Commercial Privacy - Trade Secrets

The law's protection of trade secrets respects commercial privacy. The developer of useful commercial information that the developer keeps secret has a tort remedy against anyone who wrongfully obtains and uses the trade secret. The rights in the trade secret bundle include the right to exclude all uses of a trade secret by someone with the requisite fault. The owner of a trade secret, upon establishing the elements of the tort of "misappropriation of trade secrets", can recover damages and usually also is entitled to injunctive relief.

Trade secret regulation, unlike patent, copyright, and trademark law, is a creature of state common law, increasingly regularized by adoption of the Uniform Trade Secret Act by state legislatures and enactment by the Congress of the Electronic Theft [get name right]. The principal limitations of trade secret protection are (1) that the protection is lost when the protected information is disclosed unless the disclosure is accompanied by contractual restrictions, and (2) only wrongdoers are excluded from the trade secret.

A trade secret is

1.information used in a business[1]

2.that is secret, and

3.that gives economic advantage to the person with knowledge of it.

The second and third defining characteristics of trade secrets protect only secret information that affords a competitive advantage because it is secret. A plaintiff in a trade secret misappropriation case must show that the information was not in the public domain and that the owner of the alleged trade secret took reasonable measures to maintain its secrecy. Information cannot constitute a trade secret unless it gives the owner a competitive advantage. Whether a competitive advantage results from possession of a purported trade secret is a fact question for the jury.[2]

The competitive advantage requirement

The requirement that competitive advantage flow from the trade secret is closely associated with the secrecy requirement and does not represent a conceptually independent element, unlike the novelty element in patent law, or the originality element in copyright law.

Competitive advantage is likely to exist when someone has discovered or developed a novel product or business process, but novelty is not an independent requirement. Similarly, proof of investment in development of a trade secret supports the twin inferences that the developer thought the trade secret would represent a competitive advantage and that a competitive advantage actually results simply because a competitor must make the same investment in order to catch up. Nevertheless, investment is not an independent requirement. Secrecy and competitive advantage are closely related. A trade secret provides a competitive advantage only because it is not known to all competitors in the same market.

The Uniform Trade Secrets Act includes the following limitation on the definition of a trade secret:

"derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use . . . ."[3]

The commentary does not explicitly address novelty or originality, although it does note that "lengthy and expensive research" showing that a certain process will not work qualifies as having commercial value.[4]

The commentary to Restatement 757 emphasizes the role of ingenuity and labor, in comparing trade secrets with other forms of intellectual property, although the thrust of the discussion is to justify trade secret protection based on improper means of obtaining intellectual property that is kept secret.[5] Other commentary explicitly says that, "[n]ovelty and invention are not requisite for a trade secret as they are for patentability."[6] Novelty comes into the trade secret equation only in terms of justifying relief. A novel trade secret may justify an injunction against a misappropriator, while an injunction against use of a mundane application or improvement in prior art would be inappropriate, and the trade secret owner would be limited to damages under the Restatement.[7]

The competitive advantage requirement is subtly different from a mere secrecy requirement. For example, suppose a person ignorant of the state of the art in a particular industry believes that he possesses something that is new and advantageous. In fact, the information is known to all producers in the particular, all of whom keep it secret. The fact that the mistaken owner of this "trade secret" carefully keeps the matter secret would not satisfy the competitive advantage element because competitors benefit as much from it as the producer keeping it secret.

The phrasing of the Uniform Act links the competitive advantage requirement with secrecy. The test is whether the owner is able to use some technique or method to enhance his business opportunities compared with his competitors.[8] For example, if certain customers have unlisted telephone numbers, and telephone sales is an effective way to sell products, possession of these telephone numbers should qualify as a trade secret, regardless of whether any effort was required to obtain the numbers, or whether conversely, the potential customers voluntarily provided the purported trade secret owner with the numbers.

The role of novelty under both the Restatement and the Model Act was explained by the Ohio intermediate court in Murray v. Bank One.[9] The trial court had dismissed a trade secret misappropriation claim by the developer of a system which permitted check or credit card users to classify each transaction by means of letter or numbers that then were used to prepare itemized reports. The trial court found that the system lacked sufficient novelty to qualify for trade secret protection. [10] On appeal, the plaintiff argued that Ohio law required merely a showing that the system was secret and that it provided a commercial advantage over competitors, based on 757 of the Restatement (First) of Torts. The defendant argued that Ohio law requires novelty through a requirement "that the information must not be generally known or available either to the public or to those in the trade."[11] The appellate court, though concluding that novelty in the patent law sense is not required for a trade secret, nevertheless found that novelty is required, but only in the sense that the alleged trade secret actually be secret.[12] In other words, novelty is shown by showing that the trade secret owner has something that not everyone else has.[13]

Accommodating employee interests

Granting trade secret status to information that is part of an employee's skill set can impede labor market mobility, because enforcement of the trade secret protection would prevent the employee from practicing her craft. Accordingly, trade secret protection excludes knowledge that is part of the ordinary skill of specialized employees.

Excluding knowledge embodied in an employee from trade secret protection even though retention of the employee and her knowledge gives a competitive advantage can be related to an investment inquiry. No investment by the employer separate from paying the employee's salary suggests that the knowledge belongs to the employee and not the employer.

In Amoco Production Co. v. Lindley,[14] the defendant developed computer programs useful in oil and gas exploration while he was employed by the plaintiff under a contract that required him to turn over his inventions or discoveries to the employer and not to disclose them to others. The court concluded that the software was not patentable because it was not novel and thus was not within the inventions clause for that reason.[15] The court also concluded that the software was not a trade secret and thus not within the invention clause for that reason because there was no evidence that the employer has contributed anything to this development, relying instead on the intrinsic skill of the employee.[16]

Testimony establishing competitive advantage

In Kubik, Inc. v. Hull,[17] the following testimony established uniqueness and competitive advantage:

Q. Was any of the information concerning the Kubik Hydradrive given to you by Mr. Hull? '

A. Yes. '

Q. Did you request him to give you this information? '

A. Yes. '

Q. What was your reason for requesting this information? '

A. I wanted to know as much about it as possible in order to build a similar drive. '

Q. Was it necessary even to know what the Kubik Hydradrive was, could you have gone to some other company in the field and looked at this equipment? '

A. At that time, Mr. Kubik was the only one involved in building that particular drive. '

Q. That is correct. In fact, as Mr. Hull has testified--

'The Court: Well, let's not have your testimony. Your next question please. '

Q. (By Mr. Weiner, continuing): Mr. Phillips, were you in the courtroom when Mr. Hull testified that Kubik, Inc. had a unique position in the industry? '

A. Yes. '

Q. Was Mr. Hull correct in that testimony? '

A. I believe so. '

Q. So it is your feeling that Mr. Kubik did have a unique position in the industry? '

A. Yes. '

Q. To the extent that no one else could supply that equipment at that particular time? '

A. Yes. '

Q. Did this unique position in the industry give Kubik, Incorporated, an advantage over his so-called competitors or competition? '

A. Yes. '

Q. Would you consider that unique position and competitive edge a valuable asset of Kubik, Incorporated? '

A. Yes. '

Q. In requesting this information, as you did from Mr. Hull, were you in fact trying to obtain this valuable asset from Kubik, Incorporated? '

A. Yes.'[18]

The secrecy requirement

Information is not a trade secret if it not a secret. It is not a secret:

if it is generally known within the industry.[19]

if it is published in trade journals, reference books, or similar materials, or

if it is readily copyable from products on the market

Secrecy is an objective test, but one that focuses as much on efforts to maintain secrecy as on complete success in achieving the desired results. Conversely, intent to maintain secrecy is not enough.[20]

The comment to 1 of the Uniform Act says that efforts to maintain secrecy include:

advising employees of the existence of a trade secret

limiting access to trade secrets

controlling plant access.

It also acknowledges, however, that extreme and unduly expensive procedures need not be taken to protect against "flagrant industrial espionage."[21]

Measures to protect secrecy

Proprietary notices are necessary, but not sufficient by themselves.[22] The proprietary notices do three things. First, they demonstrate an intent to treat the information as a trade secret. Second, they put third parties on notice that the information is a trade secret thereby making it more likely that conduct inconsistent with the notice by the third party constitutes wrongful acts. Third, they reinforce the special relationship with employees or others who see the notice.[23]

In Telerate Systems, Inc. v. Caro,[24] the court found that use of a password to access proprietary computer files, and ledgers asserting proprietary nature and denying permission to reproduce without express consent on human-readable documents constituted a sufficient "vail" of secrecy to warrant trade secret status. There were other secrecy measures, including restricting access to the software in question by company employees, enforcing corporate policy against disclosure.[25]

In Rockwell Graphic Sys., Inc. v. DEV Indus., Inc.,[26], the court, in an opinion written by Circuit Judge Posner, rejected the existence of any "trade secret misuse" doctrine, which would deprive a trade secret owner of protection when it marks documents "secret" when they do not in fact contain trade secrets.

Confidentiality Agreements

Legal remedies for trade secret misappropriation originated in breach of confidential relationships.


Confidentiality agreements with employees help to establish secrecy,[27] but are not strictly necessary because of employee duties implicit the employment relationship,[28] as explained in chapter 6.[29] Outside the employment context, confidentiality agreements and warnings can be crucial in establishing the special relationship with customers and suppliers. For example, in M. Bryce and Associates v. Gladstone,[30] the plaintiff briefed a potential customer on its proprietary management information system. Before giving details of the system, the plaintiff required every person attending the meeting to sign a nondisclosure agreement, repeatedly gave oral warnings of the trade secret nature, and generally caused persons to whom the trade secret was communicated to know of its proprietary status.[31] The Wisconsin intermediate court had no difficulty finding that this satisfied the secrecy elements under the Restatement.[32]

Employees are bound by confidentiality agreements their employers enter into.[33] The advantage of confidentiality agreements for employees is that breach of such agreements gives the employer an additional claim for breach of contract, in addition to a claim for misappropriation growing out of the special relationship.[34]

Customers and suppliers

Confidentiality agreements are generally necessary when trade secrets are disclosed to customers.[35] Customers and suppliers ordinarily do not have implied duties growing out of a special relationship, and their duties must be created by contract if they are to exist at all. There are, however, exceptions, when the overall circumstances of the relationship or the disclosure make it clear that the supplier or customer is under a duty to respect secrecy. Sometimes an explicit confidentiality agreements with suppliers is not necessary, because the circumstances clearly indicate that secrecy is expected and implicitly agreed to.[36]

Restricting Access

Imposing contractual obligations on people to whom trade secrets are disclosed is only one aspect of the secrecy requirement. The trade secret owner also must take other measures to restrict access to the trade secret. It does little good to impose contractual obligations on all those to whom the trade secret is disclosed if it is lying around for the public to inspect it. Conversely, an absolute elimination of access to the trade secret ensures that it cannot be misappropriated, regardless of legal obligation. If no one else knows of the secret, she cannot use it or disclose it.

Restricted access to the plant in its entirety enhances the inference of secrecy.[37] For example, in one Ohio case, the following factors led the court to conclude that secrecy was adequate:

locking devices on the plant

a receptionist who screened every visitor to the building

buzzer lock system on door to processing area operated by receptionist

general public never taken through the plant

competitors never authorized within the plant

drawings made available to suppliers only for limited purpose of bidding on or manufacture of certain parts

drawings made available only to employees with specific need

all drawings leaving plant had proprietary markings

utilization of a shredder to destroy computer printout and old pricing sheets, small number of employees (25 to 30), making it unnecessary to use identification or security badges because all employees knew each other[38]

Testimony establishing secrecy

The following portion of the transcript in Schalk v. State[39] illustrates the kind of evidence that establishes the requisite secrecy.

Q. Now, putting the directory listing aside for a moment, let me direct your attention specifically, well first, let me ask you, if, in your 16 years with Texas Instruments in the speech research area, has Texas Instruments ever given out any of it's [sic] speech recognition, speech synthesis, or, speaker verification, or voice verification software, to anybody?

A. Not to my knowledge.

Q. Have you ever personally given out, or authorized the giving out of any of the algorithms?

A. No, never.

Q. All right. And, you were the head of the speech research department?

A. I was the head of the speech research branch, yes.

Q. All right. Now regarding, State's Exhibit, 4-B, 4-C, 4-D, 4-E, and 4-F, the five computer programs that you have identified as coming from tape number four, you wrote them?

A. Yes, I wrote these.

Q. Have you, or Texas Instruments, ever given out those five computer programs to anyone, whether or not,--

A. No.

Q. With or without restrictions?

A. Correct.

Q. Have you ever given them out to anybody?

A. No.

Q. Okay. Let me show you, now, the computer programs that you have identified as coming off of tape number 16, State's Exhibit, 16-B, 16-C, 16-D, 16-E, 16-F, 16-G, 16-H, and 16-I, and I'll ask if you, or anybody else at Texas Instruments as [sic] ever provided these, or given these out to anybody outside of Texas Instruments for any reason, whatsoever?

A. No.

Q. State's Exhibit, 17-B, 17-C, 17-D, 17-E, 17-F, I'll ask you if you or anybody else at Texas Instruments has ever given out these five programs that came out of tape number 17?

A. Not to my knowledge.

Q. State's Exhibit, 18-B, 18-C, 18-D, 18-E, 18-F, and 18-G, these computer programs that came off of tape number 18, I'll ask you if you or anybody else at Texas Instruments has ever given those out to anybody without or with restrictions?

A. No, not to my knowledge.

Q. Or provided them to anybody?

A. No.

Q. Again, are those programs that fall within this third area, algorithms?

A. Yes.

Q. Now, you have given out, for limited purposes, some of the data bases?

A. Yes.

Q. And, for limited purposes, some of the tools?

A. Some, yes.

Q. But, not the algorithms?

A. Correct.

Q. Now, Doctor Doddington, you wrote all of the programs that we have just talked about in front of the Jury, correct?

A. Yes, some of them were subsequently modified--seventeen, was subsequently modified by Gary Leonard.

Q. But, you were the original author of all of them?

A. Yes.

Q. So, you are familiar with what they can do and what their value is?

A. Yes.

Q. How long would it take a competitor of Texas Instruments in the speech synthesis, and speech recognition areas to duplicate your efforts that were found on tapes 4, and 6, 16, 17, 18, and 19?

A. You mean how long would it take to develop these programs?

Q. How long would it take a competitor to develop those programs?

A. Well, to the best of my knowledge, these programs, or anything similar to them, did not exist anywhere except at Texas Instruments. It's difficult for me an [sic] say how long it would take someone to do this, maybe never, years.

Q. How long--I'm sorry. *642

A. This is basically a culmination of fifteen years of speech research at Texas Instruments.

Q. Okay. Over that,--well, let's just say the last ten years of speech research at Texas Instruments, how much money has Texas Instruments invested in this speech research area, that you were working in?

MR. BANKS: Judge, that is repetitious. It's been asked and answered yesterday, I think we got a figure of one to two million dollars a year. It's repetitious.

THE COURT: Overruled.

THE WITNESS: At the rate of approximately one million dollars a year, or sometimes more, in the range of ten to twenty million dollars.

Secrecy ended by disclosure

Secrecy does no good, of course, if the information already is generally known.[40] Information arguably covered by a trade secret can be generally known in a variety of ways.

Poor business practices

Secrecy is not lost by communicating a trade secret to employees involved in its use or to others pledged to secrecy.[41] Similarly, secrecy is not lost merely because others have discovered the subject matter independently and are keeping it secret. By negative implication, however, independent discovery followed by publicity negates the secrecy element.[42] Trade secret owners regularly are deprived of their claimed trade secrets because the defendant proves they have been lax with respect to secrecy..[43]

Carelessness can destroy the secrecy required,[44] but occasional slipups are not fatal.[45] A good illustration of the proposition that only as much secrecy is required as is practicable under the circumstances involved a prisoner who was held to have a trade secret in a method for cutting material, which was appropriated by the government.[46] The prisoner expressed the trade secret in a working model visible to other inmates. The court of appeals held that this did not forfeit necessary secrecy because the prisoner was not allowed to hide the model and kept it as concealed from competitors as possible.

Disclosure by employees and others

Breach of confidentiality agreement claims are independent of trade secret claims, and they are not displaced by the UTSA.[47] If only one person other than the trade secret owner knows a trade secret and that person is bound by a confidentiality agreement, breach of confidentiality by that person gives rise to two independent legal claims: one for misappropriation of trade secret; the other for breach of contract.

Now, suppose a third person publicizes the trade secret. This publicity extinguishes the trade secret. If the party to the confidentiality agreement discloses the information after the publicity is given by the third party, there can be no misappropriation of trade secret. There still, however, may be a breach of contract depending on whether the contractual duty of nondisclosure lasted only as long as the trade secret status in the information were preserved or whether it applied to certain information regardless of its trade secret status.

Although a licensee's prohibited use or disclosure of a trade secret may only result in only minor compensable damage to the licensor, the use or disclosure may be such that the secret becomes known to the general public. Once the secret is known to the general public, the secrecy is lost and the trade secret destroyed.[48] Others are then free to use the trade secret.

Although the trade secret may be destroyed through wrongful disclosure by the licensee, the licensor retains a cause of action for misappropriation of the trade secret in certain situations. First, anyone who "learn[s] the secret from the [licensee] with notice of the facts that it was a secret and that the [licensee's] disclosure of it was . . . a breach of his duty to the [licensor]" is liable to the licensor for misappropriation.[49]

In addition, when a trade secret is disclosed either wrongfully or otherwise--for example, through issuance of a patent[50]--the licensee retains a right of relief for misappropriation against those who have wrongfully used or disclosed trade secrets prior to the destruction of secrecy or whose own wrongful disclosure destroyed the secret.[51] When unauthorized disclosure is made by a licensee, that person "cannot contend that it is a member of the public to whom it made the disclosure."[52] In short, although a trade secret no longer exists between the licensor and the general public, a trade secret remains between the licensor and licensee.[53]

Revealed through Patents

A patent publishes as much as it discloses, and for the purposes of extinguishing a trade secret, issuance of a patent is no different from any other publication.[54] It extinguishes any trade secrets contained in the patent disclosure.[55] Conversely, merely filing an application for a patent is not publication of a trade secret contained in the application because patent applications are secret.[56]

Abandoned and rejected patent applications also are secret and therefore rejection of a patent does not negate the secrecy element of trade secrets contained in the patent application.[57]

Accidental disclosure

Discovery through accidental disclosure may not extinguish secrecy.[58] Some of the more interesting cases on maintenance of requisite secrecy involved trade secrets found in trash. BC Ziegler & Co. v. Ehren,[59] involved a defendant who bought business records of a competitor from a scrap paper company. The appellate court affirmed the trial court's conclusion that the information qualified for trade secret protection. The plaintiff proved procedures requiring the shredding and destruction of customer list information before it was placed in the trash. In violation of the procedures, certain customer information including customer names, account summaries, and monthly statements were bundled with the regular trash. The trash company found the information and sold it to the defendant. The court expressly rejected the defendant's argument that accidental disclosure negates trade secret protection.[60] Similarly Drill Parts & Service Co. v. Joy Manufacturing Co.,[61] involved drawings for parts that were discarded in a trash bin by a subcontractor bound by a confidentiality agreement. A trash removal enterprise transferred the drawings to the defendant. The court declined to reverse the finding of fact by the trial court that sufficient secrecy was maintained despite the defendant's argument that secrecy was abandoned by allowing them to be mixed with the trash.[62]

Disclosure by the government under the Freedom of Information Act[63]

"The Freedom of Information Act requires that federal agencies comply with requests to make their records available to the public, unless the requested records fall within at least one of nine categories of exempt material. See 5 U.S.C. 552(a), (b). Pursuant to Exemption 4, FOIA exempts from disclosure "trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 U.S.C. 552(b)(4). There is no dispute that the HTS numbers requested by appellants are "commercial" and are "obtained from a person," i.e., the importer. The issue in this case is whether the numbers are "confidential." Where, as here, the information is supplied to the agency under compulsion, it is treated as "confidential" only if its disclosure is likely "(1) to impair the Government's ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained." Customs did not contend before the District Court, nor did it argue on appeal, that disclosure of the numbers would impair any Government functions. Therefore, both parties agree that the HTS numbers are exempt from disclosure only if Customs can establish that disclosure is likely to cause substantial harm to the competitive position of the importers who supplied the information."[64]




Nos. 96‑5082, 96‑5246.

169 F.3d 16

United States Court of Appeals,

District of Columbia Circuit.

Decided March 9, 1999.

Before: WILLIAMS, GINSBURG and HENDERSON, Circuit Judges.


A cogeneration plant produces not only electric power but also steam or other thermal energy that can be used for various industrial or commercial purposes. 16 U.S.C. 796. To encourage this source of energy, the Public Utilities Regulatory Policies Act of 1978, 16 U.S.C. 824a‑3 ("PURPA"), imposed a requirement on electric power utilities to purchase power from any qualifying facility ("QF")‑‑a cogeneration plant that meets PURPA's QF standards. See 18 CFR 292.101(b)(1), 292.203(b). The utility must pay for the power at a rate no greater than its "avoided cost"‑‑the cost it would incur to generate an equivalent amount of power itself. See 16 U.S.C. 824a‑3(b); 18 CFR 292.304(a), 292.101(b)(6). Although the phrase "avoided cost" has the ring of an economically sound price, it was suggested without contradiction at oral argument that it has not so proved.

Niagara, a producer and seller of electricity in upstate New York and subject to the PURPA mandate, suspected that some of the facilities from which it buys may not actually qualify for QF status, and to pursue the matter filed a request with the Department of Energy ("DOE") in 1995 under the Freedom of Information Act ("FOIA"), seeking information collected by DOE on forms that these facilities are required to file with DOE's Energy Information Administration‑‑Forms EIA‑867. DOE disclosed some but withheld other information, invoking FOIA's Exemption 4, 5 U.S.C. 552(b)(4), which covers "trade secrets and commercial or financial information obtained from a person and privileged or confidential." The information withheld relates particularly to quantities of fuel consumed and power generated, from which, given market prices for fuel, outsiders could go far to calculating a facility's unit cost of power.

Niagara sued in district court to compel release of the withheld data. Independent Power Producers of New York, Inc., a trade group, and Sithe Energy Inc. ("QF Intervenors" collectively) intervened in support of DOE. Both DOE and the QF Intervenors moved for summary judgment, supporting the motion with affidavits describing the QF industry. Niagara moved for discovery, and on the district court's denial of its motion filed an opposition to the motion for summary judgment, attaching an affidavit depicting the industry in rather different terms. The district court granted summary judgment. It held that Niagara had failed to raise an issue of material fact against DOE's position that the information was exempt because its release (1) would cause substantial competitive harm to the entities submitting the information (the QFs), and (2) would impair the agency's ability to collect this information in the future. The court also rejected Niagara's claim that no FOIA exemption could apply because the information was already publicly available.

* * *

The language of Exemption 4 protects from disclosure "commercial information" obtained from a non‑government source, so long as it is "privileged or confidential." The only dispute here is over the last phrase. In National Parks & Conservation Ass'n v. Morton, 498 F.2d 765, 770 (D.C.Cir.1974) ( "National Parks I"), this court adopted a narrow reading of the word "confidential," saying that information was confidential within the meaning of Exemption 4 only if its *18 disclosure was likely to (1) impair the government's ability to obtain necessary information in the future, or (2) cause substantial harm to the competitive position of the person from whom the information was obtained. The district court found here that DOE had satisfied both alternatives.

[1][2] In support of its claim that release would impair government interests, DOE offered two conclusory affidavits, claiming that disclosure would impair the EIA's ability to collect such information in the future. See Walton Decl. 57 39‑43; Grutsch Decl., 10. The claim is inherently weak where, as here, the agency has secured the information under compulsion. Critical Mass Energy Project v. NRC, 975 F.2d 871, 878 (D.C.Cir.1992) (en banc). Yet DOE and the QF Intervenors offer nothing but Walton's speculative opinion that QFs may not be forthcoming in the data they submit if DOE allows disclosure, see Walton Decl., 41, and Grutsch's terse and self‑serving statement that as an executive of various QFs he would "attempt to minimize the scope and specificity of the information provided." See Grutsch Decl., 10. But the agency has the burden of showing that requested information comes within a FOIA exemption, National Parks & Conservation Ass'n v. Kleppe, 547 F.2d 673, 679 (D.C.Cir.1976) ("National Parks II"), and we have more than once held that such conclusory and generalized assertions are not enough to establish the requisite risk of impairment. Id. at 680; Washington Post Co. v. U.S. Dep't of Health and Human Serv., 690 F.2d 252, 269 (D.C.Cir.1982).

[3] DOE insists that summary judgment is proper because Niagara did not controvert the assertions of impairment. But on a summary judgment motion, "[f]acts not conclusively demonstrated, but essential to the movant's claim, are not established merely by his opponent's silence; rather, the movant must shoulder the burden of showing affirmatively the absence of any meaningful factual issue." See National Assoc. Of Gov't Employees v. Campbell, 593 F.2d 1023, 1027 (D.C.Cir.1978). A paper asserting the affiant's intention to sail as close to the wind as possible is hardly enough for this case‑‑ especially as the data sought appears to take the form of hard, cold numbers on energy use and production, the fudging of which may strain all but the deliberately mendacious. As the DOE and QF Intervenor affidavits are in these circumstances too vague, the grant of summary judgment on this issue was unjustified.

[4] DOE fares no better in its effort to show that there is no genuine issue of material fact on the likelihood of substantial competitive harm. In National Parks II, we held that for the government to preclude disclosure based on a competitive injury claim, it must prove that the submitters "(1) actually face competition, and (2) substantial competitive injury would likely result from disclosure." 547 F.2d. at 679. Here, DOE's assertions of the existence of competition are somewhat conclusory. See Walton Decl. 57 22‑31. But assuming arguendo that DOE met its initial burden of proving that QFs were engaged in competition, Niagara's response was adequate to raise genuine issues of material fact. The affidavit submitted by Niagara, from James Cifaratta, its Director of Unregulated Generation, flatly disputes the assertions of competition. For example, so far as competition by QFs in the sale of power is concerned, Cifaratta asserts that arrangements under which QFs sell electricity in an unregulated market (i.e., outside the shelter of the PURPA mandate) are uncommon and "truly exceptional." See Cifaratta Decl. 57 11‑12. He further says that the long term contracts that QFs have with their steam hosts‑‑buyers of the thermal energy produced by cogeneration‑‑preclude competition among the QFs for such hosts. Id. 13. This theoretically leaves competition among the QFs as contracts expire. But our decision in National Parks II, that the district court was clearly erroneous in finding that certain concessionaires faced substantial competitive harms in contract renewal when the contracts were for long periods and thus renewal competition would only occur infrequently, 547 F.2d at 681‑82, suggests that a competitive injury is too remote for purposes of Exemption 4 if it can occur only in the occasional renegotiation of long‑term contracts. Niagara's response thus puts in dispute whether there is a likelihood of substantial *19 competition among QFs in contract renegotiation with their steam hosts.

Further, though implicitly accepting DOE's and the QF Intervenors' assumption that QFs' competition with their steam hosts for the division of rents (quite apart from the long terms of the contracts) qualifies as "competition" for purposes of National Parks, Niagara contests the claim that they actually do so. See Cifaratta Decl. 14. ("[T]he arrangements between QFs and their steam hosts typically are not determined by ordinary market‑based concerns ... QFs often provide steam to their hosts at very low rates, sometimes for free. Some QFs, in fact, subsidize their steam hosts in order to secure PURPA and PSL 66‑c benefits for themselves."). While this struggle‑free relation may seem unlikely, the contention directly contradicts the assertions on which the district court relied.

DOE's other arguments relating to competitive injury are legally inadequate under the National Parks standard. For example, DOE argues that the QFs may face future or potential competition. But the test explicitly requires proof that the submitters face actual competition. National Parks II, 547 F.2d at 679. DOE also insinuates that Niagara's interest in challenging the regulatory entitlement of QFs shows a competitive relationship between the QFs and Niagara. The argument would make sense only if a producer's regulatory entitlement to governmentally administered prices could be said to put the producer in "competition" with the involuntary purchaser. But if National Parks I embraced any such expansive idea of competition, the case would have come out differently. There the court recognized that the private sources of the disputed data, park concessionaires, enjoyed monopoly contracts with the Park Service, contracts that by statute were to be renewed so long as the concessionaires performed satisfactorily. 498 F.2d at 770 n. 20. The data sought to be collected bore on that performance. If the court thought that a firm's interest in protecting such an entitlement from the outsider scrutiny qualified as a competitive interest, it would have affirmed the district court's application of Exemption 4.

As each legally sound theory offered by DOE is plagued by factual disputes, summary judgment was improper. On remand the district court will want to consider the Supreme Court's observation that "categorical decisions may be appropriate and individual circumstances disregarded when a case fits into a genus in which the balance characteristically tips in one direction," U.S. Dep't of Justice v. Reporters Committee for Freedom of the Press, 489 U.S. 749, 776, 109 S.Ct. 1468, 103 L.Ed.2d 774 (1989); see also Critical Mass, 975 F.2d at 879. Thus, a finding that QFs as a class generally do or do not have competitive interests that would be injured by release of the information on Form EIA‑867 Form may be suitable.

[5] Niagara also claimed that Form EIA‑867 information is already in the public domain‑‑a proposition that if true would give victory to Niagara independent of the matters discussed above. Niagara's position here is a little odd: if the information is publicly available, one wonders, why is it burning up counsel fees to obtain it under FOIA? But the logic of FOIA compels the result: if identical information is truly public, then enforcement of an exemption cannot fulfill its purposes. See Davis v. U.S. Dep't of Justice, 968 F.2d 1276, 1279 (D.C.Cir.1992) (Exemptions 7(C) & 7(D)); CNA Financial Corp. v. Donovan, 830 F.2d 1132, 1154 (D.C.Cir.1987) (Exemption 4); Afshar v. Dep't of State, 702 F.2d 1125 (D.C.Cir.1983) (Exemptions 1 & 3). On this issue the party favoring disclosure has the burden of production, for otherwise the party opposing disclosure would theoretically have to identify all public sources not reproducing the information. Id. at 1130. Niagara has sought to meet the burden with the argument that the data on Form EIA‑867 is substantially equivalent to the data the QFs are required to file on Form 556 in their applications to the Federal Energy Regulatory Commission for QF certification, which is publicly available.

Before this court, both DOE and the QF Intervenors claim that the information on Form EIA‑867 is narrower in scope than that submitted on Form 556. But that claim is at odds with their position before the *20 district court. At argument on the summary judgment motion, counsel for the QF Intervenors conceded that the information provided by QFs upon initial certification was "substantially identical to that found in form 867 and that information is public." And DOE counsel supported this observation with equally emphatic language: "[The information] may be absolutely totally identical, but it's projected. It's not actual, and that's the big difference." Although obviously there is a world of difference between projected and actual data, these positions either assert or assume that the information on the two forms is identical in scope.

The district court accepted DOE's argument that while the certification information on Form 556 was only projected, the operational and performance information on Form EIA‑867 was drawn from actual experience. Niagara did not dispute this, but countered by arguing that FERC regulations require QFs to make corrective filings once there are material changes in a QF's operations. See 18 U.S.C. 292.207(d)(1). But as the district court observed, such new information is required only when there are material changes in facts and representations included in the initial self‑certification filing. Since these corrective filings are not necessarily made on an ongoing and continuous basis, Niagara seems to have initially failed to carry its burden.

But that is not the end of the story. After the district court's holding in this case, the New York Public Service Commission rendered a decision authorizing electric utilities in New York to monitor the compliance standards set out in PURPA. See Re Motion to Establish Programs for Monitoring Qualifying Facility Status, Nos. 96‑E‑0775, 95‑E‑0264, 1997 WL 114364 at *1 (N.Y.P.S.C. Jan.9, 1997). It is undisputed that this decision requires New York QFs to provide actual current performance data of the sort required for Form 556. Niagara claims that this requirement puts the requested information squarely in the public domain.

In response to the specific question why in light of this availability Niagara is still trying to obtain the Form EIA‑867 information, Niagara responds that the Public Service Commission decision required information only from 1994 onwards, and that it wants to relieve itself (and in the end presumably its customers) from the costs of erroneous PURPA applications from earlier years. In fact, the time disparity is worse than that argument suggests, because the Federal Energy Regulatory Commission, though rejecting a claim by New York independent power producers that the New York decision was preempted by PURPA, denied it any effect as to data before the New York independents were on notice of the requirement, [FN1] on the ground that such a mandate would impose an undue burden on the producers. See Independent Power Producers of New York, Inc., 80 FERC 61,125 at 61,399 (1997).

FN1. It is uncertain from FERC's decision, Independent Power Producers of New York, Inc., 80 FERC 61,125 at 61,399 (1997), whether it regarded the QFs as being on notice from August 30, 1996, when the New York Commission made its initial declaratory ruling and order instituting the QF monitoring program, or from January 13, 1995, when FERC issued order No. 575, 60 Fed.Reg. 4831 (1995), which established FERC Form 556 and its data requirements, which were in turn picked up by the New York Public Service Commission.

Before us DOE and the QF Intervenors try to undercut the relevance of the New York decision by arguing that the scope of information on Form EIA‑867 is materially broader than that on Form 556. But that was the scope claim that they effectively disavowed in district court; to allow them to raise it now for the first time on appeal would be grossly unfair to Niagara.

But Niagara is still by no means home free on this issue. For the period of most concern to Niagara, i.e., before the effective date of the Public Service Commission decision as modified by FERC, the New York mandate obviously fails to put the data into the public domain. But even as to those earlier data Niagara may have an argument on remand. [FN2] Even if the district court finds that the QFs are in competition that could be adversely *21 affected by disclosure of the earlier data if it alone were disclosed, those data may turn out to add so little to what is covered by the New York decision that its public disclosure will cause no additional competitive harm.

FN2. Since the New York decision issued after the judgment in this case, the district court never had an opportunity to consider it in evaluating Niagara's claims. Now it will.

* * *

The district court's order granting DOE's motion for summary judgment is vacated and remanded.

So ordered.



FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents,

Time Warner Cable of New York City and Paragon Communications, Intervenors.

Nos. 96‑1030, 96‑1094.

114 F.3d 274

United States Court of Appeals,

District of Columbia Circuit.

Decided June 3, 1997.

Before SILBERMAN, SENTELLE and GARLAND, Circuit Judges.

SENTELLE, Circuit Judge:

Bartholdi Cable Co. ("Bartholdi") and Time Warner Cable of New York City ("Time Warner") petition for review of a Federal Communications Commission ("FCC" or "Commission") order rejecting Bartholdi's claim that material it submitted to the Commission was protected from public disclosure by the attorney‑client and workproduct privileges as well as Exemptions 4 and 6 of the Freedom of Information Act ("FOIA"), 5 U.S.C. 552. For the reasons discussed below, we deny Bartholdi's petition for review and dismiss Time Warner's petition for lack of jurisdiction.

I. Background

In 1991, the FCC authorized the licensing of radio frequencies known as operational fixed microwave service ("OFS") for the distribution of video programming to the public. Since that time, Bartholdi (formerly known as Liberty Cable Co., Inc.) has used OFS "paths" to provide multi‑channel video programming to approximately 30,000 subscribers in apartment buildings in the New York metropolitan area.

*278 **424 In order for Bartholdi to provide its service lawfully, it must first obtain from the Commission an OFS license for each microwave path between a radio station and a receiver located on the roof of the building that contracted to receive Bartholdi service. In order to expedite provision of service to subscribers, Bartholdi has applied for and the Commission has granted Special Temporary Authority pursuant to 47 U.S.C. 309(f) and 47 C.F.R. 101.31, allowing Bartholdi to provide service pending license approval.

In March 1995, Bartholdi applied to the FCC for a number of OFS licenses. Time Warner, a competitor of Bartholdi, petitioned to deny the applications. On May 5, 1995, in one of its petitions to deny Bartholdi's OFS license applications, Time Warner informed the Commission of its discovery that Bartholdi had begun using two OFS paths without licenses.

In the meantime, Bartholdi purportedly discovered that it had begun providing service to some buildings in New York without prior authorization from the Commission. Bartholdi admitted premature activation of service to the two buildings identified by Time Warner and "immediately" began investigating the cause of the premature activations. Bartholdi also disclosed to the Commission the existence of thirteen other prematurely activated buildings. As a result of these revelations, Bartholdi's chairman retained outside counsel to determine the cause of the premature activations and to institute a compliance program.

Outside counsel conducted an "exhaustive" investigation of Bartholdi's company records and interviewed all persons with relevant knowledge. Outside counsel then prepared a comprehensive report. The report contains a description of Bartholdi's internal business and licensing operations, information concerning Bartholdi's customers, the history of management breakdown that led to the premature activations, and the identity, functions, and performance evaluations of various Bartholdi personnel.

In light of Bartholdi's disclosed violations, the Chief of the FCC's Microwave Branch sent a letter to Bartholdi on June 9, 1995, requesting that Bartholdi provide additional information concerning its unlicensed operations. In response to this request, Bartholdi submitted, inter alia, a chart showing the addresses, dates of commencement of service, and number of subscribers at each of the fifteen buildings that received unauthorized service. On the same day, Bartholdi's president informed the Wireless Telecommunications Bureau ("WTB") that "[a] complete investigation of this administrative foul‑up is currently being conducted by outside counsel." Shortly thereafter, Bartholdi revealed an additional four instances of unlicensed service, bringing the total number to nineteen.

After that revelation, the Chief of the Enforcement Division of the WTB directed Bartholdi "to submit to the Commission the results of its recently conducted internal audit." Specifically, Bartholdi's report to the Commission was to list (1) "all of the OFS paths which [Bartholdi] has constructed and/or operated without authority," (2) "which of these unauthorized paths were not disclosed to the Commission in response to its letter of June [9], 1995," (3) "the date each unauthorized path was constructed and placed in operation," (4) "the number of subscribers currently being served by each new path," and (5) "whether [Bartholdi] is charging subscribers for service received via these unauthorized paths."

Several days later Bartholdi responded to the WTB's request by submitting a letter summarizing the findings of Bartholdi's outside counsel; a detailed list of unauthorized operations, number of subscribers, commencement dates, and charged subscribers; and the full text of the outside counsel's report as well as certain documents and communications attached to the report. These submissions were accompanied by a request that they remain confidential under Exemptions 4 and 6 of FOIA. Alternatively, to the extent the WTB determined that the submissions should not remain confidential, Bartholdi requested that the submissions be returned without consideration pursuant to 47 C.F.R. 0.459(e). Bartholdi's request for confidentiality also made passing reference to the attorney‑client and work‑product privileges.

*279 **425 On September 13, 1995, the WTB denied Bartholdi's request for confidentiality and ordered that Bartholdi disclose the submitted materials to Time Warner and the general public. Bartholdi filed an application for review with the Commission on September 20, 1995, seeking reversal of the WTB's ruling. The application for review contained extensive discussion of Bartholdi's claims for confidentiality under Exemptions 4 and 6 of FOIA. However, the application contained no discussion of the attorney‑client or work‑product privileges, nor did it make mention of 47 C.F.R. 0.459(e).

The Commission denied Bartholdi's application for review and "affirm[ed] the WTB's ruling in all ... respects." Liberty Cable Co., Inc., 11 F.C.C.R. at 2475, 2475 (1996). The Commission rejected Bartholdi's Exemption 4 confidentiality claim on the ground that Bartholdi failed to establish that disclosure of the information submitted to the Commission would result in "competitive harm." Id. at 2476. Alternatively, the Commission rejected the Exemption 4 claim on the ground that "public interest considerations favoring openness in ... licensing proceedings ... outweigh any need to protect the audit report from disclosure." Id. at 2477. Similarly, the Commission rejected Bartholdi's Exemption 6 claim on the ground that "significant public policy considerations warrant disclosure." Id. As for Bartholdi's privilege claims, the Commission noted that Bartholdi's application for review "does not even mention, let alone discuss, these privileges." Id. In any event, the Commission rejected the privilege claims on the ground that Bartholdi had failed "to provide any specific information or explanation to substantiate its generalized claims of privilege." Id. Bartholdi then sought and obtained an emergency stay from this court. This petition for review followed.

II. Analysis

[1] Bartholdi maintains that the Commission's decision was arbitrary and capricious. 5 U.S.C. 706(2)(A). Under the arbitrary and capricious standard of review, we do not "substitute [our] judgment for that of the agency." Motor Vehicle Mfrs. Ass'n of the United States, Inc. v. State Farm Mutual Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983). Rather, we look only to see whether the agency action reflects a " 'clear error in judgment.' " Bell Atl. Tel. Cos. v. FCC, 79 F.3d 1195, 1202 (D.C.Cir.1996) (quoting Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 824, 28 L.Ed.2d 136 (1971)).

[the court rejected attorney-client privilege and work-product claims]


[9] Bartholdi further argues that its submissions to the Commission are protected from disclosure by FOIA. FOIA "requires agencies to comply with requests to make their records available to the public, unless the requested records fit within one or more of nine categories of exempt material." Oglesby v. United States Dep't of the Army, 79 F.3d 1172, 1176 (D.C.Cir.1996); 5 U.S.C. **427 *281 552. Bartholdi contends that its submissions fall within FOIA Exemptions 4 and 6.

1. Exemption 4.

[10][11] Exemption 4 of FOIA provides that an agency need not disclose information that is "trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 U.S.C. 552(b)(4). The test for whether information is "confidential" depends in part on whether the information was voluntarily or involuntarily disclosed to the government. If the information was voluntarily disclosed to the government, it will be considered confidential "if it is of a kind that would customarily not be released to the public by the person from whom it was obtained." Critical Mass Energy Project v. NRC, 975 F.2d 871, 879 (D.C.Cir.1992) (en banc), cert. denied, 507 U.S. 984, 113 S.Ct. 1579, 123 L.Ed.2d 147 (1993). If the information was obtained under compulsion, it will be considered confidential only "if disclosure ... is likely to have either of the following effects: (1) to impair the Government's ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained." National Parks and Conservation Ass'n v. Morton, 498 F.2d 765, 770 (D.C.Cir.1974).

[12][13] Of course, the mere fact that information falls within a FOIA exemption does not of itself bar an agency from disclosing the information. Chrysler Corp. v. Brown, 441 U.S. 281, 293, 99 S.Ct. 1705, 1713, 60 L.Ed.2d 208 (1979). But we have held that information falling within Exemption 4 of FOIA also comes within the Trade Secrets Act, 18 U.S.C. 1905, which prohibits the disclosure of, inter alia, "trade secrets" and "confidential statistical data." CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1151 (D.C.Cir.1987) (holding that "the scope of the [Trade Secrets] Act is at least co‑extensive with that of Exemption 4 of FOIA"), cert. denied, 485 U.S. 977, 108 S.Ct. 1270, 99 L.Ed.2d 481 (1988). Thus, generally when "a party succeeds in demonstrating that its materials fall within Exemption 4, the government is precluded from releasing the information by virtue of the Trade Secrets Act." McDonnell Douglas Corp. v. Widnall, 57 F.3d 1162, 1164 (D.C.Cir.1995). However, information otherwise protected by the Trade Secrets Act may be disclosed if "authorized by law." See 18 U.S.C. 1905. The Supreme Court has held that the release of otherwise protected information to the public is "authorized by law" if permitted by a regulation that is: (1) "rooted in a grant of power by the Congress" to limit the scope of the Trade Secrets Act; (2) "substantive," rather than interpretive or procedural; and (3) consistent "with any procedural requirements imposed by Congress" such as the APA. Chrysler, 441 U.S. at 302‑03, 99 S.Ct. at 1718.

Section 0.457 of the Commission's regulations permits disclosure of exempt materials to the extent "the policy considerations favoring non‑ disclosure" are outweighed by factors favoring disclosure. 47 C.F.R. 0.457. The Commission has held that this regulation is "authorized by law" as that phrase was defined by the Supreme Court in Chrysler. In the Matter of Examination of Current Policy Concerning the Treatment of Confidential Information Submitted to the Commission: Notice of Inquiry, 11 F.C.C.R. 12406 (1996). Pursuant to 0.457, the WTB ruled that "the public interest in disclosure of [Bartholdi's] materials would justify disclosure as a matter of our discretion even if the materials could be withheld under the FOIA." See Letter from Ralph A. Haller, Deputy Chief, WTB, to Henry M. Rivera et al., Counsel for Bartholdi 4 (Sept. 13, 1995). The Commission affirmed this conclusion in its order, holding that "public interest considerations favoring openness in our licensing proceedings outweigh any potential difficulty that the Government might experience in obtaining access to information in similar circumstances." 11 F.C.C.R. at 2477.

[14] Bartholdi argues that 0.457 of the Commission's regulations does not meet the definition of "authorized by law" under Chrysler. But Bartholdi did not raise this challenge before the Commission. Bartholdi's application for review made no mention of Chrysler. Because Bartholdi failed to challenge the validity of 0.457 before the *282 **428 Commission, we decline to consider the issue. 47 U.S.C. 405.

[15] Therefore, assuming the validity of 0.457, we cannot conclude that the Commission acted arbitrarily in concluding that the public interest considerations in disclosure outweighed those in favor of confidentiality. As the Commission now explains, much of the information for which Bartholdi seeks confidential treatment is already publicly available. Moreover, the Commission concluded that the public has a compelling interest in the information at issue as it bears directly on Bartholdi's fitness as a license applicant. Bartholdi chastises the Commission for failing to articulate these rationales in its order. But a more explicit discussion in the Commission's order would have risked disclosure of the information Bartholdi was attempting to keep confidential. We cannot fault the Commission for attempting to maintain the confidentiality of Bartholdi's submissions pending judicial review.

[analysis relating to FOIA exemption 6 omitted]

III. Conclusion

For the foregoing reasons, we conclude that Bartholdi's challenges to the Commission's order are without merit. Its petition for review is therefore denied. We also dismiss Time Warner's petition for lack of jurisdiction.


[1] Almost any time of information can qualify: pizza recipes, the formula for Coke, designs for computer chips, certain mailing lists, marketing and strategic plans, manufacturing costs and other financial information.

[2] Murray v. Bank One, 582 N.E.2d 1124, 1129 (Ohio Ct. App. 1990) reversing summary judgment for dependant on grounds that the trade secret was not novel).

[3] Uniform Trade Secrets Act 1(4)(i) (defining "trade secret"). 4 U.L.A. 437, 438.

[4] Uniform Trade Secret Act 1 cmt., 4 U.L.A. at 439 (citing Telex Corp. v. IBM Corp., 510 F.2d 894 (10th Cir. 1975)). Such "negative trade secrets" are considered in chapter ___ at page ___.

[5] Restatement (1st) of Torts 757 Cmt. a. (___).

[6] Restatement (1st) of Torts 757 Cmt. b.

[7] Restatement (1st) 757 Cmt. b.

[8] Eaton Corp. v. Appliance Valves Corp., 526 F. Supp. 1172, 1180 (ND. Ind. 1981) (to extent that literature shows how to do it, no trade secret; combination of publically known elements not a trade secret if only trivial value added by combination), later op., later opinion, 634 F. Supp. 974, 986 (ND. Ind. 1984) (same), affirmed, 790 F.2d 874, 878 (Fed. Cir. 1986) (trial court correctly found no trade secret; no analysis).

[9] 582 N.E.2d 1124 (Ohio Ct. App. 1990).

[10] 582 N.E.2d at 1126.

[11] 582 N.E.2d at 1126.

[12] 582 N.E.2d at 1127.

[13] Accord Monolith Portland Mid West Co. v. Kaiser Aluminum & Chemical Corp., 267 F. Supp. 726, 731 (S.D.Cal. 1966) (patent-level novelty not required but it must at least be novel to the person receiving the disclosure and must constitute something that others working in the same field do not in the ordinary course of their work make the same discovery), modified, 407 F.2d 288 (9th Cir. 1969) (trade secret action barred by statute of limitations). The specific information disclosed in Monolith Portland related to the desirability of leaving a space between a shim and a shell in a kiln for Portland Cement. The desirability of leaving such a space was well known in the industry, and thus no trade secret status existed. 267 F. Supp. at 775.

[14] 609 P.2d 733, (Okl. 1980) (reversing injunction and default judgment against defendant for failure to produce documents)

[15] 609 P.2d at 741 (noting argument that "invention" may be broader than patent).

[16] 609 P.2d at 745 (balancing equities to allow mobility of employees). There were also questions about evidence of secrecy.

[17] 224 N.W.2d 80 (Mich.App. 1974) (vacating injunction and remanding for computation of damages for misappropriation of trade secret in design of hydrostatic drives)

[18] 224 N.W.2d at 84 (exchange between defendant Phillips and plaintiff's counsel). Mr. Hull is the other defendant.

[19] UTSA 1 cmt., 14 ULA at 439.

[20] Electro‑Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890 (Minn. 1983) (intent to keep data and processes secret did not bear on the statutory requirement to use efforts that are reasonable to maintain secrecy)

[21] UTSA 1 cmt., 4 ULA at 439.

[22] Aries Info. Sys., Inc. v. Pacific Management Sys. Corp., 366 N.W.2d 366 (Minn. Ct. App. 1985) (computer programs were secret because, among other measures, source code and manuals stated that system information was proprietary); Electro-Miniatures Corp. v. Wendon Co., 771 F.2d 23 (2d Cir. 1985), (proprietary labels on drawings, among other measures, were sufficient security); ISC‑Bunker Ramo Corp. v. Altech, Inc., 765 F. Supp. 1310 (N.D. Ill. 1990) (computer software and manuals were trade secrets because they were marked with proprietary warnings, among other measures); Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 730 F. Supp. 171 (N.D. Ill. 1990) (manufacturer did not provide adequate security by merely placing proprietary warning labels on part prints which it routinely disseminated to customers), rev'd, 925 F.2d 174 (7th Cir. 1991) (Posner, J.) (jury entitled to decide whether secrecy efforts were adequate; reversing summary judgment for defendants); Telerate Sys., Inc. v. Caro, 689 F. Supp. 221 (S.D.N.Y. 1988) (proprietary warnings on computer files, among other measures, was adequate security for "handshake protocol"); Picker Int'l, Inc. v. Blanton, 756 F. Supp. 971 (N.D. Tex. 1990) (computer software and service manuals were adequately guarded by marking with proprietary warnings and requiring employees to sign confidentiality agreement); Drill Parts & Serv. Co. v. Joy Mfg. Co., 439 So. 2d 43 (Ala. 1983) (security was adequate where proprietary warnings were placed on drawings even though defendant obtained numerous drawings through trash of plaintiff's subcontractor and by purchasing drawings that were mixed in with metal scrap that plaintiff sold to scrap dealer); Data Gen. Corp. v. Digital Computer Controls, 357 A.2d 105 (Del. Ch. 1975) (logic drawings of minicomputer were sufficiently secret because drawings had proprietary label on them even though the information was in maintenance drawings which were sent to each customer)

[23] 366 N.W.2d at 368-69 (evaluating proprietary notices in the context of "reasonable efforts").

[24] 689 F. Supp. 221 (S.D.N.Y. 1988) (granting preliminary injunction against use of proprietary software on breach of contract, contributory copyright infringement, and trade secret grounds).

[25] 689 F. Supp. at 232. These measures plus the two measures noted in the text were found to be adequate.

[26] 925 F.2d 174, 176 (7th Cir. 1991).

[27] See Surgidev Corp. v. Eye Technology, Inc., 648 F. Supp. 661, 693 (D. Minn. 1986) (enjoining certain uses of trade secrets; putting employees on notice of trade secret status of certain matters is one reasonable precaution to maintain secrecy; citing cases involving secrecy and nondisclosure agreements and restrictive covenants), aff'd, 828 F.2d 452, 455 (8th Cir. 1987) (failure to warn departing employees of duty to respect trade secrets does not negate effect of other secrecy measures).

[28] Aries Info. Sys., Inc. v. Pacific Management Sys. Corp., 366 N.W.2d 366 (Minn. Ct. App. 1985) (computer program was trade secret because employee had confidentiality agreement and customer contracts stated that programs were proprietary); Integrated Cash Management Serv., Inc. v. Digital Transactions, 920 F.2d 171 (2d Cir. 1990), (requiring employees to sign nondisclosure form and locking facility's doors was adequate security); Syntex Ophthalmics, Inc. v. Novicky, 745 F.2d 1423 (Fed. Cir. 1984) (secrecy of process sufficiently guarded because employees signed confidentiality agreement, among other measures), vacated and remanded for reconsideration in light of Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373 (1985) (state law determines preclusive effect of state judgment in antitrust action) 470 U.S. 1047 (1985).; ISC‑Bunker Ramo Corp. v. Altech, Inc., 765 F. Supp. 1310 (N.D. Ill. 1990) (secrecy of computer program and manuals was maintained adequately by requiring employees and customers to sign confidentiality agreements, among other measures, even though information was disclosed to third parties under obligation of confidentiality); Coco Rico, Inc. v. Fuertes Pasarell, 738 F. Supp. 613 (D.P.R. 1990) (agreement not to disclose formula for coconut flavored soda was insufficient because formula was disclosed in expired patent); Telerate Sys., Inc. v. Caro, 689 F. Supp. 221 (S.D.N.Y. 1988) (security was sufficient even though employees did not sign confidentiality agreement because there were proprietary warnings on computer files and access to them was restricted); Picker Int'l, Inc. v. Blanton, 756 F. Supp. 971 (N.D. Tex. 1990) (security was sufficient for computer programs and service manuals where employees signed confidentiality agreement and information was marked with proprietary warnings); Johns‑Manville Corp. v. Guardian Indus., Corp., 586 F. Supp. 1034 (E.D. Mich. 1983) (information about fiberglass production was guarded sufficiently by requiring employees to sign confidentiality agreement, among other measures), aff'd mem. 770 F.2d 178 (Fed. Cir. 1985); Gillis Assoc. Ind. v. Cari‑All, Inc., 564 N.E.2d 907 (Ill. App. Ct. 1990) (security was inadequate, because even though employees signed confidentiality agreement, access to computer generated lists were not restricted and had no confidential warnings); Electro‑Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890 (Minn. 1983) (security was not sufficient even though some employees signed confidentiality agreements);Surgidev Corp. v. Eye Technology, Inc., 648 F. Supp. 661 (D. Minn. 1986) (security adequate because, among other measures, employees were required to sign non-disclosure agreement); USM Corp. v. Marson Fastner Corp., 393 N.E.2d 895 (Mass. 1979) security adequate where, among other measures, supervisors, technical and research personel had to sign confidentiality agreement); Eastern Marble Prod. Corp. v. Roman Marble, Inc., 364 N.E.2d 799 (Mass. 1977) (security adequate where employees signed confidentiality agreement, among other measures);

[29] In Re Innovative Constr. Sys., 793 F.2d 875 (7th Cir. 1986), (security measures for formulas were adequate where employees knew of formula's secrecy and formula's were in notebook in manager's office); Anaconda Co. v. Metric Tool & Die, 485 F. Supp. 410 (E.D. Pa. 1980) (security was adequate, where among other measures, employees knew that machine's configuration was trade secret); Holland Dev., LTD v. Manufacturers Consultants, Inc., 724 P.2d 844 (Or. Ct. App. 1986) (secrecy was sufficient because employee was aware of plaintiff's expectation of confidentiality); Kozuch v. Cra‑Mar Video Center, Inc., 478 N.E.2d 110 (Ind. Ct. App. 1985) (security was sufficient where disks containing customer lists were locked away and instructions regarding secrecy were given to computer operators and programmers)

[30] 319 N.W.2d 907, 911-912 (Wis. App. 1982) (affirming judgment on jury verdict for plaintiff for trade secret misappropriation; careful review of factors establishing trade secret).

[31] 319 N.W.2d at 911-912.

[32] 319 N.W.2d at 912.

[33] Dickerman Assoc. v. Tiverton Bottled Gas Co., 594 F. Supp. 30 (D. Mass. 1984) (employee was bound by confidentiality agreement which employer signed as licensee of computer software system)

[34] See chapter ___ discussing relationship between breach of confidentiality agreement claim and misappropriation claim.

[35] Aries Info. Sys., Inc. v. Pacific Management Sys. Corp., 366 N.W.2d 366 (Minn. Ct. App. 1985) (computer program was trade secret because among other measures, customer contracts stated that programs were proprietary); ISC‑Bunker Ramo Corp. v. Altech, Inc., 765 F. Supp. 1310 (N.D. Ill. 1990) (secrecy of computer program and manuals was maintained adequately by requiring customers to sign confidentiality agreements, among other measures, even though information was disclosed to third parties under obligation of confidentiality); Curtiss‑Wright Corp. v. Edel‑Brown Tool & Die Co., 407 N.E.2d 319 (Mass. 1980) (manufacturer's drawings for naval aircraft piston was adequately guarded because, among other measures, Navy signed nondisclosure agreement then allowed defendant to use drawings);

[36] Curtiss‑Wright Corp. v. Edel‑Brown Tool & Die Co., 407 N.E.2d 319 (Mass. 1980) (defense contractor's drawing given to defendant by Navy were adequately protected because drawings had proprietary labels and defendant was told drawings were proprietary)

[37] Integrated Cash Management Serv., Inc. v. Digital Transactions, 920 F.2d 171 (2d Cir. 1990), (requiring employees to sign nondisclosure form and locking facility's doors was adequate security); In Re Innovative Constr. Sys., 793 F.2d 875 (7th Cir. 1986), (security measures were adequate even though access to plant was not restricted, but access to most of formulas was restricted); Johns‑Manville Corp. v. Guardian Indus., Corp., 586 F. Supp. 1034 (E.D. Mich. 1983) (information about fiberglass production process was guarded sufficiently by restricting access to area where the process was used, among other measures, even though public tours for lay persons were periodically given), (security adequate where among other measures, visitors had to sign in and be accompanied); Electro‑Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890 (Minn. 1983) (security inadequate where main plant had some guards, but among other measures, several entrances were unlocked without signs warning of limited access) Surgidev Corp. v. Eye Technology, Inc., 648 F. Supp. 661 (D. Minn. 1986) (security was adequate where among other measures, access to faciliteis was restricted by requiring visitors to sign in); USM Corp. v. Marson Fastner Corp., 393 N.E.2d 895 (Mass. 1979) security adequate where, visitors had to sign in and be escorted, and one of two plants had guards); Eastern Marble Prod. Corp. v. Roman Marble, Inc., 364 N.E.2d 799 (Mass. 1977) (security adequate where manufacturing facility was separated from business activities involving contact with the public, and employees were told to keep public out of manufacturing area, among other measures)

[38]Valco Cinncinnati, Inc. v. N & D Machining, 492 N.E.2d 814, 819 (Ohio 1986) (affirming preliminary injunction).

[39] 823 S.W.2d 633, 641-42 (Tex.Crim.App. 1991) (citations to record omitted).

[40] Kendall/Hunt Publishing Co. v. Rowe, 424 N.W.2d 235, 246 (Iowa 1988) (denying trade secret status to identities of current authors of publisher plaintiff because they are openly disclosed to the public).


[41] Restatement (First) of Torts 757 cmt. b (___).

[42] Restatement (First) of Torts 757 cmt. b.

[43] Allied Supply Co. v. Brown, 585 So.2d 33, 36 (Ala. 1991) (insufficient secrecy where interrogatory answers revealed that ten employees had free access to customer and vendor lists, lists were not marked confidential, lists were taken home by employees, multiple copies of each list existed, and information on list was contained in receptionist's Rolodex file); Palin Manufacturing Co. v. Water Technology, Inc., 431 N.E.2d 1310, 1313-1314 (Ill. Ct. App. 1982) (reversing trial court; cross examination showed that drawings of paint sludge separator device were not marked confidential, developer never told anyone they were confidential, almost anyone had a free run of GM Plant where device was tested, and defendant was never requested to maintain confidentiality).

[44] Secure Services Technology v. Time and Space Processing, 722 F. Supp. 1354, 1360 (careless disclosure can preclude the requisite secrecy, citing UTSA 1 comment, 14 ULA 373 (Supp. 1989)).


[45] ISC-Bunker Ramo Corp. v. Altech, Inc., 765 F. Supp. 1310, 1322-24 (nondistribution to customers unless special request and confidentiality agreement is made and reputation in industry for proprietary status satisfies secrecy requirement even though defendant showed one instance out of several thousand in which information leaked).


[46] Lariscey v. United States, 949 F.2d 1137, 1142-45 (Fed. Cir. 1991), on reh'g, 981 F.2d 1244 (Fed. Cir. 1993) (affirming by equally divided court).


[47] Boeing Co. v. Sierracin Corp., 738 P.2d 665, 674 (Wash. 1987).


[48] See, eg., Precision Plating & Metal Finishing Inc. v. Martin-Marietta Corp., 435 F.2d 1262, 1263-64 (5th Cir. 1970) (general contractor's public disclosure of subcontractor's trade secrets "amount[ed] to a complete destruction of the value of the process" and awarding damages to the subcontractor amounting to the sale value of the trade secret); Lemelson v. Carolina Enterprises, Inc., 541 F. Supp. 645 (S.D.N.Y. 1982) (deciding, for statute of limitation purposes, that prospective licensee's open and continuous manufacture and marketing of licensor's trade secret destroyed licensor's property interest in the secrets).


[49] Restatement of Torts 757(c) (1938). This form of third party conduct is considered more extensively in chapter 7.


[50] When a patent on an invention is issued, all rights of secrecy in the subject matter disclosed in the patent is destroyed. Shellmar Products Co. v. Allen-Qualley Co., 87 F.2d 104, 107 (7th Cir. 1937).


[51] See Shellmar Products Co. v. Allen-Qualley Co., 87 F.2d 104, 108 (7th Cir. 1937) (enjoining potential licensee from using licensor's trade secret process, although process was patented and general public could enjoy patent disclosure, since the licensee breached a confidential relationship with licensor by disclosing licensor's trade secrets).


[52] Shellmar, 87 F.2d at 110.


[53] Id.


[54] Rotoron Corp. v. Lake Shore Burial Vault Co., 712 F2d 1214 (7th Cir. 1983) (process not trade secret because information was revealed through plaintiff's patents, even though efficacy of process was due to arrangement of equipment, which was not disclosed in patent); American Can Co. v. Mansukhani, 728 F.2d 818 (7th Cir. 1983) (formula of commercial jet inks was a trade secret because while formula of similar inks were patented, inks in question were not patented, and were not easily duplicable from patents); Coco Rico, Inc. v. Fuertes Pasarell, 738 F. Supp. 613 (D.P.R. 1990) (coconut flavored soda formula disclosed in expired patent was in public domain even though defendant signed agreement not to disclose formula); Permagrain Prod. v. U.S. Mat & Rubber, 489 F. Supp. 108 (E.D. Pa. 1980) (manufacturing process for vinyl-laminated floor covering not trade secret because process was revealed through both a patent of which process was outside scope of protection and advertising, and it could be easily reverse engineered); Daily Int'l Sales Corp. v. Eastman Whipstock, Inc., 662 S.W.2d 60 (Tex. Ct. App. 1983) (design of drilling jar not trade secret because information was revealed through patents); Dionne v. Southeast Foam Converting & Packaging, Inc., 397 S.E.2d 110 (Va. 1990) (manufacturing process which was adaptation of expired patent was trade secret because process was generally unknown in business); Monolith Portland Midwest Co. v. Kaiser Aluminum & Chemical Corp., 267 F. Supp. 726 (S.D. Cal. 1966) (design of brick used to line inside of cement kiln not trade secret because information was obtainable through several expires patents);


[55] Plastic and Metal Fabricators, Inc. v. Roy, 303 A.2d 725, 730 n.4 (Conn. 1972).


[56] Plastic and Metal Fabricators, Inc. v. Roy, 303 A.2d 725, 730 n.4 (Conn. 1972) (citing 35 U.S.C. 122; 37 CFR 1.14(a) [no date on either]). The court rejected the argument that Sears Roebuck & Co. v. Steiffel, 376 U.S. 225 (1964), and Compco Corp. v. Day-Brite Lighting, Inc. 376 U.S. 234 (1964) preempt state trade secret protection when both parties have applied for patents on the secret information. 303 A.2d at 731-32. The court emphasized the appropriateness of allowing trade secret law to protect an invention while an application for a patent is pending, noting that the patent laws themselves recognize the need for secrecy during that period. 303 A.2d at 733.


[57] 303 A.2d at 730 n. 4.


[58] Defiance Button Mach. Co. v. C & C Metal Prod. Corp., 759 F.2d 1053 (2d Cir. 1985) (security was inadequate because customer list was in computer memory, and when computer was sold memory was not erased); B.C. Ziegler and Co. v. Ehren, 414 N.W.2d 48 (Wis. Ct. App. 1987) (underwriter's customer information obtained through batches of paper scrap containing customers' names and account summaries was trade secret and did not lose protection by accidental disclosure); Drill Parts & Serv. Co. v. Joy Mfg. Co., 439 So. 2d 43 (Ala. 1983) (security was adequate where proprietary warnings were placed on drawings even though defendant obtained numerous drawings through subcontractor's trash and by purchasing drawings that were mixed in with metal scrap that plaintiff sold to scrap dealer)

[59] 414 N.W.2d 48 (Wis. App. 1987),

[60] 414 N.W.2d at 53.

[61] 439 So.2d 43, 46 (Ala. 1983)

[62] 439 So.2d at 49.

[63] 5 U.S.C. 552.

[64] Trans-Pacific Policing Agreement v. United States Customs Service, 177 F.3d 1022, 1025 (D.C.Cir. 1999) (reversing district court order compelling disclosure).