Direct Liability for Trade Secret Misappropriation
Most companies have internal controls in place to prevent their trade secrets from being leaked to others in the industry. However, many have not thought to put policies in place to protect the company against liability when third parties misappropriate trade secret information when they come into t
Direct Liability for Trade Secret MisappropriationEven if your company has no business contact or relationship with another entity, you can still find your company directly liable for trade secret misappropriation. This is because the Uniform Trade Secrets Act defines misappropriation as the "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." In the case of Silvaco Data Sys. v. Intel Corp., the company Silvaco sued Intel for misappropriating trade secrets in a source code when it used the software that it had purchased from a third company, CSI. Silvaco had previously accused CSI of misappropriating their source code and claimed that Intel was using stolen property. The California Court of Appeals found that Intel did not have the required mental state to misappropriate the trade secret because it had no knowledge of the underlying trade secrets. In another case, Softech Worldwide LLC v. Internet Tech. Broadcasting Corp., Fedstore was the main contractor for the U.S. Department of Veterans Affairs and had been involved with Internet Tech as a subcontractor. The company then used Softech as a subcontractor and obtained copies of source code after ending their business relationship. Softech sued Internet Tech and Fedstore for misappropriation of trade secrets. A Virginia court found that it failed to state a claim against Fedstore because the company did not prove that Fedstore had requisite knowledge of the misappropriation. However, the court did say that Softech had stated a claim for vicarious copyright infringement.
Effects on EmployersWhile it may be possible to avoid liability for third party trade secret misappropriation, your company could save an enormous amount of time and money, as well as lessen the chances of litigation, if you develop policies for your company to minimize this risk in the first place. Develop a risk management policy that includes the following: o Explicitly tell new hires that your company does not wish to know information about their previous employer o Get written confirmation from each new hire that they have not brought trade secrets with them from the previous employer o When working with independent contractors, be sure to give them control over their work and make the independence clear o Willful blindness is not a defense to trade secret misappropriation, so be sure to investigate every claim o Perform full due diligence on any new acquisition or intellectual property purchase, and obtain warranties from the seller