In today’s hyper-competitive market, protecting intellectual property and innovations is more critical than ever. Consider how Apple made headlines in 2022 for its legal battle with a stealth startup, Rivos, alleging misappropriation of trade secrets related to its System-on-Chip (SoC) technology and design. The company claimed that Rivos lured away more than forty employees who had access to confidential data. You don’t have to be Apple to understand the frustration—imagine investing billions into proprietary technology only to see former engineers walk out with valuable trade secrets. This incident is just one of many examples of trade secret misappropriation in the tech world.
Intellectual property (IP) assets like trade secrets—including formulas, algorithms, industrial processes, or scientific methodologies—form the backbone of many pharmaceutical, technology, and food and beverage companies. In recent years, IP litigation involving misappropriation of a trade secret has been on the rise as organizations fight to safeguard their competitive advantage and innovation.
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In one of their July 2024 reports, Mondaq stated that (at the time of publishing) more than 1300 trade secrets misappropriation cases were filed in the US district courts, and the numbers were likely to increase by the end of this year.
In this blog, we explore key aspects of misappropriation of trade secrets, relevant laws for protection, and how expert testimony—such as that from a trade secret expert witness or a software trade secret expert witness—can play a crucial role in resolving disputes and strengthening a company’s IP defense.
What is Trade Secret Misappropriation?
Trade secrets are one of the intellectual property rights (IPRs) on confidential information regarding a company’s asset(s). It can be sold or licensed out with the company’s consent alone. When someone steals or discloses such sensitive information to a third party without permission, it’s called misappropriation of trade secrets.
A trade secret derives an economic value from its secrecy. So misappropriation can have serious financial consequences for the company and the entire economy. It shouldn’t come as a surprise that when sensitive information is stolen, it leads to significant losses in revenue, market share, and consumer trust.
According to a report by GCPIT, the global legal services market was valued at around $1.8+ trillion in 2023, and a major portion of it catered to IP law, including litigation related to trade secret thefts. It also stated that the U.S. Chamber of Commerce estimated around $300 to $600 billion worth of the country’s economy was being compromised annually due to trade secret thefts.
It’s a huge financial blow for a country like the US, which is far ahead with market size, tech, and innovations. Now, imagine the financial impact of such IP thefts on a smaller, developing country.
Once a trade secret is misappropriated and exploited, it generally loses its original credibility and is thus no longer safe (or secret anymore). Due to such incidents, it is crucial to protect trade secrets very closely and uphold the company’s reputation.
Misappropriation of a trade secret can occur via:
- Breach of confidentiality or non-disclosure agreements (NDAs)
- Unauthorized publication and disclosure to the public
- Theft of software code, algorithm, pharmaceutical formulation, etc.
- Fraud or deceiving someone to access confidential information
- Bribing for money or favors in exchange for trade secrets
- Cyberattacks may lead to the loss of confidential data and trade secrets.
If you own the IPR to unique formula, process, algorithm, etc., get legal advice or seek help from the leading IP consulting firms like Lumenci on how to protect these trade secrets. At Lumenci, the legal team will assist you in technical valuation and strategic advice related to IP litigation and patent monetization.
Similar to trade secrets, software can also be protected. You can read more on how to protect software using intellectual property rights.
Legal Framework to Protect Trade Secrets
An important question arises here—how do we protect trade secrets in today’s competitive world? Global companies must rely on strong legal frameworks to safeguard trade secrets.
There are several laws that provide legal backing for the plaintiffs:
Defend Trade Secrets Act (DTSA)
- DTSA was signed into law by former President Barack Obama in May 2016.
- It allows American companies to take legal action in federal courts against those who misappropriate trade secrets.
Uniform Trade Secrets Act (UTSA)
- UTSA was created by the Uniform Law Commission (ULC) in the US.
- The UTSA outlines legal remedies for misappropriation–such as injunctions and monetary compensation, ensuring IP protection across jurisdictions.
- As of 2024, 48 states, including the U.S. Virgin Islands, District of Columbia, and Puerto Rico, have adopted the UTSA.
Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement
- TRIPS provides an international framework for protecting trade secrets across different member countries of the World Trade Organization (WTO).
- TRIPS ensures that companies operating internationally can rely on legal guidelines across borders.
Legal Remedies to Tackle Trade Secret Misappropriation
Companies can turn to legal remedies to seek justice and protect their inventions. The appropriate legal actions can help reduce damages and prevent further misuse of trade secrets.
Injunctive relief or Injunction
Injunctive relief is a court order that prohibits the accused party from using or disclosing the misappropriated trade secrets. This action is often sought as a first legal step, as it prevents further harm while the case is ongoing. It is important to note that once the trade secret ceases to exist, the injunction can be terminated.
Award damages
Usually, when lawsuits are filed against the misappropriator, damages are settled with money. As per UTSA, the monetary damages are measured by the actual loss and any resulting unjust enrichment of the misappropriator.
Negotiations and settlements
Many times, parties involved in such lawsuits may try to negotiate settlements to resolve the issue without taking the long, legal route. This method saves time and costs while trying to navigate a way out with a mutually agreeable solution. It may include licensing or signing confidentiality agreements to protect trade secrets.
Filing a lawsuit
If the situation needs a more formal approach, the company can file a lawsuit against the misappropriator. Depending on the severity of the misappropriation of trade secrets, the court judgment can include an injunction, fine, or even criminal charges.
At Lumenci, our team of 100+ experts combines deep domain knowledge with cutting-edge automation technologies to maximize the value of your intellectual property. From patent monetization and due diligence to litigation discovery, we provide all the support throughout the IP lifecycle.
If you need more insights, contact our team today to explore tailored solutions for your businesses or companies. Let us help you safeguard and grow your innovations.
High-Profile Lawsuits on Trade Secret Misappropriation
Let us discuss some of the famous IP litigation cases in more detail:
Coca-Cola vs. PepsiCo
Coca-Cola has kept its formula, a trade secret for over a century now. The unique formula for making this globally popular beverage is unknown to people outside the company.
In 2006, many employees were accused of disclosing information about new product launches and marketing strategies to their direct competitor—PepsiCo. Coca-Cola informed the Federal Bureau of Investigation (FBI), which led to several arrests and criminal charges. Coca-Cola of course managed to protect its formula, but the incident reminds us to remain alert in safeguarding IP ideas.
Google vs. Uber
Another major trade secret trial was between Google and Uber. In 2017, Uber was accused of stealing Google’s self-driving car technology, Waymo, through a former engineer at Google who later joined Uber’s autonomous vehicle division. Eventually, Uber reached a settlement valued at $245 million.
Tesla vs. Former employee
In 2020, Tesla filed a case against one of their former workers, Martin Tripp for stealing trade secrets related to the manufacturing process. Elon Musk sued Tripp for $167 million for damages, but later settled for $400,000.
This indicates the importance of having robust security systems in place along with other legal agreements. These measures will help protect the trade secrets during the employees’ transitions.
DXC vs. TCS
In June 2024, DXC Technology Company (DXC), formerly known as Computer Sciences Corporation (CSC), accused India’s largest IT-service exporter, Tata Consultancy Services (TCS), of misappropriating trade secrets. The US Court ordered TCS to pay a total of $194.2 million penalty. It also imposed injunctions and other reliefs against the company.
How to Avoid Misappropriation of Trade Secrets
It’s frankly a devastating experience to find out that your company’s trade secret has been leaked or disclosed to others. But the good news? There are practical measures you can take to avoid such a scenario:
- NDAs to legally bind people to confidentiality.
- Robust cybersecurity to prevent unauthorized data access.
- Restrict access to trade secrets only to those who need them.
Final Thoughts
Misappropriation of trade secrets can have drastic impacts on businesses. By taking proactive steps and seeking help from IP professionals, companies can protect their secrets and stand out in the market. Navigating trade secret protection or IP litigation is a tedious process and cannot be handled alone.
At Lumenci, we understand the complexities of protecting intellectual property and how much value it holds to the owner. Our expert team will provide you with all the guidance and measures needed to deal with such litigation.
About Lumenci
Lumenci’s global presence with offices in the US and India brings together over a hundred experts in technical and damage-valuation fields to offer comprehensive solutions to protect intellectual property worldwide. With a proven history of success in over 300+ IP litigations, 70K+ patent analyses and 175+ clients, Lumenci’s expert team is dedicated to safeguarding your innovations. The in-depth industry knowledge, combined with advanced automation technologies, ensures that all your legalities are taken care of, under one roof.
Visit us at lumenci.com to learn more or connect with us on LinkedIn and X for the latest updates. Let Lumenci be your trusted partner in defending and securing your ideas!
