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Practice Edge

E-discovery and Digital evidence case digest
by steven teppler

 

Willy Wonka’s Everlasting Gobstopper as a Never-ending Trade Secret:
The Importance of Cultivating an Effective Trade Secret Protection Program
By Meeting a Client’s Specific Needs

 

Introduction
            The trade secret owner’s obligation to take reasonable measures under the circumstances to protect trade secret information is a crucial element of trade secret law.   Because the law is limited in its remedies and is at times inconsistent, the threat of potential legal action is often not enough of a theft deterrent, and litigation is costly and time-consuming, care needs to be taken to ensure that the trade secret protection program designed for a client actually works when implemented.   Therefore, when evaluating a client’s business operations in the context of protecting its valuable trade secrets, it is important to keep in mind that a trade secret protection program is more than a boilerplate application of reasonable security precautions.  A trade secret protection program must be specifically customized to the individual business and security needs of each client, since what is appropriate for one client may not be for another.   Furthermore, although referring to case law is useful for understanding what a court would find a “reasonable” security measure, if such measures cannot realistically, much less beneficially, be applied to a client’s particular situation, it likely will not adequately protect the client’s trade secrets.
            If Roald Dahl’s character Willy Wonka were a client, Wonka’s imaginative inventions and zany methods of manufacturing dreamed up by the author in Charlie and the Chocolate Factory
would be the epitome of unique trade secrets.  The eccentric, over-the-top precautions that Wonka takes to protect his trade secrets while trying to remain “the most amazing, the most fantastic, the most extraordinary chocolate maker the world has ever seen” arguably go beyond what is considered “reasonable.”   A detailed examination of Wonka’s fanciful workplace, confections and inventions, an evaluation of his fantastical trade secret issues and his outlandish trade secret protection program, as well as recommendations for possible improvements, all illustrate how unique and challenging a client’s trade secret issues may be.

Why a Well-Designed Trade Secret Protection Program Is Necessary

            A trade secret protection program serves two important purposes:  to guard the owner’s valuable trade secrets from public dissemination because doing so maintains the owner’s competitive advantage in the workplace, and to “invent evidence” in the event of misappropriation.
            The Uniform Trade Secret Act defines a “trade secret” as:

            “information, including a formula, pattern, compilation, program, device, method,             technique, or process, that:
            (i) derives independent economic value, actual or potential, from not being generally         known to, and not being readily ascertainable by proper means by other persons who can         obtain economic value from its disclosure or use, and
            (ii) is the subject of efforts that are reasonable under the circumstances to maintain its         secrecy.  

Massachusetts General Laws codified trade secret law and defines a “trade secret” as: 
“anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement.”
  By definition, then, proving the existence of a trade secret hinges on the necessary element of the owner taking reasonable precautions under the circumstances to protect it.   The burden of establishing that the information stolen falls under the definition of “trade secret” is on the owner.   One of the elements of bringing an action for trade secret misappropriation is being able to show that reasonable precautions were taken to guard an entity’s trade secrets.   During litigation, once a court finds that the standard is met, and that those trade secrets were misappropriated, trade secret laws can provide some recourse to the damaged party, typically in the form of injunctive relief and monetary damages.   Courts see a trade secret protection plan as strong evidence that reasonable measures were taken to protect the secret, so it is important that the client has assistance in creating and maintaining a viable, effective trade secret protection plan.  
            While it is reassuring that a cause of action may be brought to allay losses caused by the misappropriation of trade secrets, because of the many drawbacks of bringing an action for trade secret misappropriation, it is important to carefully devise a trade secret protection program that will best prevent a breach in the first place.
  Though legal remedies are available, they are limited and present many hurdles to overcome as well.  For example, reverse engineering by one party of intellectual property that may be guarded as a trade secret by another party (and likely competitor in the industry) is lawful.   Also, independent development by one party of something that is already guarded as a trade secret by another party is also proper use.   One major drawback to pursuing a trade secret cause of action is that litigation is notoriously expensive and time consuming.   In fact, depending on the relative value of the trade secret, it may even cost more that the value of the trade secret itself to pursue an action for misappropriation than the loss caused by the misappropriation.   Additionally, the argument has been made that “civil remedies fail to act as deterrents since advances in information technology and the dissemination of stolen information …And because competitors have the defenses of independent development, reverse engineering and lack of secrecy.”   The lack of uniformity of trade secret law that exists across jurisdictions, given the tension between the Uniform Trade Secrets Act and continuing reinterpretation through common law, can be considered yet another drawback.
            Thus, although one objective of an effective trade secret protection program is to meet the legal standard and prove that reasonable measures were taken to protect a business’ trade secrets,
the primary objective of a trade secret protection program should be to protect the client’s trade secrets from misappropriation in the first place, and avoid the need for litigation.  

Points to Consider When Drafting a Client’s Trade Secret Protection Program

            When creating a trade secret protection program, it is not only important to determine whether a court would find the planned efforts to maintain secrecy were reasonable, but also that the program’s protocol is effectively followed in practice and that the intention to adhere to it exists.
            A trade secret protection program consists of a custom combination of several factors to consider, including the specific types of trade secrets it is being designed to protect, the client’s methods of operations, its employee structure, its third party relationships, and industry practices.
  It is important to take into consideration the amount of secret information the client risks disclosing in marketing and advertising, what security measures are being taken at the client’s physical place of business (and, if applicable, virtual, internet business locations), what agreements are in place with the client’s employees, and how to control the information disclosed to third parties during the course of business relationships with them.   Companies might have similar operational and employee issues, and several means of security precautions are generally followed because they are considered effective and reasonable under the standard.   But, when viewed as a whole, each corporate client’s situation has unique needs, so it is important to keep in mind that an effective trade secret protection program needs to be custom-tailored to take into account and to complement all of these factors.  

Willy Wonka as a Client:  The Background on his Chocolate Factory
            In Charlie and the Chocolate Factory, Willy Wonka is a world-renowned, very eccentric, innovative candy maker and inventor.  He is described as “a magician with chocolate” who “can make anything”.
            His fortress-like factory is surrounded by high walls with huge iron gates and is considered the “largest and most famous [factory] in the whole world, about fifty times as big as any other.”
  Wonka carries around a very low-tech ring of keys to access locked areas within the factory.   Some areas of the factory are only accessible by a boat that travels through the factory along a river of chocolate.   Two great glass elevators access any room in the factory and open directly into at least some of the rooms.
            Charlie Bucket’s grandfather, who worked in Wonka’s factory twenty years earlier, remembers it fondly and clearly has the utmost respect for Wonka.
  According to Grandpa Joe, who insists to Charlie that these stories are all true, Wonka has invented “more than two hundred new kinds of candy bars, each with a different center, each far sweeter and creamier and more delicious than anything the other chocolate factories can make!”   Wonka is credited with inventing a way of making chocolate ice cream so that it stays cold for hours without being refrigerated, and can be left lying in the sun without melting.   Wonka can make marshmallows that taste of violets, rich caramels that change color every ten seconds, chewing gum that never loses its taste, and candy balloons that can be blown up to enormous sizes and then popped with a pin and gobbled up.   Using “a most secret method,” he can make lovely blue birds’ eggs with black spots on them, which melt into a little pink sugary bird on one’s tongue.
            A few years ago, Wonka was a victim of a security breach when his trade secrets were stolen after hired spies infiltrated the factory.
  All the other chocolate makers, jealous of the wonderful candies that Mr. Wonka was making, sent in spies to steal his secret recipes.   The spies posed as workers in Wonka’s factory, learned exactly how certain candies were made and reported this secret information to Wonka’s competitors (likely in exchange for a great deal of money).   Soon thereafter, Wonka’s once inimitable confections were being replicated by his competitors.  Fickelgruber’s factory started making an ice cream that would never melt, even in the hottest sun.   Then Prodnose’s factory came out with a chewing gum that never lost its flavor, Slugworth’s factory began to produce candy balloons that can be blown up to enormous sizes then popped with a pin and gobbled up, and other secret creations were copied as well.
            Upon realizing that the secrets behind his original candy creations were in the hands of competitors, Wonka feared that he had lost his competitive edge in the candy industry and that his business would be ruined as a result.  Wonka decided to take dramatic security measures and completely closed down the factory before any more thefts took place, asking all of the thousands of people working there to leave and never come back.

            Before reopening the factory ten years ago, Wonka discovered the Oompa-Loompas while on a trip abroad to discover new ingredients.
  The Oompa-Loompas are a peculiar clan rescued by Wonka from a dangerous African jungle referred to as Loompaland and “smuggled” into the country.   They became employees of Wonka’s, and have a deal with him that they work and reside in the factory in exchange for unlimited cacao beans.   They are never exposed to the outside world, because they would perish outside of the factory’s controlled climate, and they have a special cacao bean diet.
            The factory is up and running again, and it has been manufacturing chocolates and candies that are increasingly fantastic and delicious, but it remains completely locked up.  No spies have been able to get in, and so far, neither Fickelgruber, nor Prodnose, nor Slugworth nor anyone else has been able to reverse-engineer any of these creations.
  Nobody is ever seen going into or coming out of the factory, and all outgoing shipments come out of the factory through a special trap door.
           

Analysis of Wonka’s Current Trade Secret Protection Program
            The value of Wonka’s products is apparent not only from the prior trade secret theft Wonka suffered, but also from the sensational worldwide coup caused by his Golden Ticket contest.   The candy bars containing one of the five coveted golden tickets were so sought-after, that one woman’s husband was kidnapped and her case of Wonka bars was demanded as ransom.   Even more surprising was that she gave serious consideration to surrendering her chocolate bars to the kidnappers in exchange for her husband’s life.   The steps Wonka took after the recipe theft to protect further misappropriation—including firing thousands of employees, completely shutting down operations and locking down the factory--were so extreme that they surpass what would be considered reasonable precautions.   His reasoning was simply that if no one is able to gain access to the factory, no one could learn how his candy is made and disclose this information to competitors.   Thus, Wonka’s recipes and methods of manufacture, including his factory machines, have remained secret as he has regained his competitive advantage in the marketplace.

The Trade Secrets
            Wonka’s trade secrets include the reasonably guarded, valuable secret recipes, methods, and processes for all the creations not publicly known that give Wonka his competitive edge in the marketplace.   Inventions such as the marshmallows that taste of violets, the rich caramels that change color every ten seconds as you suck them, the blue birds’ eggs made by a “most secret method” are all potentially trade secrets if they meet the standard.   Another potential trade secret is the process of mixing the chocolate by waterfall.  The waterfall makes lighter, frothier chocolate, and Wonka’s is the only factory in the world that uses this waterfall-mixing technology.   Yet another process that could be considered a trade secret is Wonka’s use of trained squirrels to shell walnuts, a process that gets more of the meat out of the walnuts.
            Any market share plans, blueprints for his inventions, drawings, and descriptions could also be considered trade secrets.
  His index cards containing advertising copy for his chocolates and candies may inadvertently disclose trade secrets as well.
            However, factory processes and devices, such as Wonka’s fairly standard assembly lines, which use commonplace conveyor belts for mass production and to transport candy,
could not be considered one of his trade secrets because this sort of technology is commonly known and widely used throughout the candy business, and, for that matter, across several industries.
                                                             
                                                Oompa-Loompas as Employees
            Wonka’s relationship with the Oompa-Loompas is one of mutual respect, loyalty, and an obvious high level of trust.  It is suggested that individual Oompa-Loompas work only in areas of the factory where they have authorized access; and are not permitted free reign over the entire factory.
  Under the UTSA, “an employee’s knowledge of trade secret information does not lose trade secret status if revealed to employees so long as the third statutory requirement in the definition of "trade secret" is satisfied: the information must be subject to reasonable efforts to maintain its secrecy.”   Also, common law generally recognizes the need for employees to have knowledge of information that may be a trade secret in order to carry out their duties.   Since they never go outside, any mischief they get into is confined to the factory, and it is suggested that Wonka has the Oompa-Loompas under control.   Therefore, it may be assumed that no serious issues of trade secret misappropriation by the Oompa-Loompas exist to date.

The Tour
            Prior to the contest winners’ Golden Ticket factory tour, a man identifying himself as Arthur Slugworth, President of Slugworth Chocolates, Inc., approached each of the children and proposed a deal: if they would get a hold of an Everlasting Gobstopper while inside the factory and bring it to him after their visit, he would make it worth their while.   The Everlasting Gobstopper, Wonka’s latest amazing creation was sure to be a hit, and, as the man explained, would be a fatal blow to competitor Slugworth’s business.  It is valuable because it is designed to be incredibly long lasting, so it is anticipated to be wildly popular among children with little pocket money.   As it turned out, “Slugworth” was a mole hired by Wonka himself, designed to test the children’s honesty.  The hired actor illustrates the very real threat to the factory’s secrets that the tour posed.  
            The Golden Tickets, though limiting factory admission to five children and their guardians, permit the bearer to see all of Wonka’s secrets and the magic of his factory.

            Wonka required the children to sign a contract as a condition of admission to factory, in addition to presentment of a golden ticket.
  The purpose of the contract seemed merely to indemnify Wonka against any actions brought for injuries while touring his premises.   Another term included in the contract stated that if they were caught stealing, the children would forfeit the lifetime supply of chocolate that came with being a Golden Ticket holder.   If it did not do so, this document should have included confidentiality language as well, since the children were being allowed to see all the magic and all the secrets of the chocolate factory, and since Wonka, as will be discussed, perhaps inadvertently disclosed secret information.   Though Wonka would escort the group during the tour, this unlimited access still greatly compromised Wonka’s trade secrets.  For example, the fact that Wonka’s is the only factory in the world that mixes chocolate by waterfall suggests that this may be a secret method, and the fact that it produces a superior, light and frothy product, indicating the commercial advantage and value of the process, was also disclosed to group.
            Some physical security measures have been taken within the factory.  The first door entered during the tour had a key code where Rachmaninoff had to be played to open the door.  Another door required a combination consisting of a sequence of numbers, including fractions.

            There are various access deterrents throughout the factory as well.  Posted boldly and clearly on one door was the warning “MOST PRIVATE – KEEP OUT.”
 
            The Inventing Room was identified by Wonka as the heart of the factory.
  The sign on the Inventing Room reads “DANGER – KEEP OUT” followed by, “NOTICE!  ONLY AUTHORIZED OOMPA-LOOMPAS ADMITTED!!”   Wonka has a key for this heavy metal door with bars on the windows.   During the factory tour, he sternly warned the group not to touch or taste anything: “All of my most secret inventions are cooking and simmering in here.  Old Slugworth would give his false teeth to get inside for just five minutes.  So DON’T TOUCH A THING.”   However, Mike Teevee, one of the children, was able to grab and chew Exploding Candy For Your Enemies.   More trade secrets were shared by Wonka in this room, including how he adds a pair of running sneakers to a simmering pot to give it a little “kick,” and stirs a blanket into another pot because it is too cold.
            The machine inside the Inventing Room that makes the Everlasting Gobstoppers was covered with a tarp with large letters on one side spelling “KEEP OUT.”
  Wonka explained how this candy revolutionizes the industry, again possibly sharing too much information with the group by explaining the yet-to-be-released product and disclosing its value.   Wonka further risked the secrecy of the Everlasting Gobstopper by handing out one sample to each child.   Though he made the children solemnly swear that they keep the Everlasting Gobstoppers for themselves and never show them to another living soul for as long as they shall live, Veruca Salt agreed while crossing her fingers behind her back.   Even utterly moral Charlie Bucket, who now stands to inherit the entire factory, momentarily considered breaking his promise and selling the Gobstopper to the hired “Slugworth,” motivated by the fact that his family was very poor and on the brink of starvation.   Lastly, the secret squirrel shelling process may also have been compromised during the factory tour, since although the area was gated, the entire process was in the tour participants’ full view.

Conclusion:  Recommendations
Identifying Trade Secrets
            It may be assumed that Wonka chose to protect his recipes, methods and inventions as trade secrets rather than apply for patents for his methods and machines, or copyright his recipes.   Some of these assets may be more valuable if kept secret, for example, because they will endure longer than the duration of a patent.   Some of Willy’s innovations may not be patentable, either because they do not fall under patentable subject matter (unique ingredients for example:  naturally occurring plants are not patentable, though he could arguably patent hybrids he created), or because they have not yet been reduced to practice.
           
Must Take Reasonable Steps to Protect Trade Secrets

            As previously discussed, although reasonable efforts must be made to keep secrets out of the public domain, absolute secrecy in guarding trade secrets is not required.  To maintain a trade secret, the proprietor must exercise a certain level of vigilance. Numerous cases have attempted to define the requisite level of secrecy.   The standard that must be demonstrated is the preservation of a substantial element of secrecy.   Substantial secrecy ''means so much that except by the use of improper means, there would be difficulty in acquiring the information.”   It is this standard that should be kept in mind while designing a trade secret protection program around Wonka’s trade secrets, factory, employees, and day-to-day business dealings.

Marketing Materials and Inadvertent Disclosure of Protected Information
            During the childrens’ tour of the chocolate factory, Wonka’s enthusiasm may have caused him to disclose too much information about some of his secret ingredients and processes.   As previously noted, he showed his guests the chocolate waterfall, how he adds sneakers to a mixture to give it “more kick,” and a blanket to another mixture in order to warm it up.   It would be advisable prior to discussing the factory operations to review his trade secrets, establish and prepare in advance an appropriate amount of information to reveal in order to pique commercial interest and market Wonka’s creations, without losing his trade secrets by sending them out into the public domain.

Factory Security
            Wonka has invited Charlie’s entire family to move into the factory to live.   He emphasizes that factory access is the main security problem, so his solution is to keep the factory sealed off from public access, with his in-house Oompa-Loompas, and now the Bucket family, working and residing inside the factory.   His physical security measures are considerably dated given the advancement of modern technology.  Even more simply, however, locks can still be picked, gates can still be dismantled, and walls can still be scaled.  Common law has held that gates, locks and walls are reasonable trade secret protection measures; that they suffice in terms of meeting the reasonable measures standard for a trade secret misappropriation action.   However, if the primary goal of a trade secret protection program is to prevent misappropriation in the first place, it may be advisable to consider enhancing the chocolate factory’s security system with more sophisticated, impenetrable theft deterrents such as elaborate electronic key codes at the truck loading bays.   Furthermore, were Wonka to once again employ local workers, another modern security device he could consider implementing is an employee security badge, which would allow select employees entrance to restricted areas.   Another suggestion that might appeal to Wonka’s love of gadgets would be the implementation of voice recognition access, which would eliminate the need for keys, badges or other physical passes that could be misplaced or stolen.   Yet another suggestion would be to secretly code ingredients.

Lilli Hsieh et al., FN1 of Intellectual Property Crimes 35 Am. Crim. L. Rev. 899, 942 (1998).  

 




Steven W. Teppler, Esq. is senior counsel at KamberEdelson, LLC in Sarasota, FL. He serves as Vice of Chair of SciTech's E-Discovery and Digital Evidence and Information Security Committees. He sends these updates to share cutting edge news with E-Discovery and Digital Evidence committee members. Join the committee today for free to receive your committee when news breaks! He can be reached at steppler@timecertain.com.