US Appellate Court’s Ruling Over Design Drawings Sends a Strong Message to Trade Secret Owners

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.

Surprisingly, 50.5% of companies that performed or funded R&D found utility patents “not at all valuable.” Some observers believe that if businesses are not filling patents, they are not disclosing inventions, which is harmful to innovation.

“This may be a result of a perception that the value of U.S. utility patents has diminished in recent years to due to erosion of patentability standards, coupled with increased cost and risk of enforcement,” James Pooley told IP CloseUp. Pooley is a trade secret expert and former Deputy Director General of WIPO and advisory board member of the Center for Intellectual Property Understanding.

The World Trade Organization last week approved a deal to loosen intellectual property protections that many policy professionals say will shatter investment and innovation incentives for drugmakers to meet the needs of major health crises. The deal was a blow to vaccine makers such as Pfizer Inc. and Moderna Inc., which fought to keep the current framework that enabled them to produce life-saving vaccines in record time.

“Anyone with a stake in preventing or responding to future crises should be concerned about the negative effect of this agreement,” said James Pooley, a former deputy director general at the United Nation’s World Intellectual Property Organization.

The IP waiver comes after nearly two years of debate and at a time when initial catalysts for a plan to spur vaccine access and production capabilities have largely been addressed—leaving many in the IP and drug spaces skeptical of the goals of the agreement beyond political gain.

“It delivers the worst possible result: coming at a time when there is an oversupply of vaccines, it is irrelevant to the current crisis; and by reducing the reliability and predictability of patent protection it makes it much harder to secure private investment in the research required to deal with the next global health crisis,” Pooley said.

The waiver indicates that patent rights include ingredients and processes necessary for the manufacture of the vaccine. Were that interpreted to include trade secrets, it could scare off investment capital, Pooley said.

“It signals that the United States is willing to play footsie with India and South Africa on this essential sort of lie, that pulling back on patent protections globally will somehow solve more problems than it creates, and that’s a delusion. And we’re buying into it,” said James Pooley, a former deputy director general at the World Intellectual Property Organization. “That itself will have a dampening effect on the willingness of companies to invest in technologies.”

According to the tentative plan, WTO members will decide whether to extend the waiver to “cover the production and distribution of COVID-19 diagnostics and therapeutics” within six months of an agreement.

McDole, however, noted that “like the vaccine manufacturers, Gilead and other therapeutic manufacturers are continuously entering into voluntary licenses to increase production and access” for Covid treatments.

The waiver, particularly from the U.S. point of view, is “the worst of both worlds,” Pooley said.

“It doesn’t solve the actual problems of vaccine availability,” and “it reinforces the idea that whenever we have some sort of global issue, let’s look at ways in which the IP system can be seen as a barrier,” he said.

DTAS (Defend Trade Secrets Act) claims now constitute almost three-quarters of those filed in suits. The DTSA, signed into law on May 11, 2016, provides litigants a private right of action in federal court for trade secret misappropriation claims.

“It’s no surprise that many plaintiffs favor the federal option, with nationwide service of process and harmonized rules,” says James Pooley, a leading trademark attorney, author and ex-Deputy Director General of WIPO. “Many still choose state court for essentially local cases, where it is generally easier to get your case to trial.

“As for the high percentage of judgments resulting in injunctions, that statistic should be understood in context of  how few cases actually get to a judgment after trial. Those that do would naturally tend to present strong facts that justify injunctive relief.”

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