Misappropriation of Trade Secrets
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CHAPTER VII
MISAPPROPRIATION OF TRADE SECRETS
The misappropria tion by one competitor of the tra de secrets
of another may give rise to combined antitrust/business tort
litigation, especially when the defendant is a dominant firm. As
demonstrated in Chapter I, although a ntitrust claims may arise
out of preda tory or exclusionary conduct, mere proof of tortious
conduct, standing alone, is insufficient to establish an antitrust
claim. Nonetheless, proof of such conduct may be evidence of
predator y intent, and may support punitive damages awards in
excess of the statutor y treble damages a llowed under the
antitrust laws. This chapter addresses the misappropriation of
confidential business information, or tra de secrets, by one
competitor from another. – Eds.
A. Introduction
State trade secret law is invoked to redress the misappropriation of
confidential business information that qualifies for protection from
misappropriation. Because forty-six states, along with the District of
Columbia and the U.S. Virgin Islands, have adopted some formulation of
the Uniform Trade Secrets Act,
1
this area of law is relatively consistent
1
. See David S. Almeling et. al., A Statistical Analysis of Trade Secret
Litigation in State Courts, 46 G ONZ. L. REV. 57, 75 (2011) (noting that 46
states, along with the District of Columbia and the Virgin Islands, have
enacted the Uniform Trade Secret Act in some form); RESTATEMENT
(THIRD) OF UNFAIR COMPETITION § 3 9, statutory note (1993) [hereinafter
RESTATEMENT (THIRD)] (listing states that have adopted the Uniform
Trade Secrets Act or a similar statute). In addition to civil liab ility,
misappropriation o f trade secrets also may give rise to criminal liability
under state and federal statutes. E.g., CAL. PENAL CODE § 499c
(prohibiting theft or unauthorized use of a trade secret, which is defined
in terms roughly identical to those in the Uniform Trade Secrets Act);
N.Y. PENAL LAW §§ 155.00, 155.30, 165.07 (making it a crime to steal or
misuse records or documents ref lecting “records of a scientific or
technical process, invention or formula or any part or phase thereof”);
wire fraud); National Stolen Property Act, 18 U.S.C. § 2314.
210 Business Torts and Unfair Competition Han dbook
throughout the country. In addition, the four remaining states—Texas,
New York, Massachusetts, and New Jersey—follow common law trade
secret principles that share core features with the Uniform Trade Secrets
Act.
2
The following discussion examines the principles generally
applicable to claims of trade secret misappropriation as reflected in the
Uniform Trade Secrets Act, corresponding state statutes, common law
jurisdictions, and the Restatement (Third) of Unfair Competition.
3
B. Purposes of Trade Secret Protection
Trade secret law is understood to advance a set of disparate policy
objectives, including upholding commercial ethics, encouraging
innovation, safeguarding privacy, and protecting property rights. The
Supreme Court endorsed the first three of these justifications in Kewanee
Oil Co. v. Bicron Corp.,
4
its most comprehensive treatment of state trade
secret law. Noting that “[t]he maintenance of standards of commercial
ethics and the encouragement of invention are the broadly stated policies
behind trade secret law,”
5
the Kewanee Oil Court also recognized, “[a]
most human fundamental right, that of privacy, is threatened when
industrial espionage is condoned or is made profitable.”
6
In addition,
courts routinely hold that trade secret law also functions to protect personal
property rights in confidential business information,
7
a conception of trade
2
. National Conference of Co mmissioners on Uniform State Laws, Uniform
Trade Secrets Act With 1985 Amendments, p.1 (stating that UTSA was
intended to codify “the basic principles o f common law trade secret
protection”), ava ilable at http://www.uniformlaws.org/shared/docs/
trade%20secrets/utsa_final_85.pdf.
3
. RESTATEMENT (THIRD), supra note 1 §§ 39-45.
4
. 416 U.S. 470 (1974).
5
. Id. at 481; see also Pioneer Hi-Bred Int’l v. Holden Found. Seeds,
35F.3d 1226, 1239 (8th Cir. 199 4) (noting that “trade secret law plays an
important role in regulating commercial behavior”).
6
. Kewanee Oil, 416 U.S. at 487 (citing Note, Patent Preemption of Trade
Secret Protection of Inventions Meeting Judicia l Standa rds of
Patenta bility, 87 HARV. L. REV. 807, 828 (1974); E. I. du Pont de
Nemours & Co. v. Christopher, 431 F.2d 1012, 1016 (5th Cir. 1 970)
(“Commercial privacy must be protected from espionage which could not
have been reasonably anticipated or prevented.”).
7
Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001-04 (1984); 767 Third
Ave. Assocs. v. United States, 48 F.3d 1 575, 1578 n.3 (Fed. Cir. 1995 );
Chicago Lock Co. v. Fanberg, 676 F.2d 400, 404 (9th Cir. 1982); Roy
Export Co. Establish ment v. Columbia Broad. Sys., 672 F.2d 1095, 1105
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