A federal court has recently held that POSSESSION of a trade secret is sufficient for a party to bring a trade secret misappropriation claim. Under the court’s ruling, OWNERSHIP is not required. See Advanced Fluid Systems, Inc. v. Huber, Case Nos. 19-1722 and 19-1752 (3rd Cir. April 30, 2020).
In the Advanced Fluid Systems case, the trade secrets involved engineering drawings, schematics and designs related to rocket launch equipment for a National Aeronautics and Space Administration (“NASA”) agency. Under the particular government contract at issue, the agency deemed all the engineering drawings to be the “exclusive property” of the agency. This sort of contractual provision is common with government contracts. Despite the government’s claim of ownership, Advanced Fluid Systems, Inc. (“Advanced Fluid”) maintained the confidentiality and secrecy of the engineering drawings.
When the government contract was up for renewal, an Advanced Fluid employee, Keven Huber, gave copies of the drawings to a competitor. The drawings were instrumental in helping the competitor to win the bid and, eventually, replace Advanced Fluid at the NASA facility.
Advanced Fluid sued the Huber for various causes of action including trade secret misappropriation. Advanced Fluid claimed that the engineering drawings (and related documents) were its trade secrets. In defending the lawsuit, Huber requested that the misappropriation claim be dismissed because Advanced Fluid did not own the drawings.
However, the trial court refused to dismiss the trade secret aspects of the case. The court reasoned that, like other types of property, intellectual property involves a “bundle” of rights. Ownership, in the sense of legal title, is one “stick” in the bundle. Possession and use are two other “sticks.” The court further noted that, with respect to information, one “owns” the information when one knows it. The court also reasoned that the Uniform Trade Secrets Act and its federal counterpart do not require that ownership be proven to win the case. The statute defines a “trade secret” as information that has value because it is not “generally known” nor “readily ascertainable.” Under this definition, knowing the information is key, not legal ownership. Finally, the court reasoned that, even if legal title was required, since Advanced Fluid had permission to use the information, arguably Advanced Fluid had the right to protect the information from misappropriation. For these reasons, the trial court refused to dismiss the trade secret misappropriation claims. On appeal, the Third Circuit agreed and affirmed the ruling.
The Third Circuit joins two other federal Circuit Courts of Appeal who have issued similar rulings. See DTM Research, L.L.C. v. AT & T Corp., 245 F.3d 327 (4th Cir. 2001) and Gaedeke Holdings VII, Ltd. v. Baker, Case Nos. 16-6004, 16-6017 (10th Cir. 2017).
For another case closer to home, see DaimlerChrysler Services. v. Summit National, No. 02-71871 (E.D. Mich. 2006). In that case the court held that, with respect to trade secret misappropriation, “the focus is appropriately on the knowledge, or possession, of the trade secret, rather than on mere ‘ownership’ in the traditional sense of the word.”
If you have questions about protecting your trade secrets or if you need to initiate trade secret litigation, contact the trade secret lawyers at Revision Legal at 231-714-0100.
The DTSA and UTSA Ownership Framework
Both the federal Defend Trade Secrets Act, 18 U.S.C. § 1836, and the Uniform Trade Secrets Act define the owner of a trade secret as the person or entity that has rightful economic control over it—not merely legal title. This definition is broader than standard property law concepts of ownership and deliberately so. Trade secrets frequently arise in collaborative contexts: joint ventures, government contracting, licensing arrangements, and employment relationships all produce situations where the party with legal title differs from the party that developed and maintained the secret.
The Third Circuit’s analysis in Advanced Fluid Systems tracks this policy foundation. The court observed that trade-secret law is concerned with protecting the competitive value of information, and that competitive value can reside with the party that possesses and maintains the secrecy of information regardless of formal title. Requiring strict ownership would create an easy evasion strategy: any misappropriator could attempt to defeat a trade-secret claim simply by pointing to a government contract clause or a licensing agreement that vested title elsewhere.
Practical Implications for Government Contractors
Government contracts routinely include rights-in-data clauses that vest ownership of technical data, engineering drawings, and software in the federal agency. The Defense Federal Acquisition Regulation Supplement at 252.227-7013 and 252.227-7014 contains detailed provisions governing the government’s rights to contractor-developed technical data. Under these clauses, the government typically acquires unlimited rights in data developed exclusively at government expense, while the contractor retains greater rights in data developed with mixed or private funding.
Advanced Fluid Systems clarifies that even where a government contract vests unlimited rights in the agency, the contractor who developed and maintained the data may still qualify as a trade secret owner under the DTSA for purposes of misappropriation claims against third parties. Contractors should document their development efforts and their confidentiality practices contemporaneously, both to establish trade-secret status and to support any future misappropriation claim.
Possession, Control, and the Bundle of Rights
The court’s bundle of rights analysis treats trade-secret law as analogous to property law’s recognition that multiple parties can hold different sticks in the bundle simultaneously. A lessee can enforce trespass claims against strangers even though a landlord holds fee title. Similarly, a company that possesses and maintains the secrecy of information can enforce misappropriation claims even where a third party holds formal ownership.
For businesses evaluating trade-secret claims, the threshold question is not whether they have legal title to information, but rather whether they have rightful possession and have taken reasonable steps to maintain its secrecy. If the answer to both questions is yes, possession alone is sufficient to establish standing to bring a DTSA or UTSA claim.
The Employment Relationship and Insider Threats
Most trade secret misappropriation cases—like Advanced Fluid Systems—involve current or former employees who take proprietary information to a competitor or use it to start a competing business. Standard employment agreements should include: a confidentiality provision identifying categories of information that are trade secrets; a prohibition on removing proprietary materials in any format upon separation; a return-of-materials clause requiring the employee to return or certify destruction of all proprietary information; and a notification requirement obligating the employee to disclose any potential conflict of interest or competing opportunity before their last day.
Courts have held that these contractual provisions, standing alone, demonstrate that the employer took reasonable steps to maintain secrecy—satisfying one element of a trade-secret misappropriation claim. Companies that lack written confidentiality agreements face a much harder road in trade-secret litigation even when the underlying misappropriation is clear.
If your business has experienced the theft of confidential information or trade secrets, or if you want to build a stronger trade-secret protection program, contact the trade secret lawyers at Revision Legal at 231-714-0100.
