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9 January 2023FeaturesGlobal Trade SecretsTakanori Abe

Trade secrets in Japan: oral information disclosure from memory

In this case, it was disputed whether information disclosure with regard to devices for producing magnetometers, which are expected to be used in self-driving technology and in the medical field, orally and on a whiteboard based on memory, constituted a criminal trade secret infringement.

Judgment of March 18, 2022, Nagoya District Court

Main text of the judgment

The accused are both pronounced not guilty.

REASONS

  1. The charged facts

The charged facts are as follows: “The accused A had been engaged in making proposals with regard to the development and manufacture of magnetometers from June 19, 2012 to June 17, 2013 as an executive advisory engineer and a director of company B developing, manufacturing and selling magnetometers. The accused C had been engaged in the management of the development and manufacture of magnetometers from June 19, 2012 to December 31, 2013 as a general manager of the third production engineering department, production technology and manufacture division and an employee of B.

“A and C were disclosed technical information about the function and structure of a wire alignment device (units 1, 2 and 3) and the process of aligning amorphous wires on the substrate with those devices, which were trade secrets held by B, under their duties to B of the management of that information. A and C, in conspiracy and for the purpose of wrongful gain, on April 9, 2013, in breach of their duties, to the employee E of company D, presented orally and illustrated the said information on the whiteboard in the conference room of factory Q at Gifu prefecture and thereby disclosed B’s trade secrets.”

  1. The process alleged by prosecutors

The prosecutors alleged that A and C had presented to E orally and illustrated on the whiteboard in the meeting on April 9, 2013 (the meeting) that the wire alignment device enabled the wire alignment process as follows:

(a) A knob part called a pulling out chucking (chuck) picks up the amorphous wire and moves to the right above the substrate while applying a certain amount of tension,

(b) Temporarily fasten the amorphous wire under tension,

(c) Raise substrate fixing base to which the substrate is fastened and the temporarily fastened amorphous wire is used as a baseline for positioning adjustment,

(d) Raise the substrate fixing base, insert the amorphous wire into the grooves and guides of the substrate and temporarily fix by the magnetic force of the magnets embedded in the substrate fixing jig,

(e) Mechanically cut the amorphous wire on the left side of the substrate,

(f) The substrate fixing base moves down to insert the next amorphous wire and

(g) Mechanically repeat (a) to (f).

The prosecutors alleged that the process from (a) to (f) (the process alleged by prosecutors) is a series of integrated processes independently developed and configured by B, and are trade secrets belonging to B and held by B.

III. Issues

The defence counsels argued that A and C were not guilty claiming (i) the process alleged by prosecutors (or the information presented by A and C in the meeting with regard to the process) was not B’s trade secrets, (ii) A and C did not intend to disclose B’s trade secrets and (iii) A and C had no purpose of wrongful gain.

  1. The outline of the decision

Although the information A and C presented to E in the meeting relates to the process of aligning amorphous wire on a substrate, it differs significantly with regard to the key process from the structure of the wire alignment device held by B and the process of aligning amorphous wire on a substrate using the device. In addition, the information corresponding to the process alleged by prosecutors is too abstract and generalised, with the ingenuity for precisely aligning the wires on a substrate based on the characteristics of amorphous wires being scraped away. Since it is merely a combination of commonplace methods, even if viewed as a series of integrated processes, it cannot be said to be unknown to the public or difficult for the public to discover. As a result, it cannot be said to satisfy the requirement of non-public domain among the three requirements for trade secrets (secrecy management, usefulness and non-public domain). Therefore, it cannot be said that A and C disclosed B’s trade secrets in the meeting.

  1. Whether or not it falls in the category of trade secrets (the requirement of non-public domain)

(1) The part that differs significantly from B’s process

The information A and C presented in the meeting differs significantly with regard to the key process from B’s process of the wire alignment device. That is, with regard to process (b), B’s wire alignment device adopts the method of holding the wire in position and not compressing the wire without touching it as much as possible except for the chuck, by having a groove with an embedded sheet magnet in front of the substrate (“guide”) and a magnet near the cutting blade in order to apply as little stress to the amorphous wire as possible (provided that in the unit 3, there is a compression by a “wire lock”).

In contrast, the information A and C presented was that the wire was pulled out with tension to the extent that it is straight and taut and was then “temporarily held” with two bar-shaped materials. This process regards to the important processes of “wire pulling out”, ”temporary fastening” and “cutting” in the process of inserting and aligning the wires into the grooves etc. of the substrate. The information A and C presented differs significantly with regard to the key process from B’s process of the wire aligning device.

“IN THIS CASE, THE TRUE INGENUITY HAD BEEN OMITTED FROM THE ACTUAL DISCLOSED INFORMATION.” - TAKANORI ABE OF ABE & PARTNERS

(2) Non-public domain as a series of integrated processes

The part corresponding to the process alleged by prosecutors out of the information with regard to the wire alignment process that A and C actually presented to E (the actual disclosed information) is too abstract and generalised, with the ingenuity for precisely aligning the wires on a substrate based on the characteristics of amorphous wires being scraped away. Since it is merely a combination of commonplace methods, even if viewed as a series of integrated processes, it cannot be said to be unknown to the public or difficult for the public to discover.

(i) Judgment

The actual disclosed information, even if viewed as a series of integrated processes, does not satisfy the requirement of non-public domain.

That is, A and C, as described above, did not present to E the information regarding the ingenuity of B’s wire alignment device, which should be important for precisely aligning the wires on the substrate based on the characteristics of amorphous wires. This includes, for example, the utilisation of CCD cameras for positioning adjustment, the method of rotating the motor when pulling out (sending) the wire, mechanisms such as the “guide” for temporarily fastening the wire, the arrangement of magnets when temporarily fixing the wire in the grooves etc. on the substrate, ingenuity to prevent the wire from continuously sticking to the chuck.

In addition, the actual disclosed information is too abstract and generalised, lacking the information which should be important for precisely aligning the wires on a substrate based on the characteristics of amorphous wires. Since it is merely a combination of a selection of commonplace methods, even if viewed as a series of integrated processes, it cannot be said to be unknown to the public or difficult for the public to discover.

(ii) Judgment against the allegation of prosecutors

It seems to be true that the units 1 to 3 were developed independently by B, and the process itself, which includes the ingenuity for precisely aligning the wires on a substrate based on the characteristics of amorphous wires, satisfies the requirement of non-public domain. In addition, even if fragments of information are collected by being published in various publications and the collected fragments can be reconstructed as information similar to the trade secrets, it does not immediately negate the non-public domain. Besides, if a discloser discloses a part of the trade secrets or an abstracted and generalised trade secrets obtained from the trade secret holder, or if the discloser arranges and discloses a part of the trade secrets, it may be said that the trade secrets have been disclosed. Furthermore, it can be said that there are also processes that are common to all of the units 1 to 3.

However, in the meeting, A and C did not disclose the functions and structures of the units 1 to 3 nor the process itself of aligning the wires on the substrate using each unit. Besides, with regard to information as the whole of multiple pieces of information, in order for the information to be non-public domain, it should be judged on the basis of whether it is generally available outside the control of the trade secret holder, taking into consideration factors such as the ease of combination, the time and money required to obtain the information, etc. In this case, the true ingenuity had been omitted from the actual disclosed information and it cannot be said that the actual disclosed information is unknown to the public or difficult for the public to discover even if viewed as a combination.

Comparing the contents of the presentation of a certain process with trade secrets with regard to the process held by an infringed party, even if the information is in fact different from the trade secrets held by the infringed party, when the problems and purposes are common, it is almost always possible to find some common parts at some stage in the course of abstracting and generalising the two. As for the problems and purposes of aligning amorphous wire on a substrate, since the wire is sold wound on a reel, making the wire in a linear arrangement by pulling it out from the reel or by other means is the usual process. It is also necessary to adjust the position for aligning the wires on the substrate, and cut the wires. And if two or more wires are to be aligned on a substrate, such processes need to be repeated mechanically. It is easy to know that these processes themselves are necessary, and the contents of the processes become close to commonplace and become known to the public or easy for the public to discover as they become more abstract and generalised.

Comparing the contents of the presentation of certain process with trade secrets with regard to the process held by an infringed party, if there are significant differences between the technical information of the two, or if true ingenuity is scraped away from the contents of the presentation, the common parts of processes cannot be found until the process becomes considerably abstract and generalised. The contents of A and C’s presentation with regard to the wire alignment process in the meeting differed significantly from the process of B’s wire alignment device with regard to important processes, and the true ingenuity of the trade secrets held by B with regard to the wire alignment process was scraped away. As a result, the parts common with B’s trade secrets became known to the public or easy for the public to discover.

  1. Additional remark

The importance of trade secrets held by companies in economic activities is increasing today. Trade secret infringement must not damage the competitiveness of companies, and criminal protection is necessary. The requirements for falling under the category of trade secrets in criminal measures, in light of the background of the amendment to the Unfair Competition Prevention Act in 2003, should be interpreted as the same as those in civil ones.

As far as this case is concerned, B’s units 1 to 3 were developed independently by B. The process itself, which includes an ingenuity for precisely arranging wires on a substrate based on the characteristics of amorphous wire, should be protected as B’s trade secret.

However, the information A and C presented in the meeting differs significantly from B’s process, and the part corresponding to the process alleged by prosecutors out of the information is too abstract and generalised. Besides, although B should have properly reported the know-how obtained in the development process of the unit 1 to the Japan Science and Technology Agency (JST), it has not fully fulfilled this obligation.

In addition, B left the non-disclosure agreement concluded with F (author’s note: manufacturer of the unit 1) with regard to the unit 1 without extending the term, even though there was a clause with regard to the extension of the term. Furthermore, B did not take any measures to manage the said abstracted and generalised information by clearly indicating that the information was not general information by indicating that the information was confidential on the document where the information was described, etc.

Thus, B did not perform in good faith its contractual obligation to report to JST the know-how obtained through the commissioned development project with JST, left the know-how unreported properly to JST, and even did not extend the term of the non-disclosure agreement with regard to the unit 1. It is therefore somewhat unjustified for B to then seek trade secrets protection for the abstracted and generalised information which it had not taken measures to manage by clearly indicating that the information was not general information.

The reason why the prosecution was instituted based on the presentation in the meeting appears to be because photographs of the whiteboard were found and seized, but the information A and C presented in the meeting differs significantly from B’s process, and the part corresponding to the process alleged by prosecutors out of the information is too abstract and generalised. It is unreasonable to constitute that they disclosed B’s trade secrets in the meeting. Since the institution of prosecution is unreasonable as such, pronouncing A and C not guilty does not disrespect the importance of the criminal protection of trade secrets.

“AS A PRO FOR JAPAN, THERE IS A POSSIBILITY OF USING A CRIMINAL PROCESS AS A SPRINGBOARD TO COLLECT EVIDENCE TO BE UTILISED IN A CIVIL LITIGATION.”

Practical tips

Unlike cases in which documents describing technical or business information are taken out, in this case it is disputed whether the oral disclosure and on a whiteboard based on memory constitutes a trade secret leakage, which is a very difficult issue. It is natural for a company as the trade secret holder to want to prevent former employees from unfairly using assets developed through investment of time and capital [1], although it is impossible to prevent former employees from taking away their memories. On the other hand, former employees would like to exploit their experience and memories obtained in the previous company [2], which may also be related to freedom to choose their occupation. When are they protected as trade secrets and when are they not? What may and may not a former employee tell? Where is the threshold?

This judgment contrasted B’s purported trade secrets with the information A and C presented in the meeting with regard to the process and held that there were significant differences between the two with regard to the key processes, and that the common process was too abstract and generalised to be unknown to the public or difficult for the public to discover. This method of judgment seems to be basically identical to the method proposed by James Pooley, former deputy director general of the World Intellectual Property Organization and a leading expert on trade secrets in the US, which compares trade secrets defined by the trade secret holder with information in the public domain and the data and products of the alleged infringer [3].

While the judgment stated in general, “if a discloser discloses a part of the trade secrets or an abstracted and generalised trade secrets obtained from the trade secret holder, or if the discloser arranges and discloses a part of the trade secret, it may be said that the trade secret has been disclosed”, it concluded, “The contents of A and C’s presentation with regard to the wire alignment process in the meeting differed significantly with regard to important processes in the process from the process of B’s wire alignment device, and the true ingenuity of B’s trade secrets with regard to the wire alignment process was scraped away. As a result, the parts common with B’s trade secrets became known to the public or easy for the public to discover.”

The threshold for what extent of abstraction and generalisation is required not to be regarded as a trade secret is unclear. However, since the judgment that the information becomes no longer non-public domain after being abstracted and generalised into its common parts is, viewed from the flip side of the coin, led by the significant difference in the processes (the technical information) and the fact that the true ingenuity of the trade secrets is scraped away from the contents of the presentation, ultimately, the extent and content of the difference between the technologies will be the decisive factor.

Professor Chosa of Kurume University suggests “In a normal case, taking out documents where trade secrets are described is the subject, but in this case, the prosecution was instituted leaving the trade secrets unclear, which may have prolonged the litigation.” The defence counsel comments “The examination of witnesses revealed that B’s process of the device was not what the prosecutors alleged to be a trade secret, and that even B’s employees had different opinions as to what was the true secret of B’s device” [4]. In the US, the definition of a trade secret is the starting point as well [5] and it is advised that an alleged infringer should demand a definition of the trade secrets to the other party as soon as possible [6]. It is assumed that one of the reasons the prosecutors failed was that they were not able to identify B’s trade secrets, while the information A and C disclosed was identified by the whiteboard.

Pooley’s advice would apply equally to cases in Japan where as a trade secret holder, it is advisable to make a careful decision on whether to refer your case to the prosecutor, comparing the pros and cons[7], and it is necessary to consider the risk of losing control in a criminal process as well as the risk that the police and prosecutors who are not experienced in trade secret cases may mishandle the case[8]. In particular, as in this case, if an additional remark such as “the requirements for falling under the category of trade secrets in criminal measures should be interpreted as the same as those in civil ones” is made, the impact on civil litigation cannot be ignored. On the other hand, as a pro for Japan, there is a possibility of using a criminal process as a springboard to collect evidence to be utilised in a civil litigation. If referring your case to a prosecutor is chosen, it is advisable that the lawyer in charge of the civil litigation for trade secret infringement discusses the matter with the prosecutors in detail.

On the alleged infringer side, if they feel that there is a possibility of a dispute, in an effort to prevent one, it would be better to consult in advance with a lawyer who is experienced in trade secret cases on whether and how to disclose the information. In fact, the judgment also stated, in the context of a finding in favour of the accused, that the credibility of the accused’s statements at the investigation stage was not so high, that the part of C’s statement made before a prosecutor which he thought constituted know-how was not of much value as evidence since it was a matter of legal evaluation, and that C was not an expert in the field of intellectual property.

The Nagoya District Public Prosecutors did not appeal and the judgment became final and binding. The deputy chief prosecutor’s comment was reported as follows: “After reviewing the content of the judgment, we judged that it would be difficult to overturn the judgment in the first instance and decided not to appeal.” It is supposed they considered that the court not only denied non-public domain but held that even if the knowledge was considered a trade secret, it would not be possible to impose on the accused intentional liability and even added the remarks such as “somewhat unjustified” and “the institution of prosecution is unreasonable”.

Takanori Abe is managing partner at Abe & Partners. He can be contacted at:  abe@abe-law.com

[1] FindLaw Attorney Writers, The Cutting Edge of Trade Secret Law, March 26, 2008, https://corporate.findlaw.com/intellectual-property/the-cutting-edge-of-trade-secret-law.html

[2] FindLaw Attorney Writers, The Cutting Edge of Trade Secret Law, March 26, 2008, https://corporate.findlaw.com/intellectual-property/the-cutting-edge-of-trade-secret-law.html

[3] James Pooley, How To Respond To A Claim of Trade Secret Misappropriation, August 8, 2017, https://pooley.com/how-to-respond-to-a-claim-of-trade-secret-misappropriation/

[4] https://magnedesign.jp/wordpress/c_cases/

[5] FindLaw Attorney Writers, The Cutting Edge of Trade Secret Law, March 26, 2008, https://corporate.findlaw.com/intellectual-property/the-cutting-edge-of-trade-secret-law.html.

[6] James Pooley, How To Respond To A Claim of Trade Secret Misappropriation, August 8, 2017, https://pooley.com/how-to-respond-to-a-claim-of-trade-secret-misappropriation/.

[7] James Pooley, Secrets: Managing Information Assets in the Age of Cyberespionage 220 (2015).

[8] James Pooley, Secrets: Managing Information Assets in the Age of Cyberespionage 224 (2015).

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