View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Digital Commons @ American University Washington College of Law American University Law Review Volume 48 | Issue 2 Article 1 1998 From Hoops to Hard Drives: An Accession Law Approach to the Inevitable Misappropriation of Trade Secrets Jay L. Koh Follow this and additional works at: http://digitalcommons.wcl.american.edu/aulr Part of the Corporation and Enterprise Law Commons, and the International Trade Commons Recommended Citation Koh, Jay L. “From Hoops to Hard Drives: An Accession Law Approach to the Inevitable Misappropriation of Trade Secrets.” American University Law Review 48, no.2 (December, 1998): 271-357. This Article is brought to you for free and open access by the Washington College of Law Journals & Law Reviews at Digital Commons @ American University Washington College of Law. It has been accepted for inclusion in American University Law Review by an authorized administrator of Digital Commons @ American University Washington College of Law. For more information, please contact [email protected]. From Hoops to Hard Drives: An Accession Law Approach to the Inevitable Misappropriation of Trade Secrets Keywords Trade secrets, Doctrine of Inevitable Misappropriation, Economic Espionage, Act of 1996 (“EEA”), corporations, Uniform Trade Secrets Act This article is available in American University Law Review: http://digitalcommons.wcl.american.edu/aulr/vol48/iss2/1 ARTICLES FROM HOOPS TO HARD DRIVES: AN ACCESSION LAW APPROACH TO THE INEVITABLE MISAPPROPRIATION OF TRADE SECRETS * JAY L. KOH TABLE OF CONTENTS Introduction........................................................................................ 272 I. The Doctrine of Inevitable Misappropriation......................... 276 A. The Basic Doctrine ............................................................ 276 B. Scope .................................................................................. 278 C. Interests at Issue................................................................. 281 II. Current Approaches and Proposals......................................... 285 A. Current Court Approaches ............................................... 285 1. Specific limitations in determining inevitability......... 286 a. The Standard Brands approach: general fact- intensive analysis..................................................... 286 b. The Cyprus Foote approach: focusing on bad faith or competitor intent ...................................... 288 c. The International Paper approach: requiring technical employment............................................ 291 d. The Merck & Co. approach: objective competition and similarity of position .................. 294 2. Excessive general focus on employer interests ........... 298 3. Inadequate and inconsistent all-or-nothing remedies ....................................................................... 299 * Clerk to the Honorable Michael Boudin, United States Court of Appeals for the First Circuit. J.D., Yale Law School, 1998; MSc, Oxford University, 1993; A.B., Harvard College, 1992. My thanks to Robert Ellickson, Gerard Magliocca, and Allison Moore for their comments on previous drafts and to Robert Gordon, Roberta Romano, and Judge Boudin for their general guidance. 271 4. General critiques and concerns................................... 304 B. Existing Proposals.............................................................. 308 1. Global rejection or acceptance.................................... 308 a. Total rejection of inevitable misappropriation..... 308 b. Total acceptance of the alienability of human capital...................................................................... 310 2. Concurrent property interests..................................... 313 III. The Accession Law Approach .................................................. 321 A. The Law of Accession ........................................................ 321 1. Analyzing applicability ................................................. 322 a. Combinations: identification and severability...... 322 b. Transformations: identity and value- enhancement.......................................................... 325 c. Bad faith, negligence, and willfulness ................... 326 2. Allocating control and value ....................................... 328 a. Vesting title and control: the tests of principal part, identity transformation, and value- enhancement.......................................................... 328 b. Allocating compensation and value: the costs of raw materials, skill, and labor ............................ 331 c. Bad faith, negligence, and willfulness ................... 333 B. Applicability to Inevitable Misappropriation ................... 334 C. An Accession Law Approach ............................................. 337 1. Determining inevitability: separability, bad faith improver, and comparative valuation ......................... 338 2. Providing a system of remedies ................................... 342 D. Deterring Strategic Litigation ........................................... 352 Conclusion........................................................................................... 355 INTRODUCTION In recent years, U.S. corporations have become concerned about the misappropriation of trade secrets.1 Civil trade secret litigation has grown enormously over the last two decades, and trade secret law has become more popular among legal practitioners.2 In light of these concerns, Congress passed the comprehensive Economic Espionage Act of 1996 (“EEA”)3 which makes certain misappropriations of trade secrets federal felonies.4 Increased access to information through computers and the Internet has heightened concerns regarding the international pilfering of U.S. corporate trade secrets.5 Congress has primarily focused on cases of industrial espionage 1. See Thomas P. Heed, Comment, Misappropriation of Trade Secrets: The Last Civil RICO Cause of Action That Works, 30 J. MARSHALL L. REV. 207, 210-11 (1996) (stating that between 1985 and 1994, reported incidents of misappropriated trade secrets rose 260% and tripled from 1993-1995). 2. See Suellen Lowry, Note, Inevitable Disclosure Trade Secret Disputes: Dissolutions of Concurrent Property Interests, 40 STAN. L. REV. 519, 519 (1988) (noting that “trade secret litigation is burgeoning”). 3. See Economic Espionage Act of 1996 § 101(a), 18 U.S.C. §§ 1831-1839 (Supp. 1997). 4. See id. §§ 1831-1832 (providing for individual fines of up to $500,000 and imprisonment for up to 15 years, as well as organizational fines of up to $10,000,000 for violations of the Act). 5. See Marc S. Friedman & Kristin Bissinger, “Infojacking”: Crimes on the Information Superhighway, J. PROPRIETARY RTS., May 1997, at 2, 5-6 (describing the EEA as one response to the increasing concern over computer-related theft of trade secrets). involving foreign agents and corrupt employees.6 A more subtle, long-term trend, however, is the growth in civil litigation over the unintentional, or even inevitable, transfer or disclosure of employers’ trade secrets by former employees to their new employers. Employers have argued that under certain conditions, employees who leave an employer to work for a competitor will inevitably, inappropriately, and thus illegally disclose or use their former employers’ trade secrets in the course of their new employment.7 Former employers of key employees have raised this argument, known as “inevitable misappropriation,” in support of motions to enjoin employees from working for competitors.8 These employer- plaintiffs have brought suit under common law as well as state law versions of the Uniform Trade Secrets Act (“UTSA”).9 Over the last thirty years, a growing number of federal and state courts have wrestled with employers’ concerns regarding the disclosure of trade secrets in an attempt to develop a coherent approach to the doctrine of inevitable misappropriation.10 6. See Spencer Simon, The Economic Espionage Act, 13 BERKELEY TECH. L.J. 305, 309 (1998) (contending that federal legislation is necessary to combat the growing scourge of economic espionage by both domestic and foreign agents); Robert L. Tucker, Industrial Espionage as Unfair Competition, 29 U. TOL. L. REV. 245, 246 (1998) (commenting on the increasing number of American companies subject to industrial espionage sponsored by foreign governments); Darren S. Tucker, Note, The Federal Government’s War on Economic Espionage, 18 U. PA. J. INT’L ECON. L. 1109, 1142 (1997) (suggesting that one of the main purposes of the EEA is to combat foreign trade secret theft); see also, e.g., FBI Charges Taiwanese Tried to Steal Taxol Trade Secrets from BMS, 1998 Andrews Intell. Prop. Litig. Rep. (Andrews Publications) 3 (June 18, 1997) (reporting the first indictments of international trade secret theft under the EEA involving Taiwanese nationals attempting to buy anti-cancer drug production secrets from an executive posing as a “corrupt [company] scientist”); Louis Lavelle, Spies and Spy Catchers; Espionage Thrives in Business World, RECORD (Bergen County, N.J.), Sept. 6, 1998, at A1 (reporting that five prosecutions of international agents have taken place under the EEA as of September 1998). 7. See, e.g., PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1272 (7th Cir. 1995) (upholding an injunction against the employment of a beverage company employee by a competitor on the grounds that the employee would inevitably disclose the