Trade Secret Misappropriation

Misappropriation can occur when a confidential relationship is breached. If someone receives information under NDA and then reveals this information to others, he violates the NDA and so is guilty of misappropriation of the trade secret information. But breach of confidentiality can also occur even if no NDA was signed.

What actually is misappropriation?
Misappropriation covers illegal acts, such as wiretapping or theft. But also improper acts that might strictly speaking legal can qualify as misappropriation.

Someone who misappropriated a trade secret is liable for damages. Also, the owner of the information can apply for an injunction to stop him from using the information. The misappropriation may have resulted in loss of the trade secret status. Then an injunction is often limited in time to the "lead time" obtained by the misappropriator. That is, the court tries to determine how long it would have taken to independently come up with the same information, and forbids the misappropriator to use trade secret information for that period.

Trade secret protection does not extend to someone who obtained the same information from another source. A customer list may qualify as a trade secret, but a competitor may have compiled the same list independently for example, if the number of potential customers is limited.

Also, the information could have been obtained from a public source, which means that no trade secret misappropriation occurred. This applies also if the information can be derived from a product sold by the information owner, unless the product was sold under NDA.

The circumstances might make it clear that a confidential relationship exists. For example, a contractor who is asked to submit a quotation to build a certain product should normally consider the information regarding the product to be confidential. At the same time, the person soliciting the quotations should know that these quotations should be kept confidential. Knowing the quotations of his competitors enables a contractor to lower his price to have a bigger chance of getting the contract.

For example, in a famous US lawsuit on trade secret theft, a chemical company was building a plant in which a secret process was to be used. At some point during the construction it was possible to look through the roof to see details of the process. A competitor hired a small plane to fly over the plant and took photos. Although flying over someone's property is not trespassing, this act was still held to qualify as misappropriation because it was performed explicitly for the purpose of circumventing the precautions taken by the chemical company to protect its secret process.

If in the meantime a lot of different people have legitimately acquired the protected knowledge, the court is less likely to award an injunction. The only remedy then is a compensation for the damages suffered by the loss of trade secret status. These damages can be computed as the profit made by the misappropriates.

Trade secrets are protected against misappropriation, the unauthorized taking or copying of trade secret information. Misappropriation usually is a tort and can under certain circumstances be a criminal act.