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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Protected Status Of Trade Secrets May Be Lost By Not Insisting On Confidentiality

Posted in Trade Secrets

A recent decision of the U.S. Court of Federal Claims highlights the difficulty the owner of trade secrets faces in trying to market products while simultaneously preserving confidentiality. The Court dismissed a trade secret owner’s misappropriation lawsuit against the U.S. Government because of a failure to insist on trade secret protections.

Summary of the case. Gal-Or, an Israeli scientist, invented various products which embodied his inventions and were used in the military aerospace industry. In the course of his efforts to sell his inventions, he disclosed confidential information to the Government and others, but he did not always insist on a non-disclosure agreement or place a legend on documents or prototypes. The Government allegedly misappropriated his trade secrets and infringed his patents. He sued in the Court of Federal Claims, alleging a violation of the Takings Clause of the Fifth Amendment and seeking $71 million in damages. The Government then moved to dismiss the trade secret misappropriation counts on the ground that he revealed the confidential information without always imposing an obligation to maintain secrecy. The motion was granted. Gal-Or v. U.S., Case No. 09-869C (U.S. Court of Fed. Claims, Nov. 21, 2013) (Braden, J.).

Gal-Or’s sales efforts. Various branches of the military, as well as government contractors, expressed an interest in Gal-Or’s products and then, allegedly, used the technology without permission. In some instances he had obtained non-disclosure commitments. In some others, he had disclosed documents bearing restrictive legends. However, he apparently revealed some information without receiving confidentiality commitments or including a legend.

In Gal-Or’s complaint, he alleged that the Government made unauthorized use or disclosures of his trade secrets. In response to the Government’s contention that the case should be dismissed because some of his disclosures were unrestricted, he insisted that the only way to obtain classified work from the Government or its contractors, and to market his inventions, was to share this information.

The court’s ruling. Relying on judicial precedent, which holds trade secret protection is waived if confidentiality is not maintained, Judge Braden rejected Gal-Or’s contention that he did enough to warrant trade secret protection: “[I]nstances in which Mr. Gal-Or took proactive steps to protect the confidentiality of his trade secrets are simply overwhelmed by the number of times he did not. More fundamentally, . . .Mr. Gal-Or’s submissions [to the court] make it impossible to identify the trade secrets that were protected from those that were not.”

Gal-Or insisted that disclosure to persons with classified security clearance did not require a specific confidentiality commitment or legend, but the court held that “their obligation as to secrecy was to the Government, not Mr. Gal-Or.” Therefore, Gal-Or lost his property interest, and the court found that without a property interest, there can be no taking in violation of the Fifth Amendment.

Takeaways. Whenever the owner of a trade secret discloses it, directly or indirectly, without imposing an obligation to maintain confidentiality, the owner risks loss of secrecy protection. Gal-Or allegedly revealed his confidential information in documents, videotapes, lectures, meetings and flight tests. This case holds that, regardless of the medium, there is no substitute for universally insisting on non-disclosure. For additional information on this issue, please see our prior blog post on Convolve and MIT v. Compaq and Seagate litigation.