Property, intangible

a blog about ownership of intellectual property rights and its licensing

Standing Without Ownership — If It’s a Trade Secret

Trade secret is a bit of the odd man out in intellectual property law. Trade secret arises under state law, not federal, and has no formalities: no recording of an interest or filing of an application is required. Something is a trade secret just because it’s a secret.

There aren’t a lot of a cases about ownership of a trade secret; in fact I only write about one post a year on trade secret. So here is this year’s post.

The question is who has standing to claim misappropriation of a trade secret, whether it is the owner only or also lawful users of the trade secret. In Advanced Fluid Systems, Inc. v. Huber, plaintiff AFS created trade secrets as part of a government contract for a rocket hydraulic motion control system. The government contract provided that the government would get “legal ownership to all inventions or works,” but AFS still had physical possession of the trade secrets and used them in a confidential manner to fufill its obligations. Defendant Huber, a former employee, was accused of misappropriating the trade secrets.

The defendants moved to dismiss the trade secret claim on the theory that AFS was not the owner of the trade secrets and therefore did not have standing. The court did a thorough rundown on the subject and followed the 4th Circuit decision in DTM Research, LLC v. AT&T Corp., 245 F.3d 327 (4th Cir. 2001), as a number of other courts have done (including Metso Minerals Industries, Inc. v. FLSmidth-Excel LLC, blogged here). The AFS court quoted DTM Research thus:

[T]he question of whether “fee simple ownership” is an element of a claim for misappropriation of a trade secret may not be particularly relevant in this context. While trade secrets are considered property for various analyses, the inherent nature of a trade secret limits the usefulness of an analogy to property in determining the elements of a trade-secret misappropriation claim. The conceptual difficulty arises from any assumption that knowledge can be owned as property. The “proprietary aspect” of a trade secret flows, not from the knowledge itself, but from its secrecy. It is the secret aspect of the knowledge that provides value to the person having the knowledge. While the information forming the basis of a trade secret can be transferred, as with personal property, its continuing secrecy provides the value, and any general disclosure destroys the value.

“In other words, it is the possession of the secret, not the possession of some abstract or academic legal right of ownership in the secret, which is proprietary and which entitles the possessor to trade secret protection.” Motion to dismiss the trade secret claim was denied.

Advanced Fluid Systems, Inc. v. Huber, No. 1:13-CV-3087 (M.D. Pa. June 18, 2014).

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One response to “Standing Without Ownership — If It’s a Trade Secret”

  1. […] secret in order to state a claim. There are decisions interpreting at least Maryland, Wisconsin and Pennsylvania law that ownership of the trade secret is not a requirement for a claim of […]

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