The Messy Process of Making and Applying the Law

On a hot August afternoon in 1984, I had just finished testifying before the California Senate Committee considering a new law, the Uniform Trade Secrets Act (UTSA). I had been sent to Sacramento to support this legislation that was to provide a “uniform” standard within the state. However, several attorneys in the state bar wanted changes that I thought could cause problems. One of these was to remove the requirement that trade secret owners prove that their information is not “readily verifiable.”

If you’re still reading, well done! You have shown intellectual curiosity. Please continue. I promise this is not a dry, academic rant about something that probably doesn’t matter to you. It’s about how to amplify their effects without really understanding what they are.

For the 150 years before that date, in Sacramento, trade secret law organically grew out of the opinions of individual judges explaining their decisions. This is what we call “common law” and it was done at the state level. As a result, trade secret regulations varied considerably depending on where you lived. This was inconvenient for businesses operating across state borders. Therefore, UTSA was proposed in 1979 to create a national standard.

harmonizing national trade secret laws

The drawback of this plan was that each state would have to adopt a model law, and each legislature would be free to play around with the wording. Quite a few of them did it and one of them was in California. I tried to convince the Senate that there was real value in keeping the legislation exactly as proposed in order to benefit from a truly common interstate framework.

A key part of UTSA, of course, was defining what could be claimed as a trade secret. The owner had to prove that the information was not “unknown to the public” or “easily ascertainable by reasonable means.” In other words, secrecy cannot be claimed if the information is already public, or if the value of secrecy can be grasped so quickly as to be trivial. On the other hand, if it is too difficult or time-consuming to “reverse-engineer” the information (i.e. disassemble it or examine it to find out how it works), people who do not reverse-engineer it can claim rights against We actually reverse-engineered that in a fair way.

This approach makes a lot of sense and distills rules that have been developed over decades of common law. However, representatives of the California legal community objected to the “easily verifiable” clause. They’ve seen a court ruling in Indiana applying her new UTSA to that state. In this ruling, the judge ruled that insurers could not protect their customer lists because the information could have been readily collected from individual policyholders. They feared that this interpretation (which, as a result, was not followed by other courts) would apply in California.

Negotiating ‘easily verifiable’ compromises

I tried to convince senators that the Indiana case was unusual and that UTSA’s original language was needed to discourage frivolous trade secret claims. But here I learned an important lesson about the legislative branch. The senator was unconcerned with this “details” and suggested going upstairs and finding a room to talk to to reach an agreement. Less than two hours later, the deal was back. Plaintiffs were not required to prove that the information was “readily verifiable,” but the issue was held as an “affirmative defense.” So the defendant could allege that to avoid liability. Adopted.

The phrase “and not readily verifiable by appropriate means” was included in this section as originally proposed by the National Commissioners’ Conference on Uniform State Law. Removed from the section in favor of the phrase “public or to”. This change was made because the original wording was deemed vague in the definition of a trade secret. However, the claim that the problem is readily ascertainable by appropriate means remains available as a defense against allegations of misappropriation.

By this time we thought, “Laws are like sausages. It’s better not to see them made.” But after UTSA is passed and the courts get their hands on it, the story gets even more complicated. Courts (or rather some courts) have really gone through the meat grinder.

Derailing statutes with “Dictum”

Initially, it seemed that there would be no problem in enforcing the law. The only change we have made is to shift the burden of proof so that instead of the plaintiff having to prove a denial, it is the defendant who has to prove that something is readily verifiable. It is almost unthinkable for courts to add additional requirements to statutes to prove that the information was not only “verifiable” but that the defendant had in fact verified it before the dispute arose. It seemed possible.

We should stop here and establish two things. First, a point about English morphology: the suffix “-able” means possible. Indeed, the dictionary defines ascertainable as “capable of being discovered” or “capable of being determined”. In contrast, nowhere is there a dictionary that defines “determinable” as “determined”. it’s pointless.

Second, the legal point: You can defend a trade secret claim by proving that you discovered the information through proper reverse engineering, but you can’t defend it by claiming that the reverse engineering “could have been done.” you can’t. Because reverse engineering is hard work. But if it takes a trivial effort to get to the “secret,” it’s what we call “easily ascertainable,” and even if you take it, the law won’t mind it. I don’t.

In the first California appeals case addressing this portion of UTSA, American Paper & Packaging Prods., Inc. v. Kirgan, Courts, not commonly known, have sought to protect customer information that is “easily verifiable” by other business savvy through a process that is “sophisticated, difficult, or particularly time-consuming.” A few years later, in another case, ABBA Rubber vs Seaquist, For procedural reasons, it should have revoked the trade secret injunction and that was the end of it. However, if the opinion is “guidance . . . further injunctions” may be considered.

Again, we have to pause to take a very short but important lesson in law. There is a big difference between what the court says is necessary for its ruling (“case law”) and what is more or less unfounded (“dictation”). Owners have the right, and sometimes the right to respect. Although the dictation shouldn’t matter. This is what you learn in the first few weeks of law school.

Now, Avala bar The court made a big deal, offering free advice that “whether a fact is ‘readily ascertainable’ is not part of the definition of a trade secret” and relates only to “absence of misappropriation.” The court therefore concluded that to take advantage of this exception, the defendant must prove that the information was not only verifiable, but was in fact verified.

Ignoring State Laws in Federal Courts

The court was basically making this up, but it was just a “dictation” and should not be respected by other courts. right? error. Federal court begins with the Ninth Circuit Court of Appeals in August. Imax Corp. v. Cinema Technologiesaccepted the decision uncritically, ignoring both previous american paper case too Abalabars broken logic.And when mistakes take root imaxwhich was repeated in several later (unpublished) opinions from the United States District Court in Los Angeles: Medtronic Minimed, Inc. vs. Nova Biomedical Corp., Extreme Reach, Inc. v. Spotgenie Partners, LLC, Chartwell Staffing Services v. Atlantic Solutions Group, Inc.. , and Masimo Corp. vs. Apple Inc.

Pause again for another point of clarity. In the United States, the state and federal court systems run parallel. Federal courts can rule on state laws, but they are to be construed according to the decisions of state courts of appeal.

Here, the federal courts mostly cited each other and made some really big mistakes along the way. ignoring staff instructions.they dismissed american paper It was wrong to slap the forehead as decided before UTSA. And they ignored other decisions consistent with the California Court of Appeals’ decision. american paperinclude Morlife, Inc. v. Perry, Syngenta Crop Protection, Inc. v. Heliker, and San Jose Construction, Inc. v. SBCC In fact, federal judges fields was about to wave san jose construction Although he mistakenly (and ironically) characterized the claim as a dictation, Avala bar Offspring born from dictation.

What is the lesson to be learned here? First, do not accept as gospel what a judicial decision might consider to be a “firm law.” Instead, if a published rule seems strange, trace upstream to its source and look for where the process went wrong. Second, between state and federal courts, refer first to the former for interpretation of state law. And third, research shows that most of the direct impact individuals have on citizens comes from state, not federal, law. Maybe we should pay less attention to what is (or isn’t) happening in Congress and more focused on what’s going on in the State Capitol.

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