trade secret

Possession of a Trade Secret Sufficient to Bring a Misappropriation Claim

By John DiGiacomo

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.

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