Articles Posted in Trade Secrets

Florida and federal statutes generally define a “trade secret” to be information that the owner takes reasonable measures to keep secret and the information derives “independent economic value” from not being generally known to others.  Courts ordinarily view the existence of a trade secret as a question of fact.  The United States Court of Appeals for the Fifth Circuit, in Lear Siegler, Inc. v. Ark-Ell Springs, Inc., 569 F.2d 286 (5th Cir. 1978), appropriately observed that a trade secret “is one of the most elusive and difficult concepts in the law to define.”  In many cases, the existence of a trade secret is not obvious.   It requires an ad hoc evaluation of all the surrounding circumstances.  Accordingly, the Lear Siegler decision explained that the question of whether certain information constitutes a trade secret typically is best “resolved by a fact finder after full presentation of evidence from each side.”  Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

The Defend Trade Secrets Act is a federal law that, at 18 U.S.C. section 1893(3), defines trade secret to mean “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patters, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if…(A) the owner thereof has taken reasonable measures to keep such information secret…and (B) the information derives independent economic value, actual or potential, from not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”  State trade secret law, called the Uniform Trade Secret Act, has a similar definition of trade secret.  In addition, federal and state courts sometimes use six common law factors from the Restatement of Torts  to evaluate whether a trade secret exists:

(1) the extent to which the information is known outside of the plaintiff’s business;

Under an earlier version of Florida law concerning negligence claims, the doctrine of “joint and several liability” held that all tortfeasors were responsible for the total amount of the plaintiff’s injury regardless of the defendant’s individual fault giving rise to the accident. Gouty v. Schnepel, 795 So.2d 959 (Fla. 2001) (“All negligent defendants [are] held responsible for the total of the plaintiff’s damages regardless of the extent of each defendant’s fault in causing the accident” under the doctrine of joint and several liability.). This earlier version of the joint and several liability rule required codefendants to obtain contribution amongst themselves if any particular defendant wanted to decrease the amount he or she ultimately contribute to satisfy the judgment. Walt Disney World Co. v. Wood, 489 So. 2d 61 (Fla. 4th DCA 1986), approved, 515 So. 2d 198 (Fla. 1987) (“A codefendant must resort to contribution among joint tortfeasors under section 768.31, Florida Statutes, in order to obtain relief.”). This rule could be onerous for solvent judgment debtors when his or her codefendants were insolvent because the solvent judgment debtor had to satisfy the entire judgment amount. Id. (“If the codefendant is judgment proof, then under existing law the solvent defendant must pay it all.”). For example, in the case of Walt Disney World Co. v. Wood, 489 So.2d 61, the jury determined that defendant Walt Disney World was only 1 % at fault, Walt Disney World’s codefendant was 85% at fault, and the plaintiff was 14% at fault. However, the court entered judgment against defendant Walt Disney World for 86% of the total damages, and not merely 1% of the total damages.  The Florida Legislature eventually changed the law of “joint and several liability” because it was obviously unjust.  Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

Florida’s Legislature partially remedied the problem by enacting a statute that replaced “joint and several liability” with “comparative fault” the law governing the State of Florida. Fla. Stat. § 768.81. The statute limits liability to the percentage of fault attributable to each defendant. Compulife Software, Inc. v. Rutstein, 2021 WL 3713173 (S.D. Fla. July 12, 2021) (“Florida is a comparative fault state, meaning that ‘[i]n a negligence action, the court shall enter judgment against each party liable on the basis of such party’s percentage of fault and not on the basis of the doctrine of joint and several liability’”). However, the comparative fault statute does not apply to intentional torts. Fla. Stat. § 768.81.

Most business torts are intentional. Therefore, Florida’s comparative fault statute will not prevent the imposition of joint and several liability. See Powerhouse, Inc. v. Walton, 557 So.2d 186 (Fla. 1st DCA 1990) (“Individual officers and agents of a corporation are personally liable for torts committed within the scope of their employment, and joint and several liability may apply to both the individual who perpetrated the tort and the company for whom he worked.”).  The federal court case, Compulife Software, Inc. v. Rutstein, 2021 WL 3713173 (S.D. Fla. 7/12/2021), illustrates the potential for codefendants in a business dispute to be jointly and severally liable.  There the evidence demonstrated all four defendants were involved in the misappropriation of the plaintiff’s trade secret.  One defendant was involved in acquiring the plaintiff’s database through misrepresentation and deceit, two defendants were involved in acquiring the plaintiff’s database through scraping attacks, and a fourth defendant implemented the stolen trade secret to generate profit.  The court determined that all four defendants were jointly and severally liable.

The federal Defend Trade Secrets Act, at 18 U.S.C. sections 1829(3) and (5), broadly defines trade secret misappropriation to include cases of improper use, disclosure, or acquisition of a trade secret.  Under the federal trade secret statute, at 18 U.S.C. section 1839(3)(B), states that trade secret information “derives [its] independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by improper means by, another person who can obtain economic value from [that information’s] disclosure or use[.]”  The United States Court of Appeals for the Third Circuit, in Oakwood Laboratories LLC v. Thanoo, 999 F.3d 892 (3d Cir. 2021), explained that “[t]he trade secret’s economic value depreciates or is eliminated altogether upon its loss of secrecy when a competitor obtains and uses that information without the owner’s consent.”  Similarly, in Storagecraft Tech. Corp v. Kirby, 744 F.3d 1183 (10th Cir. 2014), the federal appellate court discussed damage remedies in a trade secret misappropriation decision and stated in pertinent part: “When someone steals a trade secret an discloses it to a competitor he effectively assumes for himself an unrestricted license in the trade secret.  And that bears its cost.  After all, what value does a trade secret hold when it’s no longer a secret from the trade?”  Federal and state appellate decisions frequently rely on the legal principles that exclusive use of a trade secret confers economic value and misappropriation of the trade secret will destroy the competitive advantage of the trade secret owner.  In this regard, precedent from the United States Supreme Court, in Ruckelhaus v. Monsanto Co., 467 U.S. 986 ( 1984), explained that, “[t]he economic value of that property right lies in the competitive advantage over others that [the plaintiff] enjoys by virtue of its exclusive access to the data, and disclosure or use by others of the data would destroy that competitive edge.”  Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

The Defend Trade Secrets Act provides a variety of remedies, at 18 U.S.C. section 1836(b)(3)(B), including damages for actual loss, unjust enrichment caused by the misappropriation, or damages measured by the imposition of liability for a reasonably royalty for the misappropriator’s unauthorized disclosure or use of the trade secret.  The Supreme Court’s Ruckelhaus precedent explained that, “[w]ith respect to a trade secret, the right to exclude others is central to the very definition of the property interest.  Once the data that constitute a trade secret are disclosed to others, or others are allowed to use those data, the holder of the trade secret has lost his property interest in the data.”

The Defend Trade Secrets Act provides legal and equitable remedies beyond only the plaintiff trade secret owner’s “loss of exclusivity” in the trade secret.  The federal statute and case law recognize that there can be other, if not fully realized, injuries.  For example, the Oakwood Laboratories LLC decision stated in pertinent part: “Aurobindo’s rapid market entry into a sector of the pharmaceutical industry with few competitors may well deprive Oakwood of market share.  Utilizing Oakwood’s trade secrets provides Aurobindo a jumpstart in an industry it would otherwise not have competitively joined for another decade.  Aurobindo will avoid substantial research and development costs that Oakwood has already invested in its own product development.  Those are competitive harms recognized in” the federal statute.   Because the federal statute followed many years after the state-law enacted Uniform Trade Secrets Act (which has been adopted my most states in the U.S.) federal courts often find persuasive state law on the issue of damages.  For example, in Rohm & Haas Co. v. Adco Chem. Co., 689 F.2d 424 (3d Cir. 1982), the federal appellate court explained that: “New Jersey law states that a company misappropriating a trade secret may lose the benefits of future independent experiments because of the difficulty of determining how much of the improvement is attributable to those independent efforts and how much to the information gained by the wrongdoing…In trying to segregate honest efforts and ill-acquired knowledge, [e]very doubt must be resolved against the parties to a fraudulent act.”  Similarly, the United States Court of Appeals for the Fifth Circuit in Bohnsack. v. Varco, L.P., 668 F.3d 262 (5th Cir. 2012), interpreted state trade secret law and explained that: “Damages in misappropriation cases can take several forms: the value that a reasonably prudent investor would have paid for the trade secret; the development costs the defendant avoided incurring through the misappropriation; and a reasonable royalty.  This variety of approaches demonstrates the ‘flexible’ approach used to calculate damages for claims of misappropriation of trade secrets.”

Proving the existence of a trade secret in a court of law is no easy feat. The trade secret’s proponent has the burden of establishing the specific information he or she seeks to protect. Am. Red Cross v. Palm Beach Blood Bank, Inc., 143 F.3d 1407 (11th Cir. 1998) (“In a trade secret action, the plaintiff bears the burden of demonstrating both that the specific information it seeks to protect is secret and that it has taken reasonable steps to protect this secrecy.”). The proponent must prove it has a “a formula, pattern, compilation, program, device, method, technique, or process that” derives independent economic value from not being generally known to other persons and is the subject of reasonable secrecy efforts. Fla. Stat. § 688.002. In this article, we explore circumstances where the trade secret proponent has, and has not, met its burden of proof. Peter Mavrick is a Fort Lauderdale business litigation attorney.  The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Premier Lab Supply, Inc. v. Chemplex Indus., Inc., 10 So. 3d 202 (Fla. 4th DCA 2009), is an example of the trade secret proponent satisfying its burden of proof. Id. (“Based on his testimony concerning the unique and specialized nature of the machine’s design, the jury could have found that the design of Chemplex’s machine derived an economic benefit from not being generally known to or readily ascertainable by others.”). In Premier Lab Supply, Inc., the proponent presented evidence that the trade secret machine was unique and not readily ascertainable by others because it was invented by the proponent and his father. Id. The machine was not readily ascertainable by others because it used intricate calculations and a timing chain with a counter. Id. The proponent demonstrated the value of the machine by explaining the difficulty he faced in experimenting with the precise measurements and ratios to obtain the desired result. Id. The proponent further explained that competitor machines are inferior because users cannot obtain desired measurements. Id.

Contrast Premier Lab Supply, Inc. with RX Sols., Inc. v. Express Pharmacy Services, Inc., 746 So. 2d 475 (Fla. 2d DCA 1999) and Yellowfin Yachts, Inc. v. Barker Boatworks, LLC, 898 F.3d 1279 (11th Cir. 2018). In RX Sols., Inc., the plaintiff claimed it developed a cardless online claims system. RX Sols., Inc., 746 So. 2d 475. However, the evidence demonstrated the system was not unique to the plaintiff because the program was developed by a South Carolina company and incorporated within the plaintiff’s online system. Id. In Yellowfin Yachts, Inc., the plaintiff claimed its customer list was a trade secret. Yellowfin Yachts, Inc., 898 F.3d 1279. The Court rejected this claim for two reasons. First, the central components of the customer list were publicly available because the customers were boaters required by statute to register their vessels. Id. The state’s Public Records Act required the state to openly provide registration information such as the registrants’ name and address to those who inquired. Id. A person could then use the Internet or White Pages to find the remainder of the customers’ contact information. Id. Second, the customer information was not confidential because the plaintiff failed to protect it. Id. The plaintiff encouraged its employees to save the customer information to their personal laptops and smartphones thereby destroying any potential for secrecy. Id.

Under Florida law, a trade secret means information not commonly known by or available to the public, which derives economic value from not being generally known to or ascertainable by proper means by others who can obtain economic value from the information, and that was subject to reasonable efforts to maintain its secrecy.  Florida’s trade secret statute, at Florida Statutes section 688.002(2), states that a defendant “misappropriates” a trade secret when, among other things, it discloses or uses “a trade secret of another without express or implied consent” knowing at the time of the disclosure or use that the trade secret was “[a]cquired under circumstances giving rise to maintain secrecy or limit its use.”  To prove the trade secret was acquired in a manner that imposed a duty of secrecy on the receiving party, businesses often use confidentiality or non-disclosure agreements to clarify, in writing, the obligations of the receiving party.  The United States Court of Appeals for the Eleventh Circuit, in Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1284 (11th Cir. 2003), explained that a non-disclosure agreement can be the basis for imposing a duty not to disclose a trade secret.  The Penalty Kick decision explained that “a defendant is liable for misappropriation of a trade secret only if the plaintiff can show that the defendant (1) disclosed information that enabled a third party to learn the trade secret or (2) used a ‘substantial portion’ of the plaintiff’s trade secret to create an improvement or modification that is ‘substantially derived’ from the plaintiff’s trade secret.”  By contrast, if the defendant independently created the allegedly misappropriated item with only “slight” contribution from the plaintiff’s trade secret, then the defendant is not liable for misappropriation.  Peter Mavrick is a Fort Lauderdale business litigation attorney.  The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

The Restatement (Third) of Unfair Competition, section 40, at Comment c (1995), summarizes a well-established body of law concerning a defendant’s liability for trade secret misappropriation based on substantial derivation from the original trade secret.  The Restatement explains in pertinent part: “As a general matter, any exploitation of the trade secret that is likely to result in injury to the trade secret owner or enrichment to the defendant is a ‘use’…. Thus, marketing goods that embody the trade secret, employing the trade secret in manufacturing or production, [and] relying on the trade secret to assist or accelerate research or development … all constitute ‘use.’  The unauthorized use need not extend to every aspect or feature of the trade secret; use of any substantial portion of the secret is sufficient to subject the actor to liability…. [A]n actor is liable for using the trade secret with independently created improvements or modifications if the result is substantially derived from the trade secret…. However, if the contribution made by the trade secret is so slight that the actor’s product or process can be said to derive from other sources of information or from independent creation, the trade secret has not been “used” for purposes of imposing liability under the rules.”

Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.