Judge Davila’s treatment of trade secrets in his exemplary damages award in BladeRoom v. Emerson echoes substantially similar if not the same themes as Professor Lemley in his “IP Rights” theory of trade secrets
“No,” says the court in BladeRoom v Facebook et al. “Yes,” says the court in O2 Micro v. Monolithic Power.
Can these different results be reconciled and can a rule for apportioning damages between trade secrets be derived from the inquiry? Yes and yes.
BladeRoom v. Facebook et al.
BladeRoom is ND of California…
Yesterday evening, the district court in the trade secret litigation Waymo v. Uber et al [3:17-cv-939-WHA] issued revised jury instructions on trade secret misappropriation and proposed special verdict form (Dkt. #2499). The revised instructions retain the requirement in earlier drafts of the instructions that Waymo must show Uber actually used the improperly acquired trade secrets…
The Defend Trade Secrets Act (“DTSA”), on its face, creates a private action in district court for misappropriation occurring abroad. Filing a DTSA claim in district court may in certain circumstances provide the best remedy for foreign trade secret theft over other alternatives such as filing a complaint with the International Trade Commission. But over…
Dave Bohrer’s recent post Extending US Trade Secret Law to Reach IP Theft in China discusses what to do when your company’s Chinese joint venture makes off with your trade secrets in China. The post suggests it may be possible to bring an action in US court extending either federal or state trade secret law extraterritorially to reach the misconduct in China.
In response to Dave’s post, I suggest that there is another, complementary alternative to a US-based civil action: bring a complaint asserting trade secret theft and unfair competition to the U.S. International Trade Commission (“ITC”) under Section 337 of the Tariff Act.
The ITC, despite its name, is a U.S. federal agency that operates as U.S. district court with a twist – extraterritorial reach to address unfair acts that take place entirely oversees, and in rem jurisdiction over Chinese respondents based on the importation of goods into the United States. The ITC cannot award damages but it can close the borders to goods from Chinese entities that steal trade secrets, effectively a national injunction. Your aggrieved U.S. client at least won’t find itself competing with its own purloined knowhow in the U.S. market. ITC cases are fast (18 months or less, soup to nuts) and furious (offering remedies with teeth that not only exclude unfairly traded goods, but which can bind U.S. distributors and retailers with cease and desist orders).
The ITC came into its own as a forum for litigating trade secrets with the TianRui case in 2008. In that case, employees from a Chinese-U.S. railway equipment joint venture departed and started a new Chinese company, using the stolen trade secrets. Soon the U.S. partner was facing U.S. imports of Chinese railways using the stolen technology. The ITC found, and the Federal Circuit affirmed, that the Commission had authority under Section 337 of the Tariff Act to apply U.S. trade secret law to bad actors and unfair acts that took place entirely in China. The Federal Circuit expressly held that “section 337 applies to imported goods produced through the exploitation of trade secrets in which the act of misappropriation occurs abroad.” In reaching this decision, the Federal Circuit effectively treated the Uniform Trade Secrets Act as federal common law and found the Commission’s determination to comply with basic trade secret principles. ITC findings of fact and law in “unfair acts” cases are preclusive and bind the district court, giving Complainants the option of a rapid one-two punch of an ITC exclusion order sealing the U.S. border from infringing goods, and then the possibility of walking into the district court for damages without relitigating the merits of the case.
Of particular note is the ITC’s determination in TianRui that “[t]he presumption against extraterritoriality does not govern this case.” In other words, a trade secret complaint investigated by the ITC avoids entirely what my colleague described in his earlier post as one of the more significant legal hurdles to extending US trade secret law to reach extraterritorial conduct.…
Engineers from your China subsidiary just joined a competing company which has begun using your trade secrets. Can you sue in the US and avoid the uncertainty and expense of seeking relief in a Chinese court? The answer is that both federal Defend Trade Secrets Act (DTSA) of 2016 and California’s version of the Uniform Trade Secrets Act (CUTSA), under the right circumstances, may be extended extraterritorially to reach misappropriation outside of the US.
Perhaps surprisingly, it may be harder to do this under the federal law, which expressly provides that it applies to conduct outside the US, than under the California law, which is silent on the subject. Let’s break this down.
Extraterritorial theft of trade secrets by insider employees or business partners in China is a significant problem as evidenced by the investigation in International Trade Commission cases Amsted v. TianRui (disclosure and use of US company’s trade secrets in China) [the 2011 Federal Circuit decision on appeal] and In re Certain Rubber Resins (same) [the 2014 ITC determination]. The problem reflects the reality of the current business environment, which is global and digital; technology owned by US-based companies is often shared with employees or business partners located outside of the US and it is not unusual for them to move between competitors.…
Alarms sounded when John Absmeier, technical director of Delphi Automotive’s Silicon Valley autonomous vehicle project, announced he was leaving to join Samsung’s Silicon Valley innovation center where he would lead a self-driving car technology team. They grew louder upon Delphi’s determination that Absmeier downloaded hundreds of thousands of company files and folders onto personal devices…
The question is whether it is possible to get a court to enter partial summary judgment before trial on some but not all of the trade secrets that the defendant is accused of stealing.
As discussed in the Sept 28 post, the answer is that this may not be possible if the lawsuit is filed in California state court.
But if the trade secret lawsuit is filed in federal court, the answer is yes. In federal court, it is easier to weed out before trial alleged trade secrets that do not satisfy the legal requirements for protection.
Why should we care? For each allegedly misappropriated trade secret that is allowed to be argued at trial, the costs incurred in either proving up or rebutting the claim run in the tens if not the hundreds of thousands of dollars spent on attorneys, experts and discovery, not to mention the significant time the court and the jury must devote to determining liability on each such claim. In other words, the potential savings of time and money to all concerned (court, jurors, and parties) from taking fewer trade secrets to trial are huge. Also, settlement before trial is much more likely if the parties know in advance which trade secret claims will or will not be tried.…
Not necessarily in California. The answer depends upon the unsettled issue whether California summary adjudication rules allow courts to dismiss some but not all of the asserted trade secrets before trial.
Trade secret claims brought by a technology company typically allege theft of not one but many trade secrets. The law recognizes as separate and specific trade secrets not just a particular technology, but also the underlying research, study, tests or investigation relating to this technology. For example, in Perlan Therapeutics, Inc. v. Superior Court, 178 Cal. App. 4th 1333, 1345 n.10 (2009), the court found that “Perlan’s eight purported trade secrets are: ‘(1) the Charles Invention, (2) Perlan’s Protein Multimerization Process, (3) Perlan’s novel idea [involving sialidase to] create a drug to combat the flu, and (4) all related research, (5) development, (6) advancements, (7) improvements and (8) processes related thereto.’”
Each of the numerous alleged trade secrets must satisfy certain requirements before they are deemed protectable in the eyes of the law. A trade secret must be described with sufficient particularity and have independent economic value derived from having been kept secret. And even if a particular trade secret is deemed legally protectable, there is no actionable theft (misappropriation) unless the trade secret has been improperly acquired, used or disclosed.
It is very rare that all trade secrets asserted at the beginning of a case satisfy all the requirements. There often are many clunkers among the asserted secrets and this is sussed out through the development of the case leading up to the trial. Furthermore, the identity of the bad trade secrets is or at least should be quite clear to the parties and the court following expert discovery, and in some cases even earlier in discovery. Limiting trial to those trade secrets that have some basis in law or fact can save the parties hundreds of thousands of dollars in attorney and expert fees and costs otherwise incurred to prosecute or defend the bad trade secrets on top those that might have some merit. Precious and scarce court resources are saved for resolving legitimately asserted trade secrets (and are not diluted or wasted on resolving the bad ones).
In California, it may not be possible to obtain partial judgment on some but not all asserted trade secrets. Lawsuits brought in California court for misappropriation of trade secrets under California law (California Uniform Trade Secrets Act, Civ. Code, § 3426 et seq.) are governed by state procedural rules for summary judgement and summary adjudication. Code Civ. Proc., § 437c subd. (a) (summary judgment) and (f) (summary adjudication). Summary judgement terminates the entire action. Summary adjudication is directed to some but not all “causes of action,” such that following entry of summary adjudication the case proceeds to trial on the remaining causes of action. You therefore can’t get summary judgment on some but not all trade secret claims, but you might get summary adjudication if the challenged trade secret claim is deemed a “cause of action” within the meaning of the rule.…
Proposed legislation creating a federal cause of action for trade secret misappropriation is on the fast track to becoming law, as described in James Pooley’s excellent post What You Need to Know About the Amended Defend Trade Secrets Act [link], January 31, 2016 Guest Post, Patently-O. Referred to as the Defend Trade Secrets Act (“DTSA”), the legislation was favorably reported out of the Senate Judiciary Committee on January 28, 2016.
For those seeking to catch up on these developments, the recent posts and articles by Mr. Pooley and his colleagues are a great place to start learning the salient characteristics of the new law, including the rejection of the idea that an employee should be blocked from taking a new job based on the doctrine known as “inevitable disclosure.” The DTSA’s rejection of “inevitable disclosure” warrants a closer look; it means the DTSA embraces California’s robust policy favoring free mobility of employees between jobs. Let’s break this down.…