Such hostile rhetoric and initiatives is not welcomed by those watching US-China IP issues closely. “Getting increased harmonisation of trade secret laws usually depends not just on bargaining as happened with the Phase One agreement with China, but is also usually grounded in an environment that values global free trade,” says seasoned Silicon Valley trial lawyer and international trade secret expert James Pooley. His concern, therefore, is that as the America retreats “more and more from free trade and globalisation” opportunities will be lost to influence the improvement of trade secret protection in other countries, including in China.
And for Pooley, China stands out for many reasons. “At the moment it has decided to pull back from publishing most court decisions, so that lack of transparency leaves us uninformed about how the enforcement system is working, and therefore in a difficult spot when trying to engage in diplomacy about improvements,” he explains.
Pooley spent 10 days in China earlier this year meeting with various academics, businesspeople and government officials, talking about the new edition of his book Trade Secrets (Intellectual Property) which has been translated into Mandarin. His impression is that, overall, China is “quite aware of and interested in” improving its trade secret protection frameworks, “for the obvious reason” that it will help move the economy forward.
“But I suspect that, given current political realities, the Chinese will be doing that more on their own, rather than in conversation and collaboration with the US,” says Pooley. “So I worry about the consequences of not having the chance for meaningful, continuous engagement with China regarding trade secret enforcement.”
For James Pooley, who is an international trade secret expert and lawyer with experience in major lawsuits, it is “highly unusual” for a trade secret case to file a complaint with the name of the defendant redacted. In fact, as he stresses, he cannot remember seeing such instance, although he adds that in some state court practices it is common to name “doe” defendants when one does not know the defendant’s names yet.
Beyond the desire for damages, trade secret court cases are typically used as a means to create maximum discomfort for defendants, including challenging their trustworthiness and public image, and thus exerting pressure on them to settle.
However, given the contents of the complaint, Pooley says it is easy to understand why Nasdaq sought to redact the defendant’s identity and why the court would have been willing to agree. “That is because Nasdaq wouldn’t want the filing of the complaint to act as an advertisement for the defendant’s website, which is a platform for misappropriation of the Nasdaq data,” he tells IAM.
Yet Pooley does not expect an easy path for Nasdaq considering the specificity of the industry and type of information at issue. “It is always something of a challenge to run a business that relies on licensed distribution of data to multiple customers. In order to make that business model work, the company has to be able to amortise the investment in gathering and curating the data, so that it can be ‘re-sold’ to multiple customers at a fraction of the cost of developing it from scratch,” he says.
To do that, the business has to rely on restrictive covenants in licence agreements. If someone acquires the data at the subscription price and redistributes it to its own paying customers it can easily make a profit – even if its resell rates are lower. But doing that undercuts the originator and makes its business model, which is licensing to multiple customers, unsustainable, emphasises Pooley.
According to him, for this reason, Nasdaq’s lawsuit is a “very good example” of a trade secret that is a valuable compilation of data which has to be closely controlled in the process of sharing it. “That’s why a lawsuit like this makes a lot of sense: Nasdaq can’t run its business if it allows someone to take its licensed feed and re-distribute it in violation of the licence,” says Pooley.
This is what international trade secrets expert, IP Hall Of Famer, and attorney Jim Pooley refers to as “progressive incremental disclosure.” There’s a conundrum, he points out, when you’re up against someone who doesn’t want to sign an NDA and you need to encourage them to do so without spilling what it is that you want to keep confidential.
So, here’s what he tells people to do.
“Tease the recipient with information about whatever it is that you have that doesn't have to be kept secret. So, for example, you can tell them what the output is and be very precise about it in a way that will be enticing to the person,” he explains. “You sort of peel back the various layers of sensitivity going down towards the kernel of what's really innovative. You can get people to the point where they'll say, okay, boy, that sounds really interesting and to get any farther, I'm going to have to sign an NDA.”
(This strategy won't work with certain classes of people, like venture capitalists, he added, who are famous for never signing NDAs.)
Basically, what you’re trying to do is build trust as you approach each other. Imagine a middle school dance, Pooley said, with girls and boys lined up on opposite ends of the gymnasium floor, slowly figuring out how to engage by reading each other’s body language until the point where they’re holding hands and dancing. The process of getting an NDA signed is not that different.
NDAs that include language regarding reverse-engineering are becoming more common, Pooley said. “But it is an aggressive ask depending on the circumstances,” he added.
NDAs help set a professional tone. I highly recommend having a legal professional draft an NDA that addresses all of your needs. Pooley laments that NDAs are often treated as a form to fill out, when in reality they are a contract — and “contracts have consequences.” A lot of the terms can vary, including the definition and breadth of the confidential information.
SRS' complaint alleged that PNC employed Tsarnas, formerly its managing director for global business development and head of sales, and Kelly, senior vice president and relationship manager who reported to Tsarnas to break into this market. Both had "intimate knowledge" of how SRS' innovative platforms operated and were subject to strict confidentiality agreements, the plaintiff said.
The company initially sought a preliminary and permanent injunctive relief, a jury trial, exemplary and punitive damages, and attorney fees.
But PNC fought back hard. By 5 January this year, when the parties informed the court that they had reached a settlement, there were almost 700 docket entries recorded. During the rocky course of the case, decisions differed as to which party they favoured. Trade secret expert James Pooley says that a high level of uncertainty, like that seen in SRS v PNC is a "classical driver" of settlement.
When parties find themselves facing an imminent jury trial, it is a moment of realisation that the hard facts need to be looked at. "And rather than having a third party, particularly a jury - that does not know the business - decide on what the outcome of the trial should be, the parties have a dawning awareness that this is the last chance for them to control their own destiny in fashioning the outcome in a way that they can live with,'' Pooley notes.
According to Pooley, that must have been exactly one of those moments when parties to the conflict feel responsibility to take sober decisions about their respective companies. "If they are thinking clearly as rational actors, then what they should be doing is minimising the uncertainty and risk, addressing it and moving on where they can control things,'' he said.
SRS commented that "trade secrets are central to its competitive advantage, and we will always do what we must to protect them". SRS declined to comment on how the case was funded.
Pooley notes that "a really good settlement is one in which both sides can interpret it for themselves as a form of victory because they have withdrawn from a very risky situation." However, given the high cost of litigation, Pooley suggests it might have been wiser for the parties to settle earlier.
James Pooley, frequently serving as a lead counsel in trade secret disputes, was an expert witness for Dril-Quip. He says that this case sends an important message to companies that they should think carefully about their strategies when looking to protect key innovations.
Pooley told the courts that while FMC favoured a patenting strategy as a whole, and had “some infrastructure in place” to secure that type of IP protection, he could not recognise a clear strategy for protecting trade secrets. He believes it may be the case that, because FMC was aiming to rely ultimately on patenting, it failed to “carefully police whether the patent applications were stamped confidential”.
FMC was selling large pieces of equipment that went out to the market where they could be viewed, examined and reverse engineered easily, meaning that pursuing patent protection was an understandable choice, Pooley says. But along the way, some significant mistakes were made in protecting its innovation.
In the case, the court heard FMC had opened up its engineering database “to everybody, instead of partitioning it for those who needed to have access to confidential information”, Pooley explained. All FMC engineers had remote access to TeamCenter, where many of those documents Murphy was working on were stored.
Pooley argues that “neither FMC's code of business conduct nor anything else at the company prohibited FMC's employees from copying confidential company documents onto an external drive” and that large companies would not make “engineering documents containing trade secrets available to every engineer in the company”.
Pooley believes that the case sends a strong message to the industry that the requirement for “reasonable efforts” is a very serious one. “It requires focus on the trade secrets that you are trying to protect as opposed to general security issues, such as having a very good IT system, requirements for using passwords, having a front desk and so on,” he told IAM. “When you go to the court to protect your special information because it has extremely high value, the courts would expect you to have behaved in a way that reflects that high value.”
Pooley told the court that soon after the chief engineer left, FMC tightened up its safeguarding measures, introducing more focused procedures and policies around trade secret protection. This included new practices to label trade secrets “highly confidential” or “highest level of sensitivity” and ban remote access to such information.
But as a saying goes, that’s like closing the stable door after the horse has bolted, Pooley mused.
James Pooley, a trade secrets expert and attorney who has represented companies including Adobe, GE, and Qualcomm, said the high-profile (and high dollar value) nature of the Apple case is part of the reason issues like talent poaching are being explored so thoroughly.
“Cases like this have many dimensions,” Pooley said. “You get treated to a number of different issues that wouldn’t necessarily come up in cases where people couldn’t afford to turn over every rock and assert every possible argument.”
For Pooley, the Apple case illustrates an age-old Silicon Valley adage.
“There’s the story of the small-time innovator, Masimo, versus Apple, which has an innovation factory,” Pooley said. And in that David and Goliath scenario, the question, he said, becomes, “Who is the innovator?”
James Pooley, an independent attorney in San Francisco, says people don’t fully understand the capabilities of the technology yet.
But he points out that this is by no means the first time that businesses have had to consider new technologies when refining their trade secrets strategies.
“When I first started out, there were no networks or internet. The only thing you needed to do to make sure your information was protected was watch who walked out the front door and guard the photocopier. The environment since then has changed dramatically,” Pooley notes.
He adds that there are now almost “infinite” ways for employees and others trusted with confidential details to communicate them externally.
“To the extent that generative AI encourages more communication, I suppose you might say it presents another dimension of risk for control over company data. But it’s not at the same scale as some of the changes we’ve seen in the past.”
Trade secret expert James Pooley believes the leak could represent a “major crisis” for the social media platform and suggests that the drastic loss of staff could be a factor.
“For a software-based company like Twitter, publication of any significant part of its source code represents a major crisis,” he tells WIPR.
“That said, it’s difficult to discern the impact when we don’t yet know what portions of the code were posted, what significance they have to the functioning or security of the platform, and how long they were available on GitHub.”
He adds: “We don’t know who might have grabbed a copy of the code during the months that it was there. In any event, the theft implies some level of failure of the company’s information security programme.
“How was it that someone was able to get access to exfiltrate the information? Why was it not discovered sooner? A reasonable assumption is that the rapid contraction in Twitter’s workforce, with so many experienced people being made redundant or resigning, caused the company’s security controls to degrade.
“One can only hope that, in addition to its effort to find the culprit, Twitter also focuses on assessing the cause of this breach and shoring up its procedures and oversight.”
There may be broader implications, too, according to Pooley.
“Although a partial or temporary disclosure of confidential information will not necessarily destroy its status as a trade secret, an extreme breakdown like this could support an argument that Twitter has lost trade secret protection for some or all of its source code because it has failed to engage in ‘reasonable steps’ to protect it, as required under TRIPS Article 39 and related national laws.”
The proposed ban would upend companies’ approach to protecting their proprietary information, several IP and trade secrets attorneys said. Businesses across the economy would be forced to lean on other mechanisms, such as expensive, time-consuming, and harder-to-prove trade secrets litigation instead, they said.
“This is an absolute disaster when it comes to intellectual property protection,” trade secrets attorney James Pooley said. “And it’s absolutely contrary to the stated objective of this administration of robust trade secrets rights.”
Requiring companies to provide recruits a pre-hire notice of a noncompete agreement—as some states require—is also broadly considered a fair practice, he said.
California has already demonstrated that eliminating noncompetes entirely leads to more trade secrets litigation, Pooley said.
Trade secrets are defined as “information” not generally known that an entity makes “reasonable efforts” to keep secret. The owner also must derive economic value from that secrecy. The secrets are misappropriated if they’re acquired by someone else through improper means.
Precedent applying those principles to living things remains slim, but life-based secrecy is growing.
“We’re adapting to the fact that there’s a lot of business activity now around lifeforms,” trade secrets attorney James Pooley said.
Pooley said much of the shrimp case’s reasoning stems from Pioneer Hi-Bred’s dicta and its subsequent “mischaracterization” as a holding.
He predicted “it will take some time” before an appeals court tackles the question head on, but he called the reasoning in cases involving organisms-as-information “sort of sloppy” because they equate intangible information with tangible objects; a computer chip isn’t a trade secret, the information on it is, he said. He doesn’t think the cases are necessarily reaching the wrong results, just relying on faulty logic.
“It can matter in the law because there are certain things the law can do with tangibles that it can’t do with intangibles,” such as have them seized or destroyed, Pooley said. “If you’re trying to control the genetic information in your hybrid seed corn, you have to control the corn itself” so that the information doesn’t become accessible.