The Trade Secrets Dilemma – Sue and Disclose

An interesting article from Thomon Reuters News & Insight on an age-old problem in trade secrets, the fact that bringing suit often requires disclosing the trade secrets.

The article concerns a case in New York state court, MSCI v. Jacob and Axoma. MCSI, a software maker, claimed that its former employee, Jacob, misappropriated trade secrets in its software on behalf of his new employer, Axoma.

The judge overseeing the case made a critical ruling in a discovery dispute requiring the plaintiff to identify “with reasonable particularity” the trade secrets it contends were misappropriated. Only this, the judge ruled would allow the court to distinguish “between the general knowledge in their field and trade secrets.”

An earlier ruling, now changed, had allowed the plaintiff to identify only those portions of its computer source code that were not trade secrets. That, defendants contended, was unfair since it essentially required them to deduce which trade secrets were at issue, possibly from millions of lines of computer source code.

The judge came around to defendants’ point of view:

Plaintiffs who have brought this action, bear the burden of proving their allegations. Merely providing defendants with plaintiffs' "reference library" to establish what portions of their source code are in the public domain shifts the burden to defendants to clarify plaintiffs' claim.

One of the defense lawyers claimed that to do otherwise would be like allowing a person to claim that he had been robbed by a suspect and then walk around the suspect’s apartment to identify what was taken.

Before bringing any trade secrets case, it's always necessary to consider what disclosure may be required and its implications for the business and the trade secrets themselves.

Trade Secrets of Minor League Hockey?

From the Ithaca Journal (located in the scenic law school stomping grounds of my co-author) a story about alleged trade secrets stolen from a minor league hockey team.

To the point, the owner of the Elmira Jackals is accusing the team’s former general manager and assistant general manager of stealing trade secrets.

No, it’s nothing about a secret strategy for playing hockey.

Rather it’s information about “how much the Jackals' sponsors have in their advertising budgets, and what sorts of deals they like to make.”

And, the allegation is, they are doing it for their new team, the Elmira Pioneers, which competes with the Jackals for advertising dollars.

In that regard, the case sounds like a pretty standard “customer list” case, albeit in an industry where there wouldn’t appear to be many secrets about who the advertisers are that couldn’t be gleaned by reading the names on the boards.

Ninth Circuit Opts for Narrow Construction of Computer Fraud and Abuse Act

From the California Recorder, an article concerning the Ninth Circuit’s en banc ruling in U.S. v. Nosal (opinion here), holding that a simple violation of terms of use does not constitute a violation of the federal Computer Fraud and Abuse Act which prohibits users from “exceeding authorized access.”

The facts of the case are pretty simple. Nosal left the employment of an executive search firm but got some old pals back at the employer to send him confidential information that they shouldn’t have.

The question was did this violate the terms of the federal law. Other circuits – notably the Fifth, Seventh and Eleventh – have taken a broad view.

The Ninth Circuit, in an en banc decision by Chief Judge Kosinski, nixed that and ruled for the defendant.

The main concern, it seems was that standard computer behavior -- lying on Facebook games at work -- might be criminalized.

The dissenters point out, of course, that that was not what Nosal did.

The confusion on this statute is rife and, hopefully, the split in the Circuits may encourage the Supreme Court to give us all some real guidance.