USA Law and Practice Contributed by: Claudia Ray, Joseph Loy, Josh Berlowitz and Andrew (Keum Yong) Lee, Kirkland & Ellis LLP
a trade secret exists, despite having adopted a vari - ation of the UTSA. To prevail on a claim for trade secret misappropria - tion in New York, a claimant must prove that (i) they own a trade secret, and (ii) the defendant used the trade secret by breaching an agreement, confidential relationship or duty, or through discovery by improper means ( Faiveley Transp. Malmo AB v Wabtec Corp , 559 F.3d 110, 117 (2d Cir. 2009)). Ownership Who can “own” a trade secret To bring a trade secret action, one must typically be an “owner” of the trade secret. The DTSA defines a trade secret owner as “the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed” (18 U.S.C. Section 1839 (4)). Various states that have adopted the UTSA similarly define trade secret owners. Such a definition may enable both the creator of a trade secret and any assignees or licensees that have rightful possession of the trade secret to bring trade secret misappropriation claims – eg, BladeRoom Group Ltd v Facebook , Inc 219 F. Supp. 3d 984, 990-91 (N.D. Cal. 2017). Ownership issues may arise in the context of employ - er-employee relationships where a trade secret was developed by the employee. Many employment con - tracts provide for the assignment of such trade secrets to the employer under the “work for hire” doctrine. However, states vary in the presumption of assign - ability of trade secrets developed by employees, and the “work for hire” doctrine may be limited to cover only those trade secrets that were developed through work performed (i) by the employee for the employ - er or (ii) using the employer’s information or equip - ment – eg, Gas Prods. Corp v BTU Mktg., LLC , 2017 WL 4222619, at *6 (D. Colo. Sept. 22, 2017) (despite agreeing “an individual hired to design or develop a trade secret does not own it”, finding genuine dispute of material fact over who owned customer list trade secret because Plaintiff “was not hired to find custom - ers; it was hired to sell [Defendants’] products”). Although ownership is a common element of most state and federal claims, recent trends suggest a claimant may be able to bring a claim for misappro -
priation under some state trade secret laws where the claimant only demonstrates lawful possession of the trade secret – for example, see Univ. of Tennessee Rsch. Found. v Caelum Biosciences, Inc , 2024 WL 4101911, at *5 (E.D. Tenn. Aug. 7, 2024); Adv Fluid Sys, Inc v Huber, 958 F.3d 168, 177–78 (3d Cir. 2020). 1.5 Reasonable Measures Trade secret owners must generally show that they took reasonable measures to protect their trade secrets. Examples of reasonable measures include: • warning employees and third parties about the confidential nature of the information through, for example, confidentiality agreements, confidentiality designations on documents, employee training or trade secret policies in an employee handbook; • password protections and electronic firewalls; • physically locking confidential information; • restricting access to physical and electronic areas where trade secrets are stored; and • minimising the number of people that learn the trade secret. 1.6 Disclosure to Employees An employee has an implied duty not to disclose an employer’s trade secret. Disclosing a trade secret to an employee who cannot perform their job without knowledge of the trade secret does not destroy the trade secret. If, however, the trade secret is further disclosed to employees who do not need to know it to perform their jobs, and precautions are not taken to protect the confidentiality of the trade secret, then there may be a risk that trade secret protection will be lost. 1.7 Independent Discovery Trade secret protection cannot be used against a party who independently discovered or reverse engineered the alleged trade secret ( Insulet Corp v EOFlow, Co , 104 F.4th 873, 881 (Fed. Cir. 2024) (citing 18 USC Section 1839 (6)(B))). In other words, trade secret misappropriation, unlike patent infringement, is not a “strict liability” offence. Misappropriation would not lie against an independent developer, in part because there was no acquisition from the trade secret owner (nor from another party with an obligation to the trade secret owner).
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