Trade Secret Infringement

Most states have adopted the Uniform Trade Secret Act (UTSA), a model law, or a modified form of it. Under the UTSA, a trade secret is defined as information that confers a competitive economic advantage over competitors that is the subject of reasonable efforts to keep it secret. If a trade secret owner does not make reasonable efforts to keep the information secret, it will no longer be a trade secret.

Trade secret infringement is called “misappropriation.” It occurs when someone improperly acquires a trade secret or improperly discloses or uses a trade secret without consent or with having reason to know that knowledge of the trade secret was acquired through a mistake or accident. Misappropriation need not be intentional. It can happen inadvertently or through negligence.

Misappropriation also occurs when someone discloses or uses a trade secret without consent when, at the time of disclosure, he or she had reason to know that knowledge of the trade secret was:

  • Derived from someone who obtained it through improper means;
  • Obtained under circumstances that gave rise to maintain its secrecy or limit its use; or
  • Derived through a person who owed a duty of confidentiality to the trade secret owner.

What counts as “improperly” acquiring a trade secret? Breaches of nondisclosure agreements, industrial espionage, theft, fraud, and bribery are all improper means of acquiring a trade secret. For example, if you hack into a company’s computer and copy the files, this act of acquiring the secrets improperly is misappropriation. If you are asked to sign a nondisclosure agreement that states you can only work on secret information on company computers, and you log in to do some work on your unsecured private laptop in a public place one weekend, this may also be considered misappropriation.

If a person or entity discloses or publishes a trade secret while knowing it was improperly obtained, or by inducing someone to improperly obtain it, misappropriation exists. For example, if you run an online website and an employee of a major corporation breaches a nondisclosure agreement to give you the corporation’s trade secret formula for a popular soft drink, you may be liable if you publish the formula while having facts that suggest the employee breached the nondisclosure agreement. Similarly, if you are a journalist and a source gives you encrypted files containing a secret manufacturing process, and you decrypt and publish them, you may be liable for misappropriation. A court may find that the encryption and the context in which you acquired encrypted files are reason to know that your source improperly acquired the files.

Usually, once a trade secret is misappropriated and published, it loses its status as a trade secret. Information that is known to those who could economically benefit from it no longer meets the definition for a trade secret under UTSA.

Defenses to a Misappropriation Lawsuit

If you are accused of misappropriating trade secrets, your best defense in many states is actual independent development. Independently developing information from one’s own pool of knowledge or the public domain is a complete defense to a company’s claim of trade secret misappropriation. You will need to use your own files and records to prove that you completed development before any dates on which the alleged misappropriation occurred.

Related, but less strong, is a defense of reverse engineering. For example, if you reverse engineer a trade secret formula for a popular soft drink, this is not misappropriation in most states. However, you should be aware that sometimes reverse engineering is actionable under other theories. Some software comes with end-user licensing agreements in which the end user agrees to refrain from reverse engineering. Moreover, if you did not acquire the product you reverse engineered legally, that can also make this defense problematic.

Another strong defense is to attack the plaintiff’s efforts to keep the information secret. A plaintiff that does not make reasonable efforts to keep information secret cannot prove a misappropriation claim. For example, it would be unreasonable to disclose trade secrets to a customer or supplier without a nondisclosure agreement. Similarly, failure to provide adequate protection to one’s documents or files (such as by allowing open public access to one’s offices) may be construed as a failure to use reasonable efforts at secrecy.

You can also defend on the grounds that the information that is supposedly secret is actually public. A plaintiff cannot claim as a trade secret information that is already in the public domain. With this defense, you will probably need to produce patents, articles, and books from which the trade secret information is “readily ascertainable” or revealed. However, you should be aware with this defense that unique combinations of publicly known concepts and ideas may be considered a trade secret.