Coatings World - April 2015

by Steve McDaniel and Jon Hurt, TechnologyLitigators.com

You want the best most innova- tivepeopleto work for you. Sure you do. You hire them for their specialized expertise in your field of technology. They are the ones that develop your proprietary technology – your trade secrets. But simultaneously, they are also refining their general expertise in the field.

All good things come to an end, and so does their employment. These valued employees move on to greener pastures, working for, or directly as, a competitor. But is the work product they now create for a new employer that mirrors, mimics or reflects your products, a misappropriation of your trade secrets or is it merely an application of their expertise in the that field to do their job and make a living?

A guiding benchmark is the “ employed to invent” doctrine established by the U.S. Supreme Court in the 19th century “That which [an employee] has been employed and paid to accomplish becomes, when accomplished, the property of his employer.” In the absence of written agreement(s) with the employee, often state and federal laws based on this principal will support your claim of ownership of the trade secret created by an employee while employed.

However, trade secret misappropriation cases invariably have the local flavor of jurisprudence in the state that they are prosecuted, and different answers to the “who owns it?” question have been generated depending upon the how much light the facts of the case provides.

In Wexler v. Greenberg, Buckingham
Wax Company’s chemical formulas were
often created by the head chemist, Mr.
Greenberg, typically through reverse en-
gineering competitors’ formulas and then
making improvements. Mr. Greenberg
also had access to all of Buckingham’s
formulas made under his supervision,
production methods and raw material
suppliers. He later quit and went to work
for a different company, Brite Products
Co., Inc., that soon began producing
Buckingham’s products (i.e., formulas
that Mr. Greenberg developed
at Buckingham). Sounds like
a clear case of trade secret
misappropriation, right? Not
so fast. The Supreme Court
of Pennsylvania found that
though the formulas being used
by Mr. Greenberg were trade
secrets, they were all developed
by Mr. Greenberg. The cir-
cumstances were unlike cases
where a company provided a
trade secret to an employee
which would invoke an implied
pledge of secrecy given the ab-
sence of a written work agree-
ment (hint hint) between Mr.
Greenberg with Buckingham
that would limit his disclo-
sures. Thus, the trade secrets
created by Mr. Greenberg at
Buckingham “forms part of the
technical knowledge and skill
he has acquired by virtual of his
employment with Buckingham
and which he has an unquali-
fied privilege to use.”
In contrast, though the cir-
cumstances were similar, the
Supreme Court in Iowa came to
a differing conclusion in Basic
Chemicals v. Benson by a slight
change in the facts. Mr. Benson
was an employee tasked to “es-
tablish formulae, lowest costs,
highest profits in keeping with competitive
markets, sell and create necessary selling
force, and otherwise be responsible for
all details of” Basic Chemicals, Inc. After
quitting, Mr. Benson became employed by
Berman Chemical Company, which began
selling products that Mr. Benson asserted
to customers would have “physical and
performance constants … identical to those
purchased from me in the past.” However,
in light of “letters written by Benson to
salesmen and customers during his em-
ployment by Basic in which he recognized
that the various formulas involved were
secret and confidential. …Benson praised
the ‘know-how’ of Basic.” the court found
that the trades secret formula, though de-
veloped by Benson were not available for
his use in latter employment. This aspect
of the case seems to have hinged on how
Benson had characterized the trade secrets,
and not by the proactive actions (i.e., em-
ployment agreements) of Basic. But this