trade secret? The nuances are many and varied. Experienced trade secret counsel can help with the analysis.

A trade secret isn’t really a secret without proper measures of protection. Kevin Barker, a vice president of Yellowfin Yachts, left the company to start a competing company, Barker Boatworks. Yellowfin sued Kevin and his new company for trade dress infringement and for trade secret misappropriation. Yellowfin alleged that Kevin downloaded hundreds of files with customer specifications, and drawings. The Eleventh Circuit Court of Appeals affirmed summary judgment in Kevin and Barker’s favor. First, the court disposed of Yellowfin’s trade dress claims because it couldn’t prove any customer confusion between its designs and Barker’s designs. In addressing the trade secret misappropriation claim, the court affirmed the lower court’s ruling that the customer information wasn’t a trade secret because boat owners have to register with the State of Florida. Then the court focused on Yellowfin’s measures of secrecy and found them wanting. While the information was password protected and only certain employees had access, the Eleventh Circuit concluded that “Yellowfin effectively abandoned all oversight in the security” of the information at issue because Yellowfin: (1) encouraged Kevin to store the information on his personal devices and didn’t ask him to delete the information when he left the company; (2) didn’t ask Kevin to use security measures for the information on his personal devices; (3) allowed Kevin access to the information even though he refused to sign a confidentiality agreement; and (4) none of the information was marked ‘confidential’.

WHY YOU SHOULD KNOW THIS. Trade secrets have two primary attributes. First, they are not generally known or easily ascertainable. Second, they are subject of reasonable measures to keep the information from becoming publically available. It’s the second attribute that tanked Yellowfin’s trade secret misappropriation claims. Yellowfin has learned that reasonable measures of secrecy require procedures that are tailored to the function of the business and require vigilant enforcement. The best way to avoid Yellowfin’s mistakes is to have a written trade secret protection program tailored to your business, prohibit the storage of trade secrets on personal devices, and make sure that departing personnel are cutoff from access to the trade secrets.

A better way to build a data center can be protected as a trade secret. BladeRoom developed a technique that allowed it to build data centers. BladeRoom’s system used prefabricated subassemblies that continued systems for air management, fire detection, security and lighting. Under a non-disclosure agreement, BladeRoom disclosed the system to Emerson Electric Co. and Facebook who were about to build a huge data center in Sweden. Emerson and Facebook took a pass on retaining BladeRoom. According to BladeRoom, Emerson and Facebook went ahead and built the data facility using BladeRoom’s system. BladeRoom sued for trade secret misappropriation. Facebook settled but Emerson went to trial and lost. Determining the misappropriation was a substantial factor in causing financial harm to BladeRoom, the jury awarded BladeRoom $10 million in lost profits and $20 million due to Emerson’s “unjust enrichment.” Emerson vows to appeal the verdict.

WHY YOU SHOULD KNOW THIS. Massive data centers are becoming a huge industry (pun intended). Anyone who can find a way to build them faster has major market potential. BladeRoom did the right things in having Emerson and Facebook sign non-disclosure agreements. They must have also identified their trade secrets and taken reasonable measures to keep them secret. Although it took four years of expensive litigation, BladeRoom got a big payoff.

Trade secrets can be an asset in a divorce. Donald Bailey and his ex-wife, Geraldine Bailey, were in the midst of a very messy divorce. As part of the proceedings, Geraldine wanted to determine the value of their marital assets. So Geraldine’s law firm sought discovery against Donald’s two companies, Zegato Solutions Inc. and Aldmyr Systems, Inc. The two companies had trade secrets that were worth about $350 million, according to Donald. Donald then brought a suit against the attorneys claiming that they stole and copied the trade secrets. Dismissal of the suit was affirmed by the Fourth Circuit Court of Appeals. The Fourth Circuit agreed with the lower court that the law firm was entitled to explore Donald’s assets on behalf of Geraldine.

WHY YOU SHOULD KNOW THIS. When a couple decides to cut ties with each other, a host of issues are involved. One of the primary issues is who gets what from the assets that the couple acquired during the marriage. In this case, the court had to balance Donald’s companies’ right to protect their trade secrets and Geraldine’s right to know the value of Donald’s assets. Since access to the trade secrets had nothing to do with actually using them, Geraldine’s right to discovery won.

Trade secrets are a good way to protect a recipe. Sycamore Family Bakery Inc. sold its assets to Bimbo Bakeries USA. Included in the assets was Sycamore’s secret recipe for Grandma Sycamore’s Home-Maid Bread. When Leland Sycamore went to work for US Bakery, US Bakery started selling bread made from the same recipe. US Bakery also mimicked Bimbo’s packaging. Bimbo sued for trade secret misappropriation and false advertising. A jury awarded Bimbo $2 million.

WHY YOU SHOULD KNOW THIS. There are two primary lessons here. First, a properly protected trade secret has a lot of value. Trade secrets are pretty much the only way to protect a recipe. Second, when you sell your trade secret, you can’t use it anymore.

The Defend Trade Secrets Act of 2016 can go nuclear to stop misappropriation. The Defend Trade Secrets Act of 2016 (“DTSA”), which created a federal cause of action for misappropriation, has one amazing feature that’s new to trade secret litigation. It allows the court to order seizure of stolen trade secrets in “extraordinary circumstances” without advance notice. This has been called the “nuclear option”. Because it’s a draconian remedy, courts have been reluctant to enter seizure orders. The recent case of Mission Capital Advisors LLC v. Romaka, gives a clue for determining extraordinary circumstances. According to court documents, Romaka had downloaded Mission Capital’s entire 65,000 person client list while he was receiving employment offers from Mission Capital’s competitors. In granting an order for seizure, the court cited Romaka’s activities such as downloading the files while he was absent from work for several weeks; he said that he deleted the files, when he hadn’t; and he had downloaded other proprietary information and stored it on his computer. Although Romaka was cooperative originally, he didn’t respond to Mission Capital’s attempts to contact him. The court ordered U.S. Marshalls to go to his home, make a forensic copy of his computer and then permanently delete the files.

WHY YOU SHOULD KNOW THIS. The DTSA nuclear option cannot be invoked in every case. The "nuclear option" in the guise of a seizure order is still being explored by litigants and the courts. But, the Mission Capital test may help shape the appropriateness of the remedy.

An employee can’t unlearn information that belongs to a former employer. The “Inevitable Disclosure Doctrine” is a term of art in trade secret law. The Doctrine applies to bar a former employee with knowledge of the employer’s trade secrets and confidential information from accepting a similar role with the employer’s competitor. In Utilisave, LLC v. Miele, the Third Circuit Court of Appeals affirmed the entry of a preliminary injunction under the Doctrine. The preliminary injunction was based on the substantial overlap between the former employee’s old job and his new one which was basically the same role, in the same industry, for the same geographic territory. With this kind of overlap, the court felt the former employee was likely to use confidential information and trade secrets to the detriment of his former employer. The preliminary injunction was warranted even though there wasn’t actual misappropriation of any particular trade secret or confidential information.

WHY YOU SHOULD KNOW THIS. The problem with the Inevitable Disclosure Doctrine is that a person can’t simply unlearn and segregate knowledge when it comes to performing a job. If an employee is barred from taking similar positions with other employers, the employee has limited ways to earn a living going forward. For this reason, the Doctrine has come under a lot of scrutiny. Some courts apply the Doctrine on an extremely limited basis. According to Utilisave, the right time to apply the Doctrine is when the employee is going to use that knowledge in pretty much the same position the employee held with his former employer.

The unauthorized use of someone else’s subscription password can result in multi-million dollar liability. eVestment Alliance LLC offers a subscription to its trade secret protected database of investment products and performance data. An eVestment subscriber hired Compass iTech LLC to help analyze the eVestment’s data. Compass then used the subscriber’s password about 3,000 times to download information from eVestment’s database for its own benefit. eVestment discovered the activity and shut off access to the database. Compass sued for defamation and unfair trade practices. eVestment counterclaimed. eVestment was granted summary judgment on all of Compass’ claims. On eVestment’s counterclaim, a jury found that Compass deliberately misappropriated eVestment’s trade secrets and violated the Computer Fraud and Abuse Act. The jury awarded eVestment $2.5 million in compensatory damages and $1.2 million in punitive damages.

WHY YOU SHOULD KNOW THIS. Compass’ first mistake was to use someone else’s password as mechanism for unauthorized access to a competitor’s protected trade secrets. Compass’ second mistake was to race to the courthouse and file suit on a very shaky foundation. As Compass learned, a subscription to a database grants a limited right to use it under certain terms and conditions. Using someone else’s password doesn’t give you any rights. And if you use the password in order to unfairly compete with a competitor, the competitor may be able to get a multi-million dollar judgment against you. Of course, eVestment’s success resulted from carefully protecting its database with reasonable measures to restrict access to its trade secrets.

The good news is that the parties settled their trade secret litigation. The bad news is the release language in the settlement agreement. Security Camera Warehouse, Inc. sued Bowman, one of its former owners, for trade secret misappropriation. During the settlement negotiations, unbeknownst to Security Camera, Bowman still had access to Security Camera’s servers and downloaded Security Camera’s trade secrets. After the parties signed a settlement agreement, Bowman set up a new company and competed with Security Camera using the information he took during settlement negotiations. Security Camera brought a second suit against Bowman for trade secret misappropriation. The court held that Security Camera’s claims were barred by the release in the settlement agreement from the first case. The language specifically released Bowman from any claims that Security Camera may have in the future based on events that occurred before the execution of the settlement agreement.

WHY YOU SHOULD KNOW THIS. The troubling part of this decision is that Bowman apparently committed trade secret misappropriation while seeking to settle with Security Camera. So Bowman knew a material fact that he withheld from Security Camera. Perhaps the judge should have addressed this situation before coming to his decision. Be that as it may, there are several options to avoid this outcome. First, include representations and warranties in the settlement agreement where defendant affirmatively states that he is not in possession of any trade secrets belonging to the plaintiff. Second, include a requirement that the defendant destroy or return all copies of the trade secret (digital or otherwise) and provide an affidavit confirming compliance. Third, and most importantly, do not release unknown future claims.

President Obama signed the Defend Trade Secrets Act (“DTSA”) into law on May 11, 2016. It was a long time coming but we’re glad it’s here.

The DTSA amends the Economic Espionage Act of 1996 to create a federal private cause of action for trade secret misappropriation. Some of the significant provisions are: (1) you can bring an action in federal court; (2) state law causes of action are preserved; (3) immunity for whistle blowers who disclose trade secrets in reporting a suspected violation of the law; (4) limits on injunctive relief if it will interfere with person’s ability to enter into an employment relationship; and (5) the ability to obtain a seizure order without notice in extraordinary circumstances.

WHY YOU SHOULD KNOW THIS. Trade secrets have always been a bit of a stepchild in the IP arena. The 3 other major types of IP, patents, copyrights and federally protected trademarks, are governed by federal statutes. Trade secrets have now stepped into the realm of federally protected IP. The DTSA hasn’t changed the basics. Protection for trade secrets still requires proper identification and reasonable measures to prevent disclosure. However, the DTSA has some twists and turns that need to be properly navigated. For instance, employers have to give employees notice of the whistle blower immunity. And an employer can’t prohibit a former employee’s new employment just because the employee has knowledge that would inevitably result in the use of trade secrets (known as the “Inevitable Disclosure Doctrine”).