A recent Third Circuit court case rattled current thinking as to trade secret owners’ authority to enforce rights in their intellectual property. Fortunately, the case provided a path for trade secret owners to fully preserve their enforcement rights when making available their trade secret technology to their customers.
In short, the court held that those merely possessing a trade secret may be able to sue for misappropriation – that is, enforcement rights are not exclusive to the owner of the trade secret.
Non-Owner Possessors of Trade Secrets May Bring Suit
This case (Advanced Fluid Systems v. Huber (3rd Cir. 2020)) is an appeal of a federal district court case in which Advanced Fluid Systems (“AFS”) sued Kevin Huber and others for unauthorized use of trade secrets related to hydraulic technology. Huber took trade secret information from his employer, AFS, presented it to an AFS competitor, Livingston & Haven (“L&H”), then used the information, himself, in a new business he set up to compete against AFS and L&H. Although AFS brought the trade secret suit, AFS did not own the trade secrets in question. Instead, the trade secrets were owned by a third party that indirectly acquired them from AFS. Huber was an engineer on the AFS team that designed and developed the trade secret technology.
The Third Circuit Court upheld the lower court’s reasoning that a party asserting a misappropriation claim under Pennsylvania’s version of the Uniform Trade Secrets Act (the “UTPA”) must only show lawful possession of the trade secret, not ownership. The proprietary aspect of a trade secret arises from its secrecy, not from the underlying trade secret information, itself. Trade secret ownership is not irrelevant, but it is not the only interest subject to trade secret protection.
What Law Applies?
Texas and Delaware trade secret laws (like Pennsylvania’s, here, but unlike New York’s) are similar to the UTPA. For owners of trade secrets, if you want to limit or bar your trade secret licensee from taking legal action against third parties to enforce rights related to your owned trade secret, you should add appropriate language to your license agreement.