Trade Secrets May Retain Protections Despite Disclosure to Single Competitor

by Seyfarth Shaw LLP
Contact

[co-author:

The Ninth Circuit recently held in United States v. Liew that it was not plain error for the district court not to instruct the jury that disclosure “‘to even a single recipient who is not legally bound to maintain [a trade secret’s] secrecy’ destroys trade secret protection.” As a result, the Ninth Circuit upheld criminal convictions under the (pre-Defend Trade Secrets Act) Economic Espionage Act (“EEA”) for trade secret misappropriation despite a third-party competitor (who was not bound by any confidentiality obligations) acquiring the trade secret.

The trade secret at issue in United States v. Liew concerned methods of producing titanium dioxide (TiO2), a white pigment found in anything from paint to Oreo creme, which makes its manufacture a (surprisingly) competitive industry. DuPont has been a leader in TiO2 production since the 1940s, when it became more efficient to produce TiO2 through a chloride-based process. DuPont opened chloride plants around the US, including one in Antioch, California and one in Ashtabula, Ohio. The Ashtabula plant was built for Sherwin-Williams, subject to a fifteen-year confidentiality agreement effective through the plant’s sale in the 1970s. The plant was sold multiple times thereafter and was ultimately acquired by a competitor of DuPont who was not bound by any nondisclosure or confidentiality obligations to the company. 

DuPont improved its TiO2 manufacturing process and began incorporating the newer technology into new plants, including a facility in Taiwan. Unlike the Antioch and Ashtabula plants, the new Kuan Yin plant was equipped to extract titanium from lower-grade ore, making DuPont’s the most competitive chloride process.

The Chinese government sought to license DuPont’s TiO2 technology but ultimately chose a more cost-effective molten-salt option from the former Soviet Union. The Chinese government then tasked Walter Liew, a businessman and US citizen, with bringing chloride TiO2 production to China. Liew hired two former DuPont employees with TiO2 experience and with their help, went about securing business, which eventually brought them to their various convictions under the EEA. Liew and the other defendants appealed their convictions to the Ninth Circuit.

One of the defendants’ many arguments on appeal was that the technology at issue was not trade secret material because DuPont sold the Ashtabula plant and, thus, did not take reasonable measures to guard its technology. According to the defendants’ interpretation of Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984), any disclosure of material to any recipient not bound to maintain secrecy destroys trade secret protection, and it was on the government to prove no disclosures ever occurred. The Court rejected defendants’ arguments.

The Ninth Circuit explained that there was no clear or controlling authority addressing whether disclosure to one competitor makes information “generally known” or “readily ascertainable” by “the public” under the EEA’s then-definition of trade secrets.

The Court further stated that the government was not required to prove no disclosures of DuPont’s technology occurred; only that DuPont took reasonable measures to guard its technology. The Court found DuPont’s selectiveness in employing contractors and use of confidentiality agreements to be reasonable measures. The sale of a plant or information in a recipient or competitor’s hands is not the end of the reasonable measures inquiry, particularly if the information disclosed is not part of the trade secret(s) at issue.

This case is significant because it illustrates one of the DTSA’s substantial changes to the EEA–the definition of a trade secret. Before the DTSA, trade secrets were defined under the EEA to include information that was subject to reasonable secrecy measures and “derive[d] independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.” The Court in Liew highlighted that there was no controlling authority holding that the disclosure of a trade secret to a single competitor meant that it was also generally known by “the public.”

The DTSA now defines a trade secrets to include information that was subject to reasonable secrecy measures and “that derives independent economic value, actual or potential, from not being generally known to or readily ascertainable through appropriate means by other persons who might obtain economic value from its disclosure or use….” It is arguable that the result in this case may have been different under the DTSA’s new definition of trade secrets. Specifically, the disclosure of the trade secret to DuPont’s competitor may have made it generally known “by other persons who might obtain economic value” from it.

This case also reminds businesses about the potential risks to trade secrets when selling business assets. Building facilities, electronic devices, and any other equipment sold should be vetted to ensure no valuable company information is inadvertently disclosed.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Seyfarth Shaw LLP | Attorney Advertising

Written by:

Seyfarth Shaw LLP
Contact
more
less

Seyfarth Shaw LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.