FALL 2008

Trade Secrets


Course No. 9200-704 (and 804)-801

ID No. 16545

MW 3:00 - 4:30 p.m.
Room L-134
Professor Jay Dratler, Jr.
Room 231D (IP Alcove)
(330) 972-7972
Copyright © 2000, 2002, 2003, 2006, 2008   Jay Dratler, Jr.   For permission, see CMI.

Questions and Notes on Altai, Dotolo v. Schouten, and Heyman v. Winarick, Inc.

1.  Why did Altai and Wexler differ in result?  What differences in facts explain the difference in outcome?  Did Arney have a confidential relationship with Computer Associates International, Inc. before he left to join Williams at Altai?  If so, on what was that confidential relationship based?

2. The Altai case is far more typical of run-of-the-mill trade secret cases than Wexler. Ordinarily, when an employee leaves an employer and takes the employer's trade secrets for a second employer to use, both the employee are and second employer are liable for misappropriation of trade secrets.  Under what subsections of the UTSA's definition of misappropriation is the employee likely to be liable?  the second employer?  Is an agreement essential for liability, or is a duty of confidence normally implied?  What things—besides having an employee sign an explicit confidentiality agreement—might an employer do to demonstrate such a duty?>

3.  Altai is also another third-party misappropriation case.  That is, the principal defendant (and the deep pocket!) is not Arney, the employee who took the trade secret, but the second employer (Altai) for whom he used it.  Why is the court concerned about "notice" to Altai, implying that Altai would not be liable without notice?  What subsections of the UTSA's definition of "misappropriation" suggest that notice is important?  Would the complaint in the lawsuit provide such notice?  the relationship between Arney and Williams?

4.  The trade-secret claim was especially important in Altai because the copyright claim ultimately failed.  Computer Associates had won a judgment of infringement with respect to OSCAR 3.4, which Altai had not appealed.  However, Altai had no intention of marketing OSCAR 3.4, since that would only increase the damages for conceded copyright infringement.  Instead, Altai hoped to base this part of its business on OSCAR 3.5, its new scheduling product.

Altai had developed OSCAR 3.5 using a so-called "clean-room" technique.  In that technique, "naive" programmers, not tainted by contact with the plaintiff's software, create new software that performs similar functions, using only the "ideas," "techniques," and "methods" of the plantiff's software, as described in "functional specifications."  Since copyright does not protect ideas, techniques or methods, see 17 U.S.C. § 102(b), but only their form of expression, this "clean room" technique usually avoids copyright infringement because it avoids copying anything but the ideas, techniques and methods of the plaintiff's program.

Can you now see why the trade secret claim in this case was especially important to the parties in this case?  Can you also see why Altai insisted that the trade-secret claim was pre-empted by the copyright claim?  We will study the pre-emption aspects of this case later in the course.

5. What economic and social policies support imposing liability on Altai to Computer Associates under these facts?  What economic and social policies oppose doing so?  If you were the judge on remand, would you hold Altai liable for trade-secret misappropriation on these facts?  Under the UTSA, what would the chief legal issue be, and how would these facts affect its resolution?

6.  Dotolo v. Schouten and Heyman v. Winarick, Inc. both illustrate a point we've seen before (in Smith v. Dravo Corp.), namely, that confidential relationships can arise even in arm's-length business transactions, even without a nondisclosure agreement.  In each case, what specific facts made it reasonable to infer the existence of a confidential relationship?  Does it make sense, as a matter of social and economic policy, to infer a confidential relationship based upon those facts?  What would the economic consequences be, both for the parties and for others similarly situated, if the law did not infer a confidential relationship from those facts?

7.  What explains the different result in Dotolo and Heyman?  Was it the absence of a confidential relationship in one of the two cases, or something else? Misappropriation depends not only upon the existence of a duty of confidence, but its violation.  Was there such a violation in both cases?

8.  In both Dotolo and Heyman, the defendants reverse-engineered the plaintiffs' products by having them chemically analyzed.  Then why didn't both defendants win?  Did the Dotolo court grant a remedy that, in effect, put the defendant in a worse position, vis-a-vis the trade secret, than a stranger, who might have reverse-engineered it?  What justification in policy is there for that result?  What policies to the contrary?  Were both decisions correct on their facts?  If so, is reverse engineering always permissible?
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