PHOSITA

Authored by Evan Talley, July 22, 2015 at 10:37 am
IP LAWSUITS

Trade secrets litigation isn’t discussed as often as patent, trademark, and copyright litigation, but it is important to stay abreast of, nevertheless.  At the moment, unlike the other three areas mentioned above, there is no federal statutory scheme for trade secrets. However, 48 states (all but New York and Massachusetts) and the District of Columbia have adopted a version of the Uniform Trade Secrets Act (the “Act”).

There are some minor differences among the various states’ versions of the Act, but the basic definition of “trade secret” is “information, including a formula, pattern, compilation, program, device, method, technique, or process that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

A trade secret plaintiff clearly needs to establish both elements, but I’d like to discuss the second element, i.e., reasonable efforts to maintain secrecy. Specifically, I’d like to focus on this element in the context of defending one’s trade secret from disclosure through a Freedom of Information Act Request (“FOIA”) or Open Records Request (“ORR”).

A hypothetical may help highlight one particular inequity that can arise at the junction of trade secrets and FOIA/ORR. Imagine that your company is required to submit an application or documentation to a state or federal agency in order to conduct business, obtain certification, or gain approval to contract with the agency. Examples include a defense contractor submitting information to the Department of Defense, a pharmaceutical company submitting test or trial results to the FDA, or an oil and gas company submitting information to a local governing body, such as the Oklahoma Corporation Commission, in order to conduct business. The information or documentation at issue may be protected by a patent, trademark, or copyright, but often, the submitted information may contain trade secrets.

This is where FOIA or ORR can jeopardize that information. In the wrong hands, the disclosure of that information could significantly diminish or completely eliminate your competitive advantage. If you or your company has submitted this type of information to any state or federal agency, it is potentially subject to disclosure through FOIA or ORR. Luckily, many states’ open records statutes allow an agency to withhold information that it considers to be a company trade secrets. However, in some of these states, the agency faces fees and damages if it withholds documents or information without a clear basis, which often results in the agency erring on the side of disclosure. In that scenario, under many states’ versions of FOIA or ORR, the onus then shifts to the owner of that information to seek to enjoin the agency from disclosing it. Initiating a lawsuit and seeking an injunction is very commonly a time-consuming and expensive proposition. Thus, a competitor can not only potentially uncover your proprietary and confidential information through FOIA or ORR, it can use such a request as a mechanism to force the owner or submitter of that information to expend financial resources to block its disclosure. Such a scenario seems to force the owner to go above and beyond “reasonable efforts,” but the alternative is deferring to the agency and risking disclosure. This is an area of trade secrets law that appears to be primed for more controversial and/or frustrating decisions.