We just started our Fall B term at Ross yesterday. We only have three “core” courses that we are required to take during this term. I decided to supplement it with a course in Business Law – one that we are required to take in our two years at Ross, but we have the choice in which of the offerings we take. I decided to take Intellectual Property Law.
To be honest, I was not super excited about it. If you cannot tell already, I am very much a quantitative guy, and legal matters do not excite me very much. However, with just the first lecture and first couple of readings behind me, I am already very interested. As expected, there is a lot of reading for this class, both from a textbook and from legal opinions.
The professor has done a great job of gently introducing us to the course material, using both material from the text book as well as supplementary articles. We also get to “practice” what we learn right away by reading opinions from important court cases. Prof. Schuster has a framework that he recommends to help us get to the main points of the case. He even “scrubs” the case for us – he removes some of the content from the original opinion that references rulings and principles from prior cases. It makes a lot of sense to do that since we are not learning legal history, but the main principles governing IP law. What I like about all this is that he is forcing us to think in a structured manner. I often find myself uninterested in content about leadership or law or other matters because it is not structured enough. I find that this class already does a good job of making the structure palpable.
For today’s reading we had two cases. I found this one between two firms who manufacture printing press to be quite interesting. It was argued/decided back in 1991, but its content seems relevant even today. Also in this opinion, the 7th Circuit Court of Appeals reversed the decision from a district court – and it seems to have recognized the importance of the central issue. The entirety of the opinion is here. Below is the notes that in the format that the Prof has recommended.
Rockwell Graphic Systems v. DEV Industries
Decided by the 7th Circuit Court of Appeals
- Rockwell Graphics and DEV sell printing presses and parts.
- Rockwell deems all of its designs and specifications trade secrets. It keeps them in a vault and identifies the proprietary nature of the information on the documents themselves.
- Rockwell only allows specific employees access to the specs. Those employees sign confidentiality agreements.
- Rockwell has to share these drawings :
- with customers, who need to assemble the parts together – though this is NOT pertinent to the case; and
- to third-party vendors (who may manufacture parts for Rockwell’s customers)
- Rockwell signs confidentiality agreements with vendors. As a part of these agreements, it requires vendors to return the specifications when the latter are have finished manufacturing and supplying the part to customers. However, in practice, it does NOT demand that the vendors return the designs after the manufacturing is done. (Specific reasons are provided though they are not relevant)
- Two senior employees had left Rockwell and joined DEV. Rockwell alleges that they stole design specs and took them to DEV.
- One of those employees was caught red handed by a security with some of the confidential design specs that he was removing from the vault. When further investigating this matter, Many of Rockwell’s design specs were found in DEV’s office.
- In the lower courts, DEV successfully argued that Rockwell’s documents could not be trade secrets because they did not do enough to keep the documents secret.
Did Rockwell try hard enough to protect its trade secrets? Does the fact that it:
- sent copies to vendors and
- never sought to collect them back from vendors somehow disqualify this information as constituting a trade secret?
The district court ruled that Rockwell did NOT try hard enough to protect its information, therefore the specifications for it parts could not be a trade secret.
The 7th Circuit court of appeals disagreed with the conclusion and reversed the ruling.
The case distinguishes between two central conceptions of trade secrets:
- As a deterrent against theft of the ideas and inventions produced by the firm.
- As a tool that can enable a firm to produce greater value for society.
The first is a cost for the firm (as it must invest in measures to prevent theft) and the second is a generator of value. The case tests what balance is necessary between these two notions.
Rockwell already undertook many steps that clearly highlighted the value of the design specs:
- It identified the designs as being secret on the documents themselves
- It required employees to sign confidentiality agreements
- It only made the designs available to engineers and other senior employees, and required them to return the specs to the vault after they were done using the documents.
- It required vendors to sign confidentiality agreements.
Rockwell did not do enough to maintain the secretive nature of these documents:
- Thousands of copies of the specs floated around at customer and vendor sites.
- Even though Rockwell’s agreements with vendors required the latter to return the specifications, it never bothered enforcing this requirement.