October 3, 2023 Jury Verdict Shows Importance of Managing Trade Secrets

The “no” verdict between these parties should serve as a warning for manufacturers over the importance of their trade secrets.

By David Pardue and Amy Allen Hinson

In Arconic Inc. et al. v. Universal Alloy Corp., an Atlanta jury had eight questions to answer on its five-page verdict form regarding a lawsuit over the manufacturing of airplane wing parts. The jury didn’t even get past the first question, concluding that Arconic Inc. did not own the manufacturing methods used by Georgia-based Universal Alloy Corporation (UAC) and thereby rendering a verdict for the defense on the claims tried. The “no” verdict is the latest chapter of eight years of litigation between the two parties and should serve as a stark warning for manufacturers over the importance of establishing ownership of their trade secrets. The jury’s message was clear: A company can’t claim another allegedly stole its information if that company can’t demonstrate it owns the assets in the first place.

The underlying lawsuit alleged that Arconic had developed and maintained as a trade secret the process for making “stretch-form spar chords” that are used primarily to construct airplane wings. Arconic was the sole supplier of such parts to Boeing until UAC hired away Arconic personnel and began making and selling the parts to Boeing. Arconic alleged that UAC stole its trade secret information, hurting Arconic’s business with Boeing and resulting in $88 million in damages.

While the jury heard evidence that UAC may have stolen information from Arconic, the jury didn’t even consider the question of whether the information was a trade secret or had been obtained improperly. Rather, the jury quickly concluded that Arconic didn’t even own the information.

The July verdict was one of the most notable trade secret rulings of 2023 so far. As the latest of three recent jury determinations on the issue, the ruling highlights the need for manufacturers to avoid drawn-out legal battles like this one by better identifying which parts of their production are trade secrets, managing the security of the trade secrets, and establishing that they own the trade secrets. While this can be challenging when the products have been developed over several years of trial and error, emphasizing these efforts early on, such as through a long-term asset management plan, can be a matter of company survival.

Here are some practical tips manufacturers can take to maximize trade secret protection.

Taking the First Steps

To make sure a company does truly own its trade secrets, the first step is to identify them. A company’s trade secret typically involves information that isn’t public and brings the company economic value. This is the “special sauce” but also includes the production process. 

Manufacturers should be as specific as possible in identifying what their trade secrets are, including in their legal agreements and in conversations with employees. It’s a common pitfall for companies to be vague and overly inclusive about the secret in the secret sauce when attempting to thwart the loss of business from lost information. A proper trade secret management program will distill a large amount of information into the essential features that make the secrets profitable and therefore constitute the trade secrets. 

When drafting non-disclosure terms in employment agreements, companies should be as clear as possible what information must be protected.

After identifying and documenting trade secrets, it’s critical that the company makes the effort to keep the information secure with internal controls and policies. Manufacturers can do so by limiting trade secret knowledge to a subset of employees who need them to do their jobs. File-tracking software and restrictions on employee use of cloud access and external devices could also be useful for companies.

Budgeting for Trade Secret Management

Trade secret management cannot be a one-off “project” in which trade secrets are identified and then considered permanent. Just as technology constantly changes, trade secrets evolve, update, and change. Couple that with employee turnover and this means it’s all the more important for companies to ensure that they are putting enough resources into tracking how the trade secret data is evolving. This usually requires putting someone at the company in charge of monitoring the profit-generating institutional knowledge.

Some companies are also investing in trade secret management products: software that is seeing increasing investments from incubators in response to the soaring size of jury verdicts. These management tools could be helpful for manufacturers by automating and streamlining the trade secret portfolio management process from identification to security to reviewing of the assets. Many of these companies have raised significant funding as the market recognizes that trade secret asset management is the next frontier in intellectual property.

Of course, those tools require manufacturers to budget for them. Given the competitive value that trade secrets create — and the cost of litigation — proactive budgeting for trade secret protection can add value to a company. As with all risk management, the company must ask itself: What would happen if we lost these assets? And, more importantly, what would happen if a competitor took them and went to market? Many companies could not survive that loss or would be grievously damaged.

When Necessary, Preparing for Trial

The more companies address these issues on the front end, the more likely they are to avoid expensive, often lengthy litigation later.

If they are swept up in lawsuits, companies must be prepared to specifically point to what makes up their trade secret. At trial, a company should avoid saying its whole program is a trade secret. Companies should consider creating a few concrete exhibits that demonstrate the specifics of the trade secret. A rule of thumb for trial lawyers is to identify the three exhibits that will win the case, especially for the plaintiff. In trade secrets litigation, it is wise to have a handful of exhibits that clearly specify and explain the trade secrets.

Final Takeaway

Trade secrets are hugely valuable to manufacturers. Despite their secretive and sometimes complex and murky nature, trade secrets should be identified and protected in order for companies to quickly and easily defend what’s rightfully theirs.

David Pardue and Amy Allen Hinson are both partners at Parker Poe. David is in Atlanta where he assists clients with their intellectual property needs. Amy is in Greenville, SC and is a registered U.S. patent attorney.

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