What is Trade Secret Misappropriation?

C. Mitchell
C. Mitchell
Businessman with a briefcase
Businessman with a briefcase

A trade secret is an intellectual property right that protects confidential business information in some circumstances. When trade secrets are violated or abused, they are said to be misappropriated. The specific contours of trade secret misappropriation vary by jurisdiction, but most of the time, proving the crime requires three showings. A business must prove that it did, in fact, own a trade secret, and must then prove that the trade secret was wrongfully taken by a third party. Finally, the business must convince the judge or jury that the third party used that trade secret to his or her economic advantage.

Unlike the typical intellectual properties, namely patents, trademarks, and copyrights, trade secrets are rights created by common law, not by statute in most jurisdictions. This means that the definition of what a trade secret actually is, as well as the punishment for trade secret misappropriation, is typically a matter of local intellectual property law. No jurisdictions have defined trade secret acts the way that many have trademark acts or copyright acts.

The United States came close, however, with the model Uniform Trade Secrets Act, or UTSA. The UTSA is a model law drafted in the mid-1980s by the National Conference of Commissioners on Uniform State Laws, a volunteer legal advisory committee. Nearly all states have codified some version of the UTSA. Neither the UK nor Canada has anything similar, though each of these countries has an active body of precedential case law that judges apply when considering trade secret cases.

Although there is a bit of flexibility with how individual jurisdictions prosecute and punish trade secret misappropriation, the definition of trade secret misappropriation is more or less universal. Misappropriation occurs when someone deliberately and wrongfully takes the trade secret of another, and uses that trade secret information to better his or her own economic situation. In this respect, trade secret misappropriation is often treated by the courts as an unfair competition claim.

The value of a trade secret is usually its proprietary nature. Most of the time, trade secrets are confidential business information that is in some way essential to how the business operates. Business plans, marketing strategies, and even client lists can be trade secrets in the right circumstances. The key is often whether or not the confidential information has some definable value such that its possession by a competitor could be economically damaging.

Proving trade secret misappropriation usually requires more than simply showing economic harm, however. Usually, the company must also prove that its trade secrets were really secret: that is, that the company took proactive measures to protect its information. Misappropriation is usually only punishable when it involves some deceit, fraud, or contract breach on the part of the misappropriating party.

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