Intellectual Property Law

Chapter 22 Discussion Answers

1. The senior executives of ABC Inc. have gone on a weekend “retreat” at a hotel to
brainstorm ideas about the company’s plans to develop a new and innovative
camera lens. When the executives leave the unlocked conference room for lunch
in the hotel café, they leave notes and diagrams on the conference room’s
whiteboard as well as briefing papers about the camera lens. A hotel employee
misappropriated the information and sold it to a competitor. ABC would like to
sue for misappropriation of its trade secrets. Discuss whether “reasonable efforts”
have been made to maintain the information.
It seems unlikely that ABC has used reasonable efforts to protect its
trade secrets. Leaving the room unattended with notes and diagrams in
plain view and briefing papers about the camera lens sitting on desks,
tables, etc. is not reasonable. The executives could have locked the
room, taken the materials with them to lunch, had lunch in the
conference room, or left an attendant in the room during lunch—all
easy and cost-free methods of protecting the information. Thus, the
competitor should be able to use the information inasmuch as ABC has
not engaged in reasonable (or, really, any) efforts to protect
information it claims is valuable to it.

2. Employees of Vandalay Inc. are subject to nonsolicitation agreements by which
they agree not to solicit employees of Vandalay if they become employed by
another company. After Jillian left Vandalay, she ran into one of her friends at
Vandalay and said, “You should come work for ABC. It’s great here!” Discuss
whether this act is a violation of Jillian’s nonsolicitation agreement.
This comment by Jillian appears to be more in the nature of a friendly
exchange with a former co-worker than a serious “pitch” to another
to leave Vandalay. Jillian did not contact the former co-worker; she
simply “ran into” her, and the remarks seem to have been made in
passing. If Jillian followed up with telephone calls and further
contacts, such might violate her nondisclosure agreement, but the
conduct identified here seems innocent and innocuous.

3. A company’s nondisclosure agreement states as follows: “Employees may not
disclose the company’s trade secrets, consisting of its software and financial
data.” Discuss whether such a nondisclosure agreement might be enforceable.
The agreement must be more specific. In fact, in a case similar to this
fact scenario, a court held that such a provision was so broad as to be
“meaningless.” Employees must know with specificity what they may
disclose and what must be kept confidential so they can comply with
their obligations. The company should itemize what software is
covered and what financial data must be protected.

4. Paul is an employee of LMN Inc. After one year with the company, LMN asks
him to sign a noncompete agreement. Discuss whether such a noncompete
agreement might be enforceable.
The company must give Paul “fresh” or new consideration for this
agreement not to compete (and noncompete agreements must be valid
in the state where Paul is working). If the company gave Paul a bonus,
a raise, or stock, such would be sufficient consideration to support
Paul’s promise not to compete against the company. Without any
consideration, however, the agreement is likely unenforceable.

5. Sydney is attempting to raise money from investors for her new start-up. In
negotiations with potential investors, she discusses quite a bit of information
about the nature of her business and its methods. Discuss whether the investors
have any duty to maintain the confidentiality of the information disclosed to them.
The information qualifies as a trade secret (assuming there are no
other “public” disclosures). Sydney has disclosed the information for
an important purpose (getting money from investors so she can
launch her start-up). The potential investors have a duty to maintain
the information in confidence; they are in a position of trust and
confidence, and Sydney would have expected that information
confided to her potential investors would be maintained in confidence.
Thus, there is an implied contract by the investors to keep the
information confidential. (Sydney should, however, have obtained
nondisclosure agreements from the investors before disclosing
valuable commercial information to them.)

6. Leo bought a can of unpatented rust remover at Home Depot. He analyzed its
contents to determine its ingredients and then began selling his own competitive
product. Is this permissible? Discuss.
Yes. It is permissible to reverse engineer a product that has been
acquired lawfully. Leo acquired the product through lawful means
and thus he may reverse engineer it to discover its ingredients (this is
one of the disadvantages of maintaining information as a trade
secret—another may lawfully acquire it by independent creation,
observation, or reverse engineering).

7. Assume in the previous question that Leo bribed an employee to bring him a can
of the rust remover so he could analyze it and begin selling a competitive product.
Is this permissible? Discuss.
No. In this case, Leo acquired the product by “improper means,”
namely, bribery. Thus, he is liable for misappropriation of the trade
secret.