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 Schulenburg, Henry Hope, and K & G Tool

1.  Each of these three cases deals with a different aspect of the reverse-engineering defense.  In Schulenburg, the trade secrets related to a simple product (a mechanical bulb sequencer for electric highway signs), which was widely sold.  In Henry Hope, the product was a bit more complicated—a side-by-side film roll processor with some unique gearing and other unusual features—which was not sold publicly.  In K & G Tool, the product was more complicated still, and the plaintiff provided it only under a covenant against reverse engineering.

In order to appreciate these cases, you must understand exactly what was claimed as trade secrets.  In each case, can you identify the alleged trade secret(s) that had the best chance for legal protection?

2.  The "could have" defense (that defendant "could have" reverse engineered the product) arises only if the alleged trade secret(s) are susceptible of discovery through reverse engineering.  In each of these three cases, could all the trade secrets be discovered by reverse engineering the products at issue under the circumstances?  If not, which trade secrets could and could not be so discovered?

If the trade secrets could not be discovered by reverse engineering, then the "could have" defense does not apply.  Even if the secrets "could have" been so discovered, should a court refuse a remedy when the defendant did not do the work of reverse engineering but instead got the secrets by improper means?  Does any of these three decisions support an affirmative answer to that question?

3.  Schulenburg also raises interesting questions about how trade secrets can be misappropriated, and the differences between an employer's trade secrets and employees' general knowledge, experience and skill.  The departing employees in Schulenburg may have copied the blueprints, but let us assume that they did not.  Suppose that they simply had memorized the blueprints after working with them over a long period of time, to the extent that, when they reproduced the blueprints from memory, their versions matched the originals down to the lettering and mistakes.  Does/should it matter, in deciding whether the employees misappropriated the trade secrets, whether they took the information in paper form or in their heads?  Does the court think it matters?

Do you agree that the information in the blueprints constituted the employer's trade secrets, and not part of the employees' general knowledge, experience, and skill?  How can courts draw the line between the two?  In this regard, can you distinguish Wexler v. Greenberg and Van Products from Schulenberg on their facts, or do you conclude that Illinois is more protective of trade secrets than Pennsylvania?

4.  Did the "could have" defense arise in Henry Hope?  Could the trade secrets have been discovered by reverse engineering?  If so, how?

Note how the court in Henry Hope analyzes the employee's nondisclosure agreement.  It assess the agreement's resaonableness under the circumstances before deciding whether to enforce it.   Pennsylvania is not the only state in which courts take this approach.  Isn't the analysis similar to that which rule-of-reason states apply to noncompetition covenants?

How stringent are the standards of reasonableness that the court applies in this case?  The nondisclosure agreement here was unlimited in both time and territory.  Do you agree with the court's conclusions that the plaintiff's international operations justified an unlimited territory, and that the agreement was, by implication, limited to the time period during which the secret remained secret?  If the court had been assessing a noncompetition covenant, would/should it have been so ready to find it enforceable by implication?

5.  K & G Tool is our second case involving a covenant against reverse engineering.  Our first such case was Data General, the computer-manual case.  There we learned that a contract could be stronger, for purposes of trade secret law, than the padlock in Acuson.  In which case was enforcing the covenant better justified, Data General or K & G Tool?

Was the court justified in enforcing the covenant against reverse engineering in K & G Tool?   Why?  What would have been the economic consequences of the court's failure to enforce it?  Might certain types of business in the oil fields "dry up"?  What types?  Would that be economically efficient?  Would allowing the defendant in K & G Tool to ignore the covenant and copy the plaintiff's "fishing" tool have any identifiable economic benefits for society as a whole?  Are there any general economic benefits of enforcing such covenants?

The covenant in K & G Tool prohibited only reverse-engineering by disassembly.  There was evidence in the case that the defendant could have reverse engineered the tool without disassembly, by careful inspection.  Should the appellate court therefore have recognized a "could have" defense and ruled for the defendant?

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