- RESTATEMENT (THIRD) OF UNFAIR COMPETITION CURRENT THROUGH JUNE 2009
Restatement Third, Unfair Competition, © 1995 by The American Law Institute. Reproduced with permission. All rights reserved.
RESTATEMENT (THIRD) OF UNFAIR COMPETITION
CURRENT THROUGH JUNE 2009
CHAPTER 4. APPROPRIATION OF TRADE VALUES
TOPIC 2. TRADE SECRETS
§ 39. Definition Of Trade Secret
A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.
Comment:
a. Rationale for protection. The protection of confidential business information dates at least to Roman law, which afforded relief against a person who induced another's employee to divulge secrets relating to the master's commercial affairs. The modern law of trade secrets evolved in England in the early 19th century, apparently in response to the growing accumulation of technical know-how and the increased mobility of employees during the industrial revolution. In the United States the protection of trade secrets was recognized at common law by the middle of the 19th century, and by the end of the century the principal features of contemporary trade secret law were well established.
The protection of trade secrets advances several interests. Early cases emphasized the unfairness inherent in obtaining a competitive advantage through a breach of confidence. The imposition of liability for the appropriation of a trade secret protects the plaintiff from unfair competition and deprives the defendant of unjust enrichment attributable to bad faith. The development of rules protecting trade secrets formed part of a more general attempt to articulate standards of fair competition. More recently, the protection of trade secrets has been justified as a means to encourage investment in research by providing an opportunity to capture the returns from successful innovations. The rules protecting trade secrets also promote the efficient exploitation of knowledge by discouraging the unproductive hoarding of useful information and facilitating disclosure to employees, agents, licensees, and others who can assist in its productive use. Finally, the protection afforded under the law of trade secrets against breaches of confidence and improper physical intrusions furthers the interest in personal privacy.
The subject matter and scope of trade secret protection is necessarily limited by the public and private interest in access to valuable information. The freedom to compete in the marketplace includes, in the absence of patent, copyright, or trademark protection (see §§ 16 and 17), the freedom to copy the goods, methods, processes, and ideas of others. The freedom to copy, however, does not extend to information that is inaccessible by proper means. Liability for the appropriation of a trade secret thus rests on a breach of confidence or other wrongful conduct in acquiring, using, or disclosing secret information.
b. Doctrinal development. Early trade secret cases, responding to requests for injunctive relief against breaches of confidence, frequently supported the exercise of equity jurisdiction by describing the plaintiff's interest in the trade secret as a property right, often said to derive from the discovery of valuable information. Similar characterizations sometimes appear in the modern case law. The property rationale emphasizes the nature of the appropriated information, especially its value and secrecy. Even the earliest cases, however, also include an examination of the propriety of the defendant's conduct. The plaintiff's property right was effective only against defendants who used or acquired the information improperly. No exclusive rights were recognized against those who acquired the information by proper means. Other cases, choosing to begin their analysis with an examination of the defendant's behavior, concluded that the essence of a trade secret action is a breach of confidence or other improper conduct, sometimes explicitly disavowing any property dimension to a trade secret. The influential formulation in § 757 of the Restatement of Torts (1939), reporting that the property conception "has been frequently advanced and rejected," concluded that the prevailing theory of liability rests on "a general duty of good faith." Id., Comment a. Both the former Restatement and the supporting case law, however, also require that the information qualify for protection as a trade secret, thus incorporating the elements of secrecy and value that underlie the property rationale.
The dispute over the nature of trade secret rights has had little practical effect on the rules governing civil liability for the appropriation of a trade secret. The cases generally require that the plaintiff establish both the existence of a trade secret under the principles described in this Section and the fact of misconduct by the defendant under the rules stated in § 40. Many cases acknowledge that the primary issue is the propriety of the defendant's conduct as a means of competition. The substantive scope of the rights recognized under the law of trade secrets thus reflects the accommodation of numerous interests, including the trade secret owner's claim to protection against the defendant's bad faith or improper conduct, the right of competitors and others to exploit information and skills in the public domain, and the interest of the public in encouraging innovation and in securing the benefits of vigorous competition.
In 1979, the National Conference of Commissioners on Uniform State Laws promulgated the Uniform Trade Secrets Act. The Prefatory Note states that the "Uniform Act codifies the basic principles of common law trade secret protection." The original Act or its 1985 revision has been adopted in a majority of the states. (See the Statutory Note following this Section.) Except as otherwise noted, the principles of trade secret law described in this Restatement are applicable to actions under the Uniform Trade Secrets Act as well as to actions at common law. The concept of a trade secret as defined in this Section is intended to be consistent with the definition of "trade secret" in § 1(4) of the Act.
Some states have adopted criminal statutes specifically addressed to the appropriation of trade secrets. In other states, more general criminal statutes have been interpreted to reach such appropriations. In some circumstances the appropriation of a trade secret may also violate the federal wire and mail fraud statutes (18 U.S.C.A. §§ 1341, 1343) and the National Stolen Property Act (18 U.S.C.A. § 2314). The definition of a trade secret contained in this Section, however, is directly applicable only to the imposition of civil liability under the rules stated in § 40. It does not apply, other than by analogy, in actions under criminal statutes or in other circumstances not involving civil liability for the appropriation of a trade secret, such as the protection of trade secrets from disclosure under the Freedom of Information Act (5 U.S.C. § 552).
c. Relation to patent and copyright law. Federal patent law offers protection to "any new and useful process, machine, manufacture, or composition of matter," 35 U.S.C.A. § 101, unless the invention "would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains." 35 U.S.C.A. § 103. Federal design patents protect "any new, original and ornamental design for an article of manufacture," again subject to the requirement of non-obviousness. 35 U.S.C.A. § 135. Unlike the limited protection against improper acquisition, disclosure, and use accorded to the owner of a trade secret under the rules stated in § 40, the holder of a patent enjoys a general right to exclude others from making, using, or selling the patented invention, 35 U.S.C.A. § 271, enforceable even against persons relying on independent discovery or reverse engineering. An application for a patent must include a specification containing "a written description of the invention, and of the manner and process of making and using it," and "the best mode contemplated by the inventor of carrying out" the invention. 35 U.S.C.A. §§ 111 and 112. Upon issuance of a patent, the specification and other materials comprising the patent file become available for public inspection. 37 C.F.R. § 1.11. Thus, for matter disclosed in the patent, issuance terminates the secrecy required for continued protection as a trade secret, even if the patent is subsequently declared invalid. See Comment f. Pending, denied, and abandoned patent applications, however, are not generally open to public inspection. 35 U.S.C.A. § 122; 37 C.F.R. § 1.14. Thus, the filing of a patent application does not in itself preclude continued protection of the invention as a trade secret.
The United States Supreme Court in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974), held that federal patent law does not preempt the protection of inventions and other information under state trade secret law. The Court concluded that the requirement of secrecy fundamental to the protection of trade secrets (see Comment f) avoids interference with the federal patent policy of access to information in the public domain. It also concluded that the limitations on the scope of state trade secret protection (see § 40) make it unlikely that the federal policy of inducing public disclosure in exchange for the protection of a patent will be significantly undermined by reliance on trade secret protection for patentable inventions. In a subsequent decision, however, the Supreme Court emphasized that any rule of state law that substantially interferes with the use of information that has already been disclosed to the public or that is readily ascertainable from public sources is preempted. Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989).
Federal copyright law protects "original works of authorship fixed in any tangible medium of expression," 17 U.S.C.A. § 102(a), against unauthorized reproduction, use in the preparation of derivative works, distribution, public performance, or public display. 17 U.S.C.A. § 106. Protection is limited, however, to the manner in which the authorship is expressed and does not extend to "any idea, procedure, process, system, method of operation, concept, principle, or discovery" embodied in the work. 17 U.S.C.A. § 102(b). Copyright protection subsists from the creation of a work and is not contingent upon public dissemination. See 17 U.S.C.A. § 302. A claim of federal copyright is thus not in itself inconsistent with a claim to trade secret protection for information contained in the work. Although § 301 of the Copyright Act preempts the recognition under state law of "rights that are equivalent to any of the exclusive rights" of copyright in works "within the subject matter" of the statute, the protection afforded to trade secrets under the rules stated in § 40 has been held to lie outside the preemptive scope of the Copyright Act.
Registration of a copyright is not a condition of copyright protection. 17 U.S.C.A. § 408. The registration of a copyright claim in an unpublished work ordinarily requires the deposit of a complete copy of the work, 17 U.S.C.A. § 408(b)(1), which is then open to public inspection. 17 U.S.C.A. § 705. However, the regulations of the Copyright Office permit the deletion of material constituting trade secrets from deposits made in connection with computer programs and also authorize the granting of special relief from the normal deposit requirements in other cases. The status as a trade secret of information contained in a work that is the subject of a copyright registration is determined under the general principles governing secrecy and accessibility described in Comment f.
d. Subject matter. A trade secret can consist of a formula, pattern, compilation of data, computer program, device, method, technique, process, or other form or embodiment of economically valuable information. A trade secret can relate to technical matters such as the composition or design of a product, a method of manufacture, or the know-how necessary to perform a particular operation or service. A trade secret can also relate to other aspects of business operations such as pricing and marketing techniques or the identity and requirements of customers (see § 42, Comment f). Although rights in trade secrets are normally asserted by businesses and other commercial enterprises, nonprofit entities such as charitable, educational, governmental, fraternal, and religious organizations can also claim trade secret protection for economically valuable information such as lists of prospective members or donors.
The prior Restatement of this topic limited the subject matter of trade secret law to information capable of "continuous use in the operation of a business," thus excluding information relating to single events such as secret bids and impending business announcements or information whose secrecy is quickly destroyed by commercial exploitation. See Restatement of Torts § 757, Comment b (1939). Both the case law and the prior Restatement, however, offered protection against the "improper" acquisition of such short-term information under rules virtually identical to those applicable to trade secrets. See id. § 759, Comment c. The Restatement, Second, of Agency in § 396 similarly protects both trade secrets and "other similar confidential matters" from unauthorized use or disclosure following the termination of an agency relationship. The definition of "trade secret" adopted in the Uniform Trade Secrets Act does not include any requirement relating to the duration of the information's economic value. See Uniform Trade Secrets Act § 1(4) and the accompanying Comment. The definition adopted in this Section similarly contains no requirement that the information afford a continuous or long-term advantage.
A person claiming rights in a trade secret bears the burden of defining the information for which protection is sought with sufficient definiteness to permit a court to apply the criteria for protection described in this Section and to determine the fact of an appropriation. In the case of technical information, a physical embodiment of the information in the form of a specific product, process, or working model often provides the requisite definition. However, there is no requirement that the information be incorporated or embodied in a tangible form if it is otherwise sufficiently delineated. The degree of definiteness required in a particular case is also properly influenced by the legitimate interests of the defendant. Thus, a court may require greater specificity when the plaintiff's claim involves information that is closely integrated with the general skill and knowledge that is properly retained by former employees. See § 42, Comment d.
An agreement between the parties that characterizes specific information as a "trade secret" can be an important although not necessarily conclusive factor in determining whether the information qualifies for protection as a trade secret under this Section. As a precaution against disclosure, such an agreement is evidence of the value and secrecy of the information, see Comments e and f, and can also supply or contribute to the definiteness required in delineating the trade secret. The agreement can also be important in establishing a duty of confidence. See § 41. However, because of the public interest in preserving access to information that is in the public domain, such an agreement will not ordinarily estop a defendant from contesting the existence of a trade secret. (On the protection of information by contract, see § 41, Comment d.)
It is not possible to state precise criteria for determining the existence of a trade secret. The status of information claimed as a trade secret must be ascertained through a comparative evaluation of all the relevant factors, including the value, secrecy, and definiteness of the information as well as the nature of the defendant's misconduct.
e. Requirement of value. A trade secret must be of sufficient value in the operation of a business or other enterprise to provide an actual or potential economic advantage over others who do not possess the information. The advantage, however, need not be great. It is sufficient if the secret provides an advantage that is more than trivial. Although a trade secret can consist of a patentable invention, there is no requirement that the trade secret meet the standard of inventiveness applicable under federal patent law.
The value of information claimed as a trade secret may be established by direct or circumstantial evidence. Direct evidence relating to the content of the secret and its impact on business operations is clearly relevant. Circumstantial evidence of value is also relevant, including the amount of resources invested by the plaintiff in the production of the information, the precautions taken by the plaintiff to protect the secrecy of the information (see Comment g), and the willingness of others to pay for access to the information.
The plaintiff's use of the trade secret in the operation of its business is itself some evidence of the information's value. Identifiable benefits realized by the trade secret owner through use of the information are also evidence of value. Some early cases elevated use by the trade secret owner to independent significance by establishing such use as an element of the cause of action for the appropriation of a trade secret. Such a "use" requirement, however, imposes unjustified limitations on the scope of trade secret protection. The requirement can deny protection during periods of research and development and is particularly burdensome for innovators who do not possess the capability to exploit their innovations. See Comment h. The requirement also places in doubt protection for so-called "negative" information that teaches conduct to be avoided, such as knowledge that a particular process or technique is unsuitable for commercial use. Cases in many jurisdictions expressly renounce any requirement of use by the trade secret owner. It is also rejected under the Uniform Trade Secrets Act. See the Comment to § 1 of the Act. Use by the person asserting rights in the information is not a prerequisite to protection under the rule stated in this Section.
f. Requirement of secrecy. To qualify as a trade secret, the information must be secret. The secrecy, however, need not be absolute. The rule stated in this Section requires only secrecy sufficient to confer an actual or potential economic advantage on one who possesses the information. Thus, the requirement of secrecy is satisfied if it would be difficult or costly for others who could exploit the information to acquire it without resort to the wrongful conduct proscribed under § 40. Novelty in the patent law sense is not required. Although trade secret cases sometimes announce a "novelty" requirement, the requirement is synonymous with the concepts of secrecy and value as described in this Section and the correlative exclusion of self-evident variants of the known art.
Information known by persons in addition to the trade secret owner can retain its status as a trade secret if it remains secret from others to whom it has potential economic value. Independent discovery by another who maintains the secrecy of the information, for example, will not preclude relief against an appropriation by a third person. Similarly, confidential disclosures to employees, licensees, or others will not destroy the information's status as a trade secret. Even limited non-confidential disclosure will not necessarily terminate protection if the recipients of the disclosure maintain the secrecy of the information.
Information that is generally known or readily ascertainable through proper means (see § 43) by others to whom it has potential economic value is not protectable as a trade secret. Thus, information that is disclosed in a patent or contained in published materials reasonably accessible to competitors does not qualify for protection under this Section. Similarly, information readily ascertainable from an examination of a product on public sale or display is not a trade secret. Self-evident variations or modifications of known processes, procedures, or methods also lack the secrecy necessary for protection as a trade secret. However, it is the secrecy of the claimed trade secret as a whole that is determinative. The fact that some or all of the components of the trade secret are well-known does not preclude protection for a secret combination, compilation, or integration of the individual elements.
The theoretical ability of others to ascertain the information through proper means does not necessarily preclude protection as a trade secret. Trade secret protection remains available unless the information is readily ascertainable by such means. Thus, if acquisition of the information through an examination of a competitor's product would be difficult, costly, or time-consuming, the trade secret owner retains protection against an improper acquisition, disclosure, or use prohibited under the rules stated in § 40. However, any person who actually acquires the information through an examination of a publicly available product has obtained the information by proper means and is thus not subject to liability. See § 43. Similarly, the theoretical possibility of reconstructing the secret from published materials containing scattered references to portions of the information or of extracting it from public materials unlikely to come to the attention of the appropriator will not preclude relief against the wrongful conduct proscribed under § 40, although one who actually acquires the secret from such sources is not subject to liability.
Circumstantial evidence is admissible to establish that information is not readily ascertainable through proper means and hence is eligible for protection as a trade secret. Precautions taken by the claimant to preserve the secrecy of the information (see Comment g), the willingness of licensees to pay for disclosure of the secret, unsuccessful attempts by the defendant or others to duplicate the information by proper means, and resort by a defendant to improper means of acquisition are all probative of the relative accessibility of the information. When a defendant has engaged in egregious misconduct in order to acquire the information, the inference that the information is sufficiently inaccessible to qualify for protection as a trade secret is particularly strong. See § 43, Comment d.
Although courts have recognized that trade secret rights may not be asserted in information that is in the public domain, the cases disagree on the consequences of a loss of secrecy that occurs between the time of a defendant's confidential receipt of the trade secret and the defendant's subsequent unauthorized use or disclosure. Some decisions refuse to consider the availability of the information from public domain sources at the time of the alleged appropriation, at least when the defendant's knowledge derives from the confidential disclosure rather than from the public sources. Other decisions, more narrowly construing the obligations attendant upon a confidential disclosure, hold that protection against unauthorized use or disclosure is not available after the information has ceased to be a secret. (On the remedial consequences of a loss of secrecy occurring after a defendant's appropriation, see § 44, Comment f; § 45, Comment h.) However, in many of the cases that refuse as a matter of law to take into account a loss of secrecy, the information was in fact only theoretically rather than readily ascertainable from the public domain at the time of the defendant's use or disclosure, thus justifying relief under either rule.
When information is no longer sufficiently secret to qualify for protection as a trade secret, its use should not serve as a basis for the imposition of liability under the rules stated in § 40. If the information has become readily ascertainable from public sources so that no significant benefit accrues to a person who relies instead on other means of acquisition, the information is in the public domain and no longer protectable under the law of trade secrets. Even those courts that decline to take into account a loss of secrecy following a confidential disclosure to the defendant often assert in dicta that no liability attaches if the defendant actually extracts the information from public sources. When the information is readily ascertainable from such sources, however, actual resort to the public domain is a formality that should not determine liability. The public interest in avoiding unnecessary restraints on the exploitation of valuable information supports the conclusion that protection as a trade secret terminates when the information is no longer secret. The defendant remains liable, however, for any unauthorized use or disclosure that occurred prior to the loss of secrecy. This position is consistent with the language and policy of the Uniform Trade Secrets Act. Section 1(2) of the Act defines "misappropriation" as the improper acquisition, disclosure, or use of a "trade secret," and § 1(4) excludes from the definition of "trade secret" information "generally known * * * or readily ascertainable by proper means." Termination of trade secret rights upon a loss of secrecy is also consistent with the limitations on injunctive and monetary relief in §§ 2 and 3 of the Act (and in §§ 44 and 45 of this Restatement) applicable to appropriations occurring prior to the loss of secrecy.
g. Precautions to maintain secrecy. Precautions taken to maintain the secrecy of information are relevant in determining whether the information qualifies for protection as a trade secret. Precautions to maintain secrecy may take many forms, including physical security designed to prevent unauthorized access, procedures intended to limit disclosure based upon the "need to know," and measures that emphasize to recipients the confidential nature of the information such as nondisclosure agreements, signs, and restrictive legends. Such precautions can be evidence of the information's value (see Comment e) and secrecy (see Comment f). The prior Restatement of this topic included the precautions taken to maintain the secrecy of the information as one of a number of factors relevant in determining the existence of a trade secret. See Restatement of Torts § 757, Comment b (1939). The Uniform Trade Secrets Act requires a trade secret to be "the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Section 1(4)(ii). Whether viewed as an independent requirement or as an element to be considered with other factors relevant to the existence of a trade secret, the owner's precautions should be evaluated in light of the other available evidence relating to the value and secrecy of the information. Thus, if the value and secrecy of the information are clear, evidence of specific precautions taken by the trade secret owner may be unnecessary.
The precautions taken by the trade secret owner are also relevant to other potential issues in an action for the appropriation of a trade secret. They can signal to employees and other recipients that a disclosure of the information by the trade secret owner is intended to be in confidence. See § 41. They can also be relevant in determining whether a defendant possessed the knowledge necessary for the imposition of liability under the rules stated in § 40 (see § 40, Comment d), whether particular means of acquisition are improper under the rule stated in § 43 (see § 43, Comment c), and whether an accidental disclosure results in the loss of trade secret rights (see § 40, Comment e).
h. "Law of ideas." Cases involving the submission of ideas by employees, customers, inventors, and others to businesses capable of reducing the idea to practice are sometimes analyzed under separate rules referred to as the "law of ideas." Idea submission cases often arise in the context of suggestions for new or improved products submitted to manufacturers, or in connection with programming and other ideas submitted to the entertainment industries. Plaintiffs seeking compensation for their ideas typically rely on contract claims alleging an express or implied-in-fact promise by the recipient to pay for the submitted idea. In some cases, however, compensation is sought through tort or restitutionary claims. These non-contractual claims are generally resolved through an analysis of the nature of the information and the circumstances of the submission that is fundamentally indistinguishable from the rules governing trade secrets. Some decisions explicitly incorporate such claims within the scope of trade secret law.
To sustain a claim in tort for the appropriation of an idea, most courts require the submitted idea to be "novel" in the sense of not being generally known (cf. Comment f) and sufficiently "concrete" to permit an assessment of its value and the fact of its use by the recipient (cf. Comment d). The courts also examine the circumstances of the disclosure to determine whether the recipient is bound by an obligation of confidentiality. Factors such as the relationship between the submitter and recipient, prior dealings between the parties, the customs of the industry, and the recipient's solicitation or opportunity to refuse the disclosure are relevant in determining the recipient's obligations. Cf. § 41.
With the rejection under the Uniform Trade Secrets Act and under this Section of any requirement of use by the owner of a trade secret, see Comment e, there is no longer a formal distinction between trade secrets and the ideas that form the subject matter of the idea submission cases. The developing rules governing the rights of submitters and recipients of ideas in the absence of an express or implied-in-fact contract can thus be understood as specific applications of the general rules stated here. The rules in this Restatement relating to the protection of trade secrets are therefore applicable, either directly or by analogy, to claims in tort alleging the appropriation of ideas.
Since the public and private interests favoring access to information that is in the public domain are also relevant in analyzing contractual claims, many jurisdictions require proof of novelty and concreteness for the enforcement of express or implied-in-fact contracts to pay for submitted ideas. Thus, the rules stated here may also be helpful in analyzing contractual liability in idea submission cases.
RESTATEMENT (THIRD) OF UNFAIR COMPETITION
CURRENT THROUGH JUNE 2009
CHAPTER 4. APPROPRIATION OF TRADE VALUES
TOPIC 2. TRADE SECRETS
§ 40. Appropriation Of Trade Secrets
One is subject to liability for the appropriation of another's trade secret if:
(a) the actor acquires by means that are improper under the rule stated in § 43 information that the actor knows or has reason to know is the other's trade secret; or
(b) the actor uses or discloses the other's trade secret without the other's consent and, at the time of the use or disclosure,
(1) the actor knows or has reason to know that the information is a trade secret that the actor acquired under circumstances creating a duty of confidence owed by the actor to the other under the rule stated in § 41; or
(2) the actor knows or has reason to know that the information is a trade secret that the actor acquired by means that are improper under the rule stated in § 43; or
(3) the actor knows or has reason to know that the information is a trade secret that the actor acquired from or through a person who acquired it by means that are improper under the rule stated in § 43 or whose disclosure of the trade secret constituted a breach of a duty of confidence owed to the other under the rule stated in § 41; or
(4) the actor knows or has reason to know that the information is a trade secret that the actor acquired through an accident or mistake, unless the acquisition was the result of the other's failure to take reasonable precautions to maintain the secrecy of the information.
Comment:
a. Scope. The rules stated in this Section are applicable to common law actions in tort or restitution for the appropriation of another's trade secret, however denominated, including actions for "misappropriation," "infringement," or "conversion" of a trade secret, actions for "unjust enrichment" based on the unauthorized use of a trade secret, and actions for "breach of confidence" in which the subject matter of the confidence is a trade secret. Except as otherwise noted, the rules governing trade secrets as stated in this Restatement are also intended to be consistent with and applicable to actions under the Uniform Trade Secrets Act. This Section does not govern the imposition of liability for conduct that infringes other protected interests such as interference with contractual relations (see Restatement, Second, Torts §§ 766-774A (1979)), breach of the duty of loyalty owed by an employee or other agent (see Restatement, Second, Agency §§ 387-398 (1958)), or a breach of confidence not involving a trade secret (see § 41, Comment c).
The rules stated in this Section are not applicable to actions for breach of contract, including breach of a promise not to use or disclose a trade secret or a promise not to compete with the owner of a trade secret. Such agreements are governed by the rules generally applicable to the formation and enforcement of contracts, including the limitations on the enforcement of contracts in restraint of trade stated in Restatement, Second, Contracts §§ 186-188 (1981). The rules stated in this Chapter, however, can be useful in interpreting and implementing the principles embodied in those limitations. See § 41, Comment d. The existence of an express or implied-in-fact contract protecting trade secrets does not preclude a separate cause of action in tort under the rules in this Section. The terms of the contract may be relevant to a number of issues in such an action, including the existence of a protectable trade secret (see § 39, Comment d) and the creation of a duty of confidence (see § 41, Comment b).
In an action for the appropriation of a trade secret, the plaintiff bears the burden of proving both a proprietary interest in information that qualifies for protection as a trade secret under the rule stated in § 39 and an acquisition, use, or disclosure of the information by the defendant in violation of the rules stated here. A proprietary interest sufficient for relief under this Section can arise through the discovery of a trade secret or through the acquisition of rights in a trade secret discovered by another. On the rights of an employer in trade secrets discovered by an employee, see § 42, Comment e. Since neither novelty nor absolute secrecy is a prerequisite for protection as a trade secret, see § 39, Comment f, each of several independent discoverers can have a proprietary interest in the same information.
b. Improper acquisition. The prior Restatement of this topic imposed liability only for the wrongful use or disclosure of another's trade secret. Improper acquisition of a trade secret was not independently actionable. See Restatement of Torts § 757 (1939). Wrongful use or disclosure is also frequently recited in the case law as an element of the cause of action for trade secret appropriation. The cases requiring proof of wrongful use or disclosure, however, typically involve information that has been acquired by the defendant through a confidential disclosure from the trade secret owner. In such cases the acquisition of the secret is not improper; only a subsequent use or disclosure in breach of the defendant's duty of confidence is wrongful. Even in these circumstances the courts have recognized a plaintiff's right to obtain relief prior to any wrongful use or disclosure if such misconduct by the defendant is sufficiently likely. See § 44, Comment c. A defendant's willingness to resort to improper means in order to acquire a trade secret is itself evidence of a substantial risk of subsequent use or disclosure. Subsection (a) of this Section follows the rule adopted in § 1(2)(i) of the Uniform Trade Secrets Act, which imposes liability for the acquisition of a trade secret by improper means. Thus, a person who obtains a trade secret through a wiretap or who induces or knowingly accepts a disclosure of the secret in breach of confidence is subject to liability. See § 43, Comment c. Subsequent use or disclosure of a trade secret that has been improperly acquired constitutes a further appropriation under the rule stated in Subsection (b)(2) of this Section. The relief available to the trade secret owner in such circumstances, however, may be more extensive than that available prior to any use or disclosure of the secret by the defendant.
c. Improper use or disclosure. There are no technical limitations on the nature of the conduct that constitutes "use" of a trade secret for purposes of the rules stated in Subsection (b). 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" under this Section. Thus, marketing goods that embody the trade secret, employing the trade secret in manufacturing or production, relying on the trade secret to assist or accelerate research or development, or soliciting customers through the use of information that is a trade secret (see § 42, Comment f) all constitute "use." The nature of the unauthorized use, however, is relevant in determining appropriate relief. See §§ 44 and 45.
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. Similarly, the actor need not use the trade secret in its original form. Thus, an actor is liable for using the trade secret with independently created improvements or modifications if the result is substantially derived from the trade secret. The extent to which the actor's sales or other benefits are attributable to such independent improvements or modifications, however, can affect the computation of monetary relief. See § 45, Comment f. 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 stated in Subsection (b). Although the trade secret owner bears the burden of proving unauthorized use, proof of the defendant's knowledge of the trade secret together with substantial similarities between the parties' products or processes may justify an inference of use by the defendant.
The owner of a trade secret may be injured by unauthorized disclosure of a trade secret as well as by unauthorized use. A public disclosure injures the trade secret owner by destroying the secrecy necessary for continued protection of the information as a trade secret. See § 39, Comment f. A private disclosure can increase the likelihood of both unauthorized use and further disclosure. An actor may thus be subject to liability under the circumstances described in Subsection (b) in connection with either a public or private disclosure of a trade secret. To subject the actor to liability, the unauthorized disclosure need not be express. Any conduct by the actor that enables another to learn the trade secret, including the sale or transfer of goods or other tangible objects from which the trade secret can be obtained, is a "disclosure" of the secret under the rules stated in this Section.
The unauthorized disclosure of a trade secret ordinarily occurs as part of an attempt to exploit the commercial value of the secret through use in competition with the trade secret owner or through a sale of the information to other potential users. The scope of liability at common law and under the Uniform Trade Secrets Act for disclosures that do not involve commercial exploitation of the secret information is unclear. If the trade secret is disclosed primarily for the purpose of causing harm to the trade secret owner, a court may properly conclude that the actor is subject to liability despite an absence of commercial exploitation. Thus, a former employee who publicly discloses trade secrets of the former employer in retaliation for a termination of the employment is subject to liability under this Section. In other circumstances, however, the disclosure of another's trade secret for purposes other than commercial exploitation may implicate the interest in freedom of expression or advance another significant public interest. A witness who is compelled by law to disclose another's trade secret during the course of a judicial proceeding, for example, is not subject to liability. The existence of a privilege to disclose another's trade secret depends upon the circumstances of the particular case, including the nature of the information, the purpose of the disclosure, and the means by which the actor acquired the information. A privilege is likely to be recognized, for example, in connection with the disclosure of information that is relevant to public health or safety, or to the commission of a crime or tort, or to other matters of substantial public concern.
d. Knowledge of wrongful possession. The owner of a trade secret is protected under Subsection (b) of this Section only against a use or disclosure of the trade secret that the actor knows or has reason to know is wrongful. If the actor has not acquired the information through a confidential disclosure from the trade secret owner, see Subsection (b)(1), use or disclosure of the information will not subject the actor to liability unless the actor knew or had reason to know that the use or disclosure was wrongful due to the manner in which the actor acquired the trade secret. See Subsection (b)(2)-(4). Thus, if an actor acquires a trade secret by improper means, such as by inducing or knowingly accepting a disclosure of the information from a third person that is in breach of a duty of confidence, the actor is subject to liability for any subsequent use or disclosure of the secret. See Subsection (b)(2). However, an actor who acquires a trade secret from a third person without notice of that person's breach of confidence has not acquired the information by improper means and is not subject to liability for use or disclosure unless the actor subsequently receives notice that its possession of the information is wrongful. See Subsection (b)(3).
To subject an actor to liability under the rules stated in Subsection (b)(2)-(4), the owner need not prove that the actor knew that its possession of the trade secret was wrongful; it is sufficient if the actor had reason to know. Thus, if a reasonable person in the position of the actor would have inferred that he or she was in wrongful possession of another's trade secret, the actor is subject to liability for any subsequent use or disclosure. A number of cases also subject an actor to liability if, based on the known facts, a reasonable person would have inquired further and learned that possession of the information was wrongful. Studious ignorance of the circumstances surrounding the acquisition of the information thus will not necessarily avoid liability under this Section. Among the facts relevant in establishing the actor's actual or constructive knowledge are the actor's knowledge of any precautions against disclosure taken by the trade secret owner, the actor's familiarity with industry customs or practices that would justify an assumption that a disclosure to the actor by a third person was unauthorized, information known to the actor regarding the nature of the relationship between the trade secret owner and the person from whom the actor acquired the secret, and any direct communications to the actor from the trade secret owner. The actor's reliance on claims of ownership or other assurances given by the person from whom the actor acquired the information is sufficient to avoid liability only if the actor's reliance is reasonable under the circumstances.
If an actor possesses the actual or constructive knowledge required under Subsection (b)(2)-(4) of this Section at the time of the initial acquisition of the secret, the actor is subject to liability for all use or disclosure of the trade secret. If the actor obtains such knowledge after acquisition of the trade secret, the actor is subject to liability for any use or disclosure occurring subsequent to receipt of the requisite knowledge, but is not liable for prior use or disclosure. However, although receipt of the requisite knowledge is sufficient to subject the actor to liability for subsequent conduct, the relief available to the trade secret owner may be limited by the equities of the case. Thus, if before receiving the required knowledge the actor has in good faith paid value for the trade secret, undertaken significant investment in equipment or research relating to the secret, or otherwise substantially changed its position in reliance on the information, the imposition of particular remedies for subsequent use or disclosure may be inappropriate. See § 44, Comment b; § 45, Comment b.