Trade Secret Litigation: Why Copyright and Patent Filings Should Be on Your Radar

As part of your initial due diligence in investigating trade secret cases - whether on the offense or defensive, it is important to confirm whether copyrights or patents have been filed on the same or similar subject matter as the trade secret in the suit. The presence of either could deal a fatal blow to a plaintiff, or a winning defense. Taking the time upfront to evaluate this issue will possibly pay off by either catching your opponent off-guard, or allowing you to appropriately help your client understand potential arguments that could jeopardize their case down the road.

What Counsel Should Do in Trade Secret Cases

Defense counsel should serve discovery regarding patent and copyright applications to determine whether harmful disclosure has occurred. Plaintiff's counsel should investigate these potential disclosures. Patent applications present a good opportunity to show public disclosure because the Patent Act, 35 U.S.C., requires the applicant to disclose the best mode of the invention as well as to enable someone skilled in the art to practice the invention. These statutory requirements are ripe for causing an applicant to disclose confidential information. Likewise, the Copyright Act, 17 U.S.C., requires deposit of a specimen to obtain registration. That deposit material may inadvertently contain confidential information.

Defenses in Trade Secret Cases

In addition to public disclosure, other defenses under Texas law include showing that the confidential information was developed independently, that access to the confidential information was with consent or through proper means, that the information is stale or no longer available for protection, and that the defendant has a license or some other authorization. Unclean hands can be a defense to certain types of equitable relief. However, public disclosure remains one of the best defenses to these cases, and poses significant risk to the plaintiff. Defendants will typically exhaust several avenues to show that the information is not protectable due to failure to safeguard it. Examples include failure to password protect the information, lack of employment and confidentiality agreements, lack of control over the confidential information, lax premises security, and the like.

Elements of Misappropriation Under Texas Law Trade Secret Cases

Trade secret misappropriation under Texas law is established by showing of three elements: (a) a trade secret existed; (b) it was acquired through a breach of a confidential relationship or discovered by improper means; and (c) use of the trade secret without authorization from the plaintiff. Phillips v. Frey, 20 F.3d 623, 627 (5th Cir. 1994). To determine whether a trade secret exists, Texas courts weigh six factors set forth in the Restatement of Torts in the context of the surrounding circumstances:

(1) the extent to which the information is known outside of the business;

(2) the extent to which it is known by employees and other involved in the business;

(3) the extent of measures taken to guard the secrecy of the information;

(4) the value of the information to the business and to its competitors;

(5) the amount of effort or money expended in developing the information; and

(6) the ease or difficult with which the information could be properly acquired or duplicated by others.

See Tewari De-Ox Systems, Inc. v. Mountain States/Rosen, L.L.C., 637 F.3d 604, 610 (5th Cir. 2011). This clearly is a fact intensive inquiry depending on the circumstances.

Subject Matter of A Trade Secret Must Be Secret

While the plaintiff is not necessarily required to satisfy all six factors, it is self-evident that the subject matter of a trade secret must be secret. Id. at 611. A trade secret is "one of the most elusive and difficult concepts in the law to define." Lear Siegler, Inc. v. Ark-Ell Springs, Inc., 569 F.2d 286, 288 (5th Cir. 1978). However, information that is public knowledge or that is generally known in an industry usually does not qualify. See Luccous v. J.C. Kinley Co., 376 S.W.2d 336,338 (Tex. 1964); Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002 (1984).

This raises the question of whether the filing of a patent or copyright application could act to destroy trade secret protection. For example, a proprietary technology process could be disclosed in a patent application to satisfy the best mode and enablement requirements of 35 U.S.C. Section 112. Likewise, software source code could be submitted in human-readable format as a deposit specimen at the U.S. Copyright Office to obtain a copyright registration. Each of these situations pose risks or opportunities, depending on who you represent.

Before 2000, a patent application filed in the U.S. Patent and Trademark Office (USPTO) was maintained in secrecy unless and until the application issued as a patent or was cross-referenced in an issued patent. In 2000, the Patent Act was amended to provide for the automatic publication of a pending patent application 18 months after filing except in certain limited circumstances in which the applicant takes affirmative steps to prevent publication. Thus, the complete disclosure of the patent application becomes a public document upon publication. This could provide fatal public disclosure of confidential information.

Does publication of a patent or copyright application destroy trade secret status?

Although no post-2000 Texas case directly addresses whether a published patent application destroys the secrecy of its contents for trade secret purposes, the weight of authority from other jurisdictions holds that it does. Tewari, 637 F.3d at 612 (citing Group One, ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1051 (Fed. Cir. 2001) and OLA, LLC v. Builder Homesite, Inc., 661 F. Supp. 2d 668, 673 (E.D. Tex. 2009) (finding that the information lost its trade secret status when the application that became the patent was published).

In Tewari, the Fifth Circuit addressed the question of whether alleged trade-secret information disclosed in a published patent application could still be a trade secret after the application was published. The trial court granted summary judgment in favor of the defendant on the plaintiff's trade-secret claim finding that the alleged trade secrets were either disclosed in the plaintiff's published patent applications or were disclosed or known in the industry. The Tewari court noted that the published patent application was readily retrievable and available, and found that the trial court correctly concluded that any processes disclosed in the 2004 published applications were not trade secrets in 2005 when the non-disclosure agreements were signed. However, the court expressly distinguished this case from the situation where a party gains knowledge of a trade secret and breaches an obligation to keep it in confidence while it was still secret because under Texas law, a party might still be enjoined from using the trade secret even though it later entered the public domain through publication in the published patent application.

While it makes sense that the same would hold true when the contents of trade secrets are disclosed in a published copyright application, case law has not yet clearly held that to be the case. However, in at least one Texas court, even when technical information was on deposit in the U.S. Copyright Office, a public record, the court held it unlikely that anyone would go there to read it, and information that was in the plaintiff's copyrighted bulletins was still entitled to protection. See Grace v. Orkin Exterminating Co., 255 S.W.2d 279, 290 (Tex. Civ. App.-Beaumont 1953, writ ref'd n.r.e.). However, copyright filings should still be a concern of trade secret litigators as it could still pose a threat to trade secret status, much like the cases on patent application publication discussed above, if the particular factual situation exists.

Conclusion

So, whether you regularly handle trade secrets case or simply have a client involved in one, it is likely worth your time to investigate copyright and patent filings to determine what might be publicly disclosed in order to craft the best offense or defense for your client.

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