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Reverse Engineering: Trade Secret Misappropriation or Not?

Mon Jan 31st, 2022 by  Trade Secrets

A trade secret is any information that derives value by virtue of it being unknown, including recipes, product plans, and customer lists, among many others. Trade secrets can be extremely valuable for companies that hold them. A particularly famous example is the recipe for Coca-Cola, which for many years was kept in a locked vault in Atlanta. On the other hand, loss of trade secret protection can be financially devastating, potentially even driving a company out of business. But not all losses of trade secrets are legally actionable; some, such as those that occur as a result of reverse engineering, are generally legal, as an Alabama IP litigation lawyer explains. 

Proving the Existence of a Trade Secret 

There are two requirements to establish the existence of a trade secret. First, the information must derive value primarily by being unknown to others. Second, the information must be the subject of reasonable efforts to maintain its secrecy. If the information derives no value from its secrecy, it cannot be a trade secret. Likewise, even if the information does derive value from its secrecy but the holder makes no special efforts to maintain that secrecy, it will not be considered a trade secret.  

What Is Trade Secret Misappropriation? 

Trade secret protection remains as force as long as the information remains secret. Once the information is revealed, trade secret protection ends, which can result in serious financial setbacks for the trade secret holder. Trade secret misappropriation is a type of IP infringement that occurs where a person acquires a trade secret or improperly discloses it without authorization. This can occur in a variety of ways, such as through industrial espionage, theft, fraud, and bribery. It can also occur where the person who steals or discloses the trade secret owed a duty of confidentiality to the trade secret’s owner, such as through a nondisclosure agreement. 

Reverse Engineering Is (Usually) Not Trade Secret Misappropriation

Not all disclosures of trade secrets amount to misappropriation. For example, independent discovery by a third party and inadvertent disclosure by the trade secret owner are two such situations. Another, and one of the most common, is reverse engineering, wherein a third party works backward from a finished product to figure out how it works or what its ingredients are. This type of disclosure of trade secrets is generally not considered misappropriation. There are several reasons why this is the case; one is that selling a product on the open market is considered a form of “publication,” while another is that reverse engineering encourages innovation. However, reverse engineering may be considered misappropriation where the reverse engineer (1) obtains the product through illegal means, or (2) is under a contractual obligation to the trade secret owner not to engage in reverse engineering. 

Contact an Alabama IP Litigation Lawyer for Further Guidance

While reverse engineering generally is not considered trade secret misappropriation, it can subject the reverse engineer to misappropriation allegations from the trade secret owner. For more information about trade secret misappropriation, please contact an Alabama IP litigation lawyer at AdamsIP by calling 251-289-9787 or by using our online contact form.