I. Introduction

A. Nature of business to gather information about competitors

1. Trade secrecy = some of the illegal means or misappropriation law will punish

2. Legal means also used

    a. "Dumpster diving" - Tennant Co. v. Advance Machine Co., 355 N.W.2d 720 (D. Minn. App. 1984)

    b. But see Frank W. Winne & Son, Inc. v. Palmer, 1991 U.S. Dist. LEXIS 11183 (E.D. Pa., Aug. 7, 1991

B. History of trade secrets -- Peabody v. Norfolk, 98 Mass. 452 (1868)

C. What qualifies as a trade secret?

D. Actual vs. legal trade secrets

1. Actual = absolute secrecy

2. Legal = law protects against unlawful appropriation even if not entirely secret from public

a. Includes actual trade secrets

b. Some measure of actual secrecy required

c. Does the information qualify as a secret? (subject matter and quality of the "secret")

E. North Carolina Trade Secrets Protection Act - §§ 66-152 & 155

A. Secrecy

       1. Internal (confidentiality agreements, covenants not to compete, "need to know"

       2. External (security systems, guards, etc.)

B. Novelty

1. Restatement of Unfair Competition requires it

2. Function of secrecy?

3. See Buffets Inc. v. Klinke, 51 P.T.C.J. 449 (9th Cir. 1996)

C. Value or advantage over competitors - see Religious Technology Center v. Wollersheim, 796 F.2d 1076 (9th Cir. 1986)

D. Improper taking

1. Industrial espionage

2. Theft

3. Breach of confidential relationship

        A.  HYPO:

              X makes industrial cleaning product
              X has developed customer list

              Y gains access to customer list

              1.  Improper means

              2.  Appropriation by memory

        B.    HYPO:

                Y gained information via aerial photographs

                X has E's execute agreement not to divulge trade secrets
                Y, former E opens own manufacturing plant and uses secrets

                Y developed secret in course of working for X

                1. Confidentiality agreements

a. Courts consider

    1. Right of R to be protected against unfair competition from theft of secret

    2. Right of individual to pursue career

    3. Reasonability of agreements

b.    HYPO:

        X invents new cleanser
        X divulges to Y in course of negotiations

c.    Confidential relationships

        1. R/E

        2.  Sales negotiations parties

        3.  Lessor/lessee

        4.  Contractual arrangements

      2. Noncompete agreements probably better for both parties

    a. Scrutiny by the courts

    b. Overly broad ones won't stand

    c. Particularly useful in service businesses

    d. More difficulty in the technological context (specialties of E’s)

3. Other methods to restrain employees

    a. Nondisclosure agreement

    b. Trade secret injunction

       A. Considerations for P

  1. Act quickly

  2. Establish grounds for relief

C. Trials

    1. Preservation of confidential information

a. Stipulate as to confidentiality

b. Protective orders

c. In-camera proceedings

d. Sealing court records

A. Injunctions

B. Damages

    1. D's Profits

    2. Reasonable royalty rate - see Vermont Microsystems Inc. v. Autodesk Inc., 138  F.3d 449 (2d Cir. 1998)

    3. Punitive damages

C. Attorneys fees

D. Orders to destroy

E. Criminal penalties

F.     Burden of proof = preponderance.

G. Defenses

     1. No trade secret exists

     2. Discovery by legal means, i.e., reverse engineering

     3. Breach of contract

     4. Equitable defenses

VII. Economic Espionage Act of 1996

A. 18 U.S.C. §§ 1831-1839

B. Typical definition of trade secret

    1. Theft of a trade secret

    2. Broad definition of person

    3. Penalties

IX.  Transferring Trade Secret Rights

      A.   Assignments

      B.   Licenses

X.    Resources

      Milgrim on Trade Secret Law, 3 vols. 1967 - looseleaf  (It is volumes 12, 12A and 12B) of Business Organizations