Even though trade secret rights are governed today almost entirely by statute (the Uniform Trade Secrets Act (UTSA) in every state except New York, and the federal Defend Trade Secrets Act [DTSA]), its operative principles are rooted in common law traditions of tort and the twin policy objectives of “maintenance of standards of commercial ethics and the encouragement of invention.” Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 481 (1974). Therefore, the Restatement (of Torts, from 1939, and of Unfair Competition, from 1995) can hold sway with courts even when they are engaged in statutory interpretation. For a quick review of how the law has developed through individual cases, take a look at my article, “Brief History.”
Here is a selection of those decisions, along with other resources, which have come out during (approximately) the past year and which I believe provide helpful guideposts about important aspects of trade secret law and practice.
Inspired by the Patent Case Management Judicial Guide, the Trade Secret Case Management Judicial Guide, was published in 2023 by the Federal Judicial Center and has now been distributed to all federal courts, providing judges and counsel with a comprehensive resource for managing trade secret litigation. Chapters are organized according to the stages of litigation and guided by an early case management checklist. The Guide has been cited and applied in a growing number of cases, encouraging a process of harmonization that is also driven by federal standards under the DTSA.
Counsel should also consider the efforts of The Sedona Conference Working Group 12 on Trade Secrets, a volunteer think tank of over 200 judges, attorneys and other professionals who have produced a series of commentaries representing consensus views on various aspects of intellectual property litigation. Because courts routinely cite to the Sedona Commentaries as authoritative, they represent a valuable resource. In addition to its existing publications, the organization is soliciting ideas for new commentaries on international trade secret enforcement, incident response plans, and issues affecting departing employees.
Most trade secrets are not absolutely secret, because modern business requires that they be shared with employees, vendors and other partners. Therefore, the issue is more about maintaining control over the information to keep it from becoming generally known. One of the more challenging, persistent questions is how to treat “compilations” of information, some aspects of which may be in the public domain, while the entirety of the combination remains unknown. The UTSA and the DTSA each include “compilation” in the non-exhaustive types of information that can be covered; and the Restatement (Third) of Unfair Competition, § 39, comment f teaches that even where individual elements are well known, a “secret combination, compilation, or integration” of those elements can qualify. This concept was elaborated in Allstate Ins. Co. v. Ameriprise Fin. Servs., 2023 U.S. Dist. Lexis144791 at *48 (N.D. Ill. Aug. 18, 2023), where the court analogized a combination secret to a recipe using known ingredients, since the “secret lies in how it all comes together – what to mix in, when, and how much;” and to a collection of Easter eggs, where individual eggs may not be protectable, but a “basketful” may be – “especially from a competitor hoping to avoid the hunt.”
Closely related to the concept of secrecy is the requirement that the trade secret owner exercise “reasonable efforts” (UTSA) or “reasonable measures” (DTSA) to protect the information. In effect, courts will not step in to help if the owner has failed to help itself with security measures that match the business risk. Occasionally, the failure is so obvious that it can result in summary judgment. For example, consider Jacam Chem. Co. v. Shepard, 101 F.4th 954, 965-966 (8th Cir. 2024), where the plaintiff had failed to designate materials as required under the parties’ contract, and there was no proof of an alleged “implied obligation within the industry to keep information secret.” See also Analog Technologies v. Analog Devices, 105 F.4th 13, 19 (1st Cir. 2024), where the license agreement’s time period for confidentiality had expired, leaving the defendant free to use the information.
On the other hand, the issue of whether the plaintiff’s efforts were “reasonable under the circumstances” is a fact question for the jury; therefore, in a case where the trade secret owner was a small company with basic access controls for its facility and its computer system, summary judgment was denied even though documents were not marked and the company had no security policies, no training, and no exit interviews. Consol. Indus. v. Maupin, 2023 U.S. Dist. Lexis 199032 at *26 (W.D. Tenn. Nov. 6, 2023). Finally, consider that some courts addressing the reasonable measures issue base their analysis on a short list of factors derived from the pre-UTSA common law (contractual restrictions, nature and extent of precautions, circumstances of disclosure, and degree of public disclosure.) See Koch Acton v. Koller, 2024 U.S. Dist. Lexis 44137 at *23 (W.D. Tenn. Mar. 13, 2024.
The DTSA as enacted by Congress did not contain any specific provision for extraterritorial application. But it did express strong congressional interest in curbing foreign theft of trade secrets. And since it was codified as part of the Economic Espionage Act of 1996, 18 U.S.C. §§ 1830-1839, plaintiffs could potentially rely on that law’s extraterritoriality provision in § 1837. But that section was expressed in typically criminal terms, with references to the “offender” and an “act in furtherance of the offence.” No matter, said the District Court in Motorola v. Hytera, 436 F.Supp.3d 1150 (N.D. Ill. 2020), ruling that the statute did apply where at least one act in furtherance of the misappropriation occurred in the United States That ruling was affirmed in Motorola v. Hytera, 108 F.4th 458, 487-488 (7th Cir. 2024), and its effect was reinforced in Beijing Meishe v. TikTok, 2024 U.S. Dist. Lexis 130213 at *34 (N.D. Cal. July 23, 2024), where the court held that an “act in furtherance” can consist of use in the United States, even when the misappropriation happened entirely outside the country.
One of the unique aspects of trade secret law, relative to other forms of intellectual property, is that the boundaries of the right are not specified in a government-issued grant. As a result, a preliminary – and usually consequential – question in every trade secret case is: what exactly is the information that’s being claimed as a trade secret? Often companies don’t maintain a thorough inventory of their information assets, and even if they have, the specific data involved in any given dispute is unlikely to have been described with precision before litigation begins. As a result, identification of the subject matter – and when and how to do it – has become a frequent early battleground in trade secret litigation.
While a general consensus has formed that categorical descriptions are sufficient for publicly-filed pleadings, the level of precision required to set the bounds of discovery, and later to prevail on a motion for summary judgment, can seem idiosyncratic. But the variations in outcomes can reveal opportunities for the plaintiff to draft its descriptions in ways that meet the reasonable expectations of most courts. For example, in Ho-Ho-Kus v. Shucharski, 2023 U.S. Dist. Lexis 201393 at *18 (D.N.J. Nov. 9, 2023), the court noted that “properly demarcated lists of categories of information meet the pleading standard [which is] one of notice, not of detail . . . . particularly if these lists are linked to the circumstances by which the information is stolen . . . .” See also Beijing Meishe v. TikTok, 2024 U.S. Dist. Lexis 130213 at *37 (N.D. Cal. July 23, 2024), approving of the complaint’s reference to “voluminous” source code listings contained in two specific documents.
The question of whether secrets are adequately described can in theory be revisited at any point in the litigation. For an extreme example of this risk, consider Zunum Aero v. Boeing, 2024 U.S. Dist. Lexis 144978 at *45-46 (W.D. Wash. Aug. 14, 2024), vacating a jury award based on insufficient identification, even though the plaintiff’s description had been approved for purposes of discovery and at summary judgment.
“Misappropriation” has to be defined broadly, in order to capture the myriad ways in which a plaintiff’s exclusive control over its sensitive information can be compromised. Therefore, the DTSA and UTSA extend to behaviors such as acquisition by “improper means,” violation of a duty of confidence, and misuse of information disclosed for a limited purpose. And “use” does not have to be comprehensive or direct; as the Restatement (Third) of Unfair Competition § 40, comment c instructs, “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’. . . .”
This generous meaning of “use” can be vexing to defendants who are accused of misappropriating a “combination” or “compilation” trade secret, which as noted above can include elements that are generally known. While it may not be possible to assert such a combination in which the only act of misappropriation pertains to an element in the public domain, liability can attach to a defendant who merely uses the secret compilation as a reference in pursuing its own development. Crabar/Gbf, Inc. v. Wright, 2023 U.S. Dist. Lexis 976 at *14 (D. Neb. Sep. 19, 2023).
In an era of digital communications, ubiquitous storage options, and remote work, there are bound to be opportunities for misappropriation, or what looks like misappropriation, by departing employees who abscond with information they were supposed to use only in their jobs. Generally speaking, employees who merely “retain” such information will not be liable. However, if an employee in anticipation of an imminent departure downloads a large amount of confidential information, that behavior – particularly if the employee removes it from the workplace – can constitute “acquisition by improper means,” since the information has been moved to an insecure location. Allergan v. Revance, 2024 U.S. Dist. Lexis 976 at *22-23 (M.D. Tenn. Jan. 3, 2024). Another example of improper acquisition arises when a public-facing website is scraped through deception, to discover the logic hidden behind it. Compulife Software v. Newman, 111 F.4th 1147, 1162-1163 (11th Cir. 2024).
Sometimes defendants make it easy to establish misappropriation, by deliberate spoliation of relevant evidence. See Ecolab v. Anthony Ridley, 2024 U.S. Dist. Lexis 94904 at *42-44 (E.D. Tenn. Mar. 12, 2024) (individual employee and new employer wiped devices).
Assuming trade secret misappropriation has occurred or is threatened, the question becomes what to do about it. In many cases, the urgency of avoiding continuing damage leads the plaintiff to request a preliminary injunction. But because that remedy is “extraordinary,” the requirements can be difficult to meet. One of those requirements is that the harm be proven “irreparable,” and when the plaintiff fails to point to “concrete evidence” showing that monetary relief would be insufficient, it is proper to deny the request. Tribal Sols. v. Valandra, 2023 U.S. App. Lexis 29539 at *7 (5th Cir. Nov. 6, 2023). Indeed, the requirements for this remedy are so exacting that a trial court’s failure to provide a robust analysis of the evidence can lead to reversal on appeal. Insulet Corp. v. EOFlow, 104 F.4th 873, 881 (2024). Relatedly, it may be appropriate to deny a permanent injunction for lack of proof following trial in which the jury has awarded significant damages, as in trade secret law there is no presumption of irreparable harm. Versata Software v. Ford Motor Co., 2023 U.S. Dist. Lexis 188219 at *11 (E.D. Mich. Oct. 19, 2023).
Where a jury finds that misappropriation has occurred but declines to award damages because the plaintiff has not suffered harm, the court may grant a permanent injunction and also award fees to the plaintiff, because harm to the trade secret owner is not an element of the claim. Applied Medical Distribution v. Jarrells, 100 Cal.App. 5th 566, 570 (Cal.App. 2024) (applying California version of the UTSA).
Because trade secret law has traditionally been viewed through a tort lens, the tendency is to be “flexible and creative” in fashioning monetary remedies. However, damage claims must be based on admissible evidence and reliable analysis, so summary judgment may be entered where the plaintiff’s lost profits theory is based on “two layers of speculation.” TransPerfect v. Lionbridge, 2024 U.S. App. Lexis 1053 at *9-10 (2nd Cir. Jan. 17, 2024) (unpublished).
As with all other elements necessary to the claim, the burden of proof on damages remains with the plaintiff throughout, and that includes proximate causation, such as that the defendant’s sales were “attributable to the trade secrets;” therefore it is improper to require the defendant to demonstrate what portion of its proven sales were not so attributable. Pegasystems v. Appian, 2024 Va.App. Lexis 438 at *54-56 (Va. July 30, 2024).
A different kind of apportionment was the focus of Echospan v. Medallia, 2024 U.S. Dist. Lexis 127259 at *23-25 (N.D. Cal. July 2, 2024), where the plaintiff’s asserted multiple trade secrets but failed to apportion its damage claim among them. Therefore, when the jury found misappropriation as to only some of the enumerated secrets, the resulting verdict was set aside as without foundation. This case illustrates a basic tension between the imperative to identify alleged secrets with particularity and the need to provide a rational path to a verdict when only some have been misappropriated.