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Saturday, 7 January 2012

So You Want to Sue for Misappropriation of Trade Secrets? Go Ahead--Tell Me Where

Where is the jurisdictional locus of a trade secret for the purpose of enforcement? What national law should govern a claim of misappropriation of a trade secret when parties from multiple countries are involved? Does the claim derive from other rights (such as contract) or is there a property-right claim for misappropriation of a trade secret? These questions recently came up in the context of giving client advice on a trade secret license. If truth be told, this Kat found himself with a gnawing sense of uncertainty in trying to work out the answer.

Let me try to set the analytical stage. The territoriality of IP rights is as about as bedrock a notion as we have in the IP world. Whether through registration, as in the case of patents, or mutual treaty obligations, in the case of copyright, the basic principle is that an IP right is ultimately valid only on a national basis. Whatever the jurisictional unit, it is bounded and defined; there is no such thing as an internationally valid IP right. This focus on the territoriality of the IP right carries with it a clear implication for enforcement. In a word, enforcement is territorial. Thus, with respect to enforcement, there needs to be a marrage of convenience, where the act of alleged infringment is mated with a territory in which the IP right is valid and enforceable. A French patent is of no use in the face of an act of infringement in the UK. The concept is so basic that we often take it for granted.

How do trade secrets fit into this scheme? By its very nature, there is no "registration" of a trade secret right. Nor is there any international treaty arrangement that explicitly provides for the kind of national treatment that we find with, e.g., copyright. Let's say that Company ABC, located in Country A, creates a secret method for evaluating the performance of subcontractors; the secret method was developed by employees in Countries D, E, and F. It then discloses that secret method to Client XYZ in Country B, pursuant to a written agreement that provides that the law of Country A shall govern the agreement. Client XYZ proceeds, in breach of the agreement, to disclose the secret method at an exhibition in Country T to both a sister company and an unrelated third-party company, which is a competitor of Company ABC, telling each of them simply that it received the method from Company ABC. Both the sister company (located in Country C) and the third-party company (located in Country D) go back home and each makes use of the secret method in its operations. Company ABC immediately seeks to file a legal action against all three of these companies.

And so to (some) of this Kat's questions:
1. Can Company ABC bring suit against all three defendants in a single jurisdiction or must it file separate law suits gainst the other three companies in Country B, Country C and Country D, respectively?

2. As between Company ABC and Company XYZ, does Company ABC only have a contract claim against Company XYZ (to be determined under the law of Country A), or does it also have a property-right claim for misappropriation of the trade secret?

3. If so, what should be the governing law regarding the property-right claim between them?

4 Does it matter that the trade secret was created through a collaboration by employes of Company ABC located in multiple jurisdictions?

5. Does it matter that the unauthorized disclosure was made in Country T?

6. Does it matter that the law of Country D (the country of one of the employeees who developed the method) explicitly excludes trade secret protection for this kind of method?

7. Does it matter that only Country ABC, from among the four jurisdictions, has a specific statute that governs misappropriation of a trade secret? (In the other three jurisdictions, trade secrets are recognized as enforceable legal right under judicial rulings, but are protected under a combination of rights such as contract, fiduciary duty, unfair competition and employer-employee relations.)

8. More generally, should questions of enforceability, especially in a multi-jurisdictional context, impact on the decision whether or not to seek a patent, as opposed to relying on trade secret, protection?
Any thoughts?

2 comments:

Tom Broadhurst said...

Here are my answers:

1. Can Company ABC bring suit against all three defendants in a single jurisdiction or must it file separate law suits against the other three companies in Country B, Country C and Country D, respectively?

Yes, but provided there is nothing quirky in the law of A it would best bring the action in Country A against all three and then seek enforcement in C and D against the Sister Company and the Third Party, relying on the submission to jurisdiction in its contract with XYZ.

2. As between Company ABC and Company XYZ, does Company ABC only have a contract claim against Company XYZ (to be determined under the law of Country A), or does it also have a property-right claim for misappropriation of the trade secret?

I would frame it as breach of contract based on breach of obligation of confidence but it all depends on Country A's law.

3. If so, what should be the governing law regarding the property-right claim between them?

Not applicable, see 2 above.

4 Does it matter that the trade secret was created through a collaboration by employees of Company ABC located in multiple jurisdictions?

No, provided there is nothing quirky in the law of A.

5. Does it matter that the unauthorized disclosure was made in Country T?

No, provided the contract ABC-XYZ is drafted properly and there is nothing quirky in the law of A.

6. Does it matter that the law of Country D (the country of one of the employees who developed the method) explicitly excludes trade secret protection for this kind of method?

Probably not, see the answer to 4 above.

7. Does it matter that only Country ABC, from among the four jurisdictions, has a specific statute that governs misappropriation of a trade secret? (In the other three jurisdictions, trade secrets are recognized as enforceable legal right under judicial rulings, but are protected under a combination of rights such as contract, fiduciary duty, unfair competition and employer-employee relations.)

No, as long as the laws of A, and the other countries, (their statutes + case law) recognise the law of confidence and thus will restrain breaches of confidence and provide remedies for such breaches.

8. More generally, should questions of enforceability, especially in a
multi-jurisdictional context, impact on the decision whether or not to seek a patent, as opposed to relying on trade secret, protection?

Absolutely, yes these question should strongly impact the patent or not question. Does ABC want an absolute monopoly enforceable against all comers and proof against future inventors or not? In fact I believe there are only
three things a well advised entity should do with its confidential new invention: patent it; keep it secret; or publish it forthwith.

Anonymous said...

Hi I am a law student faced with a similar problem question here.

Company A alledges that Company B has infringed its IP rights by misappropriating its trade secret. The two companies had a contract according to which company A supplied company B with materials for construction. Company A alledges that these materials are protected by a trade secret. Company B terminated the contract and started producing its own materials. Which is the applicable jurisdiction here? Counrty of Company A or B?

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