The Trade Secret Dance:
Lessons From The Litigation Trenches
By Steve McDaniel, JD PhD,
Technology Litigators &
Paul Stanfield, JD,
Stanfield Hiserodt, PLLC
Queen’s Counsel:
You have testified to this Court that you
personally handed any bloke who walked
into my client’s front office the computer
code that contains its trade secrets, no questions asked. Is that right, Mr. Smythe?
Witness:
Whenever anyone came into the Australian
office and asked for it, I would hand them
the code.
Queen’s Counsel:
You yourself handed them the code?
Witness:
Yes, no questions asked.
Queen’s Counsel:
What does computer code look like, Mr.
Smythe?
Witness:
Well, it’s computer stuff, you know, I don’t
know.
Queen’s Counsel:
What about source code?
Witness:
I don’t know. I was just the receptionist.
Queen’s Counsel:
What is machine code, Mr. Smythe?
Witness:
I don’t know.
Queen’s Counsel:
Binary code? Any clue, what binary code is?
Witness:
“Binary”…what?
Queen’s Counsel:
Isn’t it true, Mr. Smythe, that you would
not know computer code of any kind even
if it were to jump up and bite you on the
arse?
Mr. Smythe:
Uhhhmmm, yes, yes sir, that’s true.
Queen’s Counsel:
No further questions. I pass the witness.
While not an exact transcript of the actual cross-examination, it’s close. It was one of the most
amazing feats of lawyering your authors
ever witnessed in trade secret litigation.
And it highlights the thrust of what we
want to discuss—the trade secret litigation
dance—since despite your best efforts to
protect them, you may have occasion to
aggressively “catch a thief.” This comes
from our personal experiences in the
trenches advising people about the steps
needed to have an effective trade secret
program, assisting them to routinely audit
these assets and representing them when
their secrets have been stolen.
The very first scoundrel’s defense that
will come without fail from the accused
trade secret thief is, “Unh-uh! It ain’t a
trade secret.” That is precisely what was
going on in the cross-examination of the
chief witness of the thieves shown
above—one Mr. Smythe, the former receptionist of the Australian branch of our
client, a large software developer.
Like clockwork, the departing employees that stole the code of our client asserted that the code was not a trade secret.
And, chiefly upon the testimony of receptionist Smythe, they aimed to show that it
was routinely passed out like candy to
anyone who walked in the front door of
its Sydney offices.
Anecdotally, what made this cross examination so amazing was that our Australian colleague, a Queen’s Counsel in
Australia, arrived severely jet-lagged the
morning of the testimony of Mr. Smythe,
deposed the receptionist for less than half
an hour before the judge gaveled the proceedings open, and immediately proceeded
to summarily slice his countryman into little chunks in cross examination lasting at
most a minute-and-a-half, then promptly
left the trial to catch a plane back Down
Under. All this, as the opposing counsel hid
behind their hands from his Honor’s steely,
disapproving glare! Sweet. One of those
trial moments we lawyers dream about.
So, be as ready as you can to immediately dispatch this automatic defense. Before
you can protect something as slippery as a
trade secret though, you do have to know
what it is. Generally, a trade secret is defined
as some bit of information that is important
to your business, gives you a competitive advantage and that is generally not known in
your industry. But, the thief will claim it is
not. Let’s examine each of these elements
with the thief’s voice echoing in the background that they are not trade secrets. (“To
catch a thief, ya gotta think like a thief,
boys!” – Sergeant Friday, Dragnet).
Unlike patents or copyrights, a trade secret does not need to be non-obvious or
original. It can be the most mundane of
items such as a customer list or supplier information. It can be a copy of a publicly
available document. It can also be very esoteric, such as the formula for a soft drink,
the formulation for a polymer, or the
schematic for a particle accelerator. The
point is, it can be anything if it is important
to your business and gives you a competitive advantage. It also must not be known
outside your entity in a general manner.
In another case one of us litigated, this
one involving flash cards for training mystery shoppers, the bad guy’s only defense
was “there ain’t no stinking trade secrets”
in these training materials, they are just
general sales techniques that everyone
uses. To the chagrin of his attorney at his
deposition, he was handed a trade journal
where he was quoted as saying to the interviewer, “I can tell you generally what
the benefits of this mystery shopping
training involves, but the details are
strictly a trade secret.” Oops.
Each of these elements is essential and
the failure of any one can be fatal to your
characterization of such information as a
trade secret. One method of identifying
the information in your company that
qualifies as trade secrets is to do a trade
secret audit. This can be done internally
by your company but is best done by experts in the field that can talk to the right
