by Dennis Crouch

Amyndas Pharm., S.A. v. Zealand Pharma A/S, 21-1781, — F.4th — (1st Cir. Sept. 2, 2022) [Decision]

Before getting into the decision, I’ll first post my DALL-E art entitled “corporate love triangle.”

The First Circuit appellate court described this case as a game of “musical chairs”. When the music stopped “one firm [was] left out in the cold.”  I might think of it as a pair of ongoing secret love affairs that finally resulted in a jilted lover.  Old models of a love triangle was really more of a “V” — a rivalry between two potential suitors.  But, today’s pansexual environment allows for truer triangle relationships.  In this case it is all a bit more mundane. The three players are Amyndas, Zealand, and Alexion–all pharameceutical research companies focusing on auto-immune inhibition.

Here, Amyndas (the one left out) had shared confidential information with both Zealand and Alexion (subject to contractual limitations).  Later, those two companies formed an official partnership to develop a C3-binding protein (the same topic for which Amyndas had shared data).  Zealand’s patent applications also published relating to the same topic. At that point, Amyndas sued–alleging breach of the Confidential Disclosure Agreements (CDAs); misappropriation of trade secrets; and conspiracy to use misappropriated information.

The district court cut much of the case short — dismissing the case against Zealand based upon a forum-selection-clause within their CDA.  That agreement stated that “any dispute arising out of this Agreement shall be settled in the first instance by the venue of the defendant.” Here, Zealand Pharma is a Denmark company, and the district court determined that proper venue for the case is therefore in Denmark.  On appeal, the plaintiff pointed-out that the Zealand has a presence in both Denmark and Massachusetts.  This argument makes sense if you look at the federal law of venue which basically finds proper venue in any court with personal jurisdiction over the defendant.  28 U.S.C. 1391(b)-(d).  You’ll note that Section 1391(b) states that proper venue is a location where the defendant “resides.”  This seemingly narrow venue statement is blown-up by the definition in Section 1391(c)–a company “shall be deemed to reside … in any judicial district in which such defendant is subject to the court’s personal jurisdiction.” Id.

But, the appellate court considered the law as potentially instructive for construing the “venue of the defendant” as used in the contract.  But, the court concluded that its interpretation should be narrower than Section 1391 since applying the venue law “would inevitably lead to the conclusion that Zealand Pharma potentially could be sued in virtually any jurisdiction” and thus render the venue clause of the contract “largely superfluous.” Amyndas Pharm. (1st Cir. Sept. 2, 2022).  What the court did was stick with the notion that venue=residence, but then use a more natural definition of residence to be limited only to the corporate home (as is done now in personal jurisdiction contexts).

Zealand Pharma A/S is the Denmark company, its corporate family member and co-defendant “Zealand US” is a US company with a HQ in Boston, and so the lawsuit was clearly in its venue.  But, Zealand US had not itself signed the CDA and so the court refused to give any weight to its corporate affiliate’s location. “The forum-selection clause points unerringly to Zealand Pharma, not to Zealand US.”

In focusing on Denmark, the court repeats that “At the time the CDAs were signed, Zealand Pharma’s residence could only have been Denmark” and consequently limited the forum selection clause venue to Denmark as well.  One problem with the court’s statements here is the implicit suggestion that venue is frozen in stone at the moment of contracting. Some contracts do take that approach, but typically by expressly naming a particular venue (such as “New York”).  On the other hand, my reading of this contract would imply that the “venue of the defendant” is determined at the point when a lawsuit is filed.  At the time of contracting, Zealand Pharma had not yet been restructured to also form Zealand US.  In my mind, that corporate transformation could be seen as expanding the venue if the new US version was a carve-out or split that took on some of the  rights and obligations of the old company.  In any event, the appellate court affirmed the lower court’s finding that the contract required the lawsuit to be filed in Denmark and so dismissal of the Massachusetts claims were proper.   The appellate panel also pulled out its thesaurus to conclude that Amyndas arguments were “struthious” and that any further consideration would be “supererogatory.”

Trade Secrecy Claim Abroad: Still continuing the argument, Amyndas argued that the Defend Trade Secrets Act (DTSA) created a public policy that “guarantees a federal forum for trade secret theft claims.”  Prior to the DTSA, ordinary trade secret claims were based only on state law and only in Federal Court on diversity or pendant jurisdiction.  But, the DTSA gave Federal District Court original jurisdiction over trade secret actions.  On appeal, the 1st Circuit found no evidence “that the DTSA was meant to supersede the forum-selection decisions of sophisticated parties.” Id. The court concluded by noting the “sockdolager” is the absence of any public policy reason why Amyndas should be able to litigate its case in the US. The court recognized that its decision “Gives Zealand Pharma home-court advantage and a more favorable choice of law for the trade secret dispute that has arisen.”  Notably, Denmark does not allow the extent of discovery permitted by the US Federal Courts.  But, that is the way contract law goes: “Those regrets may coalesce into a bitter lesson about looking at a nascent partnership through rose-colored glasses.”

Following the district court opinion, Amyndas decided to move forward on a second front and sued Zealand Pharma in Denmark in January 2022.  In addition, it has obtained a stay of the contested patents from the European Patent Office.

On remand in the US litigation, the case is still pending against Zealand US and Alexion.  But, the key allegations were against Zealand Pharama, and so the case may well fizzle out.

I’ll note – normally an appeal is only allowed once a case is finally concluded. Here, however, the district court was careful to issue a partial final judgment under R. 54(b) that dismissed Zealand Pharma and indicated that portion of the case was ripe for appeal.

LexMachina has released a new report on Trade Secret litigation in Federal Court.

The basics: Federal Trade Secret litigation is up about 30% following enactment of the Defend Trade Secrets Act (DTSA) in 2016.  (1134 cases filed in 2017). The DTSA created a federal cause of action for trade secret litigation and resulting original jurisdiction in federal court for the federal claims. Prior to the DTSA, state-law trade secret claims found their way into federal court either via supplemental jurisdiction (typically linked to an a federal IP claim) or via diversity jurisdiction (parties from different states).

The vast majority of trade secret actions include additional causes of action — most often breach of contract or other commercial law claim.

[Report here – Registration Required]

by Hon. Michelle Lee. Lee was the Undersecretary of Commerce and Director of the United States Patent and Trademark Office (2015-2017).

The America Invents Act (AIA), which passed on September 16, 2011, brought about some of the most significant changes to our patent system in over 50 years. The Act included an assortment of reforms from a transition to first inventor to file in the United States, the establishment of processes for third party challenges to granted patents at the United States Patent and Trademark Office (USPTO), the creation of the first regional offices of the USPTO, providing inventors the option for accelerated patent examination, and more.

Many of the AIA reforms strengthened our patent system. For example, as a former Director of the USPTO, I cannot overstate the importance of the Agency’s ability to set its own fees and create an operating reserve. This enabled the USPTO to get through periods of government shutdown and to invest in longer-term initiatives such as much-needed information technology upgrades, hire more examiners to reduce the patent application backlog and provide additional training for examiners. The transition to a first inventor to file system was needed to harmonize the U.S. with the rest of the world. The establishment of the first regional offices of the USPTO made our intellectual property system more accessible to all, and of course, prioritized examination, allowing inventors to accelerate the examination of certain patents, makes business sense.

After passage by Congress, the attention turned to the USPTO, and its massive effort to implement the AIA. Then-USPTO Director David Kappos and his dedicated team at the Agency worked hard to implement the AIA in view of numerous proposed rules, soliciting input from stakeholders along the way. By 2013, the USPTO had completed substantially most of the initial AIA rulemaking, including for the post-patent grant review proceedings.

In 2015, I became Director of the USPTO, and the AIA changes had been in place for barely a few years. Leading the USPTO is a great honor that comes with a tremendous responsibility. As a result, I undertook as a priority to assess how these fledgling and complex reforms were going, and to make improvements where needed. Under my leadership, the USPTO continued to solicit feedback on the AIA reforms via numerous requests for comments to proposed rules and stakeholder engagements. This resulted in the implementation of multiple changes, including to the claim construction standard of soon-to-expire patents to be consistent with the (Phillips) standard used in district court litigation, submission of new testimonial evidence with a patent owner’s preliminary response, the addition of a Federal Rule of Civil Procedure 11-type certifications requiring a duty of candor in papers filed in AIA trials to prevent misuse of the proceedings, and more.

As anyone familiar with rulemaking knows, this process takes time, and that is the way it should be, as agency rules (like legislation) have significant and broad impact on all parts of our society. New rules (and laws) should be promulgated deliberately and with all due consideration of input from all stakeholders, driven by data, in compliance with the law, and with compromise to accommodate the often-times disparate and competing needs.

After the patent community had a reasonable period of time to adjust to and experience the many AIA reforms, we began hearing feedback about additional improvements needed to the AIA trials including, for example, in the areas of motions to amend, the claim construction standard and multiple petitions filed at or around the same time on a single patent. As expected for such complex policy and procedural matters, there was often little consensus on whether and what changes were needed. Given this, my team and I at the USPTO believed it important to gather data and broad stakeholder input on these and other issues raised. As a result of these efforts, we came up with a number of proposed changes and drafted proposed rules for comment. For instance, on the claim construction standard, we recognized the awkwardness and inconsistency of having the validity of patent claims construed under one standard in AIA trials, yet a different standard for patent infringement analysis in federal district court, especially when the petitioner in the USPTO proceeding was often the accused infringer in district court. To provide greater fairness and consistency, I thought it important to change the claim construction standard for all patents in AIA trials to the Phillips standard used in federal district courts.

Signing of the DTSA

By this time, it was the fall of 2016 with an election pending. As was customary, the then-current administration asked the USPTO to stop all significant rulemaking to allow the next administration the courtesy of defining and implementing its priorities. So, we had to pull the package of proposed reforms in the midst of being prepared for publication. While not published during my tenure, these proposals, studies and data put the Agency and my successor, former USPTO Director Andrei Iancu, in a better position to implement needed reforms more quickly. I was pleased to see one of the first reforms implemented in the next administration was changing the claim construction standard in AIA trials to that used in district court for all patents.

As I reflect on my tenure on this 10th anniversary of the AIA, the talented USPTO team and I accomplished much, including the establishment of regional offices to better support innovators (especially individual inventors and small businesses), achieving the passage of the Defend Trade Secrets Act of 2016, making initial improvements to the post-patent grant review proceedings while laying the foundation for more, numerous quality initiatives to ensure the issuance of stronger, more reliable patent rights, launching an open data initiative to provide access to the USPTO’s rich data, bringing artificial intelligence to the Agency to improve its operations, and spearheading the All-In-STEM initiative and other efforts to ensure our intellectual property system is more widely accessible to all.

Few people have had the privilege and responsibility of being the steward of this important Agency so critical to American innovation. As we await the nomination of a new USPTO Director, it is important to keep in mind the job of a USPTO Director is to keep a steady hand on the tiller and to make improvements thoughtfully and deliberately, with careful consideration of the law, stakeholder input and the data, recognizing that with complex policies and procedures and competing stakeholder interests, consensus is often difficult to achieve.

Former USPTO Directors Dickinson, Kappos, and Iancu, each of whom contributed to the enactment and/or implementation of the AIA, have all been dedicated leaders who did what they thought best when faced with the many challenges of their tenure. Just as I benefited from the foundations laid and works-in-progress achieved by my predecessors, the next Director will benefit from the cumulative efforts and learnings of all prior Directors. Our intellectual property system, like our innovations, is constantly evolving. Therefore, all stakeholders must constantly work together to achieve a balanced intellectual property system for the benefit of our inventors, economy and society. That is why I chose the dynamic and impactful practice of intellectual property law, and I wouldn’t have it any other way.

“The views expressed above are solely the author’s and do not represent the views of any organization with which Ms. Lee may be affiliated.”  Lee is vice president at Amazon Web Services and spent a decade at Google leading their patent team prior to her term as USPTO Director.

by Dennis Crouch

Intellectual property rights in the U.S. have long been a mix of state common law rights and federal statutory rights.  Patents and copyrights were established in the Constitution and enacted by the First Congress in 1790.  Those rights were fairly quickly established as exclusively federal, meaning that there is effectively no patents or copyrights offered by individual states.  Trademarks and trade secrets followed a different path – developing under state common law before later later gaining federal protections; with trade secrets moving federal most recently via the Defend Trade Secrets Act (DTSA) of 2016.  Unlike patent and copyright, trademarks and trade secrets continue to be concurrent and overlapping, meaning that state rights continue to exist and be enforceable alongside the federal right.  It is common for litigation to assert both.  With trademark law, the federal right has been around since 1870 and today occupies most of the space.  Because the federal trade secrecy right is so new (and no registration is available), it is still unclear whether we’ll see the same result.

The straggler here is the right of publicity, often termed Name Image & Likeness or NIL rights.  Although publicity rights initially emerged as a privacy interest, I find that students are quick to see its kinship to trademark law and unfair competition.  While typical privacy rights focus on personal interests and one’s peace of mind, the right of publicity is more economic and commercial in nature.  The basic idea here is that a person’s reputation is an asset — commercial goodwill.  And, that person’s brand is their name, image, and likeness.

The growth of the internet and influencer culture has raised the awareness and importance of publicity rights as the a key transferable with endorsement deals and celebrity advertising.  In the background, we also have the emergence of deep fake AI tools that allow digital impersonation of celebrities at a level never experienced (as exemplified by my AI created version of Swift above).

In a recent hearing on AI IP issues before the US Senate IP subcommittee, Adobe proposed creating a new federal right of publicity called the Federal Anti-Impersonation Right (FAIR). This would establish a minimum level of protection against the unauthorized commercial use of a person’s name, image, likeness, or other identifying aspects of their persona. Adobe argued this is needed to protect artists and creators from having their style or likeness copied by AI tools and used by others for commercial gain.  A national right of publicity could provide more consistent protections similar to those created for trademarks and trade secrets. It could also facilitate enforcement across state lines and could eventually serve as the basis for international treaties in this increasingly global space where persona rights are often exploited online and across multiple platforms.

Adobe’s proposal is largely in theory, and the terms have not yet been drawn-up. Obviously, key policy questions remain:

• Should protections apply only to famous personalities or to anyone whose NIL is used for commercial gain?
• How should we balance free speech, parody, and fair use concerns?
• To what extent should online platforms be shielded from liability?
• Should rights vest only for commercial exploitation or is there a privacy interest to protect?

The origins of publicity rights stem from privacy protections rather than commerce. This conceptual difference from trademark law is important, and I would suggest that any federal right should consider personal dignity and reputational interests, not just economic harms from impersonation.

What do you think? Are you ready for a national right of publicity?

The following guest post comes from Berkeley Law Professor Peter S. Menell* who took on the pro bono task of assembling and managing a fabulous team of leading lawyers to create the Trade Secret Case Management Judicial Guide. The guide will quickly become leading the go-to source as Federal Judges manage their growing trade secrecy caseloads.  The following is an introduction and request for comments. – D.C. 

Guest post by Prof. Peter S. Menell*

As the knowledge economy expanded and concerns about trade secret misappropriation mounted in the digital age, federal policymakers undertook efforts to reinforce trade secret protection a decade ago.  These efforts came to fruition with passage of the Defend Trade Secrets Act of 2016 (DTSA).  This landmark legislation, modeled on the Uniform Trade Secrets Act, elevated and expanded trade secret law’s role in the federal intellectual property system.  DTSA fully opened the federal courts to trade secret litigation as well as added several new features, including an ex parte seizure remedy and whistleblower immunity.

DTSA added to the large and growing federal caseloads.  It also exposes more federal judges, relatively few of whom studied or litigated trade secret cases prior to their judicial appointments, to the distinctive challenges of trade secret litigation.

Origins and Design of the Trade Secret Case Management Judicial Guide

In 2019, as part of my work educating federal judges about intellectual property law and case management in conjunction with the Federal Judicial Center, I set out to assemble a team of leading practitioners, scholars, and judges experienced with trade secret litigation to develop a case management treatise to guide judges, litigators, in-house counsel, policymakers, scholars, and students in navigating this new and expanding terrain of federal intellectual property law.

David Almeling and Victoria Cundiff are two of the most experienced trade secret litigators in the nation. They have been instrumental in the Sedona Conference Working Group on Trade Secrets. Jim Pooley has long been the unofficial dean of the trade secret world—author of a leading trade secret treatise, experienced trade secret litigator and advisor, and former WIPO Deputy Director General. Peter Toren is an experienced criminal trade secret litigator who served for many years in the as a federal prosecutor with the Computer Crime and Intellectual Property Section of the Criminal Division of the United States Department of Justice where he served as Acting Deputy Chief. Professor Elizabeth Rowe litigated trade secrets cases before entering academia, where she has published numerous trade secret articles and co-authored the first trade secret law casebook.  Professor Rebecca Wexler is a rising star in scholarship at the intersection of data, technology, and secrecy in the criminal legal system, with a particular focus on evidence law, trade secret law, and data privacy.

I brought experience as a contributor to DTSA (my research and reform proposal was the basis for DTSA’s whistleblower immunity provision), lead author of a widely adopted intellectual property casebook, lead author of the Patent Case Management Judicial Guide (PCMJG), and organizer of over 60 IP education programs for federal judges since 1998.

Using the PCMJG as a template—with chapters organized in the stages of litigation and guided by an early case management checklist—we have worked through countless drafts over the past three years in developing the Trade Secret Case Management Judicial Guide. We have now completed the draft and received comments from a Judicial Advisory Board.  We have submitted the draft to the Federal Judicial Center for publication within its resource library for federal judges. We hope to complete that process this spring and welcome comments from practitioners and other members of the public in the interim. The public can access the guide at:  https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4360102

Distinctive Features of Trade Secret Litigation 

Trade secret litigation has both similarities with and significant differences from other types of civil and criminal litigation. It also parallels and differs from other types of intellectual property—patent, copyright, and trademark—litigation. Three such differences stand out: (1) the tensions surrounding protecting trade secrets over the course of litigation in public tribunals; (2) the high emotional level in many trade secret litigations; and (3) the potentially complex interplay between civil and criminal trade secret actions.

1. The Challenge of Identifying Trade Secret and Then Protecting Them throughout the Litigation

Perhaps the key difference relates to the subject matter: secrets. The secret nature of the information at issue poses significant challenges for case management because of public nature of federal litigation and freedom of expression. Patent cases also involve aspects of secrecy—such as unpublished patent applications that might bear on validity and business strategy related to damages—but trade secret litigation goes to the very heart of the cause of action: that the information that was allegedly misappropriated was not known or readily ascertainable.

Unlike a patent, which affords an exclusive right about the public, trade secrets are relative rights. While the trade secret owner will necessarily need to disclose the secret to some third parties, such as employees or commercial partners, to exploit it, once a trade secret is disclosed by the trade secret owner without restriction or is broadly revealed by third parties without authorization, it cannot be a secret. Those who learn of the secret through publicly accessible websites or publications are free to use that knowledge. The bell cannot be unrung. Moreover, those who independently develop information claimed by another as a trade secret are free to use and disclose it—so long as their development was in fact independent.

Trade secret disputes also present an early “identification” problem that differs from disputes arising over other forms of intellectual property. In patent, copyright, and trademark cases, the intangible resource has already been identified and registered with a regulatory body (or, in the case of unregistered trademarks, made public through use), and therefore can be publicly specified in the pleadings. The protected information claimed to be at issue in a trade secret case cannot be disclosed in public filings, however, without destroying the very subject matter of the plaintiff’s legal claim. Yet defendants need to know what the secrets are that they have allegedly misappropriated and the court needs to know what the case is all about to be able manage and decide it.

This produces three interrelated quandaries at the outset of trade secret case:

• Do the pleadings adequately set forth a cause of action under the familiar Twombly and Iqbal standards?
• When, how, with what level of specificity, and subject to what protective order provisions will the trade secret owner be required to reveal its trade secrets to the defendant?
• What is the boundary between protectable trade secrets and general knowledge and skill?

The first of these questions requires the plaintiff to provide more than vague, conclusory statements that restate the elements of a trade secret to survive a motion to dismiss. The second quandary often requires the court to assist the parties in customizing the discovery process to ensure that the trade secrets stay protected during the course of litigation while facilitating the exchange of sensitive information, often to competing business enterprise defendants. This typically entails fashioning an appropriate protective order that takes into consideration the trustworthiness of the various players in the litigation drama: counsel, litigants, employees, experts, and possibly others. Plaintiffs will understandably be concerned that the very effort to enforce their trade secrets could result in the loss of what may be their most valuable business assets. At the same time, defendants will want to know what they are accused of misappropriating. And the public (including journalists) will be interested in what may be high profile disputes affecting important industries. Consequently, courts will often be called upon to tailor and enforce protective orders and oversee the trade secret identification process.

The third question is primarily a question on the ultimate merits, although it may inform management of the first two. Its resolution will require the court and the ultimate factfinder to delve into the thorny question of where general knowledge and skill end and protectable trade secrets begin. This assessment inevitably involves an appreciation of the technologies or information at issue, which may be beyond the general knowledge of the court. The court and factfinder may need the assistance of experts to sort out these issues to determine liability and frame out the contours of any ultimate relief.

Compounding these challenges, trade secret owners often seek immediate equitable relief to prevent the defendant and third parties from using or disclosing a trade secret before trial. Yet, for the reasons noted above, the contours of the alleged trade secrets and any improper encroachment upon them will often be difficult to assess with precision before there has been sufficient discovery to reveal what information is at risk and to fully test claims of misappropriation. And defendants will fear that early equitable relief on an incomplete record will interfere with their business operations.

Moreover, the secrecy imperative runs through the entire litigation process, not simply the pleading stage. The court must take care to ensure that hearings and filings with the court during the pretrial and trial stages do not disclose trade secrets to the general public. In enacting the EEA, of which the DTSA is now a part, Congress recognized that victims of trade secret thefts could face a dilemma between reporting the matter to law enforcement and concerns that the trade secret will be disclosed during discovery or during a criminal trial. To alleviate this concern, the Act authorizes the court “to enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets.” 18 U.S.C. § 1835(a). At the same time, the court must balance the public’s interest in knowing about civil and criminal proceedings against the trade secret owner’s right to limit access to the trade secrets themselves.

2. High Emotional Quotient

Complicating all of these issues is the fact that many trade secret cases are hotly contested battles that have the emotional intensity of child custody cases. Many trade secret cases pit a business enterprise against business partners, former employees, and contractors who have left the business to form or work for a competing enterprise. In some cases, the former associates are actual family members. But even if not related by blood or marriage, the ties between the plaintiffs and defendants can run deep. Co-founders of companies often have deep and continuing personal, financial, and social bonds. And the alleged misappropriation represents not just a competitive injury but a betrayal of sacred trust. The trade secrets are the product of countless hours devoted to a shared enterprise. They are the intellectual offspring of a joint relationship. The departure of a business associate or former employee can be like the dissolution of a marriage. And where the former colleague competes with the prior business, it can feel like an extreme form of disloyalty.

Trade secret protection can become intertwined with noncompetition agreements and other contractual restraints on the activities of former business associates and employees. The enforceability of such restraints on trade varies according to state law. Even where permitted, such restraints are typically required to be narrowly tailored to protect only legitimate interests, including trade secrets. Absent enforceable noncompetition agreements, employees are generally free to take their general knowledge and skill with them, even to competing enterprises. But therein lies one of the difficulties alluded to above: distinguishing protectable trade secrets from general knowledge and skill.

A second challenging tension may arise if an employee or contractor believes that an employer is engaged in unlawful activity. The employee might plan or be reporting sensitive information to the government as part of a False Claims Act case or other whistleblower action. In such cases, there is a risk that the plaintiff may use a trade secret claim to attempt to silence the whistleblower and gain backdoor discovery of what the government might be investigating. To guard against this overreach, the DTSA immunizes whistleblowers from liability under federal and state trade secret law for disclosure, in confidence, of trade secrets to government officials and attorneys solely for the purpose of reporting or investigating a suspected violation of law.

Another sensitive and difficult pattern relates to economic espionage cases in which the claim is made that an organization, potentially backed by a foreign government, has embarked upon a scheme, sometimes years in duration, to acquire trade secrets to assist development of a competing business or industry. These concerns can lead to both civil and criminal cases and have become more common and salient with growing concerns about international, sometimes state-backed espionage. These cases can be especially difficult to investigate and prosecute as a result of the discovery and jurisdiction impediments posed by international borders and the challenges posed by encrypted digital files. Some may pose concerns relating to sovereign immunity as well as diplomatic issues.

As a result of these patterns, judges in such cases may have to deal with especially high levels of distrust and willingness to escalate the litigation for business, personal, and criminal liability reasons.

3. The Interplay of Civil and Criminal Proceedings

Criminal trade secret investigations or suits are often known or anticipated to be underway during the pendency of a civil proceeding involving trade secrets. Both the government and the defendant in a civil case may have reasons for seeking a stay of the civil proceedings pending resolution of the criminal case. The government may seek a stay of the civil proceeding or of discovery in the civil proceeding to prevent interference with its investigation. The defendant may seek a stay to avoid having to invoke the Fifth Amendment during an active criminal investigation. On the other hand, the plaintiff in a civil case may want to pursue its claim expeditiously. Although most “garden variety” trade secret disputes do not include a criminal component, these are just some of the tensions that courts and litigants need to navigate when dealing with potentially parallel civil and criminal proceedings.

Using the Guide

Trade Secret Primer: Chapter 2 provides a comprehensive overview of trade secret law, tracing its legal sources, history, requirements, whistleblower immunity, defenses, and remedies. It then contrasts trade secrets with other forms of intellectual property, surveys common coincident claims and international aspects.

Early Case Management. Building upon Chapter 2’s survey of trade secret law, Chapter 3 frames the critically important early case management phase and sketches a flexible plan for the initial case management conference. Trade secret litigation typically unfolds quickly, often with the trade secret owner seeking preliminary equitable relief. The court must be ready to assist the parties in crafting a protective order, trade secret identification process, and a discovery plan. Chapter 3 offers a detailed checklist for guiding early case management and a suggested case management order that will anticipate common litigation challenges and facilitate the exchange of information, scheduling of trial stages, and promotion of efficient resolution of the case through litigation or settlement.

Trade Secret Identification. Chapter 4 guides the court through the nuanced process of identifying the trade secrets: the nature of the identification process (a procedural rule, not a merits determination), the timing of identification, the format for trade secret identification, the particularity of identification, access to the identification, and amending the identification. This issue is unique to trade secret law and thus this chapter focuses on a process that may be new to those adjudicating or litigating a trade secret case for the first time.

Preliminary Relief. Chapter 5 discusses the legal standards for evaluating requests for pre-trial equitable relief and expedited discovery in furtherance of such requests, provides examples of evidence that has been found to weigh in favor of or against pre-trial equitable relief, and offers guidance in framing orders granting equitable relief and in managing the entire process, including conducting post-hearing case management conferences following resolution of requests for preliminary equitable relief. It includes templates, tables illustrating relevant evidence, and illustrative orders.

Discovery. Chapter 6 presents the distinctive challenges of discovery in trade secret cases. It examines common discovery mechanisms, protective orders, dealing with the particular types of records often arise in trade secret cases (such as forensic images of devices, source code, employee records, and personal vs. work accounts and devices), management of disputes (including requests to seal documents), discovery from international sources, and common discovery motions. It also discusses the challenging question of how to balance the presumption of open access to the courts and court record with the need for owners of trade secrets to protect the secrets from public disclosure to avoid their destruction.

Summary Judgment. Chapter 7 addresses the summary judgment phase of trade secret litigation. Recognizing that many of the core issues in trade secret litigation are fact intensive, it addresses burdens of proof, the amenability of particular substantive issues to summary adjudication, expert declarations, and useful ways of managing and streamlining the summary judgment process and conducting summary judgment hearings.

Experts. Chapter 8 explores the role of experts in trade secret litigation. It first examines the principal areas in which experts are used and then discusses the court’s gatekeeper role in preventing unreliable expert testimony from being considered by the jury.

Pre-Trial Case Management and Trial. Chapter 9 assists courts in managing the lead up to trial, covering the pretrial conference. Chapter 10 then maps out the distinctive issues that frequently arise in trade secret cases, including late pretrial motions, jury pre-instruction, burdens of proof and persuasion, managing confidentiality in the courtroom, motions for judgment as a matter of law, jury instructions and verdict form, injunctions after trial, and exemplary damages and attorney’s fees.

Criminal Trade Secret Case Management. Chapter 11 presents the substantive law and case management issues associated with criminal trade secret prosecutions. It includes detailed discussion of the elements of proof, identifying the trade secrets, venue, defenses, confidentiality (including protective orders, trade secret owner participation, and cooperation between the government and the victim), extraterritorial application, whether to stay a parallel civil case, and sentencing/penalties.

Call for Comments

 Please send comments to me at pmenell@law.berkeley.edu.

* Koret Professor of Law; Director, Berkeley Center for Law & Technology; Faculty Director, Berkeley Judicial Institute; University of California at Berkeley School of Law.

by Dennis Crouch

A continuing trend in American law is the rise of Trade Secrecy as a powerful form of intellectual property.

The FTC and Biden Administration have called for eliminating employee non-compete agreements, which will strengthen the hard push for trade secrecy.  Most trade secret claims involve former employees moving to competitors.  If contracts limiting those transitions are unenforceable, more weight will almost certainly fall on trade secrecy rights.

Recently, President Biden also signed into law the Protecting American Intellectual Property Act of 2022.  Despite its broad name, the new law focuses entirely on international trade secrecy issues.  In particular, the law authorizes the US President to place sanctions on foreign entities that engage or benefit from “significant theft of trade secrets of United States persons.”   The law has a two-step approach: (1) the President must provide Congress with a report of violators; and (2) the President must then put sanctions on the violators (with the exception that sanctions can be waived if in the national interest).  Potential sanctions include blocking and prohibiting “all transactions in all property and interests in property of the entity.”

The new law is set to Sunset in 7 years and so will not be codified within the United States Code (USC).  However, the law does rely upon the DTSA definition of trade secret found in 18 U.S.C. 1839:

[T]he term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if— (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.

Under Federal Law, the theft of trade secrets held by US persons for the purpose of taking information out of the US is also a felony. See, Economic Espionage Act.

But, for the most part the practice of trade secrecy law is radically different than that of patent law.  I’m wondering the extent that patent attorneys are engaging in the transition.

by Dennis Crouch

The Federal Circuit has been releasing a substantial number of sealed opinions that stem out of confidential briefs.  The Court’s usual operating procedure is to issue the opinion in a sealed form along with an order to show-cause as to what aspects of the opinion (if any) need to remain under seal.

The court’s approach appears to comport well with the requirements under the Defend Trade Secrets Act of 2016 (DTSA). In particular, 18 U.S.C. 1835(b) reads:

(b) Rights Of Trade Secret Owners.—The court may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential. . . .

In a 2016 essay, I explained that the statute appears designed to “prevents a court from disclosing a trade-secret in its opinion without first providing the trade-secret owner with the opportunity to brief the issue of disclosure.”

I’ll note here that the “rights” defined by Section 1835(b) appear purely procedural — the trade secret owner gets a chance to explain its position in an under-seal filing.  It does not actually prevent the court from subsequently disclosing the alleged trade secret.

Rights of Trade Secret Owners in Federal Cases