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An Introduction to Trade Secret Law

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An Introduction to Trade Secret Law

Trade Secret Law is rather atypical among legal causes of action, including particularly intellectual property claims. In particular, depending on whether the claim is brought based on the law of a specific state—for example, Utah, Texas, or Wisconsin—or whether the claim is brought based on federal law, the elements one will need to prove may differ. In this introduction to Trade Secret Law, attorneys learn the basics of Trade Secret Law. The presentation is broken down into four sections—one for each possible element needed to be proven to prevail on a Trade Secret claim. In addition, a sample case addressing each element of the identified Trade Secret claim is thoroughly analyzed and discussed.

Presenters

Ken Kula
Senior Counsel
Buether Joe & Counselors, LLC.

Transcript

Ken Kula:   Welcome to an Introduction to Trade Secret Law by Quimbee. My name is Ken Kula. I dare say trade secret law may be the area of intellectual property most shrouded in mystery. This presentation will pull back that shroud and reveal some of the mystery.

  To do so, the presentation includes a number of course materials, including today's slides complete with detailed presenter notes and four cases that address trade secret law in general and focus on specific aspects of the law in particular. You may follow along with those slides or simply sit back and enjoy our presentation on trade secret law.

  In the end, it will provide you with a unique overview of trade secret law, including an analysis of certain aspects of trade secret law and an understanding of those areas that are too often glossed over in other CLE programs. The cases and their specific topics that will be discussed are the following: one, Arconic Inc. versus Novelis Inc. That is found at 2020 Westlaw 7247112. It's out of the Western district of Pennsylvania, a 2020 case and it addresses properly identifying trade secrets.

  The second case that we will discuss is John Bean Technologies Corporation v. B GSE Group. And that can be found at 480 Fed Supp 3rd 1274. It's a District of Utah federal case and it addresses the need to maintain secrecy with trade secrets.

  The third case we will be discussing is DF Institute versus Dalton Education. It is a Western District of Wisconsin case decided in August of 2020 and it can be found at 2020 Westlaw 4597122.

  And finally, we will discuss the case of Waymo versus Uber Technologies. It is found at 2017 Westlaw 6887043. It comes out of the Northern District of California and it was decided in November of 2017. It shows the old adage is certainly true in the area trade secret damages and that is pigs get fed, hogs get slaughtered.

  Other cases or articles may be mentioned in passing for the general principles associated with trade secret law, but they will not be analyzed in-depth. With that basic overview of what we are going to cover, let's get started with an Introduction to Trade Secret Law, an area of mystery.

  The first topic that we're going to be talking about is the elements of a trade secret claim. This will be the majority of the presentation. We will talk about each element and discuss a case that addresses each element. First, some background information. If your client has trade secrets, they are its most important asset. Just think of Coke and its secret formula, Kentucky Fried Chicken or KFC as we call it today and it's seven and secret herbs and spices, or think about McDonald's and its Big Mac with its special sauce.

  All those are quintessential trade secrets. But food recipes or ingredients are not the only examples of valuable trade secrets. For example, Google search algorithm may be the most valuable trade secret owned by any company in the world. I get that information from an article or a blog written entitled Trade Secrets: 10 of the Most Famous Examples, and it can be found at info.vethanlaw.com/block.

  Consequently, each company vociferously and tenaciously protects and defends its trade secrets and will go to just about any length, usually legal and often moral, to ensure the trade secrets are not misappropriated or revealed. Trade-secret claims, unlike other intellectual property claims related to patents or copyright can be brought in either state or federal court. They are more akin to trademark claims in which there can be either a federal or state cause of action.

  The elements for a trade-secret claim, whether based on state or federal law can vary from a mere two elements to as many as four elements. For example, under the Texas Uniform Trade Secrets Act or TUTSA, the elements for a trade secret misappropriation claim are the following: A, existence of a trade secret; B, wrongful appropriation of the trade secret; C, wrongful use of the trade secret and D, harm to the owner of the trade secret. You can take a look at the case of Select Interior Concepts Inc versus Pental at 2021 Westlaw 961690 out of the Northern district of Texas decided March 14th, 2021, if you want to see the element of the trade secret law in Texas.

  To ensure completeness, we will address claims that identify four elements to prove trade secret misappropriation, much like TUTSA requires. Let's turn our attention to element number one. What is a trade secret? Well, almost anything can be a trade secret. Trade secrets can be defined in various ways, but all the definitions are similar and expansive.

  For example, the TUTSA member, Texas Uniform Trade Secret Act defines a trade secret as, "All forms and types of information, including business scientific, technical, economic or engineering information and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data or list of actual or put potential customers or suppliers, whether tangible or intangible and whether or how stored compiled or memorialized physically, electronically, graphically, photographically or in writing."

  Here's the caveat. "If, A, the owner of the trade secret has taken reasonable measures under the circumstances to keep the information secret. B the information derives independent economic value, actual or potential from not being generally known to and not being readily ascertainable through proper means by another person who can obtain economic value from the disclosure or use of the information."

  That is the complete long definition of a trade secret. It is comes from the Texas Civil Practice and Remedies Code, Section 134A.002, paragraph six. As you can see, almost anything can qualify as a trade secret. But the difficult part is being able to sufficiently describe it for the court when one brings a misappropriation of trade secret claim. With that in mind, let's take an in-depth look at our first case, Arconic v. Novelis at 2020 Westlaw 7247112 out the Western District of Pennsylvania decided December 9th, 2020.

  So if you have that information, please bring up that case so we can take a look at it in-depth. So let's talk about the Arconic v. Novelis Inc. case.

  It's a very interesting case. As I said, it was decided in 2020 and it is about Arconic and defendant's, Novelis, are competitors in the aluminum industry. Arconic's A951 pre-treatment process was selected for exclusive use in the Ford F-150, a very popular pickup truck. Ford however, was unwilling to be dependent upon a sole supplier. So Ford forced Arconic to license its technology to Novelis. There is the rub. Arconic who turns out to be the plaintiff, Novelis, who turns out to be the defendant.

  Arconic's disclosures to Novelis took place in the context of three patents related to the A951 process, which by reason of the public nature of the patents involved disclosures in the public domain because patents once they're published are in the public domain. Arconic initiated the lawsuit a number of years before the opinion alleging that Novelis disclosed Arconic's trade secrets and confidential information in a Novelis patent application. Because the alleged patent disclosures involved already public information and Novelis' own improvements, the court concluded and explained clearly that before allowing Arconic to undertake extensive discovery into a competitor's technology, it was incumbent upon our Arconic to first articulate with specificity what it contends are its own trade secrets and confidential information, as opposed to general industry practices or Novelis' authorized improvements to the process.

  Well, that proved rather difficult for Arconic because Arconic identified its trade secrets one time, it was rejected. They tried to identify it a second time, it was rejected. They attempted to identify their trade secrets a third time, it was rejected. Then after they identified their trade secrets a fourth time or tried to, the court ordered Arconic to show cause, never a good thing why summary judgment should not be entered into or on its trade secret and confidential information claims "for failure to identify its alleged trade secrets and confidential information with reasonable particularity as required by numerous orders of the court".

  That's the posture of the case where we pick it up. Arconic has tried repeatedly to identify its trade secrets and has not failed once, twice, twice but actually four times. And so Arconic conceded that much of the Novelis patent application involved information already in the public domain. It would've had to concede that because it provided information from its own patents.

  Now, the special master recognized that unique combinations of public information can 10 in theory support a trade secret claim, but it found that the trade secret identification did not explain how publicly available claim elements were uniquely combined so as to comprise a trade secret. It ordered to file under sea what Arconic claimed were its trade secrets with particularity, specifically identifying which elements are in the public domain and which are its trade secrets, including any combination of elements claimed as a trade secret and setting forth what it is about such combination that meets the legal standard stated in TUTSA or any other law regarding what constitutes a trade secret.

  The special master ordered them to do this in a chart in separate rows with trade secret one, two, three et cetera identified and identifying each claim confidential information, one, two, three, et cetera. And then the columns should have identified each of the asserted trade secrets and the confidential information, the portion that is not in the public domain and is claimed to be a secret confidential information. And the third column, the portion that is in the public domain and then the fourth column was supposed to list the combinations of public and private information and an explanation of the secret confidential combination.

  Well, Arconic didn't object to this order and so it tried to satisfy the court's ruling. Now, it must be pointed out that the "reasonable particularity standard was adopted" which required Arconic to identify each claim trade secret or confidential information "with sufficient particularity so that the reader understands how each such claim differs from public domain information, including public patent filings". As we've talked about and as you know, a trade secret has to be secret.

  People can't know about it. Therefore, if you're claiming someone stole your trade secret, you should be able to identify what your trade secret is. Well, the court dismissed almost all the counts and ordered them to identify the trade secrets or show cause why summary judgment shouldn't be entered against them.

  Arconic tried again to identify what their trade secret claim was. They got a specific guidance from the court, but as we'll see, it was to no avail because the court said basically summary judgment is the time to put up or shut up. This was the time for Arconic to finally put up or shut up with regards to what it's trade secrets actually were. Arconic did try again and the court pointed out that at least under what they were using, which was the federal and state claim for trade secrets, they said that they were both the same, the elements of misappropriation under the federal defense trade secrets act was three elements.

  One, the information was a trade secret. And that's what we're trying to determine. Two, is misappropriated and three, it was used in the defendant's business. But we're just trying to satisfy the first element as the court said, a threshold element in each of these claims is the need to identify each trade secret asserted with particularity. They said that the simple reason is that a defendant must know what constitutes a plaintiff's trade secret so that it does not infringe upon that trade secret. It seems pretty clear. They indicated that specificity is required at the moment of divulging so that party to whom the secret is revealed, understands the contours of the secret information and does not inadvertently or purposefully transgress its boundaries.

  This case is rather unique because as we discussed in the beginning, one party voluntarily gave the information to the other party, but indicated that it was confidential and needed to be kept secret. Then they're alleging that they use that information to create their own patent using the trade secret information. The court pointed out that it's not sufficient for a party to simply argue that a person skilled in the art would've known what the trade secrets were, rather a party must identify how its claim secrets are different from what was generally known in the art and the defendant's own knowledge.

  You can't just say this, "The information we provided, anyone would know it was a trade secret and so you shouldn't have used it." Now here, the problem is the court and special master pointed out on numerous occasions was that Arconic did not make an identification with reasonable particularity.

  They stated clearly the burden was on Arconic to come with evidence of one essential element of its claim. One and only one, the identification of its trade secret. And it didn't do that. The show cause order identified the problem clearly as Arconic's "failure to identify" it's trade secrets with reasonable particularity.

  The opinions explain that "this case has been plagued virtually from the beginning by Arconic's unwillingness or inability to describe precisely what secret or confidential information Novelis allegedly disclosed." and that is a threshold issue. You have to be able to identify your trade secret. Now, Arconic argued that the problem was primarily a formatting misunderstanding and the court rejected this excuse and put Arconic on notice that it's "failure to identify its trade secrets and confidential information is a substantive flaw that may be fatal to the merits of its claims." It was not just a formatting issue.

  The opinion went on to explain that both part were entitled to submit a brief and all supporting evidence to show cause why summary judgment should not be granted in favor of the defendants and based upon Arconic's failure to identify its trade secrets. It went on and the court indicated that if Arconic cannot even identify its trade secret secrets, Arconic certainly cannot establish where it disclosed those trade secrets to Novelis with reasonable particularity to make its trade secret claim cognizable.

  So Arconic tried and tried and tried to identify what it considered to be its trade secrets that Novelis used and put into its patent that they were claiming was a misappropriation of their trade secrets. But in the end, it was to no avail. The court concluded, "in accordance with the recommendation of the special master, they adopted that ruling and the opinion in the order of the court as supplemented and modified by the opinion, they concluded that they would grant summary judgment in favor of Novelis with respect to Arconic's trade secret claims because Arconic could not identify with reasonable particularity what their trade secret claims even were."

  That is the very first element of a trade secret claim. If you can't satisfy that element, then you can't even get on to the second element, which is what we will discuss now. The second element is almost anything can be a trade secret if it's kept secret. Similar to the TUTSA member, Texas Uniform Trade Secret Act that requires "the owner of the trade secret to take reasonable measures under the circumstances to keep the information secret," which can be found at again, the Texas Practice and Remedies Code Section 134.002, paragraph six, sub A, the Utah Trade Secret Act, not TUTSA, but UTSA requires the alleged trade secret to be "the subject of efforts that are reasonable under the circumstances to maintain its secrecy." That comes from the John B. Technology Corporation case that identified earlier at 480 F. Supp 3rd and it is quoting the Utah Code Section 13-24-2 sub four.

  So to determine what constitutes "reasonable efforts" under UTSA or "reasonable measures" under TUTSA or a similar standard under the Federal Defend Trade Secret Acts which evidently they couldn't figure out something to rhyme with TUTSA or UTSA, that can be found at 18 United States code 1836. We turned to the facts and analysis of the John B. Technology Corporation case.

  So the point is, what do you have to do to satisfy the element of keeping a trade secret actually secret? Do you have to put it under lock and key forever and never let anyone know? That is what the John Bean Technology Corporation case talked about.

  So if you have that, please turn to it and we will talk about it. As I indicated, it comes out of the federal court from the District of Utah. It is also a 2020 case. We will pick up with the facts of this case, which is a very standard fact pattern for a trade secret case.

  And so here in this case, we're talking about plaintiff was John B. Technologies or JBT and they were a player in the aviation industry for ground support equipment. Relevant to this particular case, they were making precondition air or PC air units that cool aircraft and ground power units or GPUs that power the equipment. To help it through the bidding process and to win these government contracts, JBT hired defendant Bryan Bullerdick and Bullerdick left JBT after about three years to become the head of majority shareholder of his own defendant, B GSE group. And B GSE initially acted as JBT's designated distributor of ground support equipment for the F-35 hangers.

  But after the party's one year distributorship agreement ended, they kind of continued to do work informally, but they didn't renew the contract. Well, unbeknownst to JBT. While B GSE's and JBT's informal relationship was ongoing, Bullerdick began representing to industry contacts, primarily contractors and subcontractors that B GSE was the designer of several of JBT's products. And that JBT was merely the manufacturer of B GSE's designs. During the same period, Bullerdick transmitted some of JBT's proprietary information, that's a no-no, to one of its competitors, Twist Inc. to help Twist develop a competing PC air unit.

  So B GSE later began competing directly with JBT to win the F-35 projects by supplying products manufactured by Twist and others. Lo and behold, after learning of Bullerdick's conduct, JBT brought an action for misappropriation of trade secrets. And of course the defendant indicated, "Whoa, these aren't trade secrets. They didn't ever do anything to keep them secret. They gave us this information. They let us have this information freely. We just used it. We were entitled to use it."

  "Well, not so fast," the court said. They said, "Let's take a look at the requirements for a trade secret and whether it is onerous and almost Herculean efforts," as they talked about.

  So what Bullerdick did was he sent Twist, that was that third party, an email in which the body of the email stated "confidential" and Bullerdick attached an electronic copy of JBT's HPCF manual. Just basically a manual. Bullerdick represented to several content tractors that JBT manufactured it and it was their own design, which was not true. And then B GSE actually created a brochure that contained excerpts of several original JBT documents with JBT identifying information removed and sneaky, sneaky replaced with B GSE identifiers.

  Basically, this defendant is taking the other side's confidential information and either passing it on in whole cloth or altering it so it looks like his own information. Well, the court went over the elements of the trade secret claim and discussed the federal defensive trade secret claim, indicated the elements were simply to show two central elements: one, the existence of a protectable trade secret and demonstration of misappropriation.

  They went over the UTSA definition of trade secret, which also talks about efforts that are reasonable under the circumstances to maintain its secrecy. And so then the court focused on the reasonable efforts to maintain secrecy. The court pointed off right off the bat, "Defendants failed to present evidence sufficient to create a genuine dispute concerning whether JBT's efforts to maintain the secrecy of the HPCF manual were reasonable." They said, "The efforts need only be reasonable, not Herculean, not unbelievable, not extraordinary, just needs to be reasonable." And it does not mean that "all conceivable efforts" or "heroic measures" are required. It just has to be reasonable.

  The court pointed to what were the reasonable measures that JBT took? Well, it took several measures to maintain the secrecy. JBT required confidentiality agreements with its distributors and agents. That's reasonable. They trained its project managers to limit to whom the manuals are sent. That seems also reasonable to maintain secrecy. They employ proprietary wording and clausing on their documents. JBT also required its employees to sign confidentiality agreements and abide by a code of ethics.

  Aside from these measures, JBT sales of the HPCF 3000 were subject to JBT's conditions of sale. That included a confidentiality provision on every bill of sales. There's also a confidentiality disclaimer and a notice of proprietary notice. It indicated that the information was not to be used for any purpose beyond the limited license granted. And so the court said that despite these considerable efforts, defendants said that they were insufficient for a host of other reasons, but the court said, "No, it just needs to be reasonable measures." These were much more than reasonable.

  The court found that the reasonable measures were adhered to and therefore that these were actual trade secrets and they were under reasonable measures to keep them secret. Now, the third element is wrongful appropriation. First element was it has to be a trade secret and pretty much any information can be a trade secret.

  Second element is you have to maintain it in relative reasonable secrecy. And then the second element is wrongful appropriation. We just talked about the trade secret being almost any information as long as it's kept under secret. But the second element is wrongful appropriation. Regardless of whether we're talking about the state or federal law that sets forth the elements of a trade secret claim, the second element is always wrongful appropriation of the trade secret.

  Now, returning to TUTSA, Texas Uniform Trade Secret Act, Section 134A.002, paragraph three, it defines the term misappropriation as, and here we have another long definition, "Misappropriation is the acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means or disclosure or use of a trade secret of another without express or an implied consent by a person who one, used improper means to acquire knowledge of the trade secret; two, at the time of disclosure or use, knew or had reason to know that the person's knowledge of the trade secret was: A, derived from or through a person who used improper to acquire the trade secret; B, acquired under circumstances giving rise to a duty to maintain the secrecy of or limit the use of the trade secret or three, derived from or through a person who owned a duty to the person seeking relief to maintain the secrecy of or limit the use of the trade secret."

  And then finally, "Before a material change in the position of the person knew or had reason to know that the trade secret was a trade secret and that knowledge of the trade secret had been acquired by accident or mistake." That is a long definition of trade secret misappropriation or what constitute misappropriation. And it comes from the Texas Civil Practice and Remedies Code, section 134A.002 paragraph three.

  To show the importance of being able to show actual misappropriation, we turn to the case of DF Institute v. Dalton Education. This is the Western District of Wisconsin case and it can be found at 2020 Westlaw 459712. And it too is a 2020 case. If you have that material, please bring it up. Some of you may recognize the DF Institute, the Dalton case, although they go under a slightly different name.

  If you turn to the case, plaintiff DF Institute known as Kaplan Professional and defendant Dalton Education, they both sell products and services related to test prep and in this instance for certifications in the financial industry. The plaintiff, Kaplan, alleged that Dalton persuaded multiple Kaplan employees to come to work for Dalton stealing valuable trade secrets in the process.

  Now, the defendant Dalton moved for summary judgements on the misappropriation of trade secret claims indicating that it could not prove that the information was truly appropriate. Now, the court granted the defendant's motion for summary judgment in large part because Kaplan hasn't adduced evidence that Dalton ever acquired some of the information at issue. And other information doesn't qualify as a trade secret.

  Now, the latter part, the not qualifying as a trade secret, that was element one. That's what we already discussed. It could be pretty much any information as long as you keep it secret. We're going to focus on the first part, which was the misappropriation. It has to be misappropriated to be satisfying the second element.

  The court pointed out for purposes of summary judgment, Dalton doesn't deny that it acquired through improper means trade secrets in Kaplan's 2018 sales veteran's support and two spreadsheets containing information related to Kaplan's business. So that part wasn't going to be discussed. But there was other issues that had to be determined whether there was actual any misappropriation. Kaplan was alleging that all four employees shared Kaplan's trade secrets and other confidential information with Dalton.

  But Dalton actually hired [inaudible 00:37:37] Freebird to interviews and perform a forensic analysis to determine who at Dalton may have received Kaplan's materials and what devices those materials may have been stored on. Dalton then terminated certain individuals that they found had discussed or disclosed certain documents.

  But the court went on to indicate that there was not enough evidence, that some of the information was actually misappropriated. The defendant contended that all Kaplan's trade secret claims failed because Kaplan hasn't showed that Dalton used any of the trade secrets, but the court pointed out, "They don't have to use them. You could use them or acquire them." They pointed out that use or acquisition violates the law. So all we're looking for at this point is acquisition.

  Kaplan cited evidence that [inaudible 00:38:46] downloaded these documents, but it doesn't cite evidence that she ever gave them to Dalton or that Dalton otherwise obtained these documents. And that's the key. Obviously, this individual took the information, but if they didn't have evidence that they actually provided it to the other side, there can be no misappropriation. The court pointed out that forensic examination of Dalton's information system uncovered no evidence of the documents.

  We're looking at the plaintiff's bad, bad actor employees. Yes. They had information of Kaplan's that could constitute trade secret. Yes, those bad actors or employees then went to a competitor, but there was no evidence that the bad actor or employee either took the information or sent the information to the new employer. The court found that they would have to dismiss the trade secret claims as to those specific documents because there was no evidence that there was actual misappropriation and that's element two of the four elements, misappropriation.

  Now let's go on to element number three. Element number three is the actual wrongful use of the trade secret. Now, remember this is based upon the TUTSA four elements. Some only require two elements, but for sake of completeness, we're breaking up element two and three into two separate elements, misappropriation and use. If you are going under the federal defensive trade secrets act or some other state actions, you might not have to prove this element, but in Texas, you would.

  Element number three, wrongful use of the trade secret. The age old arborous mystery is if a tree falls in the forest and there is no there to hear it, does it still make a sound? Well, we are not arborous so I will not provide a thorough analysis or rationale on that question. But as an IP trial attorney, I need to resolve the not so old adage, if a trade secret is stolen and then never used, does the owner of the trade secret, still have a viable misappropriation of trade secret claim?

  The answer to that is yes. Truth be known, it is based on a similar rationale to the following tree example, but I'll let you ponder that. Let's return to the DF Institute case that we were just touching upon briefly and revisit some of the facts and findings contained within the district court's opinion from the Western District of Wisconsin.

  In particular, in that case, "Dalton contends that all of Kaplan's trade secret claims fail because Kaplan hasn't shown that Dalton used any of the alleged trade secrets. But the trade secrets law is written in the disjunctive, either use or acquisition can violate the law." That's from VF Institute 2020 Westlaw 4597122 at star two.

  Let's explore are the importance of use in a misappropriation of trade secret claim. Use is important but it is not absolutely necessary depending on your jurisdiction. As I indicated, it's in the disjunctive. So it can be either you use or acquisition, but there has to be the misappropriation or the wrongful acquisition to violate the law.

  Depending on where you are, if it's Texas, you better be able to show use. If you're in Utah, not so much. Now, element number four, this is the last element that we're going to discuss.

  It is harm suffered by the trade secret owner. One of the more mysterious aspects of trade secret law revolves around the approach. The law takes with respect to the ultimate harm or damages to the trade secret owner. For example, the court in DF Institute addressed the plaintiff's trade secret claim under both federal and Wisconsin State law. In doing so, the court stated, "There are basic elements of a claim. One, the defendant acquired, used or disclosed the information through improper means. Two, the information at issue qualifies as a trade secret." And it cited 18 states code section 1639, subparagraph five, as well as Wisconsin Statute, section 134.90 subparagraph two.

  Also, if you look back at the John Bean Technology corporation case that we talked about at 480 F. Supp 3rd, 1296, at 1296, you'll see that in Utah, they also set forth two elements under the Utah law. In fact, the court in DF Institute, again, this is the Kaplan test prep case, stated unequivocally that "Damages aren't an element of a trade secret claim." And that can be found at 2020 Westlaw 4597122 at star one.

  Contrarily, and as stated previously, the TUTSA, Texas Uniform Trade Secret Act different than the UTSA, Utah Trade Secret Act identifies four elements to a trade secret claim. Namely, one a trade secret existed. Two, the trade secret was acquired through a breach of a confidentiality relationship or discovered by improper means. Three, the trade secret was used without authorization and four, ta-da, the trade secret owner suffered damages as a result. That comes that select interior concepts case that we talked about, which is actually a 2021 case, 2021 Westlaw 961690 at star three. It is quoting the Snow White Textile and Furnishings, the Envision Hospital case, which is a 2020 Westlaw case 7332677, Texas Court of Appeals and that was a December 2020 case.

  Noticeably included is the fourth element that requires a viable trade secret claimant to establish "the trade secret owner suffered harm or damages." That is under Texas law. Assuming that either damages are an element of a trade secret claim or a plaintiff who brings a trade secret claim will want to obtain damages for the harm it suffered, regardless of whether "damages" are technically an element of the claim, two cases will be examined. The first case is Waymo LLC versus Uber Technologies. And the second one is our friendly case that we just visited, the DF Institute v. Dalton Education case. And we only touch upon that very quickly.

  Each will be discussed. The first is an example of what not to do. The second will be an example of what may be done. Let's look at the Waymo case, which is a very good example of the old adage, pigs get fed, hogs get slaughtered, which means that you really, really don't want to get a damages expert who goes out on a limb to try and get you the most money possible regardless of the evidence.

  We're talking about the Waymo case. It comes from the Northern District of Texas, and you know that you're in trouble right off the bat when the court is starting to describe your expert in the following way. Well, everyone knows who Uber is. Well, Waymo was a competitor that believed that they stole some of their trade secrets.

  Right off the bat, the court describes the expert Wagner and states, "Wagner is not an economist, but merely an inactive certified public accountant and inactive California licensed attorney." And the court specifically italicizes and emphasizes inactive in those instances. The court goes on and states, "He claims to have specialized in the computation of commercial damages over the last 40 years of his professional career."

  Well, once again, whenever the court is stating that someone claims to specialize, that's not a good indication either. If you move on to the case and it's talking about the court also points out that Wagner offered opinions labeled as both unjust enrichment and reasonable royalty. Other than grade school arithmetic however, he did not apply any coherent principle, methodology, theory or technique much less one possessing any discernible indicia of reliability. He made the same arguments that the lawyer can make.

  Again, not a good sign when the court is talking about your expert that way. The court went on to indicate that he also described a host of "other ways in which defendant had been unjustly enriched, that he was unable to quantify." Well, in this case, he was able to quantify over a billion dollars in alleged damages based upon slides that his own company had produced and provided.

  The court pointed out that he had no independent opinion and that he cherry picked from Uber's interrogatory. That Wagner claimed that there were estimates that he represented the amount of time that would be saved based upon the trade secrets, accelerated Uber's entire autonomous vehicle development program and even though that the interrogatories specifically said that that wasn't the case and then the court went on and said that Wagner then simply multiplied the dollar amount from the slides with the units of save time taken from other evidence of the case to arrive at its unjust enrichment conclusion which the court labeled at one point to be astronomical and avaricious.

  The court indicated that he transmogrified a slide into proof of trade secret damages. And I had to look up transmogrified which means to transform like magic. The court went on to indicate that Wagner also indicated in his report that his assumptions were conservative and the court pointed out that the litigation tactic of the assumption, however, is clearly apparent. Wagner's emphasis on his supposed conservatism, both in the aforementioned paragraph and throughout his report was an effort to appear reasonable despite the astronomical valuations assigned to each of Waymo's asserted trade secrets.

  Put differently, it was a transparent attempt to skew the damages horizon and desensitize the jury to the enormity of what Waymo was seeking in damages. The court pointed out that these errors and omissions and problems permeated throughout the whole report and the court even pointed out at one time that the estimated incremental future profits actually attributable to the trade secret misappropriation would've been far less than the full amount stated in the slides that he copied and relied upon. The court also pointed out that he labeled his reasonable royalty, a 10% royalty when it was truly 10 X 10%.

  And then the court pointed out also that Wagner simply adopted the opinions of others and performed "grade school arithmetic that any council can do on its own." And so the court was not happy with Mr. Wagner and indicated that Wagner repeated in conclusory fashion that he conservatively assumed what would be saved and that this was all trickery and gimmickry that the court was pointing out. The court ultimately found it is junk science that should be excluded under federal 702 and indicated that it was absurd for Wagner to simply attribute the full sticker price to the value of a single asserted trade secret and pointed out that his "analysis as the asserted trade secret number failed to account for any common sensical factors that were vital to a reliable computation for damages."

  And so the court indicated that his opinion was nothing that was even worth the time or energy to read. Now, we transposed that to the case that we were talking about with Kaplan and there, the court found that there was reasonableness put forward with regards to the damages. But there was also an indication in there that it isn't always just damages that are being sought in a trade secret case.

  In fact, in a true trade secret case, what is often the most important aspect or relief of the claim is that the plaintiff is wanting to get an injunction so that the party doesn't continue to use or hopefully early enough in the process, where they don't ever use the trade secret. And so they want to put a cap on it. Very often, the remedy that a trade secret plaintiff will seek it is to try and get injunctive relief so that the other party who misappropriated the trade secret doesn't ever use it or if they do use it, then they get them to stop using it and try and somehow curtail the damage.

  In the Kaplan case, I'll refer to it as the Kaplan case, although it's the DF Institute case, Kaplan contended that Dalton might try to use the information in the spreadsheets to steal clients in the future. The court pointed out that "the mere threat of use is better addressed through an injunction" than through damages. If you can't prove damages, which you can't prove if they haven't actually used it and if there's a threat to use it, then you can and seek the relief of injunctive relief.

  The point of these two cases is the first, the Waymo case is don't be greedy when it comes to trying to determine damages. The second case, the DF Institute or Kaplan case is that damages are very difficult to prove in legitimate trade secret cases and very often, it isn't necessarily damages that you're after.

  In a true trade secret case, it's often injunctive relief that you're wanting to seek. Assume for example that someone at Coca-Cola found out that an employee stole the formula for Coke. Well, if they found out and this party was getting ready to come out with a new Coke product or a new Cola product, most likely Coke would try and get emergency injunctive relief, get a temporary restraining order and then get a permanent injunctive relief to prevent that party from ever using the secret formula.

  Again, those two cases stand for the proposition of one, not to be greedy. And second, injunctive relief in true trade secret cases is probably more often the desired result than damages. We've talked about those two cases with regard to harm either damage, monetary harm or harm in the sense that a trade secret has been stolen and you don't want the party to use it.

  So this concludes our hour-long Introduction to Trade Secret Law from Quimbee. I hope it has provided you with the back round you'll need to perform your role as an IP trial attorney, in protecting your client's most valuable assets, namely information that "derives independent economic value actual or potential from not being generally known to and not being readily ascertain by proper means by other persons who can obtain economic value from its disclosure or use."

  Equally important, I hope it provided you with examples of how not to be greedy and try to transmogrify innocuous financial data and blur the various optics of an overreaching damages theory that puts forth an astronomical damages value using gimmickry, subterfuge, conclusory statements and grade school arithmetic. If the presentation has provided you with those things, then I believe it's been a success. Thank you very much. I appreciate your attendance.


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1h 25s

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