October 29, 2019 Practice Points

Why Identifying Your Trade Secrets Is Essential in Joint Ventures

Having a clear understanding of the trade secrets you are trying to protect and making sure the other side knows they are receiving them makes good business sense.

By Nicole D. Galli

More than ever, companies are starting to think about and work on trade secrets governance and management. There are many reasons for this, including a growing recognition of the value of trade secrets to all businesses, an exponential rise in trade secrets litigation in the past few years, the enactment of the Defend Trade Secrets Act (and comparable legislation in Europe and elsewhere), high-profile cases such as Uber v. Waymo, and a myriad of other factors.

What does trade secrets “governance and management” mean? It can cover a range of items, from the identification and classification of trade secrets (by value or type) to various precautions such as cybersecurity measures and physical restrictions, NDAs and other agreements, employee training, monitoring and compliance checking, and enforcement. The full scope of trade secrets governance and management far exceeds what can be addressed in a single Practice Point so, today, we will focus on one aspect: identification.

There is a great debate about pre-litigation identification. Some feel like trade secrets governance and management cannot occur without specific and granular identification of all of a company’s trade secrets.  On the other end, some feel like a general understanding of what might be a trade secret is sufficient. The rest fall somewhere in between, believing it is necessary to identify the “crown jewels” and leave the rest to generalized protection measures.  The tricky part is that there is no accepted, single “right answer,” and due to the way “reasonable measures” are evaluated by courts, case law is often of limited guidance as it is so fact specific.

One trend that seems to be coming out of case law, however, seems clear.  If you are in a joint venture or sharing trade secrets with a third party, it behooves you to have a clear understanding of what your trade secrets are and to clearly and unambiguously notify the recipient of your understanding. Indeed, in some cases, courts have held that trade secrets owners have a duty to provide notice to the other side of these facts, or else be unable to enforce their trade secrets later. One example of this is Big Vision Private Ltd v. E.I. DuPont de Nemours & Co., 1 F. Supp.3d 224 (S.D.N.Y. 2014), aff’d 610 Fed. Appx. 69 (2nd Cir. 2015). In Big Vision, the trade secret owner was unable to enforce their trade secrets because the court held that they had failed to give DuPont, who also had been developing technology in the area in question, clear notice of what trade secret information was being shared.

Practically speaking, even if notice is not expressly required, when you need to prove in court what the other side knew, what you knew, when everyone knew it, and what was shared with whom, you want to have that evidence readily available. An example of this is Scentsational Technologies, LLC v. Pepsico, Inc., 13-cv-8645 (KBF), 2018 WL 2465370 (S.D.N.Y. May 23, 2018), aff’d 777 Fed. Appx 607 (Fed. Cir. 2019). In Scentsational, although the trade secret claim was decided against the trade secret owner on causation/damages grounds, the owner also lost his bid to be named as a co-inventor on the patent that he alleged included the trade secret because he had no contemporaneous records describing the trade secret, which was necessary to corroborate his claim of joint invention.

In short, whether legally required or not, when sharing a company’s trade secrets with another business, having a clear understanding of the trade secrets you are trying to protect and making sure the other side knows they are receiving them makes good business sense.

Nicole D. Galli is the founder and managing partner of the Law Offices of N.D. Galli, a boutique law firm with offices in Philadelphia and New York.

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