Trade Secret Misappropriation Laws

A trade secret is secret information that a business possesses that gives it its competitive business advantage in the marketplace. It is especially valuable because it is not known to the competitors of the business. For example, the formula for Coca-Cola is considered a renowned trade secret. The Colonel’s recipe for Kentucky Fried Chicken is another trade secret that the company considers vital to its success in the fast food business.

A trade secret owner must make efforts that are at least reasonable to maintain the secrecy of its trade secrets. If it does not do this, the trade secret may lose its status as a trade secret that is entitled to protection under the law.

When a person obtains a trade secret through improper acts, such as theft, bribery, or breach of a non-disclosure agreement, they have misappropriated the secret in legal terminology. Or, if a person publishes a trade secret even if they know that someone else obtained it through improper acts, they also have misappropriated the trade secret.

What is referred to as “infringement” in connection with trade names and trademarks is referred to as “misappropriation” in connection with trade secrets.

What Is Trade Secret Misappropriation?

Misappropriation is the improper acquisition, disclosure, or use of a trade secret. Under trade secret law, misappropriation gives the owner of a trade secret cause to file a lawsuit against the person or entity who has misappropriated the secret.

What Is “Improper Acquisition”?

Improper acquisition occurs when a person obtains access to a trade secret by the use of improper means. The means do not have to be criminal to be improper, although criminal means are almost automatically improper means. Even legal actions can be improper under some circumstances. Some common types of improper acquisition means are:

• Ordinary Criminal Theft;
• Bribery;
• Fraudulent Misrepresentation;
• Breach of a duty or encouraging someone else to breach a duty to maintain the secrecy of a trade secret;
• Spying through electronic or other means;
• Industrial espionage.

Are There Ways to Acquire Trade Secret Information That Are Not Improper?

There are many ways to acquire trade secrets that are not considered improper under trade secret law. Some commonly accepted ways are:

• Discovering the trade secret independently;
• Discovering the trade secret through reverse engineering;
• Obtaining the trade secret from a publication;
• Seeing the item publicly used or displayed.

A misappropriation of trade secrets lawyer would be able to give a person guidance as to the exact parameters of trade secret misappropriation.

What Is Improper Disclosure or Use?

Improper disclosure or use is the disclosure or use of a trade secret, without the express or implied consent of the trade secret owner, by a person who:

• Acquired the trade secret through improper means such as those listed above;
• Knew that the information was acquired wrongfully;
• Knew that they should be under a duty to maintain secrecy, e.g., because they signed a non-disclosure agreement while in the employ of the owner of the trade secret.

Is It Improper to Disclose a Trade Secret to Someone Who Will Not Use It?

A person may disclose a trade secret to another person who has no intention of using or passing on the trade secret to others. However, this type of disclosure may still be an improper disclosure.

The value of a trade secret depends almost entirely on the secrecy in which it is maintained. Without that secrecy, a trade secret is useless and unenforceable. Telling even just one person can destroy a trade secret, even if that person has no intention of using it or disclosing it.

If I Use Information I Learned at a Prior Job, Can I Be Liable for Improper Use of a Trade Secret?

If a person uses information they learned at a prior job, they may be liable for improper use of a trade secret. Of course, a person can use the skills, knowledge, and experience they gained in a former job, but it may be difficult to draw the line between this type of employee knowledge and the knowledge of trade secrets.

For example, even if a person does not take any tangible information about a trade secret, like a customer list or a formula, if the person has that list or formula memorized and uses it at their next job, they may be liable for trade secret misappropriation.

What Are the Remedies for Trade Secret Misappropriation?

Trade secrets are addressed by state laws. Most states in the U.S. have adopted some modified version of the Uniform Trade Secret Act (UTSA). So, there is much similarity between the laws in different states on the topic of trade secrets.

Under the UTSA, if a court finds that a person named as a defendant in a lawsuit alleging misappropriation of the plaintiff’s trade secret(s), it may order the following remedies:

• Injunction: The UTSA gives courts the authority to order a defendant to stop violating the trade secret owner’s rights. A court can also order a defendant to take action to preserve the secrecy of the owner’s information.
  • It is especially important to note that a court has the power under the law of trade secrets to order a person to stop publishing the trade secrets that belong to another person if it finds that the publication amounts to misappropriation. It is possible that the First Amendment to the U.S. Constitution can be the source of limits on a court’s authority in this regard;
• Damages: A court can make a defendant pay money damages to the trade secret owner to compensate them for any economic harm they suffer as a result of a trade secret violation. This may include the owner’s losses that result from the misappropriation and the profits that the defendant derived from it.
  • Instead of compensatory damages, a court can also order a losing defendant to pay a royalty to the trade secret owner. If the court finds that the defendant acted willfully or maliciously, it may award the trade secret owner punitive damages in an amount up to twice their actual damages;
• Attorneys’ Fees: If a court finds that the defendant acted willfully or maliciously when it violated the trade secret owner’s right, it has the authority to order the defendant to pay the owner’s attorneys’ fees. On the other hand, the defendant may win a lawsuit brought by a trade secret owner. However, the court may order the owner to pay the defendant’s attorneys’ fees if it should determine that the owner acted in bad faith in filing the lawsuit.

Do I Need a Lawyer?

If you believe that you have been the victim of trade secret misappropriation, you want to consult a trade secret lawyer. LegalMatch.com can connect you to a lawyer experienced in trade secret law who can inform you of your rights and help you protect your commercial secrets.

Or you may believe that you may be guilty of misappropriation, perhaps because, in your current position, you have made use of information you gained in a prior position. Again, an intellectual property lawyer can answer your questions and give you invaluable guidance regarding what you can and what you should not do.