Other Ways to Protect “Ideas”

Trade Secrets

Trade secrets can take many forms including formulae, plans, processes, devices and compounds. Colonel Sanders’ secret recipe for fried chicken or the original formula for the soft drink Coca-Cola come readily to mind. Other illustrations of this legal concept range from lists of ingredients or formulae for drugs to the maps of plans for acquisition of property to blueprints for expansion of an existing manufacturing plant. As an example of the wording of a typical state law, the Illinois Trade Secrets Act defines a trade secret as “information, including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data. …”² Perhaps a more relevant example of a trade secret for advertising and public relations professionals would be an advertising/marketing communications campaign proposal for a potential client that the agency would not wish disclosed to a competing agency or the potential client’s competitor.

According to the Uniform Trade Secrets Act,³ the distinguishing characteristics of a protectable trade secret are: (a) the trade secret has commercial value by virtue of the fact that it gives the owner a business advantage over competitors who are not familiar with it; (b) the trade secret is known only to those individuals who are entitled to know it; and (c) those in possession of the trade secret have made reasonable efforts to protect it from detection.

In addition to the three-part test noted above, both federal and state laws generally require the alleged trade secret not only to contain some useful information, but also to contain an element of creativity “if merely because that which does not possess novelty is usually known; secrecy, in the context of trade secrets, thus implies at least minimal novelty.”⁴

Under federal and state laws, a trade secret must be kept secret, particularly from competitors or potential competitors, to warrant protection. For example, North Carolina defines misappropriation of a trade secret as the “acquisition, disclosure, or use of a trade secret of another without express or implied authority or consent”⁵ unless disclosed by someone who had authority to release the secret. Unauthorized disclosure of trade secrets may occur when an “insider” (e.g., an employee or prospective client) reveals the information to a competitor. To protect against such eventualities, organizations often require insiders to sign formal agreements imposing a duty of nondisclosure. Properly drawn, such contractual agreements generally are upheld by courts as a legitimate restriction on commercial speech.

Additionally, an organization may require a contractual agreement between itself and those employees with access to trade secrets promising not to accept future employment with competing companies or agencies for a reasonable period of time following departure from the original organization. The enforcement by the courts of such agreements (so-called “covenants not to compete”) often depends on the reasonableness of the provisions of the employment contract as they relate to a particular employee challenging their application.

Courts, however, may also uphold sanctions for unauthorized disclosure of trade secrets in cases involving employees or business partners, even in the absence of any written agreement not to disclose. Such an implied duty of non-disclosure might arise in situations in which the courts find that the parties with access to the trade secret (e.g., partners in a firm) acted in such manner as to indicate that it was the expectation that the information not be disclosed.

For example, Pepsico successfully obtained a court injunction to prevent one of its former officers from assuming a position with Quaker Oats for six months after leaving his position and forever prevent him from disclosing trade secrets regarding the company’s annual operating plan.⁶ The annual plan included marketing strategies for Pepsico to position its AllSport drink to compete with Quaker’s Gatorade.

Sometimes the disclosure of a trade secret may come not from an employee or business partner but from an “outsider.” Obviously, stealing or engaging in criminally fraudulent activity to acquire trade secrets may well bring civil and criminal penalties. However, the methods employed to gain a competitive advantage by means of learning a rival’s trade secrets need not rise to this level to be actionable. In E.I. du Pont de Nemours & Co., Inc. v. Rolfe Christopher et al.,⁷ the defendants, who ran an aerial photography business, were found liable for illegally acquiring the plaintiff’s trade secrets involving the building of a new chemical plant when they flew an airplane over the partially completed facility to photograph its construction in an attempt to discover du Pont’s new manufacturing techniques.

Generally not actionable as illegal disclosures of trade secrets are disclosures that occur (a) without the recipient’s awareness of the secret nature of the information (e.g., an innocent third party given or sold an idea by an unauthorized source); (b) as a result of deconstructing a product to determine its structure or ingredients; or (c) through legitimate use of freedom of information requests to a government office to obtain public documents (discussed in a later chapter).

Court-sanctioned remedies for appropriation of trade secrets may include injunctions, especially when (a) it is likely that a trade secret will be further disclosed if such a court order is not issued; (b) such disclosure likely would result in irreparable harm to the non-disclosing party; and (c) the information is still secret at the time the request for the injunction is made. More typically, those claiming disclosure of trade secrets may recover actual and/or punitive money damages to compensate for the harm done by the revelation of the information.

The Supreme Court of the United States has decided few cases directly involving trade secrets, probably because the lower federal courts generally are not involved in such cases unless they involve parties from two or more states (“diversity jurisdiction”) or concern federal employees or federal law. Since 1974, the Court has decided only six cases focusing on trade secrets. In a 1974 case, Kewanee Oil Co. v. Bicron Corp.,⁸ the Court held that Ohio’s trade secret law may coexist with federal patent law. The Court noted, among other points, that the federal patent office policy of encouraging invention is not harmed by the existence of other incentives for invention like state trade secret statutes.

In 1986, in Dow Chemical v. United States⁹ (a case based on the same facts as E.I. du Pont de Nemours & Co., Inc. v. Rolfe Christopher et al. discussed above), the Court held that the U.S. Environmental Protection Agency (EPA) was acting within its authority when it employed a commercial aerial photographer to take photographs from public airspace of a chemical plant after the company denied the EPA access for an onsite inspection. The Court said such observations were legitimate even though the company’s competitors might be barred from such action under state trade secrets laws. The opinion noted that government agencies generally do not try to appropriate trade secrets from private enterprises and that state unfair competition laws do not define the Fourth Amendment’s provision regarding unreasonable searches.

In Ruckelshaus v. Monsanto Co.,¹⁰ the Court held that, under certain conditions, disclosure of a trade secret by a government agency could constitute a “taking” under the Fifth Amendment, particularly when such disclosures interferes with what the Court called “reasonable investment-backed expectations.”¹¹ Without deciding whether there actually was a Fifth Amendment violation in the case, the Court said that trade secrets that enjoy protection under state law could constitute “property” for purposes of the Fifth Amendment, despite their intangible nature. The Court pointed out that the federal EPA had promised confidentiality in exchange for disclosure of the information to the Agency that the company had designated as trade secrets at the time of submission.

Misappropriation of Intangible Property Interests

Advertising and public relations professionals are creative people. Creative people often look at a problem or situation and are struck with insights about how to resolve issues, improve on a company’s performance or add to a corporation’s intellectual property stock-in-trade. Unless these ideas can be tangibly fixed in so many versions as to make infringement of the idea impracticable or involve a character, design or other trademarkable concept, the tort of misappropriation of intangible property interests (and of business schemes discussed later in this chapter) may provide what little protection the law allows against those who “borrow” (some might say steal) and use others’ creative ideas.

The principal question for disputants in a claim of misappropriation of intangible property is whether one party (a) appropriated another party’s creative material that (b) was originally intended only for private use, and then (c) redistributed it to a broader public in order to make a profit. A classic example is a radio station with no news reporters that requires its announcers to simply “rip and read” slightly edited news stories taken directly from the local daily newspaper. The newspaper clearly expects many customers to buy individual copies of the paper, but does not appreciate these individual consumers (especially the radio station) then entering into competition with the newspaper by repackaging the creative efforts of the paper’s reporting staff.¹²

The reader should note the difference between possible copyright infringement and a misappropriation of intangible property claim in the above example. If the radio station simply read the newspaper’s reports over the air, the newspaper might have a violation of copyright case. However, if the station makes minor changes in the wording of the newspaper’s material and then uses it without permission, the newspaper’s only remedy might be a lawsuit claiming misappropriation of intangible property.

In Columbia Broadcasting System, Inc. v. Melody Recordings, Inc.,¹³ CBS complained that Melody Recordings engaged in the systematic process of re-recording records produced by the plaintiff and selling them under their own label. “What is involved in this case,” said the court, “is the direct taking of the artistic and highly creative work of [CBS]. … Defendants have thus appropriated the unique product of CBS by re-recording its original records.”¹⁴ Characterizing the case as a classic misappropriation case, the court noted that:

Similar examples have involved audio re-creation of ongoing sporting events and replication of clothing patterns.¹⁶

In addition to looking at the creative efforts of the plaintiff and the actions of the defendant in making use of the material to make a profit (usually with little effort to modify or change the original), courts recognizing the misappropriation tort also examine both the financial harm already suffered by the plaintiff and the probability that the plaintiff will be discouraged from continuing to produce the creative product if relief is not granted.