RESOLVING THE DISPUTE

Once a trade secret dispute arises, your goal is to resolve it efficiently. The strategy you choose depends on the facts in your case, the terms of the NDA, the personalities of the people you're dealing with and the remedies that you are seeking . Below are four ways that trade secret disputes are resolved. Disputes over a company's trade secrets are often personal. It's upsetting when a formerly trusted employee violates a confidence. You can't ignore these feelings. But when it comes time to take action, we advise you to try to put aside personal issues, sort out the facts and chart a course that will provide a prompt and fair resolution.

Negotiation

Settlements can be reached at any time during a dispute-before, during or after litigation. Many trade secret settlements are made after a cease-and-desist letter has been mailed, while the threat of a lawsuit is looming. That's because businesses prefer to avoid the financial drain and unwanted publicity of litigating. In some cases, a settlement is made immediately after a lawsuit has been filed-when one party has called the other party's bluff.

When negotiating a settlement, you must consider the expense and delay of going to trial, the likelihood of prevailing in court and how much you might win. One big advantage of a settlement is that it is a guaranteed payment, unlike a court judgment that you must collect.

The process of reaching a settlement often involves heated discussions and letter-writing between the parties and their lawyers. Offers and counter-offers are made-much like any contract negotiation-until one party makes an offer that the other cannot refuse. A lawyer drafts a settlement contract that sets out details including payments, if any, return of materials, use of secrets and continued requirements of confidentiality. There are any number of ways to arrange terms-for example, an owner may forgo payment of damages in exchange for an agreement to halt misappropriation. In other cases, you may agree to permit continued manufacture or sale provided the infringer pays you a royalty for all past and future sales.

Mediate

Mediation is an informal procedure in which an impartial mediator assists you and the other party in reaching a settlement. You'll need to mediate if your NDA requires it or if the parties later agree to the process. Mediation is much less expensive than litigation and allows the parties, not a judge, to resolve the dispute.

Arbitrate

In arbitration, one or more impartial persons rules on the dispute; usually, the decision is final and binding. If your NDA requires it, you must arbitrate rather than litigate.

EXAMPLE: A company breached an NDA and subsequently used trade secret information. The NDA provided for arbitration of disputes. The trade secret owner was required to arbitrate its breach of contract and misappropriation claims. Simula, Inc. v. Autoliv, Inc., 175 F.3d 716 (9th Cir. 1999).

Even without an NDA requirement, if both parties consent, arbitration can be initiated at any time, including before or during litigation. Here's an explanation of the advantages and disadvantages of arbitration.

Litigation

The dreaded "L" word is an expensive, complex process. It is not unusual for the legal fees for a trade secret dispute to be $100,000 to $200,000 per party. For cases that proceed through trial to a verdict (most cases are settled before then), legal costs could exceed $500,000. In addition, these cases drag on for years, having a debilitating effect on your business and on employee morale. Not surprisingly, the trade secret that is the subject of the lawsuit often has no value by the time the case is finally over.

If you are a smaller company facing a larger one, keep in mind that the expense of trade secret litigation disfavors you. Make the decision whether or not to pursue litigation carefully and without emotion. If your attorney is eager to sue and unwilling to consider alternatives, get a second opinion. Keep in mind that an attorney earns the biggest paycheck from litigation, not settlement. Unfortunately, in many cases litigation is the only method of dealing with trade secret theft. The litigation process is described in more detail here.