Patent Baristas

The Ohio Supreme Court has ruled that a company’s confidential customer list is a protected trade secret even if a former employee retains the information purely from memory.

This doesn’t change the law, a trade secret is a trade secret regardless of whether it is memorized or in a more tangible form, just clarifies that even the Amazing Kreskin will still have to abide by trade secret laws. Al Minor & Assoc., Inc. v. Martin,  Slip Opinion No. 2008-Ohio-292.

The court was asked to opine on the question: “Whether customer lists compiled by former employees strictly from memory can be the basis for a statutory trade secret violation.”  Unfortunately, the better question was: “Whether customer lists compiled by former employees from publicly available sources nullify a statutory trade secret violation for the same information held in memory.” 

In the unanimous decision, the court ruled that:

1. Information that constitutes a trade secret pursuant to R.C. 1333.61(D) does not lose its character as a trade secret if it has been memorized.
2. The Uniform Trade Secrets Act does not apply to the use of memorized information that is not a trade secret pursuant to R.C. 1333.61(D).

Robert Martin worked as a pension analysts at Al Minor & Associates, Inc. (AMA), an actuarial firm that designs and administers retirement plans and had approximately 500 clients. AMA hired Martin but did not require him to sign either an employment contract or noncompete agreement. (Practice tip: If you are going to be hiring specialized employees with access to sensitive information, put in place a proper employment contract with confidentiality and noncompete clauses)

It probably didn’t help Martin’s case that he started his own company, Martin Consultants, L.L.C., while still employed at AMA. In 2003, he resigned from AMA and, without taking any documents containing confidential client information, successfully solicited 15 AMA clients with information from his memory.

Spurned, AMA filed suit claiming that he had violated Ohio’s Trade Secrets Act by using confidential client information to solicit those clients. The trial court sided with AMA to the tune of $25,973, specifically noting that the fact that Martin had solicited AMA’s clients from memory did not prevent the finding of a trade secret violation.

The Franklin County Court of Appeals affirmed the trial court stating that because “a client list such as the one at issue fits the statutory definition of a trade secret under R.C. 1333.61(D), AMA’s memorized client list warrants trade secret status.”

Being tenacious, if nothing else, Martin filed a discretionary appeal with the Ohio Supreme Court.

The issue here was whether the use of a memorized client list can be the basis of a trade secret violation pursuant to Ohio’s Uniform Trade Secrets Act (UTSA), which defines trade secret to mean:

[I]nformation, including the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique, or improvement, or any business information or plans, financial information, or listing of names, addresses, or telephone numbers, that satisfies both of the following:

(1) It 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.

(2) It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Martin argued that a client list memorized by a former employee cannot be the basis of a trade secret violation and that the appellate court’s decision in this case overly restricts his right to compete in business against AMA. He also argues that AMA should not have the right to control the use of his memory and that AMA had the opportunity to protect its confidential information by way of an employment contract, which it did not do.

(It’s worth noting that Martin also briefed a second proposition of law asserting that AMA’s client list does not satisfy the definition of a trade secret because it contained information that is available to the public via the internet. However, because Martin never raised this issue in his memorandum in support of jurisdiction, the court didn’t consider it. We’re left to wonder how that would have effected the outcome.)

The court noted that Ohio’s protection of trade secrets arose at common law:

In one of the earliest appellate decisions concerning trade secrets, an Ohio circuit court defined a trade secret as “a plan or process, tool, mechanism, or compound, known only to its owner and those of his employees to whom it is necessary to confide it, in order to apply it to the uses for which it is intended.

Furthermore, in Plain Dealer, the court established a six-factor test for determining whether information constitutes a trade secret pursuant to R.C. 1333.61(D):

1. The extent to which the information is known outside the business;
2. the extent to which it is known to those inside the business, i.e., by the employees;
3. the precautions taken by the holder of the trade secret to guard the secrecy of the information;
4. the savings effected and the value to the holder in having the information as against competitors;
5. the amount of effort or money expended in obtaining and developing the information; and
6. the amount of time and expense it would take for others to acquire and duplicate the information.

The court held that neither R.C. 1333.61(D) nor any other provision of the UTSA suggests that, for purposes of trade secret protection, the General Assembly intended to distinguish between information that has been reduced to some tangible form and information that has been memorized:

R.C. 1333.61(D) refers only to “information,” including “any business information or plans, financial information, or listing of names, addresses, or telephone numbers,” and the statute makes no mention of writings or other physical forms that such information might take. Furthermore, nothing in our six-factor test adopted in Plain Dealer, 80 Ohio St.3d at 524-525, 687 N.E.2d 661, indicates that the determination of whether a client list constitutes a trade secret depends on whether it was capable of being memorized or had been memorized.

In addition, more than 40 other states have adopted the Uniform Trade Secrets Act in substantially similar form, and the majority position is that memorized information can be the basis for a trade secret violation. There are, however, some outliers in some states that have decided to exclude memorized information.

Treatises on the subject of trade secrets also support the position that the determination of whether a client list is a protected trade secret does not depend on whether a former employee has memorized it. For example, in 2 Louis Altman, Callmann on Unfair Competition, Trademarks and Monopolies (5th Ed.2005) 14-192-14-195, Section 14.25, the text states that, “[a]s to customer lists, the older rule in some jurisdictions permits taking by memorization. In principle, however, the distinction between written and memorized information should not be encouraged. The form of the information and the manner in which it is obtained are unimportant; the nature of the relationship and the defendant’s conduct should be the determinative factors. The distinction places a premium upon good memory and a penalty upon forgetfulness, and it cannot be justified either from a logical or pragmatic point of view.”

Summing up, the court concluded that:

We recognize that the protection of trade secrets involves a balancing of public policies, and as stated in E.I. duPont de Nemours & Co. v. Am. Potash & Chem. Corp. (1964), 41 Del.Ch. 533, 548, 200 A.2d 428, “Among the substantial and conflicting policies at play * * * are the protection of employers’ rights in their trade secrets * * * versus the right of the individual to exploit his talents.” However, by adopting the Uniform Trade Secrets Act, with the express purpose “to make uniform the law with respect to their subject among states,” the General Assembly has determined that public policy in Ohio, as in the majority of other jurisdictions, favors the protection of trade secrets, whether memorized or reduced to some tangible form. And, as we stated in Johnson v. Microsoft Corp., 106 Ohio St.3d 278, 2005-Ohio-4985, 834 N.E.2d 791, “The Ohio General Assembly, and not this court, is the proper body to resolve public policy issues.” Id. at 14, citing State v. Smorgala (1990), 50 Ohio St.3d 222, 223, 553 N.E.2d 672 (“the General Assembly should be the final arbiter of public policy”).

The court concluded that information that constitutes a trade secret pursuant to R.C. 1333.61(D) does not lose its character as a trade secret if it has been memorized. It is the information that is protected by the UTSA, regardless of the manner, mode, or form in which it is stored – whether on paper, in a computer, in one’s memory, or in any other medium.

This ruling does not, however, remove unprotected information from the public domain:

Every employee will of course have memories casually retained from the ordinary course of employment. The Uniform Trade Secrets Act does not apply to the use of memorized information that is not a trade secret pursuant to R.C. 1333.61(D).

Left unsaid is what would happen if Martin had just searched the internet for the information and came up with the same results? Employees cannot be asked — absent some type of enforceable noncompete agreement — to erase their knowledge about their previous employer, like names of clients.

So, could Martin have looked up the information in a directory and been free to use the information or would his very knowledge of some client names nullify any attempt at independent creation?

This case seems to have raised more questions than it answered.

The Ohio Valley Affiliates for Life Sciences Group (OVALS) will host it’s 6th Annual regional conference  “Transformational Research: A Bridge to Building Economies” on April 14-15, 2008, at the Historic Brown Hotel in Louisville, KY. 

Topics Include:

Future trends in the biotech industry and factors that will shape it
A close-up view of NC: key elements, impact and lessons
Partnering with foundations
Changing landscape of universities and industry working together
OVALS regional assets: what do we have – how can they be used
Congressionally mandated programs as a source of funding

Register here.

An optional program this year is the Business Bootcamp for Scientists and Engineers.  This includes sessions on IP, marketing, start-up and funding.  (Note: Advanced registration required)

To paraphrase Ronald Reagan, “Well, There You Go Again!” The Court of Appeals for the Federal Circuit again affirmed that, while the practice of savings seeds after a harvest to plant the next season is as old as farming itself, you can’t save patented seeds.

After the district court held that Loren David knowingly infringed Monsanto’s seed patent, it awarded Monsanto damages, attorney fees, prejudgment interest, and costs of $786,989.43. On appeal, the CAFC affirmed that the patent was infringed but that some of the damages awarded were wrong. See Monsanto v. Loren David (07-1104).

Monsanto went after the farmer for breaching a technology agreement over genetically modified crops that resist glyphosphate herbicide. After planting these crops, farmers can spray glyphosphate herbicide over their fields to kill weeds while leaving the resistant crops intact. Monsanto sells seeds of the genetically modified crops, in this case soybeans, under the trade name Roundup Ready.

Monsanto’s U.S. Patent No. 5,352,605 claims a plant seed containing a genetic promoter sequence that facilitates a plant’s production of the modified enzyme that allows plants to survive exposure to glyphosphate herbicide. Monsanto distributes the patented seeds by authorizing various companies to produce the seeds and sell them to farmers. Monsanto required those seed companies to obtain a signed “Technology Agreement” from purchasers.

The Technology Agreement stipulates that buyers may use the seeds for the planting of only a single commercial crop, but that no seeds from that crop may be saved for future harvests. The Technology Agreement assures Monsanto that farmers must purchase new Roundup Ready® seeds each harvesting season, rather than simply saving seeds from the prior year’s harvest, as they normally would with conventional soybean seeds. Monsanto also charges a Technology Fee for each unit of Roundup Ready® soybean seeds sold. The Technology Agreement also contains a clause granting Monsanto the full amount of its legal fees and other costs that may have to be expended in enforcing the agreement.

Along comes Farmer David, a commercial farmer who owns soybean fields in North and South Dakota. He signs a Monsanto Technology Agreement in 1999 and plants some of the magic soybeans again in 2003. Monsanto claims that the seeds that David planted were Roundup Ready® soybeans improperly saved from the previous year’s harvest but David claims he did not save any seed.

Earlier, David purchased 645 units of Roundup Ready® soybean seeds, an amount of seeds that could not have covered David’s soybean fields in 2003. David also bought over 1,000 gallons of glyphosate-based herbicides in 2003, herbicide. Monsanto, ever vigilant for seed savers, tested David’s crops and found that they were from patented seeds.

David cleverly tried to show he purchased 993 units of Roundup Ready® soybean seed on May 31, 2003, but that was nearly a month after he claimed to have planted the majority of his soybean crop for the year. The court said “Nice try but no dice!”

Furthermore, the court found David’s testimony regarding his claimed purchase of conventional herbicides “not believable” and that David was unreliable as a witness. Hence, it ordered David to pay up.

It is important to note that the ‘605 patent claims a gene sequence, not a plant variety or a seed. David tried pleading that the ’605 patent cannot be infringed merely by saving seeds from plants containing the patented gene sequence. He argued that the written description of the ’605 patent lacks the specificity that would be required of a patented plant variety under the utility patent statute; thus, the ’605 patent is limited to the gene sequence and does not cover the plant containing such a gene.

David tried to fly under the premise that under J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred International, plants can only receive patent protection under the Plant Patent Act of 1930, the Plant Variety Protection Act of 1970, or under a utility patent on a plant variety. Thus, a utility patent on a gene sequence does not entitle the holder of that patent to enforce its grant of exclusivity against growers of plant varieties that contain the gene sequence.

Monsanto responded by showing that the holding of J.E.M. is just the opposite of what David claims it to be; patentable subject matter remains unmodified by the existence of the P.V.P.A. and the P.P.A. Moreover, Monsanto points to various decisions of this court that have read the ’605 patent onto plants and seeds containing the patented gene and holding those who save seeds liable for infringement.

The Supreme Court’s decision in J.E.M. stated that the existence of statutes specifically authorizing the patenting of plants (the P.P.A. and the P.V.P.A.) did not eliminate the availability of utility patent protection covering plants.

In smacking David down, the CAFC scolded him saying:

David’s real complaint seems to be that he should be able to save seed from his harvest, regardless of Monsanto’s patent. We have dealt with this complaint before. See e.g. Monsanto Co. v. McFarling, 302 F.3d 1291 (Fed. Cir. 2002). In McFarling, we held that a farmer who saved seed containing a patented gene was liable for patent infringement. Id. at 1299 (citing J.E.M., 534 U.S. at 604). McFarling further established that “the right to save seed of plants registered under the PVPA does not impart the right to save seed of plants patented under the Patent Act.” Id. We note that McFarling dealt with the very patent at issue in this case—the ’605 patent. We may not disregard a prior decision of this court regarding the same matter.

…

Due to his continually changing testimony, the court disregarded much of David’s testimony. See id. Given David’s unreliability as a witness, and a complete lack of other evidence supporting his claims, we conclude that the district court did not clearly err in determining that David planted saved seed.

David also tried to get the seed report tests conducted by Monsanto and the testimony of Monsanto’s expert Koppatschek, which relied on those seed report tests, thrown out.

Rule 702 of the Federal Rules of Evidence allows expert testimony if “(1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.”

This didn’t work since the Federal Rules of Evidence establish that an expert need not have obtained the basis for his opinion from personal perception. Reliance on scientific test results prepared by others may constitute the type of evidence that is reasonably relied upon by experts for purposes of Rule of Evidence 703.

See also:

Monsanto Planted By Patent Office Re-Exam
Re-Planting Biotech Crops A No-No

I realize that everyone is suffering from Patent Reform Fatigue regarding the new rules the Patent Office wants to foist on the public but here is a quick update.

Gene Quinn, at the PLI blog is reporting that the oral hearing on GlaxoSmithKline, Tafas and USPTO cross motions for Summary Judgment was today and that there will be no decision issued today. Judge Cacheris, in the Eastern District of Virginia, decided to take the matter under advisement and render a decision as soon as possible:

According to John White, Judge Cacheris said that “there is a lot of paper to consider” and that he would render his decision as soon as possible, schedule permitting. John also says that the courtroom was “again packed with every seat taken.” Further, John reported that GSK lead off, followed by Tafas and the PTO. It was John’s perspective that the arguments made by the PTO were much better and smoother than at the Preliminary Injunction hearing. Based upon what John heard at the hearing it is his believe that the primary question is whether the PTO has the authority to do what they have done, or in other words whether they have substantive rulemaking. According to John, “if the PTO does have substantive rulemaking Judge Cacheris will have to second guess what the PTO has done, if not then the rules will be dismissed as void and the case then proceeds to the CAFC.”

A pivot point is whether or not the USPTO has substantive rulemaking authority and not just procedural. GSK is arguing that if the proposed new rules are found to be substantive, then they are void and no deference should be given to the Office. The USPTO, meanwhile, is arguing that the USPTO has substantive rulemaking authority and should win either way.  It then argued that the rules are procedural because they are analogous to situations where courts have imposed limits on refiling of cases.

GlaxoSmithKline had filed suit asking the court to enjoin the PTO from implementing the Final Rules contending that they are vague, arbitrary and capricious, and prevent GSK (not to mention everyone else) from fully prosecuting patent applications and obtaining patents on one or more of its inventions. Judge Cacheris granted a preliminary injunction prohibiting the USPTO from moving forward with its proposed changes to the patent rules on continuations and claims. 

Download the injunction order here:  GSK Preliminary Injunction Order (pdf)

More here: 

Sides Line Up in Impending Patent Continuations Fight

Is the Public Interest Really Upheld by the New USPTO Rules?

Earlier, in Wisconsin Alumni Research Foundation (WARF) v. Xenon Pharmaceuticals, the U.S. Court of Appeals for the Federal Circuit held that just because a case involves patents doesn’t mean that you automatically get federal jurisdiction. 

The court ruled that it has no jurisdiction over the case because it does not present a claim arising under the patent laws. Xenon Pharmaceutical looked to the mention of the Bayh-Dole Act  (35 U.S.C. 200 et seq.) in WARF’s complaint to get jurisdiction. 

In the end, the case was transferred to the United States Court of Appeals for the Seventh Circuit to resolve the issue — a case where WARF won a $1 million jury award against Xenon Pharmaceuticals in a dispute over licensing of WARF’s stem cell patent.

Xenon then filed a combined petition for panel rehearing and rehearing en banc that was rejected by the circuit judges in an order without any opinion.

Not happy with how the process went, Judge Rader (joined by Newman and Moore) issued a dissent saying:

While the panel dismissed the notion that the Bayh-Dole Act’s “mere inclusion” in Title 35 does not make it a “patent law,” it seems to me that this is actually a pretty good indicator. After all, Title 35 is itself entitled “Patents,” and Chapter 18, which encompasses only §§ 200-212, is called “Patent Rights in Inventions Made with Federal Assistance.”  Also, the language within some of the sections of the Bayh-Dole Act suggests its provenance as a patent law. 

For example, 35 U.S.C. § 201(d) defines “invention” as “any invention or discovery which is or may be patentable . . . .”  Section 201(e) explains that a “subject invention” is an invention conceived of or first reduced to practice by a contractor.  “Conception” and “reduction to practice” are familiar patent law terms of art.  Also, § 200 states that the Act intends “to use the patent system to promote the utilization of inventions arising from federally supported research or development . . . .” The Bayh-Dole Act is, “at its heart,” a patent law, albeit a patent law that employs some government contract rules to facilitate its patent-related policy objectives.

To resolve this dispute, some court will have to compare the claims of the pending patent applications of the WARF/Xenon agreement with the alleged “improvements,” and the contract’s use of patent infringement parlance to define this term will necessitate some sort of patent analysis, starting with construction of the pending claims. Thus, this is a patent dispute for still another reason.

Ultimately, the Patent Office may decide.  After PUBPAT filed formal reexamination requests, the U.S. Patent and Trademark Office (PTO) rejected the claims of three WARF patents (US 5,843,780, US 6,200,806 and US 7,029,913) that cover research using human embryonic stem cells.

The proceedings are currently ongoing.

See also: A Patent License Does Not Create A Suit Under Patent Laws

Brett Trout at BlawgIT has posted the Patent Meme after noticing that patent attorneys are the epitome of sex appeal, with thousands of bloggers fawning over patents and the like.

Started as an “If only I could have a link to all the important patent law blogs in one place,” Brett has compiled a list of patent blogs to raise awareness of the genre.

From the p-meme, here are some that I was not reading regularly but are worth a look:

Benefit of Hindsight – an anonymous blog by a DC patent associate who “would like to move to boutique and remove anonymity.”

Patent Arcade – resource for video game IP law, news, cases, and commentary.

Patentably Academic – billed as the saga of a Patent Examiner in the Patent Training Academy (PTA).

Patentably Defined – a patent prosecution blog by an astrophysicist.

Post-Grant – dedicated to post-grant patent procedures set off by the Patent Act of 2005, the precursor of the Patent Act of 2006, which is the precursor of the Patent Act of 2007, which is soon to be the precursor the Patent Act of 2008.

See the whole list here.

Litigator/Lobbyist Dan Hull at What About Clients? posted Blawg Review #145 this week.  The review, entitled VENI, VIDI, VICI :  Super Bowl Blawg Review, features everything from the phenonmenology of political correctness to where do judges come from?

We especially enjoyed J. Craig Williams piece on the need for cultural literacy (But sorry about that 20/700 eyesight. Ouch.)  Although, the Obvious Rejection had nothing to do with a 103 rejection by the patent office.

Bummer that you can’t have all your friends over to watch the big game.  And who knew that everyone would call in sick Monday morning? 

We would also add the California Biotech Law Blog’s entry on the future of the SBIR program.  We’re still trying to find a good use for Fontifier. 

After the Department of Commerce sent a letter to the Committee on the Judiciary, on the views of the current Administration on S. 1145, the Patent Reform Act of 2007 — specifically, its beef with Section 4 on Damages, the Under Secretary of Commerce for Intellectual Property held a conference to explain the Bush Administration’s views regarding the Patent Reform Act.

In a conference with reporters today, Under Secretary of Commerce for Intellectual Property Jon Dudas said the Administration supports modernizing the patent system but is against the Senate bill in its current form.   The Administration feels that the current Senate bill doesn’t give judges or juries enough discretion in deciding how much to award for patent infringement.

The remedies for infringement include an injunction and damages. The measure for damages for infringement can be either (i) profits lost by the patent holder because of the infringement (lost profits), or (ii) not less than a reasonable royalty.

In an attempt to reign in just what a reasonable royalty rate should be in cases of an invention comprised of many components, the proposed law would change the system to require that:

[T]he court shall conduct an analysis to ensure that a reasonable royalty is applied only to the portion of the economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art.

Now, the Administration has stepped in with its opinion saying:

The requirements in Section 4 of the bill, as currently drafted, would likely lead to less than adequate compensation for many patent holders and could promote infringement. While many in the high-tech industries complain that the current system allows patent holders to receive damage awards that are disproportionately large in relation to the value, the administration is concerned that the proposed changes will harm certain industries.

Specifically, Dudas mentioned that mainstream manufacturers, universities and research institutions, small businesses, the bio and pharmaceutical companies, venture capitalists, and others will be disproportionately harmed.   The Administration wants to see patent reform that is technology neutral in its impact.

Dudas said the Administration does fully support the change to first-to-file as long as it is what he called a “pure first-to-file” system. That is, if it is a “first-inventor-to-file” system where an applicant must still have independently invented the subject matter claimed in the application.  Furthermore, the Administration supports changes to provide for a post-grant review process to allow challenges to patents outside of federal court.  The Administration also appears to support the much-maligned, Applicant Quality Submissions.

The Bush Administration’s total $3.1 trillion budget package does include full funding of the Patent Ofice. The fiscal year 2009 budget request for the Department of Commerce’s United States Patent and Trademark Office (USPTO) is $2.075 billion.

The 2009 request represents a $159 million (8 percent) increase over the FY 2008 budget of $1.916 billion, and assumes continuation of the current fee structure. The alloweds the Office full access to anticipated fee revenues for the fifth consecutive year. In 2009, the USPTO plans to hire an additional 1,200 patent examiners.

Expect to see some change in the patent laws in ’08.

See more:

• Judge Michel Writes Letter on Damages in Patent Infringement Cases
• Patent Reform: What Does First-To-File Mean To Me?