Misappropriation Of Trade Secrets

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Trade secret protection derives from state law and therefore varies by jurisdiction. Federal law generally does not preempt or apply to state law claims involving trade secrets. Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470(1974) (holding that federal patent law does not preempt state trade secret law). However, states may not offer patent-like protection to intellectual creations which otherwise remain unprotected as a matter of federal law. Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141 (1989). Therefore, anything that does not fall within the domain of patent or copyright law may be protectable as a trade secret under state law.


In most states, to state a claim for misappropriation of trade secrets, a party must show that: (1) the information incorporates a trade secret; (2) the party took reasonable steps to preserve the secrecy of the trade secret; and (3) the defendant misappropriated the secret or used improper means, in breach of a confidential relationship, to acquire the trade secret. See, e.g., Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1165 (1st Cir. 1994).

Definition of a Trade Secret

  1. Restatement of Torts (Second) § 757, comment b. A trade secret may consist of any formula, pattern, device, or compilation of information which is used in business and which gives [the business] an opportunity to obtain an advantage over competitors who do not know or use it.
  2. California Civ. Code Sec. 3426.1(d). A trade secret consists of information, including a formula, pattern, compilation, program, device, method, technique or process that: (1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
  3. 18 U.S.C. § 1839 defines a "trade secret" as:
    all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if-
    • the owner thereof has taken reasonable measures to keep such information secret; and
    • the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.

Core Requirement -- Secrecy

  1. The disclosure of a trade secret, even if accidental or inadvertent, destroys the "secrecy" and removes protection. Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974).
  2. Standard.
    1. A party must make reasonable efforts to protect the secrecy of an alleged trade secret. A limited disclosure, therefore, may not destroy a secret depending on the circumstances surrounding the disclosure. See Gates Rubber Co. v. Bando Chemical Indus., Ltd., 9 F.3d 823, 849 (10th Cir. 1993) (holding that inadvertent and inconsequential disclosures at trial, along with a delay in sealing the official record, do not deprive a product of trade secret protection). "Reasonable efforts" can include advising employees of the existence of a trade secret, limiting access to the information to a "need to know basis," requiring employees to sign confidentiality agreements, MAI Sys. Corp. v. Peak Computer, 991 F.2d 511, 521 (9th Cir. 1993), and keeping secret documents under lock. 1 Roger Milgrim, Milgrim on Trade Secrets, § 1.04 at 1-126.Courts have held that information may remain a trade secret even if the owner discloses the information to its licensees, vendors, or third parties for limited purposes. See, e.g., Rockwell Graphic Sys., Inc. v. DEV Industries, Inc., 925 F.2d 174 (7th Cir. 1991). The owner of the trade secret must, however, take reasonable security measures when it does disclose the information, such as requiring non-disclosure agreements.
    2. The extent of the security measures taken by the owner of the trade secret need not be absolute, but must be reasonable under the circumstances, depending on the facts of the specific case. See e.g., Pioneer Hi-Bred Int'l v. Holden Found Seeds, 35 F.3d 1226, 1235 (8th Cir. 1994). There is no uniform rule as to policies or procedures. A party should ensure that its own rules are followed since failure to follow them may provide a basis for denying trade secret protection. CVD, Inc. v. Raytheon Co., 769 F.2d 842 (1st Cir. 1985).

Disclosure over the Internet

Generally, if a trade secret is misappropriated and published over the Internet, a party's remedies are limited to damages. Otherwise, there is little, if any, redress and the secret is lost. (An injunction may be invalid as a prior restraint, as demonstrated by the Ford case, discussed below in Chapter 5 (A)(5)(c).) A line of cases involving the Church of Scientology is demonstrative. The Church brought several actions to stop the publication and distribution over the Internet of certain religious documents that it treated as trade secrets and which were made available by former members.

  1. Religious Tech. Center v. Netcom On-Line Communications Services, Inc., 907 F. Supp. 1361, 1368 (N.D. Cal. 1995). Although one who originally posts a trade secret on the Internet may be liable for trade secret misappropriation, a party who merely downloads Internet information cannot be liable for misappropriation because there is no misconduct involved in interacting with the Internet. Posted documents become �generally known� and are therefore no longer secret. See also discussion in Section III(C)(2)(c) above.
  2. Religious Tech. Center v. Lerma, 897 F. Supp. 260 (E.D. Va. 1995), and 908 F. Supp. 1362 (E.D. Va. 1995). Church documents were not trade secrets under Virginia law because the documents were introduced into the public domain through publication on the Internet. Summary judgement also was granted to the Washington Post, dismissing misappropriation claims for its publication of excerpts of the Church's documents due to the earlier Internet publication. Religious Tech. Center v. F.A.C.T.Net, Inc., 901 F. Supp. 1519 (D. Colo. 1995) (finding no protection under Colorado's Uniform Trade Secret Act because documents were made available over the Internet).
  3. Ford Motor Co. v. Lane, 67 F. Supp. 2d 745 (E.D. Mich. 1999). Defendant, not an employee of Ford, posted confidential documents and trade secrets belonging to Ford on his Web site, disclosing photographs of unreleased products, blueprints, and other confidential information. The court denied plaintiff's motion for a preliminary injunction against the use, copying or disclosure of Ford's internal documents, holding that such an injunction would constitute an invalid prior restraint in violation of the First Amendment.
  4. DVD Copy Control Assn. Inc., v. Andrew Bunner, 116 Cal. App. 4th 241, (2004). Widespead publication of trade secret on the Internet destroyed secrecy.