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Trade Secret Mediation: Negotiating Beyond the Distrust

This article was previously published in Seyfarth Shaw’s “Trading Secrets” blog.

Trade secret litigation often involves deep levels of distrust, heated emotional exchanges, suspicion and anger on the part of parties and counsel.  One source of the problem lies at the heart of a trade secret misappropriation claim: the allegation that a “theft” has occurred, and each party’s perception of the other party resulting from that allegation.  The plaintiff alleges its property has been stolen by the defendant.  If the plaintiff desires to avoid the time and expense of trial, the victim must now negotiate with the thief, adding insult to injury.  The defendant, on the other hand, may express outrage at being accused of theft, and suspect the litigation is merely a fishing expedition by the plaintiff to uncover the defendant’s own trade secrets.

The allegation of theft sets the parties on a difficult path from the very outset, which can affect the likelihood of reaching a settlement during the mediation session.   How then, can the parties overcome these issues and reach agreement during mediation?  The following tips may be helpful when mediating trade secret disputes.

Know the Definition of “Trade Secret” in the Relevant Jurisdiction.  Counsel sometimes approach trade secret mediation with an incorrect definition of what a “trade secret” is within the relevant jurisdiction.  One example is the “customer list.”  Plaintiff’s counsel will sometimes argue that customer names and addresses, without more, are sufficient for trade secret protection.  However, courts have held that certain customer information, such as names of contact persons that can easily be obtained by a phone call and addresses that are obtainable via the internet and directories, is not a trade secret.  Defense counsel may take the position that customer names and information are not trade secrets, without making sure the information is easily obtainable, in the public domain or otherwise qualifies as a trade secret.  The lack of a clear definition can lead to disputes as to the level of protection afforded.  Counsel should review trade secret statutes and cases within the relevant jurisdiction to determine the proper definition of  “trade secret” and advise the mediator if the issue is disputed, so that it may be addressed during the mediation (and so that counsel does not argue an unsupportable position to the detriment of the client).

Respond to Communications From Opposing Counsel.  Very often an overlooked or delayed response to an email, the failure to return a phone call or a rude comment may be interpreted by opposing counsel as a sign of disrespect, which can fan the flames in an already heated situation and affect a party’s willingness to settle.  Resist the temptation to lobby a rude or disrespectful comment in response to one received from opposing counsel.  Promptly respond to communications in a professional manner to reduce the chance of misunderstandings, and to keep the channels of communication open.

Try to Develop Some Level of Trust and Cooperation, If At All Possible.  Trade secret mediations often turn on the level of trust and cooperation between the parties.  It is extremely helpful to establish an agreement that the parties will act in good faith during the mediation session.  If Plaintiff’s counsel has any suspicion the defendant is playing “hide the ball,” or defendant’s counsel feels plaintiff is seeking to engage in a fishing expedition, it will be difficult to obtain concessions from a party or reach settlement.  The more open, honest, transparent and authentic each party is (or each party appears to be), the less contentious the mediation will be and the more likely a settlement can be reached.  Even if the parties cannot develop a level of trust, it is helpful to reach some basic level of cooperation to assist in reaching settlement.

Conduct a Thorough Investigation The First Time Around.  Counsel (both in-house and outside law firm) who do not have experience with trade secret disputes or who are not familiar with the internal workings of computer software, networks, IT departments and staff, should promptly seek the advice of trade secret counsel or a consultant.  This will help to ensure that employees and contractors are properly instructed on how to search internal systems/networks; to conduct successful witness interviews by asking the right questions; to ensure the investigation is complete so there are no surprises later on; and to avoid spoliation of evidence.  An incomplete or faulty investigation, especially if discovered during the mediation, may raise suspicions and require the session to be suspended so that a supplemental investigation can be performed, resulting in increased time, expense and frustration for all involved.

Accept That You May Never Get All the Answers.  Trade secret cases often involve a substantive investigation into a party’s computers, networks, systems and personnel to discover if trade secrets have been wrongfully misappropriated.  Depending on the manner in which systems and software are configured, whether company policies are/were in place and the availability and reliability of witnesses, it may not be possible to develop a full picture of whether misappropriation has actually occurred.  There usually comes a time when counsel and client must accept this fact, and decisions must be made based on the information available at that moment.  It may not be worth the effort and expense to continue an investigation or conduct additional discovery.  The difficulty is knowing when to “stop,” and convincing the client to do the same.  Emotions and distrust may impede a party’s ability to think clearly and make a rational decision on the matter, but it must be done, especially when it is in the best interest of the client to reach a settlement during the mediation session.

Make Sure Expert Reports are Easy to Understand. Sometimes a party will introduce an expert’s forensic computer report during the mediation for the participants to review.  Reports such as these are extremely helpful in determining what information resided in the defendant’s computer system, and whether that information constituted plaintiff’s trade secrets.  On occasion, the expert’s report is such a maze of jumbled, unintelligible graphs, charts, data and technical speak that it requires an instructional manual.  Explaining difficult reports during mediation can waste precious time that could be better used for settlement discussions.  Counsel should make sure the graphs, charts, legends and data in expert reports are clear and easy to understand; the explanatory text is written in layman’s terms, not industry speak; and the results and implications are clear.  Simple expert reports will minimize the time spent reviewing and explaining the report, and maximize the time spent on negotiating settlement terms.

Parties to a trade secret dispute may experience distrust, incomplete information and a lack of communication and cooperation.  This can set the tone of the mediation session, impede the parties’ willingness to cooperate and reduce the likelihood of reaching settlement.  Overcoming these obstacles can be an uphill battle for the parties and the mediator.  These obstacles can be overcome by working through, and in spite of, a lack of trust and incomplete information; finding areas of cooperation and trust; keeping the lines of communication open; and working in the client’s best interest to resolve the dispute so that the client can get “back to business.”  Counsel and clients must commit to the process in order to overcome the barriers to settlement and achieve success in trade secret mediation.


Erica Bristol

Erica Bristol is an intellectual property attorney and commercial mediator specializing in intellectual property disputes. She received her law degree from the UCLA School of Law in 1999, served as corporate in-house counsel for over 11 years and has been a commercial mediator for over 7 years. Erica is the… MORE >

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