Course No. 9200-704 (and 804)-801
ID No. 16545
MW 3:00 - 4:30 p.m.
Room 231D (IP Alcove)
|Copyright © 2000, 2002, 2003, 2006, 2008 Jay Dratler, Jr. For permission, see CMI.|
Trade Secrets, Fall 2008
[NOTE: What follows is the examination from 2003, with updated instructions that closely resemble the ones you will have. Please be aware that the subject matter and emphasis of the course may have changed. The time limits, word limits and e-mail addresses for submitting your answers may vary from year to year. ]
2. Limitations. Your completion of this examination will be subject to the following limitations:
4. Strategy for Answering the Questions.
6. Submitting your Answers. Detailed instructions for submitting your answers are at the end of the examination. Please follow them carefully.
This scenario takes place in the fictional Township and County of Outville, in the State of Ohio. Outville is the only township in a largely rural county of the same name, far from major cities and towns. Nearly one-third of its population are members of a strict religious sect—Aolians—who traditionally shun modern gadgetry like computers and televisions. Like any religious group, however, the Aolians have more orthodox and more liberal factions. Despite the Aolians’ general religious prohibition against them, some Aolians use computers openly, and some use them secretly.
In the past, Outville’s political life has been very stable. Nearly all Aolians vote Republican, and another substantial fraction of Outville’s population, although observing other religions, describes itself as conservative Republicans. As a result, all seven members of Outville’s Town Council and all nine members of the county Board of Education are Republicans, and about half of the members of each body describe themselves as Aolians. Nearly all describe themselves as conservative.
Outville’s demographics, however, are changing. In the past few years, retiring professionals and “Yuppies” from various large cities have found Outville attractive for various reasons and have moved there with their families. As a result, the traditionally outvoted one-third of the population that considers itself Democratic or liberal is growing rapidly. Recent polls show Outville’s electorate nearly even split in party affiliation. So the 2003 general election promises to be the most exciting and contested election in years.
In April 2003, the Outville Democratic County Committee (ODCC) decides to make a major effort to change electoral politics in Outville Township and Outville County. It proposes a completely new slate of candidates for both the Outville Town Council and the Outville County Board of Education. The ODCC publicly announces its slates of candidates in May, and they elicit great interest from all country residents.
of Outville County’s large size and rural nature, the pickup
truck has been the traditional campaign tool of choice. Past
political campaigns have involved candidates cris-crossing the county
in their pickup trucks, going from farm to farm and door to door, often
announcing their visits by telephone in advance. This sort of “retail” campaigning,
however, is expensive and time-consuming and often favors incumbents.
The ODCC works out this bold strategy in a series of small meetings among high party officials at members’ homes. In the last such meeting, the ODCC’s Chairman warns all members present to keep the strategy secret “so the Republicans will be greatly surprised.”
Since no senior member of the ODCC has extensive computer or broadcast experience, the group decides to hire an outside consultant to set up the Website and manage the new broadcast strategy. After a nationwide search, the ODCC hires Darlene Davis for this work.
Darlene has a bachelor’s degree in broadcast communications and a master’s degree in computer science from a leading university. She put herself through school designing commercial Websites on the side. Her resume states that she seeks work “at the intersection between broadcast and Internet media,” so the job seems ideal for her.
As soon as Darlene agrees to take the job, the ODCC’s Chairman explains the new campaign strategy to her. He cautions her that the strategy is secret because the ODCC wants to “stun” Outville’s Republicans with an Internet-financed broadcast-media “blitz” in the late fall, when it will be too late for the Republicans to raise enough money to respond in kind. The ODCC’s Chairman tells Darlene that the ODCC wants its campaign-financing strategy to be as successful as Howard Dean’s, or even “to out-Dean Dean.”
The ODCC asks Darlene to sign a brief employment agreement, which the Chairman adapted from a book of legal forms. This contract requires Darlene to keep all of the ODCC’s “confidential information, processes, methods, and business and financial information secret” and not to “compete with the ODCC in any way” for a period of twenty-four months after leaving the ODCC’s employ for any reason. The agreement also commits Darlene not to “solicit or deal with any of the ODCC’s customers, clients, or suppliers” for a like period. Darlene happily signs the agreement and goes to work.
Darlene quickly proves herself to be a skilled programmer, Website designer, and media consultant. On her own initiative, she designs a special Web page for the ODCC’s campaign Website. This page allows visitors to register once and thereafter to make campaign contributions to the ODCC simply by clicking once on a box with a designated contribution amount (e.g., $5, $10, $15, $25, $50, $100, etc.). Each single-click contribution is deducted automatically from the visitor’s credit-card, debit-card or electronic-cash account and credited to the ODCC’s bank account. This new “One-Click-Contribution” page is hugely successful in attracting repeat contributions from supporters of ODCC, and its campaign coffers quickly grow.
The fact that a single click can make a contribution is of course apparent from the Website itself. But how Darlene’s computer code enables the single-click method is concealed by her use of specialized programming techniques. These techniques prevent ordinary viewers of the Website from viewing the source code that implements the single-click contribution process. Darlene developed both the techniques and the source code alone, at home, on her own password-protected personal computer.
The source code also resides in a password-secured directory on the ODCC’s server. Although any member of the public, without restriction, can access the Website, read ODCC’s campaign literature, and make a contribution, only people with the password can access this secure directory.
The only person at the ODCC (other than Darlene) who has access to this source code is the ODCC’s part-time volunteer computer technician. This technician is a high-school student who assists Darlene but doesn’t understand the programming language that Darlene uses for her source code. For administrative purposes, the technician has access to the server’s password, but in fact the technician seldom uses it. Nobody has told this technician that Darlene’s program is secret or not to be given to anyone, but the technician, a devoted Democrat, understands that the program is part of the ODCC’s generally secret campaign strategy.
The ODCC’s new one-click Website is very successful and raises lots of money for the ODCC’s campaign. Late in the summer, Darlene begins massive purchasing of broadcast advertising time for ODCC’s media blitz. She visits all three radio stations and the single local television station serving Outville County, and she purchases all the air time she needs. At each television station that she visits, Darlene tells all the personnel to whom she speaks that the amount, timing and purpose of her purchases are part of the ODCC’s secret campaign plan and are not to be disclosed to anyone.
Darlene finishes her air-time purchasing one week before ODCC’s media blitz is to begin. Exhausted by her nonstop, late-night efforts, she decides to celebrate successful completion of her work. At 10 p.m., she goes to a neighborhood bar in a small town in a neighboring county in which the headquarters of one of the radio stations is located.
There Darlene finds a friendly bartender. After she tells him that her hotel is only a block away, so she need not drive, the bartender lets her drink a little more than the law normally allows.
The bartender is a likeable and talkative sort. Without quite realizing it, Darlene soon has told him about ODCC’s plans for a media blitz, the ODCC Website, and the way she programmed it for “single-click” contributions. Shortly after midnight, she stumbles home to her hotel, more than a little inebriated. In the morning she barely remembers having visited the bar the night before.
Unbeknownst to Darlene, her friendly bartender is the renegade brother of the Aolian minister (a Republican) who heads the Outville Town Council. The next day, the bartender calls his minister brother and tells him what he has learned from Darlene.
Two days later, Darlene receives a call from the Chairwoman of the Devoted Republicans’ Central Committee (DRCC), which serves as the Outville County’s Republican Party committee. The DRCC Chairwoman offers to hire Darlene as a media consultant and air-time purchaser, for a period of two months, at an exorbitant salary more than four times what the ODCC had paid.
Believing that her work for the ODCC is basically finished, Darlene accepts the new job. By the next week, the DRCC has a new Website with a single-click contribution page. By mid-week, Outville County’s three radio stations and single television station are all airing strident Republic ads with the following refrain:
“The Democrats in Outville County have a new Website and are about to start a broadcast blitz, but don’t be fooled. They’re offering the same tired solutions to the County’s problems that they’ve always offered, and they just won’t work. Don’t let outsiders with new technology and new money buy Outville.”
Outville Township’s and County’s elections are now just three weeks away. The ODCC’s Chairman has heard through the grapevine (Outville is a small town, after all!) that it was Darlene who disclosed the ODCC’s secret “media blitz” plans. Furthermore, to the untrained eye the DRCC’s new one-click-contribution Web page seems almost identical to the ODCC’s similar page. Based on this and other information, the ODCC has sued Darlene and DRCC for a whole host of wrongs, including trade-secret misappropriation, breach of contract and inducement of breach, and other IP violations.
In its lawsuit, the ODCC has asked for a temporary restraining order and preliminary injunction requiring the DRCC to: (1) take down its new Website, or a least its single-click contribution Web page; (2) reduce its local media air-time purchases to the same level as before it learned of the ODCC’s secret plan, until after the upcoming election; and (3) cease any campaigning based upon the ideas in the excerpt quoted above. The ODCC also has asked the DRCC to pay unspecified damages and to disgorge all campaign contributions received since the DRCC’s new Website went on line.
The court has refused to grant a TRO without a hearing. The judge said she would consolidate the motion for a TRO with the motion for a preliminary injunction. The hearing is scheduled for tomorrow.
The DRCC has hired you as special trade-secret counsel to analyze the trade-secret misappropriation claim and related contract and interference claims. Please write DRCC a memo analyzing:
1. What, if anything, the ODCC can claim as its trade secrets;
2. Which of those trade secrets (if any) has DRCC misappropriated and how; and
3. What preliminary remedy (if any) the court is likely to grant and why.
4. To what extent would your answers to the foregoing change if the all the facts had occurred, and the suit had been brought, in Wisconsin or California?
Be sure to consider all reasonable defenses to the trade-secret claims and requested remedies. You may also consider contract and interference claims related to the trade-secret claims, but limit your analysis to the stated facts, and do not consider other causes of action.
Mrs. Shandri is an immigrant from Pakistan with six children in school. She and her family have lived in the United States for twelve years. Her husband has a good job as an electronic engineer in a local manufacturing plant, so Mrs. Shandri has spent most of her time at home, caring for and raising the children.
While at home, Mrs. Shandri also has spent some time indulging her life’s passion: gourmet cooking. Starting with traditional Pakistani and East Indian dishes that she learned from her mother, she has experimented with “fusion” cooking, using various combinations of Pakistani, East Indian, American and French cuisine.
Her husband and children love her cooking. Every time the family has had guests for dinner, the guests have raved about her cooking and suggested that Mrs. Shandri open a restaurant. Her older children are now approaching college age and, after much discussion with her friends and family, she has decided to do so.
Until now, Mrs. Shandri has done all of her cooking in her own kitchen at home. Her recipes take a long time and great deal of care to prepare. Sometimes members of her family or even guests have watched her cook, but usually only for short times. She keeps a notebook of her recipes on a shelf over the range in her kitchen; sometimes she has allowed relatives and family friends to look at the notebook and even copy a recipe or two by hand.
Mrs. Shandri has just rented a site for her restaurant. At the moment, the site is an empty shell, with only outside walls, waiting for the installation of cooking equipment, interior walls, tables, fixtures, bathrooms and a reception area. Mrs. Shandri has the idea that, if her restaurant is successful, she may some day manufacture frozen delicacies for sale on the same site. So she wants the kitchen to be very large and capable of “mass production,” at least on a small scale, with large exterior doors and a loading dock to allow loading of packages of frozen food.
However, Mrs. Shandri is conscious of the fact that her special recipes—all of which she has developed herself—would not be hard to duplicate. She has heard that information in such things as recipes can be kept secret and even protected legally. She has hired you to advise her on whether she can protect her recipes as secrets from copying by others, and on what she should do. As she has told you, she knows nothing about the law or the American legal system.
Write a short memo to Mrs. Shandri, evaluating her chances for protecting her recipes as trade secrets, explaining the requirements and limitations of trade-secret protection that are relevant to her proposed businesses, and advising her, in detail, on what she should do to maximize her chances for achieving good legal protection. Be sure to include any practical measures that you think may be necessary or helpful in constructing and operating the restaurant. Since Mrs. Shandri’s family is not rich, however, be sure to take the cost of those measures into account and to give her reasonable alternative options.
Wizzy Wizard, a famous garage inventor, has devised a new type of hand-held personal computer. The prototype is small and light, fits in a shirt pocket, and operates by voice control.
Wizzy’s computer uses standard, off-the-shelf commercial microprocessors and memory chips. What makes Wizzy’s invention unique is two special parts that Wizzy himself invented. First, there is a highly compact and inventive specialized circuit that converts analog voice signals into digital computer controls (the “Voice Analog Circuit”). Wizzy thinks this circuit, or the methods used in it, might be patentable; but in any case, he’s pretty sure no one else has ever developed anything like it.
Second, Wizzy has programmed the computer’s microprocessor to perform a number of special functions required to convert voice signals into usable commands. The programming language that Wizzy used is a standard microprocessor assembly language, but his program (the “Control Program”) is anything but standard. Wizzy, who is a mathematical genius, invented a number of new algorithms and programming techniques for this program, which no one has ever used before (the “Wizzy Algorithms”).
Some of the Wizzy Algorithms may be patentable; but the validity of patents on them depends upon the vagaries of patent law and the legal question (not as yet completely resolved) whether pure algorithms are patentable. The Control Program as a whole, however, is copyrightable, and Wizzy has already submitted to the Copyright Office in Washington, D.C., an application to register copyright in his program as an unpublished work.
For two months, a large electronic manufacturing company, called Lee Electronics, Ltd., (“Lee”) has been negotiating with Wizzy for the right to produce and market a commercial version of Wizzy’s invention worldwide. The negotiations have been exhausting, but Lee finally agreed to pay Wizzy a royalty of ten percent (10%) of Lee’s (wholesale) price of each computer using Wizzy’s technology that Lee makes and sells.
Wizzy has hired you to draft the royalty clause and make recommendations for ensuring its enforceability. Draft the royalty clause only, in one or at most two sentences, followed by a short memo to Wizzy explaining why you drafted it the way you did. Include in your memo a description of any other language or terms of the agreement that you would (1) like to have in the agreement, or (2) like to avoid in the agreement, in order to help make your royalty clause enforceable under all possible circumstances. Be sure to explain the legal theory behind each recommendation. Since Wizzy is a genius and an armchair lawyer, feel free to refer to legal principles and cite decided cases in your memo. (Assume that Wizzy has another lawyer who will draft the actual language of the agreement, apart from the royalty clause, based upon your recommendations.)
Your client, Advanced Biologicals Company (“ABC”) is a small biotechnology research boutique. ABC’s management believes it has developed the first truly effective vaccine against malaria. The vaccine has undergone small-scale (Phase II) clinical trials in Africa and appears to be both safe and effective.
ABC is a small company. It does not have the finances to undertake the large-scale (Phase III) clinical trials needed to obtain the approval of the U.S. Food and Drug Administration (“FDA”) for marketing the vaccine generally. Nor does it have the capability to market and sell the vaccine worldwide. So ABC has entered into discussions with Big Drugs Everywhere, Inc. (“BDE”), a multinational pharmaceutical company with worldwide manufacturing and distribution operations. BDE proposes, under license from ABC, to undertake Phase III trials in the United States, and (if the trials are successful) to secure FDA approval and similar approval in foreign countries and make and market the vaccine worldwide.
Although ABC’s vaccine or the method of making it may be patentable, both the vaccine and the method for making it appear to be obvious variants of patented technology on which the patents will expire in two years. Therefore it is likely that no patent protection will be available after two years. The only thing likely to merit extended legal protection is the details of ABC’s manufacturing process, which, although probably an obvious combination of known manufacturing steps (and therefore not separately patentable), may be maintained as a trade secret. In preliminary discussions, however, BDE has insisted on a clause in the proposed agreement extinguishing all royalty payments to ABC as soon as any lawful unlicensed competition appears.
Because malaria is rare in the United States, the major markets for the vaccine are foreign countries (particularly in the tropics) and the United States Army. The manufacturing process for the vaccine, although complex, can be performed “in the field,” and the U.S. Army is interested both in receiving supplies of the vaccine and in a license to make the vaccine itself in field locations throughout the world.
Because malaria is not a significant disease inside the United States, the FDA has adopted a special regulation governing all applications for pre-marking approval for malaria vaccines. The regulation states that information in such applications may be kept confidential at the applicant’s request, and upon request may not be used in any follow-on applications for FDA approval. There are, however, two important exceptions. Such information may be disclosed: “(1) to foreign armed forces if the President determines that such disclosure is necessary to meet the United States’ military or foreign policy objectives; and (2) to any manufacturing entity, for manufacture and sale only, if the President determines that such manufacture and sale is necessary to satisfy unmet demand for the vaccine.”
Write a memo to the CEO of ABC, evaluating and recommending whether ABC should enter into the proposed relationship with BDE, with the proposed clause extinguishing BDE’s obligations to pay ABC royalties upon the appearance of any lawful unlicensed competition. Include in your memo any precautions that ABC might take, and any requirements or obligations that ABC might impose on BDE, for purpose of avoiding the emergence of lawful unlicensed competition. Explain each of these precautions, requirements, and obligations briefly and estimate how effective each might be in protecting ABC’s financial interests.
“Trade-secret law is a superfluous field of law. For over a century, its sporadic and uneven development—case by case—has tortured law students, lawyers and judges with uncertain, unpredictable and inexplicable decisions and remedies. Yet the whole enterprise was really unnecessary. Anything that trade-secret law protects can be protected equally well by contract.
Write an essay analyzing and/or criticizing this passage. Be sure to address all three aspects of the passage: (1) its underlying assumptions about the law and its effect; (2) its prediction of consequences; and (3) its judgment as to what is good policy, including economic policy. Your grade will depend not upon your point of view, but upon how carefully and specifically you support and document your analysis, with reference to the statutes, cases and policies that we have studied. The more specific and focused your analysis, the better your grade will be.