Trade secrets / moderator liability

[Greg Broiles <gbroiles@c2.net>]

As reported by Michael Froomkin's correspondent, the Uniform Trade Secrets
Act <http://www.execpc.com/~mhallign/usta.html> (enacted with local
modifications in, as I understand it, 40 states, among them California)
says that third parties may be held liable for misappropriation of a trade
secret where the third party knows or has reason to know that they are
doing so.

For example, California Civil Code section 3426.3 says:

3426.3.(a) A complainant may recover damages for the actual loss caused by
misappropriation.  A complainant also may recover for the unjust enrichment
caused by misappropriation that is not taken into account in computing
damages for actual loss.
   	(b) If neither damages nor unjust enrichment caused by misappropriation
are provable, the court may order payment of a reasonable royalty for no
longer than the period of time the use could have been prohibited.
	(c) If willful and malicious misappropriation exists, the court may award
exemplary damages in an amount not exceeding twice any award made under
subdivision (a) or (b).

And misappropriation is defined in California Civil Code section 3426(1)(b)
as:

(1) Acquisition of a trade secret of another by a person who knows or has
reason to know that the trade secret was acquired by improper means; or
(2) Disclosure or use of a trade secret of another without express or
implied consent by a person who:
   (A) Used improper means to acquire knowledge of the trade secret;
or
   (B) At the time of disclosure or use, knew or had reason to know that
his or her knowledge of the trade secret was:
   (i) Derived from or through a person who had utilized improper means to
acquire it;
   (ii) Acquired under circumstances giving rise to a duty to maintain its
secrecy or limit its use; or
   (iii) Derived from or through a person who owed a duty to the person
seeking relief to maintain its secrecy or limit its use; or
   (C) Before a material change of his or her position, knew or had reason
to know that it was a trade secret and that knowledge of it had been
acquired by accident or mistake.

My other concern about moderator liability for approving/distributing trade
secret material is in the criminal context. For example, the Economic
Espionage Act of 1996 (HR 3723, now found at 18 USC 1831 et seq,
<ftp://ftp.loc.gov/pub/thomas/c104/h3723.enr.txt> ) says that some trade
secret violations are now a federal crime; and California Penal Code
section 499c(b) also criminalizes some wrongful acts relating to trade
secrets. Specifically, I think it's feasible to find aiding & abetting
(and, more remotely, conspiracy) liability where a moderator knowingly and
substantially contributes to public disclosure of a trade secret. 

It seems to me that there's a murky middle period, where the trade secret
is known to some wrong people, but is still substantially a secret, where
third party liability is present. But once a wide distribution of the
secret is made, I don't think it's meaningful to talk about further
distribution as misappropriation. If there's no common-sense "it's no
longer a secret" safety valve, trade secret would provide time-unlimited
protection to publically available information, which I think would be
preempted by (or frustrate the purpose of) Congress' limited grants of
protection to information via patent and copyright. But this is only my
conjecture about how things ought to work, given the responsibilities
created for third parties by statutes like the UTSA; I don't know of cases
on this issue and given my work/bar review schedule, won't have time to
find them any time soon.

Also, as I mentioned in my previous message, I think there are good
arguments that neither of the prominent trade secret disclosures I'm
familiar with that have occurred (in part) via the list would create
moderator liability. I'm mentioning moderator liability (and writing what's
turning into a long message about it) not because I think it's an
especially big danger but because I think it's an interesting public policy
issue. 

I don't have the teeniest clue how other nations' laws might treat third
parties who assist or enable the wide dissemination of trade secret
materials. Perhaps other list members can offer a local perspective. 


--
Greg Broiles
gbroiles@c2.net
510-986-8779 voice
510-986-8777 fax