Intellectual Property Survey: Trade Secrets and Related Agreements

1
Intellectual Property SurveyTrade Secrets and
Related Agreements

• Fall 2005
• Prof. Loren

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Reverse Engineering

• Its a good thing.
• Background norm of competition
• Considered proper means of obtaining a trade
  secret
• May be times when we chose to prohibit use of
  information obtained from reverse engineering
• i.e. if the information is covered by a patent
• Related, it is important that TS protection by
  more leaky (than patent)

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Departing Employees
Employer invests Salary/Pay Training Experience E
quipment Etc.

• Employee gains
• General Knowledge
• Particularized Knowledge
• Trade Secrets

Protection levels may affect employers
willingness to invest in employees
4
Departing Employees
5
Wexler v. Greenberg (Pa. 1960)

• Pennsylvania law Rest. Torts
• Tech Cleaning products
• Parties
• Buckingham Wax Makes cleaning products
• Greenberg Chief chemist at BW for eight years
• Brite Cleaning products re-seller, BW customer
• No question that Brites products are the same
  formulae as Buckingham Wax products

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Wexler v. Greenbergtrying to find a duty

• Any explicit agreement with Greenberg ?
• Where else might we look to establish a duty?
• Do we infer duty of secrecy when
• Employer tells Employee a pre-existing secret ?
• Employee tells Employer a new-found secret ?
• Why allow Greenberg to give formulae to Brite?
  Isnt there an implied duty in the nature of the
  employment relationship?
• What agreements would stop Greenberg ?

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Wexler v. Greenbergtrying to find a duty

• Employee created the formulas
• Employer did not disclose the formulas with the
  employee
• No (implied) promise extracted upon such
  disclosure
• Is there an implied duty in the nature of the
  employment relationship?

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Employer alternatives?

• Have employees sign contracts!
• Invention/discovery assignments
• Argue against Wexler (it is not uniformly
  followed, by any means!)

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Departing Employees

• Should we let firms and prospective employees
  bargain over restraints on future employment ?
• Should we allow agreements not to
• Use information that cannot qualify for trade
  secret protection ?
• Contact any former customers ?
• Offer jobs to former co-workers ?
• Compete, at any time ?
• Compete, anywhere in the U.S. ?

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Problem 2-13 (p. 90)

• Is this agreement enforceable?
• Identify the elements of the agreement
• Duty to keep confidential information secret
• Invention assignment
• With a trailer clause
• Non-competition agreement
• Agreement to return company documents
• Consent to notification of new employer
• Non-solicitation agreement

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Duty to keep confidential information secret

• Why have such a provision?
• Defines the kinds of information that employee
  must keep secret
• Puts employee on notice
• Part of reasonable efforts
• Makes duty express
• Risks (negotiating/drafting tips)
• Definition must be reasonable
• e.g. exclude information once publicly known
• Categories of employees who must sign must be
  reasonable
• Provision for injunctive relief?
• Consideration for the promise?

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Invention assignment

• Is this necessary? What result without it?
• Employee hired to invent
• Common law employer ownership of inventions
• Employee who uses employer equip. to invent
• Common law shop right in inventions
• Employee independently invents during the time
  period of employment
• Common law employee owns
• Negotiating/drafting tip
• Include the full language you see here
• Do not try to obtain assignment of independent
  inventions
• Provide for a duty to disclose, as well as to
  assign

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Invention Assignment Trailer Clause

• Enforceable?
• Must be reasonable
• Duration
• Subject matter
• Risk?
• Employee simply waits out the trailer period

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Non-competition agreement

• Enforceable?
• Reasonable
• Duration
• Geographic scope
• Industry scope
• Policy reasons for enforcing such agreements?
• Some states reject employee non-competes
• Negotiating/drafting tips
• Be reasonable!
• Suggest paying employee for duration of
  non-compete
• Suggest liquidated damages for violations

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Non-competition Agreements

• Why use them?
• Inevitable disclosure theory has had limited
  success
• Unrealistic for employees compartmentalizing
  knowledge

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Agreement to return company documents

• Is this really necessary?
• Clarifies employee possessions v. employer
  possessions

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Consent to notification of new employer

• Is this really necessary?
• Avoid a claim of interference with contractual
  relationships

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Non-solicitation agreement

• Non-solicitation of
• Employees
• Customers
• Who owns the personal relationship built up
  between an agent of the employer and the
  customer?
• Recall definition of confidential information
  in the contract

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Agreements to Keep Secret

• Contract as intellectual property protection
• Creating markets for intangibles is difficult
• Market failure problems
• But, if a market results in a bargained-for
  exchange, should courts enforce that bargain?
• Policy of free flow of information
• Policy of freedom of contract

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Listerine

• Named after Sir Joseph Lister, an Englishman who
  performed the first antiseptic surgery in 1865
  (using carbolic acid (phenol in water))
• First marketed as a general antiseptic
• Starting in about 1895, marketed to dentists as
  an especially effective oral antiseptic

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Warner-Lambert Pharma v. JJ Reynolds(S.D.N.Y.
1959), affd (2d Cir. 1960)

• Trade secret licensee, Warner-Lambert, sues trade
  secret owner, JJ Reynolds
• Tech Antiseptic formula
• Terms of the license . . .
• for Dr. Lawrence, owner ?
• for Jordan Lambert, licensee ?
• Expiration ?
• What economic sense for the licensee ?

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Agreements to pay, even if not secret

• What drives the choice between . . .
• lump sum payment versus running royalty ?
• expiration date versus until secret gets out ?
• Is it ever rational for licensee to agree to
  royalty in perpetuity?

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www.warnerlambert.com.au/products/listerine (2002)

• Warner-Lambert's LISTERINE is the undisputed
  leader in the Australian mouthwash market. Warner
  Lambert boasts a staggering two-thirds market
  share and an incredible 85 brand loyalty rating.
  That's one of the highest brand loyalties across
  any category. The nearest competition languishes
  behind with a mere fifth of Warner-Lambert sales.