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Protecting Trade Secrets: The Misappropriation Element

By John DiGiacomo

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. These are:

  • The trade secret is not, in fact a trade secret — that is, the information/data was not kept secret or was generally known to the public
  • Independent discovery of the information/data — this is a “reverse engineering” type argument; the information/data was discovered independently and, thus, was not misappropriated
  • Implied consent from the owner for acquisition, disclosure or use

The first two common legal defenses challenge the legal basis for the argument that the information/data is a trade secret that is legally protected. The third common defense challenges the issue of intent.

While a plaintiff in trade secret litigation is not legally required to disprove legal defenses, when trying to prove misappropriation, it is often useful to anticipate what defenses might be proffered by the defendant(s).

For more information or 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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