Meena Alnajar is an IPilogue Senior Editor, IP Innovation Clinic Fellow, and a 2L JD Candidate at Osgoode Hall Law School.

It may be no secret that trade secrets contribute to a business’ economic value and confer a ‘competitive edge.’ However, when that secret is lost by insiders who had a duty of confidence, how can the law step in to help? On , biomedical company �ʰ��dz�é��é Biomedical LLC (“�ʰ��dz�é��é”) received no recourse or remedy for a revealed trade secret. �ʰ��dz�é��é failed to persuade the US Court of Appeals for the Eighth Circuit to revive a trade secrets against the consultant it had hired to find a buyer.

Trade secrets, unlike other intellectual property rights, are not registered nor publicly disclosed. Trade secrets require such as: value (economic/industrial), that it is kept secret, and that there are reasonable measures in place to keep it confidential. Once disclosed, the trade secret loses its necessary quality of confidence that makes it confidential and valuable to a business. Therefore, the most important element of a trade secret is that it is kept secret.

A of US trade secret litigation demonstrated that, in satisfying the court that ‘reasonable measures’ were taken, confidentiality agreements like non-disclosure agreements (“NDAs”) are most often a determining factor. NDAs are particularly useful where a company must disclose its trade secrets to fellow employees, which was the case for �ʰ��dz�é��é.

In 2017, �ʰ��dz�é��é, a biomedical company focused on blood-clotting products, entered into an agreement with the consulting firm to find a buyer. Duff & Phelps then contacted , a Managing Director at a private equity firm and a board member at Z-Medica, another medical company in the blood-clotting products space. Both Schillinger and Duff & Phelps (on behalf of �ʰ��dz�é��é) entered into an NDA. During a for the potential deal between Z-Medica and �ʰ��dz�é��é, �ʰ��dz�é��é some confidential information regarding its products to Schillinger, who then revealed the information to Z-Medica. Z-Medica then applied for a continuation of a that allegedly contained �ʰ��dz�é��é’s confidential information and pulled out of a potential deal.

�ʰ��dz�é��é sued Z-Medica, alleging that it stole trade secrets and violated NDAs. The parties there settled, but �ʰ��dz�é��é subsequently sued their consulting firm, Duff & Phelps, for breaching their contract in failing to prevent �ʰ��dz�é��é from disclosing its trade secrets. This suit was first dismissed by a court. On appeal, the Court held that their contract only required Duff & Phelps to be responsible for its . , on behalf of his private equity firm, signed the NDA, making him not liable for Z-Medica’s conduct and use of the trade secret. The Court found that disclosed its own secrets to Schillinger, so �ʰ��dz�é��é is responsible for revealing its own secrets. It is a classic case of claim construction and ambiguity in contractual agreements. This case serves as a reminder that when you ask someone to keep a secret, be very specific about whom you are asking, what the secrets are, and from whom they should be kept.��

While trade secrets are valuable and protected by law, if the company itself is disclosing that information and is not careful to track who is not obligated to keep it a secret, then the company has not taken reasonable measures to keep it confidential. If a business does not act to protect trade secrets, courts may not help either.

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Junghi��Woo is an��IPilogue��Writer and a 3L��������Candidate at��Osgoode��Hall Law School.��

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While not very prominent in Canada, the international auto racing sport Formula 1 (“F1”) is currently worth over . Despite its enormous market value, F1 is self-regulated by the��International Automobile��Federation (the “FIA”). Aside from the drivers, the cars themselves are quite fascinating; every team spends to secure the best engineers and staff and the highest quality materials and parts to create the fastest cars that score the most points. These points then that is awarded to the teams.

There is a major question of the intellectual property rights in each car. Normally, patent law would regulate the structure and engineering of the cars. However, due to the self-regulated, rapid-paced nature of F1, teams primarily use trade secrets to protect the internal design of their cars. Lengthy patent registration processes simply cannot keep up with annual F1 seasons.

Racing Point: Questioning the Sufficiency of Current Intellectual Property Rights Protection

During the 2020 season, controversy surrounded one F1 team, Racing Point, that put forward a car model that was . The cars were so similar that the FIA declared a breach of the rules, issuing Racing Point . This penalty occurred against the backdrop of a that affected Racing Point’s use of Mercedes brake duct designs which .

As per the F1 rulebook, the teams must design car parts categorized as “” for themselves, rather than buy them from another team or company. Brake ducts were not on this list in 2019 when Mercedes supplied Racing Point with designs which Racing Point used to create their front brake ducts. In 2020, the FIA categorized brake ducts as listed parts. The problem was that Racing Point used Mercedes’ design for rear brake ducts in 2020, rather than implementing them in their 2019 car when FIA still permitted them to do so. Since the rear brake ducts are now categorized as “Listed Parts” , Racing Point violated the rules by using the Mercedes-Benz design.

At the outset, the monetary fine may seem to sufficiently penalize Racing Point. However, the potential points it “stole” through this violation can be worth much more than a simple fine, considering the prize money and publicity these points bring every year. For example, in 2020, Mercedes earned . This excludes the millions of dollars teams would attract from investors and sponsors for the next season based on their previous season’s ranking. Ultimately, despite the immense value of intellectual property rights in F1, there appears to be insufficient protection to deter teams from infringing them.

FIA’s True Priorities?

Trade secrets can be effective in certain circumstances, but they afford less protection than patents because they cannot be enforced if leaked. Given the comparative unenforceability, should patent law be updated to cater to such industries? The commercialization of F1 exemplifies the enormous amount of money at risk, and the Racing Point incident shows the financial risks created by the lack of intellectual property protection for each car.��

However, the flexibility of FIA rules may not be accidental; the market is driven by its entertainment value, through live streams, YouTube, and recently Netflix. Strict patent rules would essentially allow a team to which could potentially eliminate competition between the teams, resulting in a “boring” season. In fact, the FIA ruled that patented car technology is illegal to use in F1 to

FIA’s priorities appear to differ from those of the law. One may even question, for practical purposes, whether the focus should even be on the law. Patent law incentivizes innovators by protecting their creations, and upon a patent’s expiry, the designs of these inventions fall under the public domain to encourage further innovation. However, outside F1, does society truly benefit from receiving patentable knowledge of racecar technology? Would the disclosure of racecar designs encourage innovation and thus justify granting patent protection?

Overall, this relaxation on patent law can be said to contribute to F1’s volatile nature. Truthfully, this same volatility keeps me watching F1 to this day.

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