Trade Secrets

Trade Secrets: Swipe Right to License, Swipe Left to Litigate

In March of this year, the dating app Bumble filed a lawsuit against Tinder’s parent, Match Group, for the allegedly fraudulent acquisition of trade secrets. This comes weeks after Match Group, owner of more than 45 dating apps and websites, began a suit against Bumble for patent infringement of Tinder’s “world-changing, card-swipe-based, mutual opt-in premise.” The two companies had been in acquisition talks late last year, during which time Match Group allegedly requested and obtained confidential trade secret information relating to Bumble’s business. According to Bumble, Match Group then used the disclosed information for its own gains after the deal fell through, and sued Bumble for patent infringement to make the company less appealing to other potential buyers. A further complication in the two companies’ relationship is that Bumble’s founder, Whitney Wolfe, was also a co-founder of Tinder and later sued them for sexual harassment.

What is a Trade Secret?

Besides the entertainment value of two matchmaking companies fighting it out over dating app intellectual property (IP), the Bumble v. Match Group legal battle is interesting because it addresses the potentially illegal use of trade secrets to undermine a competitor. IP litigation tends to focus on patent and, to a lesser extent, trademark infringement, but trade secrets and other intangible know-how related to a company’s business operation are also valuable assets that can be defended in a court of law. Pinning down the definitive quality of a trade secret is a little tricky, but the standard definition given by the USPTO is that a trade secret is internal company information that, “must be used in the business, and give an opportunity to obtain an economic advantage over competitors who do not know or use it.” A common example is the formula for Coca-Cola, which has remained a closely-guarded secret for over 100 years. Unlike patents, which require a lengthy and expensive registration process, trade secrets have no registration costs, go into effect immediately, and are protected for an unlimited period of time as long as they remain a secret. For these reasons, a company such as Coca-Cola could see a tangible benefit from keeping their soda recipe a trade secret as opposed to patenting it. There are some disadvantages to trade secrets, however. For one, they are not protected from independent discovery, so if Coca-Cola’s formula was ever reverse-engineered by a competitor, the company would no longer be afforded trade secret protection. Additionally, if a trade secret was made public, anyone would have access to it and could use it as they like. Furthermore, the cost of protecting a trade secret may turn out to be a costly endeavor. The recipe for Coca-Cola, for instance, is allegedly held in a vault at the company’s museum in Atlanta, and only two anonymous executives are privy to the full recipe at any time. The pains a company goes through to keep trade secrets under wraps can sometimes outweigh the benefits of keeping it un-patented. When three Coca-Colaemployees attempted to sell trade secrets to rival Pepsi in 2006, the FBI was involved to catch the conspirators.

Like Peas and Carrots

In the world of IP licensing, trade secrets often go along with patents in a company’s licensed portfolio. They often complement each other- Google, for instance, owns almost 70,000 patents, many related to data processing for its internet search engine, but has kept the specific algorithm it uses to rank search results as a trade secret. In ktMINE’s comprehensive database of over 120,000 license agreements, 44,694 agreements address trade secrets specifically. With the addition of licenses for “know how” (generally held to be synonymous with trade secrets), a total of 52,445 license agreements exist. Adding patents into the mix, the total amount of license agreements in the ktMINE database goes down to 46,060, meaning that there are a small but significant number of licenses for trade secrets and/or know-how alone, or in conjunction with other non-patented pieces of IP, like trademarks. A recent example of a license agreement for trade secrets without patents attached would be the February 27, 2018 agreement between Ned Davis Research, Inc. and Guggenheim Funds Distributor, LLC for the use of Ned Davis’ trademarks and trade secrets in regards to the promotion and sale of Guggenheim’s unit investment trusts.

GUGGENHEIM DEFINED PORTFOLIOS, SERIES 1726

Source: ktMINE Agreements App includes over 120,000 full-text license agreements.

 

A Case for Trade Secrets

Maintaining the protection of trade secrets can be paramount to a company’s success. Like patent and trademark infringement, trade secret theft can disrupt a company’s entire business strategy. To truly understand how devastating trade secret misappropriation can be, take the recent case of The United States v. Sinovel Wind Group Co. Ltd. et al (No. 13-cr-00084, U.S. District Court, Western District of Wisconsin). In January, a federal jury in Madison, Wisconsin found that Sinovel, a former partner of the wind turbine-based energy company American Superconductor, had stolen trade secrets and other copyrighted information when the two were doing business in 2011. The theft caused American Superconductor’s assets to depreciate by more than $1 billion and forced the company to terminate more than 700 employees.

Bumble v. Match Group

Going back to the case of Bumble v. Match Group, it is clear to see why such a high price has been attached to the dating app’s trade secrets. In such a saturated market (Match Group owns more than 45 brands alone), Bumble relies, in part, on its trade secrets to differentiate itself from competitors. When Tinder announced in February that it would be adding a new feature to the app that would allow women the option of choosing to initiate all future conversations with matches, Bumble was rightfully concerned that it would lose its competitive edge. Whether Match Group did in fact steal Bumble’s trade secrets is still undetermined, but the case highlights the potential value of this form of IP.

About the author: Debra Smetana
Debra Smetana
As a ktMINE research analyst, Debra Smetana processes and examines intellectual property daily. Her primary focus is interpreting license agreement structures. With her extensive studies of Archaeology, Debra specializes in qualitative research and can translate data into compelling narratives. She uses ktMINE’s data and analytics platform to identify IP patterns that can a provide insight into a company’s strategy and industry trends.