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Attorneys

Trade Secrets and “Susceptibility” to Reverse Engineering

February 10 2014

By James Kachmar

Sometimes a defendant accused of trade secret misappropriation can defend on the basis that it has “reversed engineered” the alleged trade secret information and therefore did not misappropriate it.  For instance, a defendant may be able to establish that it examined plaintiff’s product and then using its own know-how, time, energy and independent resources was able to recreate, i.e., reverse engineer, the trade secret information at issue such as a manufacturing process, software code, recipe or other trade secret.  It will then be up to the jury to determine whether a plaintiff has in fact proven that the defendant misappropriated its trade secret information or whether the defendant lawfully engaged in reverse engineering.   But what about a trade secret defense on the basis the alleged trade secret information is susceptible to reverse engineering?

In PQ Labs, Inc. v. Yang Qui, et al. (N.D. Cal.), the Court was recently faced with this issue on defendants’ motion for summary judgment to a trade secret misappropriation claim.  PQ Labs manufactures and develops hardware/software for computer touch screen products.  The individual defendants either worked with its sales force or with its manufacturing facility.  The individual defendants later formed a competing touch screen technology company in China and were alleged to have used confidential and trade secret information from PQ Labs to unlawfully compete with it.

The defendants moved for summary judgment as to the trade secret misappropriation claim arguing that the plaintiff had not taken reasonable efforts to maintain the secrecy of its trade secret information.  The plaintiff submitted evidence that it had: (1) instructed the individual defendants not to disclose the subject information; (2) had all of its employees enter into confidentiality agreements; and (3) taken steps to restrict access to the subject information as well as to their facilities.  The defendants argued, however, that plaintiff had not taken steps to prevent the possibility of having its trade secret information “reversed engineered.”  Essentially, the defendants argued that plaintiff’s trade secrets were “susceptible to reverse engineering” and therefore the trade secret claim failed as a matter of law.

Defendants did not offer any evidence that they had in fact “reversed engineered” the information at issue.  Rather, they offered deposition testimony during which one of the defendants opined that: “if you have billions of dollars, you can reverse engineer possibly everything.”

The Court found that this “belief” was insufficient to warrant summary judgment in the defendants’ favor, especially in light of the evidence plaintiff offered as to the steps it had taken to protect the information at issue.  Thus, a defendant in a trade secret case cannot avoid liability merely by arguing that the trade secret information at issue is “susceptible” to reverse engineering.  Rather, a defendant should try to establish that he or she in fact did reverse engineer the trade secret at issue if possible, including being able to demonstrate the steps he or she took, the independent source of information he or she used or referred to, as well as any knowledge unrelated to the claimed trade secret information that may have been utilized.  This could help persuade the finder of fact that no trade secrets were misappropriated.