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 Sheets and Defiance Button Machine Co.

1.  Remember Mason, the inventor of Lynchburg Lemonade?  Like Sheets, he also dealt with a big company, but he won his case. Can you reconcile the two cases, i.e., distinguish Sheets from Mason on their facts?

2.  What precautions, if any, did Sheets take to keep his invention secret?  What specifically does the court say he failed to do?  Suppose he had come to you just after he had made his invention and before first disclosing it to Yamaha.  What would you have advised him to do?  Would you have advised him not to talk to Yamaha?  Or would you have advised him to do so and to take precautions to avoid this result?  What precautions would you have advised him to take?  Would you have advised him not to do what the court says he did?

3.  In some ways this case resembles as class of cases known as "idea submission" cases.  These are cases in which a person having no previous relationship with a big company submits an unsolicited business idea to the it, usually by mail.  Most ideas so submitted are worthless, and some are duplicative of the company's existing developmental effort.  Company lawyers and officials worry that, if they appear to promise the submitter anything, the submitter may have a legal claim on the results of the company's pre-existing developmental effort, even if the submitted idea had nothing to do with it.

For fear of this happening, many companies have policies that, at first glance, seem draconian.  They return all unsolicited idea submissions to the submitters with form letters saying they won't consider the submissions unless the submitters agree to sign away all of their rights to them.  Some submitters, mostly without benefit of counsel, agree to these harsh conditions and submit their ideas anyway.  If an idea turns out to be valuable and the company uses it without compensation, thecourt is left with the Hobson's choice of ignoring a clear agreement or permitting a corporate ripoff of a "little guy."

In what ways does this case differ from the typical idea-submission case, in which a previously unknown person submits and unsolicited idea?  In whose favor should the differences operate in Sheets?

4.  Sheets certainly did not keep his cards very close to his chest.  Was the court right in reaching the result that it did, leaving an inventor without recourse or compensation?  Now look at the case from Yamaha's point of view.  What are the policies or purposes that underlie the "reasonable effort" requirement?   Were they satisfied here?  If you were an executive at Yamaha with knowledge of all of its involvement in this case, would you feel you had an obligation to Sheets?  Would you think he wanted compensation or just the satisfaction of having created a useful improvement in the products that he handled?  Would you feel blindsided if the court ruled the other way?

5.  Was Defiance Button like Sheets, or was it more a case in which a single slip was fatal?  Was the court justified in rejecting the trade-secret claim, or was it being hypertechnical?  The customer list was not on the list of assets transferred to the defendant in the sale.  Can you use this fact to argue that the efforts taken were reasonable?   Was at least one purpose of the "reasonable effort" requirement already satisfied?

6.  What about the "smell test" in this case?  Didn't the defendant buy assets that explicitly did not include the customer list?  Didn't the defendant then use surreptitious means to get the list?  Isn't that a bit malodorous?  Were there any malodorous facts on the other side?  Did the court perhaps feel that the Silberman, the conservator who had block many proposed deals, was overreaching?  If so, should that make a difference in the outcome?

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