Misappropriation of Trade Secrets

Trade secret theft has also become a very common dispute in recent times. Commonly referred to as "theft" or "misappropriation", the Uniform Trade Secrets Act ("UTSA") defines Misappropriation as follows:

(2) (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 has 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 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 further defines a trade secret as the following:

(4) "Trade secret" means information, including a formula, pattern, compilation, program device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from no being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Software programs clearly contain many trade secrets. By using the software of another party without proper authorization or providing it to third parties for modification without consent of the owner, a company may misappropriate the trade secrets inherent in the product. As such, many disputes involve issues of copyright infringement, trademark infringement and misappropriation of trade secrets.

Damages for Misappropriation.

Statutory damages for misappropriation include both the actual loss caused by the misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In an instance in which willful and malicious misappropriation exists, a court may award exemplary damages in an amount double the actual loss as well as attorney's fees for the cost of pursuing the action. Such conduct may also constitute an unfair and deceptive act under Mass. Gen. Law c. 93A entitling a party to treble damages and attorney's fees. See Mass. Gen. Law c. 93A, Section Two.

In addition, under Massachusetts law, misappropriation occurs wherever the party uses the information afforded by the trade secret without the permission of the owner. Jet Spray Cooler, Inc. v. Crampton, 377 Mass. 159, 166 (1979). Damages for the misappropriation of trade secrets under Massachusetts law include full compensation for lost profits as well as the profits realized by the use of the information by the misappropriating party. Jet Spray Cooler, Inc. v. Crampton, 377 Mass. 159, 169 (1979); National Merchandising Corp. v. Leyden, 370 Mass. 425 (1976).

In addition, the Commonwealth also provides for criminal penalties for willful and/or knowing trade secret theft. In pertinent part, Mass. Gen. Law c. 266, Section 30(4) provides as follows:

Whoever steals, or with intent to defraud obtains by a false pretense, or whoever unlawfully, and with intent to steal or embezzle, converts, secretes, unlawfully takes, carries away, conceals or copies with intent to convert any trade secret of another, regardless of value, whether such trade secret is or is not in his possession at the time of such conversion or secreting, shall be guilty of larceny, and shall be punished by imprisonment in the state prison for not more than five years, or by a fine of not more than twenty-five thousand dollars and imprisonment in jail for not more than two years. The term "trade secret" as used in this paragraph means and includes anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement.

As you can see, disputes involving misappropriation of trade secrets involves some very serious issues. One should always consult a competent Intellectual Property attorney before taking any action.

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