Trade Secrets, Trademarks, and Interstate Commerce

By Dennis Crouch

Society should always question rules where the rule-maker is not itself bound by the rules. Courts strongly enforce trade secret rights – except when it comes to discovery. The discovery process in litigation involves the forced disclosure of information between the various parties (as well as others with relevant information). The fact that information requested is a trade secret generally does little to prevent its disclosure. Rather, as with essentially all discovery requests, courts balance the need for disclosure against any countervailing privacy concerns. (The rules indicate courts should be mindful when a discovery request requires disclosure of a “trade secret or other confidential research, development, or commercial information.”)

In Innovative Communication Sys v. Innovative Computing Systems, 2014 WL 3535716 (W.D. Tex. July 16 2014), the court ordered disclosure of the plaintiff’s non-Texas client list – finding that the information is potentially relevant and therefore discoverable.

Even accepting Plaintiff’s argument that its client list is a trade secret, the Court disagrees with Plaintiff that the information is not discoverable. Although Plaintiff highlights that its client list is confidential and valuable, that does not necessarily render the information undiscoverable. The Federal Rules of Civil Procedure provide that “[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense.” FED. R. CIV. P. 26(b)(1). Additionally, the information “need not be admissible at trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.” Id. Consequently, “courts construe Rule 26 broadly, and generally hold a request for discovery should be allowed unless it is clear that the information sought can have no possible bearing on the claim or defense of a party.” United Servs. Auto. Ass’n v. Mitek Sys., Inc., 289 F.R.D. 244, 246 (W.D.Tex.2013) (internal quotations omitted). Furthermore, the fact that the information requested involves trade secrets does not prohibit its discovery. With regard to trade secrets, the Advisory Committee Notes to Rule 26 explicitly state that “courts have not given trade secrets automatic and complete immunity against disclosure, but have in each case weighed their claim to privacy against the need for disclosure.”

As you’ll see below, the court here has interesting if odd reasoning for finding the information relevant.

The issue here involves the “ICS” mark. The plaintiff registered the ICS mark with the USPTO and, as part of that registration process, indicated that the mark had been used in interstate commerce. In defense to the trademark infringement action, the defense has alleged that the mark was fraudulently registered since the plaintiff was operating wholly within Texas rather than actually in interstate commerce. The court writes:

Defendant claims that Plaintiff falsely stated in its application to the USPTO that the “ICS” trademark had been used in interstate commerce. Based on the parties’ allegations alone, it is clear that information concerning Plaintiff’s clients located outside Texas are relevant to the case. Information concerning Plaintiff’s clients is certainly relevant to Defendant’s counterclaim that Plaintiff committed fraud upon the USPTO in stating that it had used the “ICS” mark in interstate commerce.

The court’s suggested limit on interstate commerce likely misses the mark of prior precedent that generally identifies interstate commerce as anything beyond “purely intrastate use.” See T.M.E.P. § 901.03.

13 thoughts on “Trade Secrets, Trademarks, and Interstate Commerce

  1. Why would not have been sufficient for the court to order that the client list be revealed to the court or to special master or other third party bound to confidentiality?

  2. Meh. Negotiate a protective order as part of the discovery process. Pretty standard stuff. That this wasn’t pursued indicates there’s nothing to actually discover, which blows up Plaintiff’s case.

    1. Negotiate a protective order as part of the discovery process.

      I wondered about that, too. That would seem to be a priority for a plaintiff in this situation.

      1. (ICS)[FM] and (Innovative)[ON]
        gets me down to 4 (with three live marks).

        Not sure I would have used “texas” as an owner attribute….

  3. Society should always question rules where the rule-maker is not itself bound by the rules.

    Anyone else notice how loaded that statement is?

  4. I don’t see a problem with this. Fraud on the office is a defense. To prove the defense you would have to show there are no out of state clients. To show who are the clients you would need the client list. A client list with no out-of-state clients would be information tending to prove the case and is therefore discoverable. Why is that surprising?

    I also don’t see how this has to do with the rule-maker themselves. Congress couldn’t bind the court in this manner even if it wanted to, and I think it’s pretty clear that there was never an intent to turn a commercially valuable secret into a production defense anyway. As I’ve said before on this site, trade secret is a mechanism to punish someone who procures information improperly, it is not a right in the information itself. If someone steals and then publishes the information in a non-published patent application, the government will protect others from using it providing you mature the application into a patent. But if someone steals and then publishes a trade secret, the government won’t stop anyone from using it, and your sole remedy is to the thief.

  5. Dennis, I actually think the court’s holding here is correct in that if the Texas organization actually did no business outside of Texas, there would be a good argument that the federal registration was fraudulently procured.

    1. Interesting problem. TMEP 901.03 relies on the Interstate Commerce Clause to include gas stations, restaurants, and hotels that somehow have interstate clientele. Another possibility is use of the Internet, at least (my understanding) where there is an offer for sale that can be accepted.

      Two relevant ICS® registrations can be found on TESS with “ICS[FM] AND TEXAS[OW].” The first use in commerce for the block mark was 19840701 for a service, “Installation of Telephone and Data Transmission Systems.” This was before the Internet and possibly limited to local installation. However, if the telephones lines came under the purview of the FCC, then maybe a first use limited to Texas is OK.

      However, one would have expected this argument to have been made to obviate the need for discovery.

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