FORT LAUDERDALE BUSINESS LITIGATION: THIRD-PARTY TRADE SECRET LIABILITY

It is important for businesses to protect their trade secrets to prevent their misappropriation. But sometimes, a business’s trade secrets are stolen despite the business’s best efforts to protect them. For example, an employee may steal his employer’s trade secrets and start a competing business or provide the secret to an already established competing business. The business will presumably want to commence litigation against the former employee and the competitive business to stop the misappropriation and recover damages resulting from the improper use of its trade secrets. A fundamental question arising from this common fact pattern will likely be, how does the business prove the competing entity knew the trade secret was improperly misappropriated? The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

To prove a claim of trade secret misappropriation under the Defend Trade Secrets Act (DTSA), a plaintiff must prove the following elements:

(1) the plaintiff owned a trade secret;

(2) the defendant misappropriated the trade secret; and

(3) the defendant’s actions damaged the plaintiff.

See, e.g., Alta Devices, Inc. v. LG Electronics, Inc., 343 F. Supp. 3d 868 (N.D. Cal, Oct. 17, 2018). The misappropriation element requires knowledge on the part of the defendant. “Misappropriation” of a trade secret means the “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 mean” or the “disclosure or use of a trade secret of another without express or implied consent” if, among other things, the person “knew or had reason to know that the knowledge of the trade secret was . . . acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret.” 18 U.S.C. § 1839(A)–(B).

An employer may be held liable for its employee’s trade secret misappropriation if the employer was actually informed that the trade secrets were misappropriated from the employee’s former employer. The U.S. Ninth Circuit Court of Appeals held that an agent’s knowledge regarding a trade secret is not imputed to the principal absent evidence that the agent actually informed the principal about the trade secret. See Droeger v. Welsh Sporting Good Corp., 541 F.2d 790 (9th Cir. 1976). This case suggests an employee will not impute misappropriation knowledge to its employer unless the employee actually informed the employer about the misappropriation.

The calculus is different when a former employee starts a rival business using her former employer’s misappropriated trade secrets. These circumstances are more likely governed by Fujikura Composite Am., Inc. v. Dee, 2024 WL 3261214 (S.D. Cal., June 28, 2024). In Fujikura, an employee of a golf shaft manufacturer left and started a competitive golf shaft company. The employee’s competitive company then began producing golf shafts using the trade secrets of the golf shaft manufacturer. The manufacturer sued for trade secret misappropriation and an issue arose as to whether the employee’s company had knowledge of the trade secret misappropriation. The court found that it did because the former employee was the founder of the company. Therefore, the former employee’s knowledge was imputed to the company. Additional case authorities support a similar analysis. See, ESG Cap. Partners, LP v. Stratos, 828 F.3d 1023 (9th Cir. 2016) (holding that managing partner’s knowledge that deal was fraudulent is imputed to the company); Beluca Ventures LLC v. Einride Aktiebolag, 660 F. Supp. 3d 898, 911 n.8 (N.D. Cal., March 10, 2023) (holding that a managing partner’s knowledge regarding his obligation to maintain the confidentiality of trade secrets could be imputed to the company); Climax Portable Maching Tools, Inc. v. Trawema, 2021 WL 1396625 (D. Oregon, March 22, 2021) (same).

Trade secret litigation is complex. It is important to know who to sue and how to prove knowledge on the part of the person(s) misappropriating the trade secret. Depending on the circumstances, the knowledge of the person who misappropriated the trade secret could be imputed to a subsequent business using the trade secret.

The Fort Lauderdale business litigation lawyers of the Mavrick Law Firm also represent clients in Miami , Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.