What Is 'Misappropriation' of a Trade Secret?

• Author: Joanna H. Kim-Brunetti - Jeffrey K. Riffer - Gregory S. Bombard - Emily J. Friedman
• Pages: 29-50

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CHAPTER 2

What Is

“Misappropriation”

of a Trade Secret?

Generally speaking, trade secret “m isappropriation” is either (1) the

acquisition of a trade secret by improper means or (2) the unauthor-

ized disclosure or use of a trade secret. See, e.g., UTSA § 1(2);1 Ajaxo

Inc. v. E*Trade Group, Inc., 37 Cal. Rptr. 3d 221, 255 (Cal. Ct. App. 2005);

Liebert Corp. v. Mazur, 827 N.E.2d 909, 925 (Ill. App. Ct. 20 05). Accord

RESTATEMENT (FIRST) OF TORT S

§ 757 (1939);2

RESTATEMENT (THIRD) OF UN FAIR

COMPETITION

§ 40 (1995).

I. A Trade Secret Is Misappropriated

When Acquired by Improper Means

The federal Defend Trade Secrets Act (DTSA) expanded the definition

of misappropriation under the Economic Espionage Act (EEA) to bring

the definition further in line with t hat provided in the Uniform Trade

Secrets Act (UT SA). According to the House Report, “The Committee

intentionally used this established definition to make it clear that this

Act is not intended to alter the balance of current trade secret law

or alter specific court decisions.”

HOUSE OF REPRES ENTATIVES, REP ORT NO

.

114-529 at 14 (Apr. 26, 2016).

Section 1(1) of the UTSA defines misappropriation as follows:

I. Acquisition of a trade secret of another by a person who

knows or has reason to know that the trade secret was

acquired by improper means; or

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Guide to Protecting and Litigating Trade Secrets

30

II. Disclosure or use of a trade secret of another without express

or implied consent by a person who—

a. Used improper means to acquire knowledge of the trade

secret;

b. At the time of disclosure or use, knew or had reason to

know that the knowledge of the trade secret was—

i. Derived from or through a person who had used

improper means to acquire the trade secret;

ii. Acquired under circumstances givin g rise to a duty

to maintain the secrecy of the trade secret or limit

the use of the trade secret; or

iii. Derived from or through a person who owed a duty

to the person seeking relief to maintain the secrecy

of the trade secret or limit the use of the trade secret;

or

c. Before a material change of the position of the person,

knew or had reason to know that—

i. The trade secret was a trade secret; and

ii. K nowledge of the trade secret had been acquired by

accident or mistake.

The UTSA defines “improper means” by providing exa mples:

“‘Improper means’ includes theft, bribery, misrepresentation, breach

or inducement of a breach of a duty to maintain secrecy, or espio-

nage through electronic or other means.” UTSA § 1(1). The list is not

intended to be exclusive. UTSA § 1 cmt.3 These “improper mea ns”

share some common characteristics: they typically constitute inten-

tional misconduct and involve some degree of stealth, deception or

trickery. They do not, however, need to be unlawful. An example of

otherwise lawful conduct that is improper under the facts of a par-

ticular case is provided in the UTSA’s comments: “an airplane over-

flight used as aerial reconnai ssance to determine the competitor’s

plant layout during construction of the plant.” Id. (citing E.I. duPont

deNemours & Co., Inc. v. Christopher, 431 F.2d 1012, 1015 (5th Cir. 1970)).

See also

RESTATEMENT (FIR ST) OF TORTS

§ 757 cmt. f (“A complete catalog

of improper means is not possible. In general, they are means which

fall below the generally accepted standards of commercial morality

and reasonable conduct.”).

Some state statutes embroider upon the UTSA’s definition of

“improper means.” In Connecticut, searching through trash qualif ies

as an “improper means.”

CONN. G EN. STAT

. § 35-51. Nevada and South

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