Defenses & Remedies
Reverse engineering is the process of taking apart an object in order to learn how to reproduce it. More formally, we might say that to reverse engineer is to extract information from a thing that is man-made, where the extraction usually involves disassembly of the thing, in order to duplicate the thing. Discovery of a trade secret through the process of reverse engineering is permissible.
A person may independently create or discover the information that another holds as a trade secret. Trade secret law does not impose strict liability (unlike patent law).
Public disclosure of information held as a trade secret destroys the trade secret. A defendant is not liable for misappropriation if there has been a public disclosure of the trade secret prior to the alleged incident of misappropriation (assuming that the defendant is not responsible for that public disclosure). Such disclosure may occur by a third party—even if that third party is himself committing a misappropriation (for which the third party will be held responsible). Or public disclosure may occur by the trade-secret owner herself.
The UTSA and the DTSA provide for both injunctive and monetary remedies where a defendant has misappropriated a trade secret.
Injunctive relief is appropriate in the situation of “actual or threatened misappropriation.” An injunction must terminate when the trade secret ceases to exist. If a court determines that prohibition of the defendant’s trade-secret use would be unreasonable, the court may impose a “reasonably royalty”—not to exceed the time for which the court could have enjoined the use.
A court may award damages either in lieu of, or in addition to, injunctive relief. Damages are calculated according to the plaintiff’s actual loss caused by the misappropriation (the DTSA includes “reasonable royalty” as a measurement for damages). Damages may include an amount for unjust enrichment, in addition to actual loss. A court may award exemplary damages where misappropriation is willful and malicious. Exemplary damages may not exceed twice the amount of damages otherwise awarded. A court may award attorney’s fees to the prevailing party where the opposing party has acted in bad faith either by: (i) claiming misappropriation; (ii) moving to terminate an injunction; or (iii) misappropriating the trade secret willfully and maliciously.
Sherry creates a sophisticated widget, using a process that she owns as a trade secret. She sells the widgets to the public. Bill steals a widget from her office, takes apart the widget, and discovers how to make it.
Question: Has Bill misappropriated Sherry’s trade secret?
Gus has invented a synthetic material for strengthening steel. The ingredients of the formula are a trade secret (owned by Gus). Marshall learns of the synthetic material and its quality of strengthening steel. He tries to invent a similar material. After two years of experimentation, Marshall succeeds, inventing the very same material, using the very same formula that is procted as a trade secret. Marshall starts selling the material in competition with Gus.
Question: Has Marshall misappropriated the trade secret?
Mike has obtained Kathy’s trade secret, a process for manufacting widgets, through improper means. Specifically, Mike bribed an employee of Kathy to disclose the process. Mike then posted the information to his website about innovative techniques for running businesses. BIG BUSINESS INC. (BBI) sees the information on Mike’s website. BBI then proceeds to use the process.
Question: Is BBI liable for misappropriating Kathey’s trade secret?
Answer to Question 3
No. Mike made a public disclosure of the trade secret. Although Mike is liable for misappropriation, BBI learned of the information through the public disclosure. BBI did not use any improper means for leaning the information, so BBI did not misappropriate it.
Answer to Question 2
No. Independent development is not a misappropriation. Although Marshall learned of the material, he did not acquire the formula to make the material through any improper means. Rather, he independently attempts to discover the formula and he succeeds.
Answer to Question 1
No. Although Bill has committed a theft of the widget, he has not acquired the protected information through theft. Rather, Bill acquired the protected information by reverse engineering the widget. Revese engineering is not a misappropriation.