3-2 "MISAPPROPRIATION" OF A TRADE SECRET UNDER THE COMMON LAW

• Jurisdiction: United States

3-2 "Misappropriation" of a Trade Secret Under the Common Law

Prior to TUTSA, to prove misappropriation, the plaintiff had to show that the defendant acquired the trade secret through a breach of a confidential relationship or acquired the trade secret through "improper means."¹ As the Fifth Circuit explained, "[i]mproper means of acquiring another's trade secrets include theft, fraud, unauthorized interception of communications, inducement of or knowing participation in a breach of confidence, and other means either wrongful in themselves or wrongful under the circumstances of the case."²

Over the years, however, the common law on misappropriation had become quite muddled. One recent Texas federal court decision succinctly summarized the confusion created by the earlier misappropriation standard:

[A]t common law, there were three elements of a trade secret misappropriation claim. Importantly, these three elements were, and continue to be, frequently recited and interpreted with a subtle, but important variation that influences liability. One variation indicates that a defendant must have acquired the trade secret in a particular manner, i.e., there is only one path to liability focused on whether the means used to acquire the trade secret were improper. In other cases, however, the recitation of the elements suggests that there are two paths to liability, either by acquiring the trade secret through improper means or using or disclosing a trade secret in breach of a confidential relationship. . . . Making matters worse, although the emphasis in the first set of these cases is on the means used to acquire the trade secret, several of these cases go on to state that at common law, "[o]ne is liable for disclosure of trade secrets if (a) he discovers the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in one who is in a confidential relationship with another who discloses protected information to him."³

In addition, to be liable for common law trade secret misappropriation, the defendant must have actually used or disclosed the trade secret.⁴ Prior to 2013, Texas courts relied on the Restatement definition of "use"—which, in practice, meant any "commercial use" and encompassed any time a defendant sought "to profit from the use of the secret."⁵ The plaintiff could establish use by showing "any exploitation of the trade secret that [was] likely to result in injury to the trade secret owner or enrichment to the defendant."⁶

The Fifth Circuit listed several examples that satisfy this broad definition of use, including "marketing goods that embody the trade secret, employing the trade secret in manufacturing or production, relying on the trade secret to assist or accelerate research or development, or soliciting customers through the use of information that is a trade secret."⁷ Under this definition, the plaintiff simply had to offer evidence of any "act that 'lower[s] the market value' of a trade secret by 'making it less likely that [the plaintiff] would sell his invention...