The Ninth Circuit recently held in United States v. Liew that it was not plain error for the district court not to instruct the jury that disclosure “‘to even a single recipient who is not legally bound to maintain [a trade secret’s] secrecy’ destroys trade secret protection.” As a result, the Ninth Circuit upheld criminal convictions under the (pre-Defend Trade Secrets Act) Economic Espionage Act (“EEA”) for trade secret misappropriation despite a third-party competitor (who was not bound by any confidentiality obligations) acquiring the trade secret.
The trade secret at issue in United States v. Liew concerned methods of producing titanium dioxide (TiO2), a white pigment found in anything from paint to Oreo creme, which makes its manufacture a (surprisingly) competitive industry. DuPont has been a leader in TiO2 production since the 1940s, when it became more efficient to produce TiO2 through a chloride-based process. DuPont opened chloride plants around the US, including one in Antioch, California and one in Ashtabula, Ohio. The Ashtabula plant was built for Sherwin-Williams, subject to a fifteen-year confidentiality agreement effective through the plant’s sale in the 1970s. The plant was sold multiple times thereafter and was ultimately acquired by a competitor of DuPont who was not bound by any nondisclosure or confidentiality obligations to the company.
DuPont improved its TiO2 manufacturing process and began incorporating the newer technology into new plants, including a facility in Taiwan. Unlike the Antioch and Ashtabula plants, the new Kuan Yin plant was equipped to extract titanium from lower-grade ore, making DuPont’s the most competitive chloride process.
The Chinese government sought to license DuPont’s TiO2 technology but ultimately chose a more cost-effective molten-salt option from the former Soviet Union. The Chinese government then tasked Walter Liew, a businessman and US citizen, with bringing chloride TiO2 production to China. Liew hired two former DuPont employees with TiO2 experience and with their help, went about securing business, which eventually brought them to their various convictions under the EEA. Liew and the other defendants appealed their convictions to the Ninth Circuit.
One of the defendants’ many arguments on appeal was that the technology at issue was not trade secret material because DuPont sold the Ashtabula plant and, thus, did not take reasonable measures to guard its technology. According to the defendants’ interpretation of Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984), any disclosure of material to any recipient not bound to maintain secrecy destroys trade secret protection, and it was on the government to prove no disclosures ever occurred. The Court rejected defendants’ arguments.
The Ninth Circuit explained that there was no clear or controlling authority addressing whether disclosure to one competitor makes information “generally known” or “readily ascertainable” by “the public” under the EEA’s then-definition of trade secrets.
The Court further stated that the government was not required to prove no disclosures of DuPont’s technology occurred; only that DuPont took reasonable measures to guard its technology. The Court found DuPont’s selectiveness in employing contractors and use of confidentiality agreements to be reasonable measures. The sale of a plant or information in a recipient or competitor’s hands is not the end of the reasonable measures inquiry, particularly if the information disclosed is not part of the trade secret(s) at issue.
This case is significant because it illustrates one of the DTSA’s substantial changes to the EEA–the definition of a trade secret. Before the DTSA, trade secrets were defined under the EEA to include information that was subject to reasonable secrecy measures and “derive[d] independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.” The Court in Liew highlighted that there was no controlling authority holding that the disclosure of a trade secret to a single competitor meant that it was also generally known by “the public.”
The DTSA now defines a trade secrets to include information that was subject to reasonable secrecy measures and “that derives independent economic value, actual or potential, from not being generally known to or readily ascertainable through appropriate means by other persons who might obtain economic value from its disclosure or use….” It is arguable that the result in this case may have been different under the DTSA’s new definition of trade secrets. Specifically, the disclosure of the trade secret to DuPont’s competitor may have made it generally known “by other persons who might obtain economic value” from it.
This case also reminds businesses about the potential risks to trade secrets when selling business assets. Building facilities, electronic devices, and any other equipment sold should be vetted to ensure no valuable company information is inadvertently disclosed.