When competitors steal your confidential business information, the consequences can be devastating. Years of research and development, carefully cultivated customer relationships, or proprietary processes that give you a market edge can be compromised in an instant. Trade secret misappropriation claims provide legal remedies to stop the theft, recover damages, and hold wrongdoers accountable. Understanding how to pursue these claims effectively helps businesses protect their most valuable intangible assets.
What Constitutes Misappropriation
Trade secret misappropriation occurs when someone acquires, discloses, or uses a trade secret through improper means or in violation of a duty to maintain its secrecy. Improper means includes theft, bribery, misrepresentation, breach of duty, and espionage. Even if information was acquired properly, using or disclosing it when you know or should know it was obtained improperly also constitutes misappropriation.
Common scenarios include former employees taking confidential information to competitors, business partners violating confidentiality agreements, hackers stealing data through cyberattacks, and competitors engaging in corporate espionage. The misappropriation can involve physical documents, digital files, or simply knowledge carried in someone's memory if that knowledge constitutes protectable trade secrets.
Elements of a Misappropriation Claim
To succeed in a trade secret misappropriation claim, you must prove several essential elements. First, you must establish that a valid trade secret exists, meaning the information derives value from its secrecy and you took reasonable measures to keep it confidential. Second, you must show that the defendant acquired, disclosed, or used the trade secret through improper means or in breach of a confidential relationship.
Proving these elements requires substantial evidence. Documentation of your secrecy measures establishes the first element, while evidence of the defendant's actions and knowledge establishes the second. Circumstantial evidence often proves critical in these cases, as defendants rarely admit to theft. Timing of events, similarity between your secrets and defendant's products or practices, and evidence of access all contribute to building your case.
The Defend Trade Secrets Act
The Defend Trade Secrets Act of 2016 created a federal cause of action for trade secret misappropriation, giving businesses the option to pursue claims in federal court. Before the DTSA, trade secret claims could only be brought under state law, typically the Uniform Trade Secrets Act adopted by most states. The federal law provides several advantages, including nationwide jurisdiction, potentially more favorable procedures, and access to federal courts' expertise in complex commercial litigation.
One powerful tool under the DTSA is the ex parte seizure provision, allowing courts to order seizure of misappropriated trade secrets in extraordinary circumstances without advance notice to the defendant. This remedy prevents defendants from destroying evidence or moving stolen information beyond reach. Courts grant such orders only when other relief would be inadequate and specific statutory requirements are met.
State Law Claims
Most states have adopted the Uniform Trade Secrets Act, providing similar protections and remedies at the state level. State and federal claims can often be pursued together, giving plaintiffs maximum flexibility in how they structure their cases. Some states have variations in their trade secret laws that may provide advantages in particular circumstances, making careful analysis of available options important.
Beyond statutory trade secret claims, misappropriation may also give rise to related causes of action. Breach of contract claims arise when defendants violated non-disclosure or employment agreements. Breach of fiduciary duty may apply when the defendant owed special duties of loyalty. Conversion and unfair competition claims may also be available depending on the facts.
Seeking Injunctive Relief
Stopping ongoing use of your trade secrets often takes priority over monetary damages. Injunctions prohibit defendants from continuing to use or disclose your confidential information and can be critical to preventing irreparable competitive harm. Courts may grant preliminary injunctions early in the case if you demonstrate likelihood of success on the merits, irreparable harm without the injunction, favorable balance of hardships, and that the injunction serves the public interest.
Permanent injunctions following trial can extend for the period necessary to eliminate the competitive advantage gained through misappropriation. Courts sometimes impose head start injunctions lasting the amount of time the defendant saved by stealing rather than developing the information independently. These injunctions aim to restore the competitive position that would have existed absent the theft.
Recovering Damages
Trade secret misappropriation damages can be substantial, reflecting both your actual losses and the defendant's unjust enrichment. Actual damages include lost profits attributable to the misappropriation, reduced business value, and costs incurred responding to the theft. Unjust enrichment encompasses profits the defendant earned using your trade secrets that they would not have earned otherwise.
Where actual damages and unjust enrichment are difficult to prove, reasonable royalty damages provide an alternative measure. This approach calculates what the defendant would have paid for a license to use the trade secret, had they negotiated fairly instead of stealing. In cases of willful and malicious misappropriation, courts may award exemplary damages up to twice the compensatory amount. Attorney fees may also be recovered in exceptional cases.
Building Your Case
Successful misappropriation claims require careful documentation and investigation. Before filing suit, gather evidence establishing what information was taken, how it was taken, and who is responsible. Forensic analysis of computers and electronic devices often reveals crucial evidence of downloading, copying, or transmission of confidential files. Email records, access logs, and cloud storage activity may document the defendant's actions.
Engaging experienced legal counsel early improves your chances of success. Trade secret litigation is complex, requiring expertise in both the legal framework and technical aspects of the stolen information. Your attorney can help preserve evidence, conduct investigations, assess the strength of your claims, and develop litigation strategy. Acting quickly is important, as delays can affect both the available evidence and the urgency courts perceive in granting relief.