Charles Tait Graves: Can You Sue to Protect a Trade Secret You Misappropriated From Someone Else?

Who has standing to sue for trade secret misappropriation? Can a person sue to protect a trade secret they misappropriated from someone else?  Is mere "possession" of the trade secret enough for standing to sue and entitlement to a remedy? Or does a complainant have to prove they are the "owner" of the trade secret in a more formal sense?

A new case suggests the answer may be: "Yes, a person can probably sue to protect a trade secret that they misappropriated from someone else, at least under state law, but not under federal law."

A recent Tenth Circuit case, Snyder v. Beam, addresses this question. In this post, I'll discuss Snyder and its implications, and I will also highlight a 2023 article by Charles Tait Graves, revealing that this issue had been boiling up on the state law side for some time. Snyder did not come out of the blue. Rather, the passage of a federal trade secret statute with a divergent rule has simply brought the issue to the fore.

Common Questions on AI and Trade Secrecy

I have been giving some talks on my article, “Keeping ChatGPT a Trade Secret While Selling It Too,” which is now published in the Berkeley Technology Law Journal. The article addresses a legal puzzle: How can companies protect generative AI technology through trade secret law, while also selling new AI products to the public? I have gotten some really interesting questions from audience members on AI and trade secrecy. I thought I'd share them along with my answers.  If you disagree with my answers or how I am characterizing the technology, I'd really love to hear your thoughts.

Oswald: Do trade secret injunctions last forever?

An injunction in a trade secret case should generally end when the trade secret does. But new empirical research by Professor Lynda Oswald sheds new light on the actual lifetime of these injunctions. The results are surprising. Oswald finds that in the vast majority (~80%) of cases in her dataset, courts simply grant an open-ended injunction without a fixed term. While defendants could in theory move to dissolve the injunction when the trade secret ceased to exist, Oswald found no evidence this happened.  In effect, the injunctions appear to have remained in effect indefinitely.

Lynda Oswald is the Louis and Myrtle Moskowitz Research Professor of Business and Law at University of Michigan's School of Business. Professor Oswald's article, An Empirical Analysis of Permanent Injunction Life in Trade Secret Misappropriation Cases, has now been published in the Iowa Law Review.

OpenEvidence v. Pathway: The Legal Battle Over AI Reverse Engineering

Can generative AI models like ChatGPT be "reverse engineered" in order to develop competing models? If so, will this activity be deemed legal reverse engineering or illegal trade secret misappropriation?

I have now written a few articles exploring this question, including Trade Secrecy Meets Generative AI and Keeping ChatGPT a Trade Secret While Selling It Too. But when I first asked this question a year and a half ago, I was getting responses purely in the negative. I asked a panel at a trade secret conference at Georgetown in 2023, "Can ChatGPT be reverse engineered?" Several members of the panel laughed.  I would talk to AI experts, and the answer I got was along the lines of: "it's not going to happen." 

This post is cross-posted on Patently-O.

Buccafusco, Masur, & Varadarajan: Does Trade Secrecy Have an "Information Paradox"?

One of the key purposes of trade secret law is to address the "Arrow information paradox." The information paradox posits that there is a fundamental challenge in information exchange: It is difficult to assess the value of information without first sharing it, but once the information is shared, it becomes vulnerable to being copied, leaving the originator without compensation and without a competitive advantage.  

Morten Follow-Up: What Do Federal Agencies' Enabling Statutes Say About Their Power to Disclose Trade Secrets?

In my prior post I interviewed  Christopher Morten at Columbia Law School about his article "Publicizing Corporate Secrets," which is forthcoming in University of Pennsylvania Law Review.  Morten argues that federal agencies have much more power to publicly disclose trade secrets and confidential information collected from private companies than is commonly believed. He argues that sometimes agencies do have the authority to "break" corporate secrets, and sometimes they do not. His core insight is that ultimately it's the agencies' enabling statutes passed by Congress that dictate their power to disclose trade secrets and confidential information.  I will now post links and our discussion of the full text of some of these enabling statutes, so that readers can see the statutes and make their own interpretations.

Christopher Morten: Do Federal Agencies Have More Power To "Break" Corporate Secrets Than We Thought?

The prevailing wisdom is that federal agencies cannot generally disclose trade secrets and confidential information given to them in confidence by companies that they regulate or work with.  Indeed, the Trade Secrets Act (18 U.S.C. § 1905), passed in 1948, seems on its face to make it a crime for federal government personnel to do so.

However, in a highly provocative, but ultimately compelling article, "Publicizing Corporate Secrets," forthcoming in the University of Pennsylvania Law Review, Christopher Morten of Columbia Law School argues that federal agencies have much more power to publicly disclose trade secrets than is commonly believed. Morten argues that the scope of agencies' power to disclose is defined by their enabling statutes and that, with many important exceptions, several of these enabling statutes do not, at a legislative level, prohibit disclosure of trade secrets or confidential information. Some agencies may have regulations on the books preventing disclosure of trade secrets, but he suggests that they could in some cases change those regulations without additional authorization from Congress, and that there would be far fewer negative consequences for them than we might think if they did so.  

On a very hot day in July, I interviewed Morten about the details of his argument.  The interview took place in the air-conditioned NYU Engelberg Center. Many thanks to Katrina Southerland and Mike Weinberg for arranging a space for us.  This was a fascinating, lengthy discussion, which I have excerpted below.  

Motorola v. Hytera: Why Might Government Bring a Criminal Trade Secrets Case After a Successful Civil One?

A federal indictment was unsealed yesterday in the Northern District of Illinois, charging Hytera, a Chinese maker of radio transceivers and radio systems, with conspiracy to commit theft of trade secrets under the Economic Espionage Act. The indictment alleges that Hytera conspired with former employees of Motorola, who were working for Motorola Malaysia at the time, to steal digital mobile radio (DMR) technology developed by Motorola.  The indictment brings criminal trade secrets claims under various provisions of 18 U.S.C. § 1832, including Sections 1832(a)(2) (copies, communicates, downloads, etc.), (a)(3) (possession), 1832(a)(4) (attempt), and 1832(a)(5) (conspiracy).

It is not necessarily uncommon for the government to bring a criminal case after a civil case.  Recall in the Waymo v. Uber case, the judge in the civil case actually referred the case to the US Attorney for investigation, and he did so very early in the case, a long time before the actual trial.  Sometimes the civil plaintiff can even lose or settle the civil case, and the government still brings the criminal case anyway. That happened to Anthony Levandowski in the Uber/Wayo dispute. He was indicted and convicted, even after the companies settled the civil case.  (Trump pardoned him).

But here, Motorola had a very big win in the civil case. The Illinois district court case (Judge Norgle presiding) was decided after a full jury trial. Motorola won a massive verdict of over $700M in damages, more than half of which were punitive. See Motorola Sols., Inc. v. Hytera Commc'ns Corp., 495 F. Supp. 3d 687, 695 (N.D. Ill. 2020). (This was thereafter reduced by ~ $200M).

One might think: "isn't that enough?" Why should the government bother to pursue a criminal claim now? I will not dwell here on the obvious political motive: "We think China is stealing US trade secrets and we need to make an example of them..." even if that is probably there.  I'll put that hot potato aside and instead highlight several practical reasons why the government might be getting involved after the victorious civil case.

Courtney Cox on Trade Secrets and Lying

Courtney Cox, a professor at Fordham University Law School, has a very interesting trade secret law article forthcoming in George Washington Law Review called "Legitimizing Lies." The article can be downloaded on SSRN. 

Cox argues, in short, that trade secret law could generate an unexpected incentive for trade secret holders to "lie." The reason is that federal and state trade secret statutes require anyone who wishes to own a trade secret to take "reasonable" measures to keep that information secret, and in some instances deception—including deception effectuated by lies—may be the most reasonable way to keep something secret.  For example, companies sometimes use "deception technology" in their cybersecurity systems "to trick hackers into thinking they are getting close to critical data.” (25). Cox highlights increasing use of a cybersecurity device, affectionately called the "honeypot," which operates as a decoy computer system that can lure away would-be hackers. (24).

Cox suggests that, to the extent deception-based information security becomes the most effective option for protecting secrets in a certain industry or context, then trade secret law may require taking that deceptive act. This is because the trade secret statutes, at the federal and state level, include taking "reasonable" measures to preserve secrecy as a necessary element of a plaintiff's trade secret case. Thus, the law encourages, or at least gives its blessing, to "lying."

Charles Tait Graves: Idea Submission Cases, Desny Claims, and Trade Secret Law

I thoroughly enjoyed Charles Tait Graves new article: Should California’s Film Script Cases Be Merged into Trade Secret Law?, which was recently published in The Columbia Journal of Law & the Arts.  Graves is a partner at Wilson Sonsini and teaches trade secret law at UC Hastings Law.   

The article deals with so-called "idea submission" cases. The fact pattern is as follows. Plaintiff, who is sometimes called the "idea man" in older cases, shares an idea with Defendant, hoping for monetary compensation even though there's no express contract stating terms of payment. Defendant subsequently takes the idea and commercializes it without paying Plaintiff. (There's an excellent discussion of the idea submission cases in Chapter 4 of Elizabeth Rowe and Sharon Sandeen's Trade Secret Law casebook). 

At least in California, the Plaintiff-idea person will likely have two distinct types of legal claims in this scenario: (1) a claim for breach of an implied-in-fact contract, which in California is called a Desny claim; and (2) a claim for civil trade secret misappropriation, which since 2016 can be brought under both state law (e.g. under the California Uniform Trade Secret Act) and federal law via the Defend Trade Secrets Act (DTSA). Graves recounts in tremendous detail how these two different legal regimes developed on separate ends of the map of California, in Southern and Northern California, respectively. Graves' thesis is that, even though these two areas of law have been historically addressed separately, they have a lot in common and can learn a lot from one another.   

I interviewed Graves about the article, transcribed below.

Trade Secrets and Prior Art

I have published an article entitled "The Trade Secrecy Standard for Patent Prior Art," co-authored with Sharon K. Sandeen. 

The article, which is forthcoming in American University Law Review, argues that patent prior art cases can be explained using concepts of publicness and secrecy that match those used in trade secret law. In other words, what counts as prior art against a patent pursuant to 35 U.S.C. § 102 (2011) is informed by the definition of a trade secret pursuant to 18 U.S.C. § 1839 (3) (2016).

The paper can be downloaded here. I've posted an excerpt below, applying the trade secrecy standard for patent prior art to the Supreme Court's interpretation of a "public use" in Egbert v. Lippman.

The origin of [the Federal Circuit's] seemingly counterintuitive notion of what makes a use “public” is usually traced to the Supreme Court’s holding in Egbert v. Lippman. In Egbert, the inventor of an improved corset spring (Samuel Barnes) gave two samples of the invention to Francis Lee Egbert (Mr. Barnes’ then girlfriend and eventual wife). She wore them for more than two years before Mr. Barnes applied for a patent; and they allegedly showed and explained the corset spring to a friend, Joseph Sturgis, who came over to Mr. Barnes’ house for dinner. Even though the spring was sewn into a corset and therefore, by its nature, was not visible to the public, the Court held it was in “public use” because it was given “to another” (to Frances and to Mr. Sturgis) “to be used” by them “without limitation or restriction, or injunction of secrecy.”

This holding baffled the dissenting Justice Miller, who wrote rhetorically that “[i]f the little steep spring inserted in a single pair of corsets, and used by only one woman, covered by her outer-clothing, and in a position always withheld from public observation,” was a “public use,” then he was “a loss to know the line between a private and a public use.”

But the trade secrecy standard explains how the Egbert Court drew “the line between a private and a public use.” The Court’s concept of a “public use” was, in its own words, any sharing of the invention with another for use, without placing them under an “injunction of secrecy[.]” The Court’s use of this phrase, “injunction of secrecy,” is unlikely to be coincidence. This phrase appeared in contemporary trade secret cases to refer to a duty of confidentiality that might give rise to an injunction.

In trade secret law, a court might have found that—although the corset spring was neither generally known in the industry nor readily ascertainable by proper means—it had not been the subject of reasonable efforts to maintain its secrecy, given how liberally Barnes shared it with his girlfriend and house guests, without placing them under contractual or other restrictions that would have imposed an obligation of confidentiality. 

We might debate whether this was the right decision, from the perspective of trade secret law and modern domestic relationships. In trade secret law, a duty to maintain secrecy does not necessarily have to be written down. It depends upon the circumstances. Even if not expressly stated, a duty to maintain secrecy can be inferred if, among other things, “the trade secret was disclosed to the person under circumstances in which the relationship between the parties to the disclosure” indicates an intent to keep the information confidential. That standard might have been met in Egbert, because the most public part of the disclosure was to Frances, who was at the time the inventor’s domestic partner. ...  

In any case, even if the Egbert Court may have reached the wrong factual conclusion, it is hard to argue with the fact that the standard being applied was a trade secrecy one. Other cases from the same period indicate courts thought of secrecy in a similar way—deliberate, beyond the ordinary efforts to conceal the invention was needed to keep something out of the public eye.

For example, just a few years later, in Hall v. Macneale, the Court again denied a patent for an improved design for a safe that the inventors had used more than two years prior to filing a patent. Citing its opinion in Egbert, the Court held that—even though the inventive design feature was effectively “hidden from view,” since it was inside the safe, and revealing it would have required a “destruction of the safe”—the inventors had not made deliberate efforts at concealment. Like Mr. Barnes, they’d simply relied on the inherent nature of the safe designs to maintain the secrecy of the invention. Like in a trade secret case, where zero efforts to maintain secrecy will disqualify an owner from enforcing their trade secrets, this simply was not enough.

The trade secrecy standard—if not being kept as a trade secret, then patent prior art—sheds still more light when prior art activity arises within an employment setting, where courts must assess whether the company has exercised sufficient secrecy precautions with respect to its own employees. ..."

The full paper can be downloaded here.