By: Allison Zweng

The Uniform Trade Secrets Act (UTSA) defines a trade secret as “information, including a formula, pattern, compilation, program device, method, technique, or process, that: 1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and 2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”[i] Trade secrets are a valuable form of intellectual property and possess some desirable characteristics. First, trade secrets can be immediately available. There is no filing or dealing with a government agent of any kind.[ii] Next, trade secrets do not expire as long as the information remains secret and stays in use by its owner.[iii] So, it is important that the holder of a trade secret take care to maintain its secrecy in order for the trade secret to remain valid.[iv] Lastly, trade secrets can protect abstract ideas which cannot be protected by patents.[v]

Despite their many positives, trade secrets possess an unfortunate down: vulnerability to reverse engineering. Reverse engineering is the process of “working backward from an available product to understand what its parts are, how it functions and/or how it was made.”[vi] Generally, reverse engineering is allowed under the Defend Trade Secrets Act (DTSA), but the misappropriation of trade secrets is prohibited.[vii] Misappropriation of trade secrets would include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.”[viii] For example, “a company that obtains a competitor’s product through deception leaves itself open to a challenge of trade secret misappropriation….”[ix] So, as long as the product is not obtained through an improper means, then reverse engineering is allowed. To summarize, a competitor can fairly obtain another company’s product and work backwards from that product to discover how it works and then use the information gained to compete.[x]

Reverse engineering is not inevitable. One way to protect against reverse engineering is by incorporating strategies to conceal sensitive technology in your product.[xi] An example of this could be an electronics maker that encloses its proprietary microchip in an unbreakable casing to discourage and frustrate efforts to reverse engineer it.[xii] Another way that a company can protect against reverse engineering is through contracting (although states take different views on the remedies available for breach of contract regarding trade secrets). For example, end-user licensing agreements are contained in some software in which the end user agrees not to reverse engineer the software.[xiii] Another example of a binding contractual agreement that could offer some protection from reverse engineering is a nondisclosure agreement between two parties that would “provide innovators with a clear, enforceable tool against individuals or businesses that give competitors access to protected technology.”[xiv] For example, a nondisclosure agreement would be useful in a scenario in which a trade secret must be disclosed to another party in order to manufacture a product. The manufacturer would sign a nondisclosure agreement promising not to disclose the trade secret to any other individual or company. Nondisclosure agreements can also be used between employers and employees in which employees promise not to disclose trade secrets of the employer. As mentioned previously, these contractual agreements do not always provide full protection and remedies against reverse engineering and trade secret misappropriation as states differ in their approach regarding contracting about trade secrets. However, they are still a good idea and may provide some protection and remedies for breach of contract that could be valuable.

It may seem counterintuitive that reverse engineering is allowed because it seems unfair to the holder of the trade secret. However, a few convincing policy reasons have been given to justify the allowance of reverse engineering in discovering trade secrets. One reason is that “the sale of the product is akin to a publication.”[xv] This means that if the company puts their product out into the world, they are essentially publishing it and giving the public access to their product, and thus access to their trade secret if it is not sufficiently kept secret within the product. Another reason that reverse engineering is a valid means of discovering a trade secret is that reverse engineering spurs innovation as it encourages inventors to apply for patents and to search for patentable ideas.[xvi] If a product is relatively easy to reverse engineer, then that provides an incentive for the inventor to patent his idea if it is eligible, making the new technology easily available to the public which further spurs innovation.

Overall, utilizing trade secrets can be advantageous for a company looking to protect its intellectual property. When utilizing trade secret protection, it is important to be aware that reverse engineering is an allowable method for discovery of trade secrets. This will encourage companies to better protect their trade secrets and prepare to enforce them if necessary.

 

 

 

[i] https://foleyhoag.com/~/media/Files/Publications/eBooks/FoleyHoag_Trade_Secrets_eBook.ashx

[ii] https://foleyhoag.com/~/media/Files/Publications/eBooks/FoleyHoag_Trade_Secrets_eBook.ashx

[iii] https://foleyhoag.com/~/media/Files/Publications/eBooks/FoleyHoag_Trade_Secrets_eBook.ashx

[iv] https://foleyhoag.com/~/media/Files/Publications/eBooks/FoleyHoag_Trade_Secrets_eBook.ashx

[v] https://www.whglawfirm.com/top-4-advantages-of-trade-secret-protection/

[vi] https://www.jdsupra.com/legalnews/is-reverse-engineering-misappropriation-96161/

[vii] https://www.jdsupra.com/legalnews/is-reverse-engineering-misappropriation-96161/

[viii] https://www.jdsupra.com/legalnews/is-reverse-engineering-misappropriation-96161/

[ix] https://foleyhoag.com/~/media/Files/Publications/eBooks/FoleyHoag_Trade_Secrets_eBook.ashx

[x] https://foleyhoag.com/~/media/Files/Publications/eBooks/FoleyHoag_Trade_Secrets_eBook.ashx

[xi] https://peillaw.com/the-legalities-of-reverse-engineering/

[xii] https://peillaw.com/the-legalities-of-reverse-engineering/

[xiii] https://www.justia.com/intellectual-property/trade-secrets/infringement/

[xiv] https://peillaw.com/the-legalities-of-reverse-engineering/

[xv] https://foleyhoag.com/~/media/Files/Publications/eBooks/FoleyHoag_Trade_Secrets_eBook.ashx

[xvi] https://foleyhoag.com/~/media/Files/Publications/eBooks/FoleyHoag_Trade_Secrets_eBook.ashx