1. Protecting Trade Secrets in the
Current Economy
Kirby B. Drake
ACS National Meeting – August 2010

2. Trade Secrets
 Protection extends to
confidential information that
gives a company a competitive
edge
 No formal registration
requirement
 6-part balancing test
2

3. Trade Secrets
 Disclosure may destroy protection
 Trade secrets usually endure as long as the
information is kept secret
3

4. Trade Secret Considerations
Commercial life of product
Reverse engineering
Independent development
Tipping off competitors
Type of subject matter/industry
Ease of keeping subject matter a secret
Time needed to obtain patent
Economic effects

5. Trade Secret Considerations
Non-exclusive rights
● Independent development not actionable
● Must breach non-disclosure obligation or obtain
trade secret via improper means to be actionable

6. Trade Secret Considerations
Commercial life of product
Economic considerations
● Patents may give a signal that IP was created –
good for future investments, competitive
positioning
● However, absence of patents does not mean IP was
not created
● Less upfront investment to maintain invention as
trade secret
● However, loss of trade secret may be financially
devastating to company

7. The Overlap – Patents and Trade Secrets
New innovations can be protected with
patents or trade secrets
Cannot usually protect same innovation by
both patents and trade secrets
Patent?
Trade Secret?
Both?
Neither?

8. What Do You Keep As a Trade Secret?
Manufacturing
processes
Ideas
Manufacturing drawings
Software
Chemical formulae and
processes

9. Examples of Possible Trade Secrets
Customer Lists
Pricing Information
Product Technical Specs
Marketing Plans
Business Methods
Know-How
Negative Know-How
Computer Hardware
Computer Software
Formulae

10. Effects of Trade Secret Disclosure
 Claim for Trade Secret Misappropriation
 Preliminary Injunction
 Reassignment of Patent
 Destruction of Trade Secret Protection

11. Remedies
 Injunctive relief
 Monetary damages (royalty)
 Attorneys’ fees
 Punitive damages
11

12. Damages Remedies for
Misappropriation of Trade Secrets
Remedies are state-specific (whether in federal or
state court), though most have some version of the
UTSA and include:
1.Actual loss by plaintiff
●Lost profits
●Out-of-pocket expenses
●Loss-in-value of business or trade secrets
●Other losses (consequential)

13. Damages Remedies for
Misappropriation of Trade Secrets
2. Alternatively, or in addition, to actual loss
● Unjust enrichment by the defendant
 Defendant’s profits
 Market value of misappropriated trade secrets
 Cost savings or value of “head start” benefit
gained by defendant
3. Alternatively…
● Reasonable royalty for use of trade secrets
● Use of patent damages construct

14. Damages Matrix
Amount
High $1,606,784
Low $580,806
Plaintiff's Salary Adjustments $55,365
Individual Defendants': Plaintiff's Partial Salary $216,670
Lost Plaintiff Training Investment $52,720
Lost Plaintiff Business Development Investment $221,661
Loss in Value $1,606,784
Reasonable Royalty $779,090
Defendant's Unjust Enrichment: Profits $1,446,106
Individual Defendants' Profits: Defendant's Salary $690,939
Defendant's Avoided Cost: Training Expense $63,833
Defendant's Avoided Cost: Business Development Expense $484,121
Damage
ActualDamage
Plaintiff's Lost Profits
Disgorgement

15. Damages Matrix
Claim 1 -
Breach of
Contract
Claim 2 -
Tortious
Interference
Claim 3 -
Conversion
Claim 4 -
Misappropriation
of Conf Info &
Trade Secrets
Claim 5 -
Unauthorized
Possession of
Computer Info
Plaintiff's Lost Profits 6,934,721$ 6,934,721$ 6,934,721$
Defendant's Profits 2,243,044$ 2,243,044$
Individual Defs' Profits: Salary @ Def 363,114$ 363,114$
Individual Defs' Profits: Salary @ Pl 110,159$
Actual Loss: Software Costs 1,790,444$ 1,790,444$ 1,790,444$
Loss/Avoided Cost: R&D Expense 324,342$ 324,342$ 324,342$
Loss/Avoided Cost: Marketing Expense 281,468$ 281,468$ 281,468$
Actual Loss: Training Investment Cost 550,413$ 550,413$
Actual Loss: New Employee Cost 154,879$
Reasonable Royalty @ 10% 2,425,746$
Co-defendant employees with various NDA, non-compete, and non-
solicit agreements went to work for a competitor B and used their
former employer A’s proprietary customer database with B’s consent to
sell business to A’s customers

16. DuPont, Its Competitors, and Its Employees
 DuPont lawsuit against former employee
 DuPont lawsuit against Invista
 Invista lawsuit against DuPont partner (Rhodia)
 DuPont lawsuit against Kolon Industries

17. Coca-Cola and Pepsi
Formula for Coke
Coca-Cola sued former employee for trade secret
misappropriation
Former employee had offered knowledge of
formula to Pepsi but Pepsi did not use

18. Considerations re: Trade Secrets
in the New Economy
 Opting for trade secret protection in lieu of other
forms of intellectual property protection
 Rise of trade secret audits
 Increased enforcement of non-competes and NDAs
 Modifications to damages model in litigation
 Other considerations?

19. Protecting Trade Secrets in the
Current Economy
Kirby B. Drake
Klemchuk Kubasta LLP
214-367-6010
kirby.drake@kk-llp.com