What Is -Misappropriation- of a Trade Secret?

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CHAPTER 2

What Is

“Misappropriation”

of a Trade Secret?

Generally speaking, trade secret “misappropriation” is either

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

unauthorized disclosure or use of a trade secret. See, e.g., UTSA

§ 1(2);1Ajaxo 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). AccordRestatement (First) of Torts § 757 (1939);2

Restatement (Third) of Unfair Competition § 40 (1995).

I. A Trade Secret Is Misappropriated When

Acquired by Improper Means

The Uniform Trade Secrets Act (UTSA) defines “improper means”

by providing examples: “ ‘Improper means’ includes theft, brib-

ery, misrepresentation, breach or inducement of a breach of a

duty to maintain secrec y, or espionage through electronic or ot her

means.” UTSA § 1(1). The list is not intended to be exclusive. UTSA

§ 1 cmt.3 These “improper means” share some common charac-

teristics: they typically constitute intentional 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 particular case is

provided in the UTSA’s comments: “an airplane overflight used as

aerial reconnaissance to determine the competitor’s plant layout

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Guide to Protecting and Litigating Trade Secrets

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

& Co., Inc. v. Christopher, 431 F.2d 1012, 1015 (5thCir. 1970)). See also

Restatement (First) 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 quali-

fies as an “improper means.” Conn. Gen. Stat. § 35-51. Nevada

and South Carolina have added to the statutory definition “willful

breach or willful inducement of a breach of a duty imposed by

common law, statute, contract, license, protective order or other

court or administrative order.” Nev. Rev. Stat. § 600A.030; S.C.

Code § 39- 8-20. In Alaba ma, the defi nition of “imp roper means ” is

augmented with “trespass” and

[o]ther deliberate acts taken for the specific purpose of gain-

ing access to the information of another by means such as

electronic, photographic, telescopic or other aids to enhance

normal human perception, where the trade secret owner rea-

sonably should be able to expect privacy.

Ala. Code § 8-27-2.

Case law also fleshes out specific types of conduct held to con-

stitute “improper means”:

• paying kickbacks to a competitor’s employee, Liberty Power

Corp. v. Katz, 2011 WL 256216, at *5 (E.D.N.Y. Jan. 26, 2011)

• fraudulently inducing a competitor’s salesman to disclose

trade secrets by posing as a potential customer, Continental

Data Sys., Inc. v. Exxon Corp., 638 F. Supp. 432, 442-43 (E.D.

Pa. 1986)

• misrepresenting an intent to compensate the owner of a

secret prior to using or disclosing it, G.M. Pusey and Assocs.,

Inc. v. Britt/Paulk Ins. Agenc y, Inc., 2008 W L 2003747, at *9 (D.

Md. May 6, 2008)

• physically removing paper files without authorization, TIE

Sys., Inc. v. Telcom Midwest, Inc., 560 N.E.2d 1080, 1085-86

(Ill. App. Ct. 1990)

• copying an employer’s electronic files to a CD and then

erasing them, LeJeune v. Coin Acceptors, Inc., 849 A.2d 451,

456-57 (Md. Ct. App. 2004)