Under both federal and state laws, trade secrets are legally protected from being stolen by employees, former employees, competitors, cybercriminals, and anyone else. Under both federal and state laws, a trade secret is some information or data that is kept secret that “… derives independent economic value 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…” The main difference between the federal law that protects trade secrets is that, under the federal law, the trade secret must relate to a product or service used in, or intended for use in, interstate commerce. Under various state laws, there is no need to prove that the trade secret applies or relates to interstate commerce. In this article, we will focus on the misappropriation element. That is, what must be legally proven to successfully show that a trade secret has been stolen?

Standard three methods of proving misappropriation (plus intent)

As interpreted by most courts, there are three standard methods of proving misappropriation:

• Improper acquisition — that is, some person or entity gained access to the trade secret through an improper method — like cyberhacking — or gained access without authorization from the owner
• Unauthorized disclosure — that is, an person authorized to access trade secrets discloses the trade secrets without authority and
• Use of a trade secret without consent of the owner

Note that, legally, these are stand-alone methods of proving misappropriation of trade secrets. Thus, it is not necessary to prove unauthorized disclosure AND use. Use is sufficient proof of misappropriation. This allows the owner to avoid what may be problematic proof with respect to disclosure or improper acquisition. Or, alternatively, it may be relatively easy to demonstrate disclosure, but not proof of use. This allows the owner of the trade secrets to sue and prevent anticipated use of the trade secrets.

Note further that proving intent is also necessary to be successful in proving misappropriation of trade secrets. Thus, actual knowledge that the data/information was improperly acquired, disclosed or used is sufficient. But the law also allows proof of intent where the alleged thief or user should have known or had reason to know that the trade secrets were not properly acquired, disclosed or allowed to be used.

Common legal defenses

To further explain the three main methods of proving misappropriation of trade secrets, it is useful to look at three common legal defenses. The three most common defenses are: (1) independent development, (2) reverse engineering, and (3) public availability. Each defense directly addresses one of the three methods of proving misappropriation. Specifically:

• If the alleged trade secret was, in fact, publicly available at the time of the alleged misappropriation, then the information was not a “trade secret” to begin with since trade secrets must be “not generally known” to others.
• If the alleged “thief” developed the information independently — without any access to the owner’s trade secret — then there is no improper acquisition and no disclosure. And, of course, if independently developed, there is no unlawful USE since the person/entity using the “secret” information is using their OWN information.
• Similarly, reverse engineering is allowed. Thus, a competitor may take a product to market and reverse engineer its components and design to determine the “secrets” of how the product is made and works.

Departing Employees and Trade Secret Misappropriation

The most common context for trade secret misappropriation claims is the departure of a key employee — particularly one who leaves to join a competitor or to start a competing business. In the employment context, misappropriation typically occurs through unauthorized disclosure or use: the employee is authorized to access trade secrets during employment, but the authorization expires upon departure. If the employee carries trade secret information to a new employer — whether in memory, in files copied before departure, or in emails forwarded to a personal account — each of those acts constitutes misappropriation under the Defend Trade Secrets Act (DTSA) and applicable state law.

Courts have held that even an employee who carries trade secrets only in memory — and who does not take any physical or digital files — can be liable for misappropriation if they subsequently use the trade secrets at a new employer. This “inevitable disclosure” doctrine, recognized in some (but not all) jurisdictions, allows an employer to obtain a preliminary injunction against a former employee’s new employment when it is virtually certain that the employee would inevitably use trade secrets in the new position, even without any deliberate act of disclosure.

Cybersecurity and Digital Trade Secret Theft

Digital trade secret theft has become the dominant form of industrial espionage. Common methods include:

• Unauthorized computer access — Hacking into a company’s systems to obtain trade secret data constitutes improper acquisition under the DTSA and may also be prosecuted under the Computer Fraud and Abuse Act, 18 U.S.C. § 1030. The FBI and Department of Justice have prioritized criminal prosecution of trade secret theft, particularly theft that benefits foreign governments or foreign-owned companies.
• Insider data exfiltration — Authorized employees who copy confidential files to personal storage devices, personal email, or cloud storage accounts before departure commit improper disclosure. Companies that use data loss prevention (DLP) software can detect these activities in real time and preserve evidence that is critical to subsequent litigation.
• Social engineering and spear phishing — Attackers who deceive employees into providing access credentials or confidential information commit improper acquisition even without technical hacking. The lack of physical breaking-and-entering does not change the legal analysis.
• Supply chain and vendor access — When a company shares trade secrets with a vendor or contractor, and that vendor misuses the information or shares it with a competitor, the vendor has committed unauthorized disclosure. Requiring NDAs and data security provisions in all vendor and contractor agreements is essential to establishing misappropriation liability in this scenario.

Remedies in Trade Secret Misappropriation Cases

A successful plaintiff in a trade secret misappropriation case under the DTSA may recover:

• Injunctive relief — Courts may enjoin actual or threatened misappropriation, including ordering a former employee or competitor to stop using the trade secrets and to return any misappropriated materials. In the employment context, injunctive relief may temporarily prohibit a former employee from working in a specific role or for a specific competitor during the period necessary to eliminate the advantage gained from the misappropriation.
• Compensatory damages — The plaintiff may recover actual damages, which can include lost profits caused by the misappropriation, the costs of investigation and remediation, and in some cases the plaintiff’s own development costs that gave the trade secret its value.
• Unjust enrichment — If actual damages are difficult to quantify, the plaintiff may alternatively recover the defendant’s unjust enrichment — the profits the defendant made by using the stolen trade secrets.
• Exemplary damages and attorneys’ fees — For willful and malicious misappropriation, courts may award up to two times the compensatory damages and may award attorneys’ fees. These multipliers create significant financial risk for defendants who knowingly steal trade secrets.
• Criminal prosecution — The Economic Espionage Act, 18 U.S.C. § 1831 et seq., provides for criminal prosecution of trade secret theft. Individuals convicted of domestic trade secret theft face up to 10 years imprisonment and up to $250,000 in fines. Organizations face fines up to $5 million or three times the value of the stolen trade secret.

Contact Revision Legal

Revision Legal’s trade secret attorneys handle misappropriation cases on both sides — representing employers who have had trade secrets stolen and defending businesses and individuals facing misappropriation claims. If you are dealing with a trade secret dispute, contact us today for a consultation.