Are Trade Secrets Becoming More Attractive? Part 2

March 6, 2012, 2:05 PM

Recent articles and scholarly studies point to a significant increase in trade secret litigation. Most notably, two studies by attorneys at the law firm OMelveny & Meyers, published in the Gonzaga Law Review in 2009 and 2010, analyzed trends in trade secret litigation in federal and state courts. The studies found that the frequency of trade secret litigation has been growing exponentially in federal courts and more modestly in state courts, but in both venues at rates greater than those for litigation generally. According to a February 1, 2012 Business Week article, four of the ten largest intellectual property verdicts in 2011 were trade secret cases. These included a $2.3 billion verdict (subsequently reduced to slightly under $1 billion) in an action brought by St. Jude Medical, Inc. against an ex-employee and a Chinese company he founded. Admittedly, the verdict may be more of a message than a remedy: since the defendants are overseas, the judgment may not be collectable.

The Business Week article speculates that the growth in litigation is being fueled by a number of trends: hard economic times and the employee mobility that accompanies them; the growing reliance on trade secrets to protect innovation; and the increasing ease of misappropriation brought by technology and economic arrangements such as outsourcing.

The Gonzaga Law Review studies came to some noteworthy conclusions about the characteristics of trade secret litigation, including the following:

  • The bulk of cases involve claims against ex-employees or business partners those known to the plaintiff.
  • Despite the proliferation of trade secret litigation, defendants prevail at trial more often than plaintiffs, and they also succeed more often than plaintiffs on appeal.
  • Statistically, at least, it is somewhat more difficult to prevail on a trade secret claim in state court than in federal courts.
Chris Mugel practices intellectual property law from the Richmond, Virginia office of Kaufman & Canoles. --Christopher J. Mugel