5.5 Misappropriation of Trade Secrets

Trade secrets are valuable business assets that require protection from misappropriation. Companies must safeguard their confidential information from theft, bribery, and unauthorized disclosure. Understanding the types of misappropriation helps businesses identify and prevent potential threats.

Courts evaluate trade secret misappropriation claims using direct and circumstantial evidence. Threatened misappropriation allows owners to seek injunctive relief before actual theft occurs. The legal framework, including the Uniform Trade Secrets Act and Economic Espionage Act, provides tools for protecting these valuable assets.

Misappropriation of Trade Secrets

Misappropriation types for trade secrets

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• Misappropriation through improper means
  • Acquiring trade secrets through methods contrary to honest commercial practices
  • Examples of improper means:
    • Theft involves taking trade secrets without the owner's consent (stealing documents or products)
    • Bribery entails offering something of value to obtain trade secrets (paying an employee for confidential information)
    • Misrepresentation includes deceiving the owner to gain access to trade secrets (posing as a potential business partner)
    • Breach of a duty to maintain secrecy occurs when an individual with authorized access discloses trade secrets (an employee sharing confidential data with a competitor)
    • Espionage through electronic or other means involves using technology to acquire trade secrets (hacking into a company's database)
• Misappropriation through disclosure of trade secrets
  • Disclosing or using trade secrets without the owner's consent
  • Disclosure scenarios:
    • Disclosing trade secrets known to be acquired through improper means (sharing stolen blueprints with a third party)
    • Disclosing trade secrets in breach of a duty to maintain secrecy (a former employee revealing confidential information to a new employer)
    • Disclosing trade secrets known to be acquired by accident or mistake (using confidential documents received in error)

Evidence of trade secret misappropriation

• Direct evidence
  • Eyewitness testimony provides firsthand accounts of misappropriation (a coworker witnessing the theft of confidential documents)
  • Admissions by the defendant involve statements acknowledging misappropriation (an email admitting to using stolen trade secrets)
  • Physical evidence showing the defendant possessed the trade secret (confidential prototypes found in the defendant's possession)
• Circumstantial evidence
  • Showing the defendant had access to the trade secret (proving the defendant attended meetings where the trade secret was discussed)
  • Demonstrating similarities between the defendant's product or process and the trade secret (comparing the defendant's product to the plaintiff's patented design)
  • Establishing a timeline of events suggesting misappropriation (showing the defendant's product launch occurred shortly after a former employee joined their company)
  • Proving the defendant's product or process could not have been independently developed (demonstrating the complexity and uniqueness of the trade secret)
  • Showing the defendant did not use reverse engineering to obtain the trade secret

Threatened misappropriation in courts

• Threatened misappropriation
  • Occurs when there is a high probability that misappropriation will occur if no preventive measures are taken
  • Allows trade secret owners to seek injunctive relief before actual misappropriation takes place (requesting a court order to prevent an employee from joining a competitor)
• Factors courts consider in evaluating threatened misappropriation claims:
  • The existence of a non-disclosure or non-compete agreement (an employee signing an agreement not to disclose trade secrets or work for a competitor)
  • The level of competition between the plaintiff and defendant (direct competitors in the same market)
  • The defendant's prior conduct or expressed intent (previous attempts to acquire the trade secret or statements indicating plans to use it)
  • The value of the trade secret to the plaintiff and defendant (the potential impact on the plaintiff's business and the defendant's gain from using the trade secret)
  • The extent of the defendant's preparation to use or disclose the trade secret (evidence of the defendant's plans or actions to utilize the trade secret)
  • Application of the inevitable disclosure doctrine, which assumes an employee will inevitably use or disclose trade secrets in their new position

Legal Framework for Trade Secret Protection

• Uniform Trade Secrets Act provides a model for state laws on trade secret protection
• Economic Espionage Act criminalizes the theft of trade secrets at the federal level
• Reasonable measures must be taken by the trade secret owner to maintain secrecy