The Interplay Between Patents and Trade Secrets in Litigation

Stephen M. Lobbin, Foley & Lardner LLP

For technology companies, the business of developing and profiting from new ideas is their business. The business of the intellectual property attorney is to secure, license and protect the company's rights to its new ideas. For ideas , the name of the game is navigating the doctrinal universe of patent and trade secret law, as distinct from their intellectual property "cousins" copyrights and trademarks.

Patent and trade secret considerations often overlap where a technology company is developing the most effective strategy for protecting and exploiting an idea. Should the company file a patent application? If so, how quickly must it do so? Should the company pursue foreign patents? What is the potential economic value of a patent on this particular idea? Or, would it be more advantageous for the company to forego a patent and instead keep the idea a secret? If so, how would the company use and profit from the idea while still keeping it a secret? What procedures will have to be in place to ensure that the company can properly claim trade secret rights if the secret is misappropriated?

In patent and trade secret litigation, although there are situations in which a client may be able to assert both patent and trade secret rights in the same idea, typically the two areas present different strategic challenges that are important for the intellectual property counselor and litigator to understand.

I. Patent Law Distinctions

The government's patent "bargain" is intended to provide an adequate incentive for inventors to disclose any new, useful idea to public, rather than keep it a secret. Clearly, once a new idea is disclosed, used publicly, or published in a patent application, the inventor can no longer claim any trade secret rights. Where an inventor does not perceive seeking a patent to be a "bargain," however, the inventor may choose to try and maintain trade secret rights by keeping the idea confidential and thus a "secret."

While the patent system requires the inventor to be diligent in protecting her rights, a trade secret just requires secrecy. In California, for example, an inventor can secure trade secret rights by making sure any information about the secret idea "is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." 1 For a trade secret of the typical technology company, the required "reasonable efforts" normally include (but are not necessarily limited to) taking the following precautions: (1) disclosing trade secret information only to those who have a clear (preferably written) obligation to maintain confidentiality; (2) disclosing information only to those who "need to know" it; (3) restricting outsiders or visitors from opportunities for access to trade secret information; (4) posting cautionary signs and/or warnings on all information related to the trade secret; (5) encoding secret information; (6) keeping secret information under lock and key; and (7) using passwords to prevent unauthorized access to secret computer information. 2

II. Strategies for Effective Trade Secret Litigation

Although patent and trade secret litigation share the main goal of vindicating unpermitted use of a proprietary "idea," the litigated issues are different in two main respects. First, the trade secret plaintiff has nothing akin to a patent "claim" to work from which defines the proprietary idea being protected. This may be a bane or an opportunity, but it definitely requires litigation counsel to define "the trade secret" in words the court and potentially a jury can understand. Second, once the trade secret is defined, the issue of the defendant's "misappropriation" requires proof in addition to the analog of "infringement" in a patent case. Specifically, while the defendant's state of mind is irrelevant to the basic infringement question, trade secret misappropriation requires proof of the defendant's access to the trade secret and some degree of "improper" behavior.

Litigation counsel's approach to defining the trade secret should be rigorous and proactive. Often, a trade secret plaintiff will want to file suit immediately if the confidentiality of the trade secret is threatened or compromised already. Counsel's first task, however, should be to understand and put into words the scope of whatever "trade secret" she will be trying to protect. 3 This is also an important first step because most courts will insist that the plaintiff specify the trade secret at issue very early in the case. For example, California law requires a plaintiff to define its claimed trade secret "with reasonable particularity" prior to taking any discovery. 4 Thus, preferably before even filing suit, counsel should first gather all of the relevant documents and information and talk to the client at sufficient length to glean what the client considers its trade secret to be.

Counsel should resist the tendency, often spurred by a zealous client, to define the asserted trade secret too broadly or walk into court claiming that "everything we do is a trade secret." This blunderbuss approach presents many problems. First, it creates a credibility problem, which may taint the court's view of your case. For example, if the defendant shows that one or more of your broadly-defined trade secrets is not a valid claim, it usually creates a shadow over any narrower trade secrets that remain in the case. Second, beyond credibility, an indefensible trade secret claim might get your client slapped with an attorney fee award for bad faith. Finally, proving exclusivity to a trade secret defined too broadly is inherently more difficult, as the plaintiff "must identify the trade secrets and carry the burden of showing that they exist." 5

The ideal approach is for counsel to learn as much as possible about what secret information the defendant has stolen, and define the asserted trade secret no more broadly than is needed to ensnare that theft. Even with imperfect knowledge about what was misappropriated, counsel should be careful only to define as a trade secret what can be ultimately proven in court.

1 See Cal. Civ. Code õ 3426.1. Of course, the trade secret must also "derive[] independent economic value . . . from not being generally known to the public." See id. No company would bother protecting a trade secret that has no economic value.

2 See generally Milgrim on Trade Secrets õ 1.04 (2003). To date, the Uniform Trade Secret Act (UTSA) has been incorporated into the statutes of California and all but a few States.

3 In some cases, of course, the trade secret is already defined by its very nature, such as a proprietary customer list. See Pacific Aerospace & Elecs., Inc. v. Taylor, 295 F. Supp. 2d 1205, 1215 (E.D. Wa. 2003).

4 SeeCal. Civ. Proc. Code õ 2019(d).

5 MAI Sys. Corp. v. Peak Computer, Inc. , 991 F.2d 511, 522 (9 th Cir. 1993); see also Winston Research Corp. v. 3M Co. , 350 F.2d 134, 139 (9 th Cir. 1965) (plaintiff claim to "general approach" embodied in its machine too broad a trade secret claim).