FALL 2010

Trade Secrets


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

ID No. 85737 & 85736

Time:  W 6:30 - 9:30 p.m.
Room:  W-215
Professor Jay Dratler, Jr.
Room Across from 231D (IP Alcove)
Home: 330-835-4537
Copyright © 2000, 2002, 2003, 2006, 2008, 2010   Jay Dratler, Jr.   For permission, see CMI.

Questions and Notes on International Protection of Trade Secrets

1.  Protection of trade secrets outside the United States is problematic for several reasons.  First and foremost, trade-secret protection inside the United States is essentially a creature of the common law.  Although various states codified the common law in various ways, no generally acceptable model statute appeared, even in the United States, until the first (unamended) version of the Uniform Trade Secrets Act was adopted in 1981.  In constrast, both our patent and copyright statutes date from our nation's founding, see: Act of Apr. 10, 1790, 1 Stat. 109 (first federal patent statute); Act of May 31, 1790, ch. 15, 1 Stat. 124-126 (first federal copyright statute), and federal recognition of trademarks dates to the first trademark registration statute in the 1870s.  See Jay Dratler, Jr., Intellectual Property Law: Commercial, Creative, and Industrial Property § 9.02[1] (Law Journal Press, 1991) (discussing adoption of federal trademark registration after constitutional invalidation of first statute in 1879).  Thus, incorporation into statute of the common-law principles of trade secrecy lagged the development of other intellectual-property statutes by over a century.

2.  The second reason why international protection of trade secrets is problematic is related to the first.  Most of the world has no common law.  Except for English-speaking nations, virtually the entire world follows the civil-law system, ultimately based upon Roman law.  Under that system, courts have no independent power to make law, but are limited to interpreting legislative enactments, and judicial decisions have little or no precedential effect.  Therefore most of the world had and had no special basis for developing trade-secret protection along the lines of the common law, as it developed in the United States.

Under the influence of Anglo-American legal systems, some industrialized foreign countries have purported to find a basis for trade-secret misappropriation claims in generally applicable civil-law provisions for remedies for civil wrongs.  That is, they have interpreted general statutes providing damages for torts—usually defined generally as civil wrongs—as also providing remedies for trade-secret misappropriation.  This intepretatation is based upon a simply syllogism: because a general statute provides a damage remedy for all civil wrongs, and because trade-secret misappropriation appears to be a civil wrong, that same statute should provide a damage remedy for trade-secret misappropriation.

This interpretation, however, often depended upon the liberal views of legal scholars including trade-secret misappropriation within the general notion of "civil wrong."  See Jay Dratler, Jr., Trade Secrets in the United States and Japan: A Comparison and Prognosis, 14 Yale J. International L. 68, 104-110 (1988) (discussing similar scholarly interpretation of Article 709 of Japanese Civil Code, but noting lack of strong judicial authority to support it and unavailability of injunctive relief).   Yet until (if ever) a court in each nation validated these scholarly views in adjudication, they were just so much professorial speculation.

3.  The final reason why international protection of trade secrets is problematic relates to remedies.  In the United States, trade-secret protection was not just a creature of the common law, but of equity.  Indeed, the very duality of trade secrets—property or confidence—is based upon the notion of a remedy for the inequity of breaches of confidence and industrial espionage.  See E. I. DuPont de Nemours Powder Co. v. Masland, 244 U.S. 100, 102, 37 S.Ct. 575, 61 L.Ed. 1016 (1917) ("The word property as applied to trade-marks and trade secrets is an unanalyzed expression of certain secondary consequences of the primary fact that the law makes some rudimentary requirements of good faith") (Holmes, J.).  Relief for such inequity required not only substantivee notions of equity but the peculiar remedies available in courts of equity, especially injunctions.

The dual system of legal and equitable courts, however, is a peculiarity of the Anglo-American legal system.  It has few counterparts in the civil-law systems that prevail in most of the world.  As a result, most foreign nations have neither the substantive notion of equity nor the tradition of strong remedial orders to support the robust protection of trade secrets that American litigants have come to expect.  Even if foreign countries interpret their general tort law to provide a cause of action for trade-secret misappropriation, the remedies that their courts can provide for that wrong, in the view of Anglo-American parties, often falls short.  Thus, as all three of the foregoing considerations suggest, protection of trade secrets is generally weaker outside than inside the United States.

4.  This, at least, was the state of affairs at the time the Ohio federal district court decided CPG Products.  In that case, did Kenner have a trade secret in the process for manufacturing its elastic dolls?  in the detailed cost figures for its plant and manufacturing process?  Would the facts of that case have met the requirements for all three elements of trade secrecy under the Uniform Trade Secrets Act today?

The CPG Products court denied Kenner injunctive relief, at least inside the United States.  What was the reason for that denial?  Does it make sense in context?  Can you infer from the facts of the case that the popularity of Kenner's elastic dolls may have faded by the time of trial?  If so, what difference did/should that make in precribing a remedy?

5.  For present purposes, the most interesting aspect of CPG Products is the equitable relief that the court did grant. What was that relief, and why did the court grant it?

If defendant Mego had transffered the trade secrets it had taken from Kenner to Mexico, could they have been adequately protected there?  What about Taiwan, Hong Kong, and Korea, where Mego was considering manufacturing the dolls?  Were those places, at the times of interest, noted for strong protection of intellectual property?  Was the court's injunction therefore justified despite the inappropriateness of an injunction inside the United States?

6.  Until 1996, international conventions governing intellectual property reflected the general weakness of trade-secret protection abroad.  The first of the great international conventions was the Paris Convention, originally adopted in 1883.  See International Convention for the Protection of Industrial Property, done at Paris on March 20, 1883, 25 Stat. 1372, TS No. 379, as revised at Stockholm on July 14, 1967, 21 U.S.T. 1629, TIAS 6923 (Stockholm text).  Its primary foci were patents and trademarks. See also, Jay Dratler, Jr., Intellectual Property Law: Commercial, Creative, and Industrial Property § 1.09[2][a] (Law Journal Press, 1991).

The Paris Convention did and does have a few provisions governing unfair competition.  See id., Articles, 9 - 10ter, esp. Article 10bis.  What types of unfair competition do these provisions cover?  Do they cover "passing off" of one's goods as the goods of another?  Do they cover infringement of unregistered trademarks?  Do they cover the sort of "false designation of origin" that is now actionable under our federal law by virtue of Lanham Act § 43(a), 15 U.S.C. § 1125(a).

Do any of the words of Article 10bis of the Paris Convention appear to cover trade-secret misappropriation?  Do any of the provisions of that Article come close to requiring member states to adopt legislation providing an adequate remedy for that tort?

7.  Only in 1996, when the TRIPs Agreement came into effect as part of the Uruguay Round Agreements in GATT, did international conventions finally require, in unambiguous language, something resembling trade-secret protection.  Take a close look at Article 39.  Does it use the term "trade secret"?  Does it use another term instead?    Does it nevertheless cover much the same ground as our law of trade secrets?

What elements does Article 39 require for protection, and how do those elements compare with the three elements of trade secrecy as defined, for example, in Section 1(4) of the Uniform Trade Secrets Act?  What about misappropriation?  How does the TRIPS Agreeement define it, and how does its definition compare to that in the Uniform Trade Secrets Act?

8.  Suppose a case just like CPG Products were to arise in the year 2002, six years after the TRIPs Agreement entered into force.  Could the defendant (in Mego's place) resist an injunction on the ground that it was not necessary to protect the plaintiff's trade secrets either in the United States or abroad?  Marshall your arguments pro and con, and be prepared to argue the case in class.  As you marshall your arguments, be sure to consider the treatise excerpt handed out in paper form.

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