Hiding Secrets in Plain Sight? Unsealed Court Papers can Jeopardize Trade Secrets, Part II
In my previous post I discussed the recent remand by the 4th Circuit Court of Appeals of DuPont’s $919 million dollar verdict in its trade secret misappropriation case against Kolon Industries. In that decision, the Fourth Circuit Court of Appeals asked the trial court to consider whether the trade secrets in question had lost their proprietary status because they were disclosed in unsealed court documents in a prior litigation. In this post I will briefly summarize the principles that will guide the trial court in resolving this question.
To qualify for protection under Virginia’s version of the Uniform Trade Secrets Act, the information in question must not be generally known to, or readily ascertainable (by proper means) by, others who can benefit from its disclosure or use. See Va. Code § 59.1-336 (2013); also, Kewanee Oil Co. v. Bicron Corp., U.S. Supr. Ct. (1974).
The DuPont court acknowledged that the mere “presence [of confidential information] in [a federal court’s] public files, in and of itself, did not make the information contained in the document `generally known’ for purposes of the [UTSA],” citing its 1999 decision in Hoechst Diafoil Co. v. Nan Ya Plastics Corp., wherein they said that whether confidential information remains a trade secret in such circumstances “is a fact-intensive question to be resolved upon trial.”
In the Hoechst case, the court summarized the legal framework to be applied to the facts as follows: First, the secrecy requirement is not absolute; it is a relative concept, and “courts addressing this fact-intensive issue have regarded the unsealed filing of a document as a single, non-dispositive factor to be weighed in determining whether the document’s contents remain a trade secret.” Otherwise, the court reasoned, once a document was filed without restriction, the court could no longer entertain a protective order for that document because the confidentiality of information therein would be irretrievably lost, even if the document was unsealed only for a short time.
The Hoechst court cited Religious Technology Center v. Lerma (E.D.Va.1995), as an illustrative case in which additional factors concerning an unsealed court document contributed to defeat the trade secret status of information in that document. In that case, a company affiliated with the Church of Scientology sued the Washington Post for misappropriating and publishing portions of that church’s “Advanced Technology Works,” which the church claimed contained its trade secrets. The Post argued in its defense that the Advanced Technology Works were not trade secrets when it obtained copies of them because they had been in a public court file for twenty-eight months and they had been published on the Internet, depriving them of trade secret status, and the trial court agreed (“Once a trade secret is posted on the Internet, it is effectively part of the public domain, impossible to retrieve”). The Hoechst court cited similar holdings from other circuits as well.
In Hoechst, the court also considered the commentary to the relevant portion of the VUTSA, which explained that before information can be ruled out as a trade secret, it must be “readily ascertainable” by others, e.g., by means of publication in a trade journal or reference book, and the court viewed such publication as being substantially different from the accessibility of the files of a single district court. In addition, the court cited the Milgrim treatise and another commentator as saying that a lone competitor’s discovery of a trade secret through proper means does not automatically render that secret unprotectable.
So, to make the most of the remand, Kolon will have to do more than show that DuPont trade secrets were contained in unsealed court documents; they will have to provide evidence that the information flowed from there to a wider audience in the industry, or to the public in general.
– Fred Spaeth
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