- The document discusses the requirement for trade secret owners to take "reasonable efforts" to maintain secrecy of trade secrets. - It provides context from a case where a manufacturer, Rockwell, claimed misappropriation of trade secret drawings by a competitor, but the district court found Rockwell did not take reasonable efforts to maintain secrecy. - On appeal, the appellate court reversed, finding that while Rockwell could have done more, the additional security measures would have been costly and perfect security is not required - Rockwell took some precautions and the competitor did not prove obtaining the drawings lawfully.

1. Reasonable efforts to
maintain secrecy
© DR. VIKAS BHATI, RMLNLU, LKO.

2. Why of the requirement?
It indicates three things:
a. Objective evidence of the steps taken is some evidence that the TS owner
subjectively believed the info was valuable as a secret and thus worth
protecting. That subjective belief in turn is evidence that the info did in fact has
value as a secret;
b. The intensity of efforts indicate the relative value of the secret; and
c. The more the effort the owner put in keeping the info secret, the more likely
the info remained a secret. That is to say, it is more likely than it would
otherwise be that he or she obtained it in an improper way.

3. Case study: Rockwell Graphic Systems, Inc. v. DEV
Industries, Inc., 925 F. 2d 174 (7th Cir. 1991)
 Rockwell a manufacturer of printing presses and their parts for newspapers claims
misappropriation of TS in a suit against competitor DEV and its president (a former
employee of Rockwell)
 District Court finding: No TS as Rockwell failed to take reasonable efforts to maintain
secrecy.
 Background facts: Rockwell manufacture replacement parts (wear or piece parts) and entire
presses. They does not always manufacture the parts themselves they subcontract the
manufacture of it to an independent machine shop, i.e., a vendor. Vendors are given piece
part drawings indicating material, dimensions, tolerance and methods of manufacture.
Rockwell has no patent and believes that they can not be reverse engineered or by
inspection, drawings are required.
 Central issue: whether Rockwell tries hard enough to keep piece part drawings secret
(though not of course from the vendors)

4. Contd…
 Fleck and Peloso were employed by Rockwell and they had been granted access to piece part
drawings. Fleck later joined as president at DEV later Peloso joined after being fired on being
caught removing drawings from Rockwell plant.
 Pretrial discovery showed DEV in possession of 600 drawings of which 100 were rockwell
 Rockwell claims DEV obtained either by stealing or obtaining unlawfully from vendors. DEV
claims to have obtained them lawfully either from customers or vendors.
 DEV major contention before the district court was that Rockwell was “impermissibly sloppy in
its efforts to keep the piece part drawings secret” they claim thousands of drawings were in the
hands of vendors and customers of piece parts.
 The drawings held by customers were in fact not drawings but assembly drawings i.e.
instructions for assembling like eg, instructions for assembling a piece of furniture.

5. Contd..
 On the central issue Rockwell kept the drawings in a vault/ access to vault is limited to
authorized personnel who display id/ they are mainly engineers who are to sign non
disclosure agreements/ one who needs a drawing needs to sign it out from the vault and
return it when he is finished with it/ they are permitted to make copies which they had to
destroy once work is done/ only outsiders are vendors but they are required to sign
confidentiality agreements/ vendors can make copies for internal working and to return the
drawings once work is done BUT ROCWELL DOES NOT ENFORCE THIS REQUIREMENT (reason
vendors would need it again if Rockwell reorders)/ it also permits unsuccessful bidders to
keep the drawings on the theory that the high bidder this round may be the low bidder.
 The DEV is pressing on highlighted points pointing Rockwell’s failure to maintain secrecy and
its failure to segregate piece part drawings from assembly drawings. Which is the reason for
district court finding.

6. Contd….
 Whether Rockwell giving piece part drawings to vendors meant it forfeit trade secret in them?
Not necessarily, it was given to a limited number of people for a limited purpose, in fact it is
often necessary for efficient exploitation of TS and imposes a duty of confidentiality on whom
its being disclosed.
 But, with engineer workforce and vendors included tens of thousands of those drawings were
floating outside Rockwell.
 Significance of requirement of reasonable efforts to maintain secrecy:
Two fold: evidentiary and remedial and this regardless of two different conception of TS
protection prevails.

7. Two conceptions of TS protection
a. More common one gives a remedy for deprival of a competitively valuable secret as the result of
an independent legal wrong (conversion, trespass, breach of employment contract or
confidentiality agreement). Secret being taken by improper means give rise to liability. And
significance is it only allows to obtain damages on the competitive value of information taken.
b. TS picks out a class of socially valuable info that the law should protect even against
nontrespassory or other lawful conduct. (eg. E.I. duPont de Nemours & Co. v. Christopher, 1970
photographing a competitors roofless plant from the air while not flying directly overhead hence
not trespassing or committing any other wrong. However it was found to be improper means
which is key to liability in the first conventional conception.)
 It is unclear how two conceptions are different, it is not as if Christopher court called everything
improper means, it specifically mentioned reverse engineering as proper, though not explained
but it rests on two fold idea that RE involves use of technical skills that we want to encourage
and anyone should have a right to take apart and study a product that he has bought.

8. Contd…
 Its better to describe these conceptions as different emphases. The first emphasize the
desirability of deterring efforts that have their sole purpose and effect the redistribution of
wealth from one firm to another. The second emphasize the desirability of encouraging
inventive activity and protecting it from sterile wealth redistributive- not productive efforts. The
approaches differ at all only in that in second it does not limit the class of improper means in
preexisting pigeonholes, but its also the case in the first approach in the sense that it also does
not assumes a closed class of wrongful acts either.

9. Evidentiary significance of efforts
 Under first approach, Rockwell has to prove wrongful act (illustrated here by unauthorized
removal of piece drawings by the former employees in violation of confidentiality and
employment contracts, Rockwell was not able to prove it directly about those 100 drawings/
but if they can show that the probability of obtaining them otherwise- not by wrongdoing is
slight than it would have been crucial for recovery under the first theory. The greater the
precautions the lower the probability that DEV obtained them by lawful means and higher the
probability of use of wrongful acts.)
 Under the second theory, the owner’s precautions would have evidentiary significance, but
now primarily to show that TS has real value. How defendant acquired is of less importance
though not completely unimportant. (eg. Christopher court spoke of reverse engineering.) If
Rockwell invested paltry resources to maintain secrecy, why law should bother? The info in
drawing could not have been worth much if Rockwell did not think it worthy to take serious
efforts to maintain secrecy.

10. Remedial significance of efforts
 If plaintiff has allowed his TS to fall into public domain then it would be mean to be a windfall
for him if he is permitted to recover damages merely because defendant took the secret from
him, rather than from the public domain which he could have done with impunity. Its like
punishing someone for stealing that he believes is owned by another but that actually is an
abandoned property.
 If it were true, as apparently it is not, that Rockwell had given drawings to customers without
confidentiality requirements, DEV could have obtained them without committing any wrong.
The harm to Rockwell would have been the same as if DEV had stolen but it would not have no
remedy, having parted with its right to the trade secret.
 This is true whether the TS is regarded as property protected against wrongdoers or as property
protected against the world. In the former, defendant is perfectly entitled to obtain it by lawful
conduct if he can and he can if the property is in the hands of persons who themselves have
committed no wrong in obtaining it. In the second case the defendant is entitled to obtain the
property when abandoned by giving away without restrictions by the plaintiff.

11. Why of the requirement
 Can be understood by trade mark analogy. It is the duty of TM owner to police infringement of
his mark, failing it would mean that it had been deemed abandoned or to become generic or
descriptive, thus unprotectable. Failure of TM owner shows that he does not consider it
valuable and creates a situation in which an infringer may have been unaware that he was using
a proprietary mark because the mark had drifted into the public domain. As DEV contends
about Rockwell piece part drawings.

12. What is “reasonable precaution”?
 Answer depends on balancing of costs and benefits which will vary on a case to case basis.
 On one hand the more owner of TS spends he demonstrates that TS has a real value deserving
legal protection and is really hurt by its misappropriation and there really was misappropriation.
On the other hand the more he spends the higher is his cost (both direct and indirect). If
Rockwell imposes severe controls restricting access to drawings the harder it would be for
engineers and vendors to do what is expected from them. Eg. If Rockwell prohibits copying of
drawings engineers had to share a single drawing passing it around them working in the same
room and would it require vendors to come work inhouse Rockwell.
 This kind of pattern of work and production would be far from costless and therefore PERFECT
SECURITY IS NOT OPTIMUM SECURITY.

13. Application of requirement and finding of the court
 Rockwell took some precautions both physical(vault, security guards) and contractual to
maintain confidentiality. Could they have done more? Yes, but at a cost. The question is whether
the additional benefit of those extra measures outweighs the cost?
 It can’t be answered with precision but it can not be said that Rockwell indeed had done
enough and misappropriation can be inferred from a combination of precautions taken by
Rockwell and DEV’s inability to establish the existence of a lawful source of the piece part
drawings in its possession.
 DC judgement was reversed and matter remanded back for further proceedings consistent with
this opinion.
 Take away idea: This case highlights the importance of TS in maintaining competition in market.
If they are protected only when their owner take extravagant, productivity impairing measures
to maintain secrecy the incentive to invest in discovering efficient means of production would
be reduced and with it the amount of invention. The future depends on efficiency of industry
which depends on protection of IP.

14. Thanks!!
DR. VIKAS BHATI