What is Misappropriation of a Trade Secret?

A “trade secret” is confidential business information that gives its owner a competitive economic advantage over competitors.  Trade secrets are typically formulas, consumer profiles, patterns, programs, methods, techniques, or processes unknown to the public world. In order to meet the basic definition of a trade secret, it must be used and known only to a particular business, reasonably guarded, and difficult for others to acquire or duplicate.  The secret recipe to make Coke or the methods and programs used to make an IPhone are two obvious examples.

Understanding “trade secrets” also helps explains why it is so important to keep them secret and why there are laws to help businesses do that.  In California, the theft or improper use of trade secrets is known as “misappropriation”. Misappropriation refers to someone’s acquisition of a trade secret when that source knows or should have known that the trade secret was acquired through illegal means such as theft or bribery. Therefore, even if a company did not actually know they were using improperly acquired trade secrets, they can still be prosecuted if they reasonably should have known.

A recent court ruling on trade secrets determined that a collection of public information can become a protectable trade secret if a privately-owned process is used to collect and bundle that information. In United States v. Nosal, David Nosal was a regional director at the global executive search firm Korn/Ferry International. He had access to the firm’s internal database called “Searcher”. After announcing that he was leaving the firm, he agreed to stay on for an extra year.  During that time, he, along with several other employees, downloaded information from “Searcher” to later use for their own competing firm. The database had information on approximately a million executives, and while much of this information was public, the database coded the information so that employees could run specific searches for candidates.

While Nosal argued that he had done nothing wrong since he was taking already public information, the Ninth Circuit Court explained that the compilation of data in a concise, specific way was itself a trade secret and was therefore protected under the Uniform Trade Secrets Act. See United States v. Nosal, 676 F.3d 854 (9th Cir. 2012).

Trade secrets can be the deciding factor between a business’s success and failure.  If you believe someone is misappropriating your trade secret, you should consult an intellectual property attorney to learn your rights.