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.
How Long Does Patent, Trademark or Copyright Protection Last?
A U.S. utility patent, explained above, is generally granted for 20 years from the date the patent application is filed; however, periodic fees are required to maintain the enforceability of the patent. A design patent is generally granted protection for 14 years measured from the date the design patent is granted.
A U.S. trademark generally lasts as long as the trademark is used in commerce and defended against infringement.
Copyright protection is for a limited term. For works created after January 1, 1978, copyrights last for 70 years after the death of the author. For works "made for hire" (covering the usual type of work owned by a small business), the copyright lasts for a term of 95 years from the year of its first publication or a term of 120 years from the year of its creation, whichever expires first. For more detailed explanation of copyright terms, visit the Copyright Office webpage or consult this guide on Duration of Copyright provided by the Copyright Office.
A trade secret can be protected indefinitely as long as the secret is commercially valuable, its value derives from the fact that it is secret, and the owner take reasonable precautions to maintain its secrecy.
The intellectual property in software can be protected three ways: patents, copyrights and trade secrets. Patents protect "inventions" that are useful, nonobvious and novel, and must be approved by the U.S. Patent and Trademark Office. The scope of the final patent may be quite different than the initial application.
Copyright law applies to "works of authorship" that are fixed in a tangible medium of expression (such as a CD or a book), and applies automatically (a filing with the U.S. Copyright Office is required prior to bringing a lawsuit). Thus, the code of virtually all software is automatically protected by copyright. Copyright prohibits the reproduction, distribution, modification, public performance and public display of software that is "substantially similar" to the original software. If the software is protected only by copyright, anyone can avoid paying a license fee by re-creating the software from scratch without copying it. That is not usually practical, of course, but it does set some limits on what copyright holders can demand in their software licenses. If the price of existing software is too high, competitors will simply rewrite the software from scratch.
Finally, trade secret law protects any information that is not "commonly known" and which the company has taken reasonable steps to keep in confidence. The protection is more limited than patent and copyright protection: Trade secret law prevents only misappropriation, which means wrongful taking. Trade secret law could protect secrets in the source code of the software, for example
Misappropriation of Trade Secrets
Oct 2016 | Business
In Washington, owners of trade secrets may rely on two laws to protect those secrets. The Uniform Trade Secrets Act, RCW 19.108 (“State Act”), is a state law based on a national model law that has been adopted in 47 states. The other, the Defend Trade Secrets Act, 18 U.S.C. §§ 1831–1839 (“Federal Act”), is a federal law that became effective May 11, 2016.
A trade secret is defined as information, including a formula, pattern, compilation, program, device, method, technique, or process that: (a) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Under both acts, misappropriation happens when a trade secret has been: (a) acquired by a person who knows or has reason to know that the trade secret was acquired by improper means; or (b) disclosed without express or implied consent by a person who:
- Used improper means to acquire knowledge of the trade secret; or
- At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was (A) derived from or through a person who had utilized improper means to acquire it, (B) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use, or (C) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
- Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
Both acts authorize a trade secret owner to seek damages and enjoin conduct if trade secrets are misappropriated. The State Act provides that a party may be awarded double damages and attorneys’ fees if the misappropriation was malicious. Under the Federal Act, on the other hand, exemplary damages and attorneys’ fees may only be recovered if the parties had a written agreement that included notice that trade secrets may be disclosed without liability when the disclosure is to a government official or attorney as part of a report or investigation of a violation of a law, or when filing a lawsuit under seal. The Federal Act does not affect contracts in place before May 11, 2016, unless the contract is amended, at which time it must be updated to include the required notice. If the required notice is not included, damages may still be recovered under the Federal Act, but not exemplary damages or attorney fees.
Claims under both acts must be brought within 3 years of when the misappropriation was or reasonably could have been discovered.