FORT LAUDERDALE BUSINESS LITIGATION:TRADE SECRET MISAPPROPRIATION VIA “SUBSTIANTIAL DERIVATION”

Under Florida law, a trade secret means information not commonly known by or available to the public, which derives economic value from not being generally known to or ascertainable by proper means by others who can obtain economic value from the information, and that was subject to reasonable efforts to maintain its secrecy. Florida’s trade secret statute, at Florida Statutes section 688.002(2), states that a defendant “misappropriates” a trade secret when, among other things, it discloses or uses “a trade secret of another without express or implied consent” knowing at the time of the disclosure or use that the trade secret was “[a]cquired under circumstances giving rise to maintain secrecy or limit its use.” To prove the trade secret was acquired in a manner that imposed a duty of secrecy on the receiving party, businesses often use confidentiality or non-disclosure agreements to clarify, in writing, the obligations of the receiving party. The United States Court of Appeals for the Eleventh Circuit, in Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1284 (11th Cir. 2003), explained that a non-disclosure agreement can be the basis for imposing a duty not to disclose a trade secret. The Penalty Kick decision explained that “a defendant is liable for misappropriation of a trade secret only if the plaintiff can show that the defendant (1) disclosed information that enabled a third party to learn the trade secret or (2) used a ‘substantial portion’ of the plaintiff’s trade secret to create an improvement or modification that is ‘substantially derived’ from the plaintiff’s trade secret.” By contrast, if the defendant independently created the allegedly misappropriated item with only “slight” contribution from the plaintiff’s trade secret, then the defendant is not liable for misappropriation. Peter Mavrick is a Fort Lauderdale business litigation attorney. The Mavrick Law Firm represents 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 law, and other legal disputes in federal and state courts and in arbitration.

The Restatement (Third) of Unfair Competition, section 40, at Comment c (1995), summarizes a well-established body of law concerning a defendant’s liability for trade secret misappropriation based on substantial derivation from the original trade secret. The Restatement explains in pertinent part: “As a general matter, any exploitation of the trade secret that is likely to result in injury to the trade secret owner or enrichment to the defendant is a ‘use’…. Thus, marketing goods that embody the trade secret, employing the trade secret in manufacturing or production, [and] relying on the trade secret to assist or accelerate research or development … all constitute ‘use.’ The unauthorized use need not extend to every aspect or feature of the trade secret; use of any substantial portion of the secret is sufficient to subject the actor to liability…. [A]n actor is liable for using the trade secret with independently created improvements or modifications if the result is substantially derived from the trade secret…. However, if the contribution made by the trade secret is so slight that the actor’s product or process can be said to derive from other sources of information or from independent creation, the trade secret has not been “used” for purposes of imposing liability under the rules.”

Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.