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 Tenneco West and Safe Flight Instrument

1.  Chrysler v. Brown and Monsanto addressed the problem of preserving trade secrecy in information submitted to the federal government in the normal course of business, i.e., for purposes unrelated to litigation.  These two cases illustrate a similar but distinct problem—how to preserve trade secrets in the course of litigation.

Unfortunately for trade-secret owners, laudable democratic policies of openness and "transparency" in judicial proceedings are antithetical to their interests in keeping secrets during the course of litigation.  It does a trade secret owner little good to take the required "reasonable efforts" to preserve secrets in the marketplace, only to find them disclosed to the public in the courtroom.  Moreover, as we have seen, courts generally mistrust trade-secret claims unless the owner of the alleged secrets identifies them with some specificity; yet doing so risks disclosing the secrets to competitors or the public.  Section 5 of the UTSA recognizes these dilemmas and gives courts the power to resolve them by granting a broad range of protective orders.  Federal Rules of Civil Procedure 26(c) and 37(a)(4) give the federal courts similar but more specific power in discovery proceedings; the federal courts' inherent "housekeeping" power to manage their own proceedings supplements this explicit grant.

2.  It is important to remember, however, that protection of trade secrets in litigation does not occur spontaneously.  The rule is to the contrary; trials in a democracy are supposed to be open to the public.  Today many trials are televised.  Therefore a trade secret owner must take the initiative in asking a court to protect documents or testimony that may reveal trade secrets.

Tenneco West illustrates this point with a vengeance.  Not only did Tenneco had to take the initiative by asking for protection; it was not even a party to an action.  Indeed, there was no action yet at all.  Tenneco had simply received an administrative subpoena relating to an investigation of another party.  It went to court on its own initiative to assert its right to a protective order covering its responses to the subpoena.

3.  This fact raised two issues that seldom arise in cases in which a trade-secret owner sues for misappropriation.  First, Tenneco had to show that it had standing to sue despite the fact that it was not the target of the investigation.  Second, it had to show that there was a genuine case or controversy, as required by the Article III, § 2, of the Constitution, despite the fact that the International Trade Commission had informally consented to its demands.  Because these issues are of constitutional dimension, courts have to address them whether or not the parties themselves do.  Here, the ITC raised the "case or controversy" issue, but the court raised the issue of standing sua sponte.

Can you articulate the arguments on each of these points?  Did Tenneco have standing to sue?  If it did not, how could it have protected its interests?  Was there a case or controversy, despite the ITC's general consent to give Tenneco notice and and opportunity to go to court before disclosing the information it supplied in response to the administrative subpoena?

4.  With regard to the protective order, the Tenneco court enunciated both a procedural standard and a substantive for reviewing district courts' actions in response to federal agencies' actions.  What standard of review did it apply?  Was that standard appropriate in cases in which a federal agency must make the first call in determining whether and how to protect trade secrets?

What was the substantive standard of review?  That is, against what standard does an appellate court assess the legality of a protective order or an agency's refusal to grant one?  Is that standard appropriate?

5.  Was the court right in agreeing that Tenneco was entitled to a judicial order despite the ITC's previous assurances of protection?  Precisely what risks would an order address that the ITC's previous assurances did not?  Are those risks realistic?  If Tenneco had not gone to court to seek a protective order as it did, could a defendant in a misappropriation case later have defended on the ground that Tenneco had not taken reasonable effort to protect its secrets?

6.  Safe Flight Instrument addresses a classic litigation dilemma—the risk of discovery disclosing a defendant's trade secrets.  Suppose A has reason to believe that B has taken its trade secrets, for example, by hiring a key employee away from A.  A goes to court to prove a claim of misappropriation, but A has to rely upon discovery to prove that B has taken A's trade secrets.  How can a court allow A to review B's technology and business operations to assess their degree of use of A's trade secrets without, at the same time, allowing A to take B's trade secrets through the discovery process?

What "solution" does the Safe Flight Instrument court find for this dilemma?  Does it adequately protect both parties' rights—the plaintiff's right to have proper discovery on its claim of misappropriation, and the defendant's right to prevent the suit from becoming a means to misappropriate its own secrets?

7.  The court's order requires lawyers reviewing the defendants' records to be "admitted to the bar of this Court[.]"  What is the purpose of this restriction?  Is it likely to be effective in realizing that purpose?  Unless the lawyers themselves are technically trained, won't they have to consult with technical personnel to assess the significance of the defendant's technical records?  Is it practical to attempt to build an impenetrable wall between the client-plaintiff attempting to prove misappropriation and the lawyers reviewing the technical evidence of it?  Can you think of any alternatives that might offer one or the other party better protection?  both parties?

8.  Remember the case of Litton Systems, Inc. v. Sundstrand Corp.?  On appeal there, the court reversed a preliminary injunction that would have required the defendant to seek the blessing of the plaintiff's lawyers for any disclosure of information to customers or suppliers, lest it contain information from plaintiff's alleged "thousands" of trade secrets.  Remember also how the defendant's lawyer helped win the case by reasonably stipulating to a TRO to give the plaintiff time to identify the specific secrets taken?  Was the defendant's lawyer here too timid in seeking only to restrict disclosure to members of the bar, or was that a clever litigation ploy to disrupt a suspected "fishing expedition" on plaintiff's part and, at the same time, appear reasonably accommodating of plaintiff's legitimate needs?

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