FORT LAUDERDALE BUSINESS LITIGATION: TRADE SECRET MISAPPROPRIATION VS. REVERSE ENGINEERING

The Defend Trade Secrets Act and similar state statutes create a civil cause of action for misappropriating another’s trade secrets. 18 USC § 1836 (“An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.’). A trade secret owner desiring to bring a trade secret lawsuit against another must plead and prove it owns the trade secret and the defendant misappropriated that trade secret. dmarcian, Inc. v. dmarcian Europe BV, 60 F. 4th 119 (4th Cir. 2023). However, every acquisition of another’s trade secret does not constitute misappropriation. In Sunjoy Indus. Grp., Ltd. v. Permasteel, Inc., 2023 WL 406211 (S.D. Ohio Jan. 25, 2023), the court determined the defendant did not misappropriate the plaintiff’s cooler design because the coolers were sold on the public market. This allowed the defendant to purchase the cooler, reverse engineer its components, and ascertain the cooler’s important design elements. These types of actions do not usually qualify as trade secret misappropriation. ECIMOS, LLC v. Carrier Corp., 971 F. 3d 616 (6th Cir. 2020) (“Matters of public knowledge or general knowledge in the industry or ideas which are well known or easily ascertainable, cannot be trade secrets. Similarly, matters disclosed by a marketed product cannot be secret.”). 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.

When does an act relating to the acquisition of another’s trade secret qualify as trade secret misappropriation? Under the statute, misappropriation occurs when the person acquiring the secret “knows or has reason to know that the trade secret was acquired by improper means.” 18 USC § 1836. Improper means has been defined to include theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means.” 18 USC § 1839. However, the definition excludes reverse engineering, independent derivation, or any other lawful means of acquisition. Despite these exclusions, it is clear “improper means” is broader than unlawful conduct. E. I. duPont deNemours & Co. v. Christopher, 431 F. 2d 1012 (5th Cir. 1970). (“Unless the holder voluntarily discloses the trade secret or fails to take reasonable precautions to ensure its secrecy, even otherwise lawful activity can constitute misappropriation.”). “A complete catalogue of improper means is not possible[, but i]n general[,] they are means which fall below the generally accepted standards of commercial morality and reasonable conduct. Restatement (First) of Torts § 757 (1939).

To illustrate this point, consider E. I. duPont deNemours & Co. v. Christopher, 431 F. 2d 1012 (5th Cir. 1970). In duPont, the plaintiff claimed the defendant misappropriated its trade secret plant by taking aerial photographs of the plant while it was being constructed. The defendant moved to dismiss the lawsuit by arguing their actions did not qualify as misappropriation. However, the appellate court disagreed under the commercial moral theory. The “proper means of gaining possession of a competitor’s secret process is through inspection and analysis of the product in order to create a duplicate.” The court reasoned that:

One may use his competitor’s secret process if he discovers the process by reverse engineering applied to the finished product; one may use a competitor’s process if he discovers it by his own independent research; but one may not avoid these labors by taking the process from the discoverer without his permission at a time when he is taking reasonable precautions to maintain its secrecy. To obtain knowledge of a process without spending the time and money to discover it independently is improper unless the holder voluntarily discloses it or fails to take reasonable precautions to ensure its secrecy.   

The authorities discussed above demonstrate the importance of knowing where the line is between reverse engineering another’s product or service and misappropriating that product or service. The line between reverse engineering and misappropriation can be blurred quickly. Therefore, it is important to consult legal counsel before taking action.  

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.