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Trade Secrets: Misappropriation

    Part of the public policy rationale that underpins trade secret law is "the maintenance of standards of commercial ethics" (see Kewanee Oil Co. v. Bicron Corp.(USSC 1974)). In other words, the interest is in providing protection from unfair competition. The UTSA defines misappropriation as follows:

    (2) "Misappropriation" means:

    (i) 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 means; or

    (ii) disclosure or use of a trade secret of another without express or implied consent by a person who
    (A) used improper means to acquire knowledge of the trade secret; or
    (B) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was (I) derived from or through a person who had utilized improper means to acquire it; (II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
    (C) before a material change of his [or her] position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

    The UTSA defines "improper means" as including: bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. This definition loosely defines  "improper means" because a more rigorous taxonomy would be too broad to be of any practical value. However, notes from section of 757 of the Restatement (Second) of Torts provide some insight by attempting to illustrate what is considered to be "proper."

    Proper means include:

    1. Discovery by independent invention;

    2. Discovery by "reverse engineering", that is, by starting with the known product and working backward to find the method by which it was developed. The acquisition of the known product must, of course, also be by a fair and honest means, such as purchase of the item on the open market for reverse engineering to be lawful;

    3. Discovery under a license from the owner of the trade secret;

    4. Observation of the item in public use or on public display;

    5. Obtaining the trade secret from published literature.

    It should be noted that improper conduct does not necessarily imply illegal conduct.  It may include otherwise lawful conduct which is improper under the circumstances; e.g., an airplane overflight used as aerial reconnaissance to determine the competitor's plant layout during construction of the plant. E. I. du Pont de Nemours & Co., Inc. v. Christopher (5th Cir. 1970).

    The theft of trade secrets in the form of economic espionage is big business. Some estimates place that annual loss north of 250 billion annually. A majority of the Fortune 500 are on record as having been victimized, and this number obviously excludes those reticent to make such admissions publicly. In the fast paced innovative business environment of the Web, what an organization knows is valuable. Online businesses of all sizes have trade secrets that are worth protecting, from the niche retail Realtor to Amazon.com.

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