Examples

The formula for Listerine (a trademark owned by Johnson & Johnson) was developed in 1879 by physician Joseph Lawrence and pharmacist Jordan Lambert (eventually a founder of Warner-Lambert), and named after Joseph Lister who used carbolic acid as a surgical antiseptic earlier in the century.

Lawrence and Lambert did not patent the formula, but protected it as a trade secret. Lawrence assigned ownership of the trade secret to Lambert (and ultimately Warner-Lambert) with the provision that whoever manufactured the Listerine brand would pay Lawrence and his heirs a royalty of a percentage of all profits generated by future sales of this product. 

By the 1930s the Listerine formula had been reverse-engineered and become well known within the pharmaceutical industry. No longer a trade secret, and having never been protected by patent, anyone could legally produce the same compound as Listerine, although one could not sell it under the still viable trademark. 

Lambert (more likely his attorney) made a dreadful mistake in drafting the assignment agreement, not identifying events that would terminate the contract. Accordingly, although the erstwhile trade secret Listerine  formula has been in the public domain for a century, the owner of the Listerine brand (now Johnson & Johnson) must continue to pay Lawrence’s heirs a royalty based on every bottle of Listerine sold.

The medical device company St. Jude Medical, Inc. manufactured a range of coronary therapeutic devices, including pacemakers. St. Jude Medical maintained as trade secrets the company’s proprietary information used in manufacture of their pacemakers, which provided an advantage to their products in the market. 

For several years Chinese national Yongning Zou worked as an engineer at Pacesetter, Inc., a subsidiary of St. Jude Medical, which obtained a Permanent Resident (Green) Card on his behalf. In 2011 Zou left St. Jude’s to found a competing pacemaker manufacturer in China, using trade secrets to which he had access while working at St. Jude’s, and with which he absconded upon leaving the company. 

St. Jude sued Zou and his company, and a U.S. court found them liable for trade secret misappropriation and imposed damages of $2.3 billion, later reduced to about $1 billion. The jury foreman was said to have quipped “good luck collecting” to St. Jude’s lawyers. What might high-tech companies, whose survival and growth rely upon maintenance of trade secrets, learn from such regrettable events, and specifically how to avert their future occurrence, without limiting the ranks of their personnel to resident citizens of the nations of the companies?