The Third Circuit has now added its voice to that of the Fourth and Tenth Circuits in holding on April 30, 2020, in Advanced Fluid Sys., Inc. v. Huber, No. 19-1722, 2020 WL 2078298 (3rd Cir. Apr. 30, 2020), applying Pennsylvania law, that ownership of a trade secret is not a prerequisite for a claim under the Uniform Trade Secrets Act, and that possession is sufficient. It adopted the reasoning of the Fourth Circuit decision in DTM Research, L.L.C. v. AT & T Corp., 245 F.3d 327 (4th Cir. 2001). The Tenth Circuit has also followed DTM in applying Oklahoma law and finding ownership was not a prerequisite. Gaedeke Holdings VII LTD v. Baker, 683 F. App’x 677, 684 (10th Cir. 2017). We agree with this result, and urge that this be the view for New Jersey courts to follow, as the issue does not appear to have arisen expressly here. Trade secrets are frequently licensed, and these decisions give the licensee, as well as the owner, the right and standing to protect their secrecy and be compensated for unlawful disclosure and use.
Factually, the Advanced Fluid court referred to a “sorry story of disloyalty and deception piled upon deception resulted in verdicts against the wrongdoers,” which result the court found “entirely justified.” Defendant Huber “stole confidential information” from his employer Advanced Fluid to “ingratiate himself” with a competitor (his second employer), and then created his own company to compete against his both his former and subsequent employer, winning the bid for the project issued by another defendant, thereby deceiving both of his employers and benefiting his new company.
Of relevance was that the trade secret at issue was confidential information deemed as such that was imparted to the Advanced Fluid by a contractor for a hydraulic system for a NASA rocket launch. The main challenge to the verdict on appeal by Huber was that plaintiff could not prevail because it did not “own” the trade secret. The court followed the conclusion of DTM that lawful possession and not “ownership in its traditional sense” was sufficient, since “the proprietary aspect of a trade secret flows, not from the knowledge itself, but from its secrecy, because 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.” (internal punctuation omitted). Advanced Fluid noted that requiring per se ownership fails to take into account the “substantial interest that lawful possessor of the secrets have in the value of that secrecy,” and further, the statute did not impose an ownership requirement.
The New Jersey Trade Secrets Act, which in certain places deviates from the uniform act, nonetheless is silent on the issue of ownership. In Rycoline Prod., Inc. v. Walsh, 334 N.J. Super. 62 (App. Div. 2000), the court prefaced its statement of the elements of the claim by stating that to prevail on a misappropriation of trade secret claim in New Jersey “a trade secret owner must establish” the specified items. It did not address whether possession was enough as that was not a fact before it.
In short, the issue does not appear to have been addressed head on in New Jersey. The Advanced Fluid result is the right one. To the extent that the New Jersey Uniform Trade Secrets Act “supersede[s] conflicting tort, restitutionary, and other law of this State providing civil remedies for misappropriation of a trade secret,” N.J.S.A. § 56:15-9, it does not preclude other common law or statutory remedies. It would make no sense to preclude the possessor of a trade secret, transmitted pursuant to a confidentiality provision as part of that arrangement, to be without a remedy under the act where it may well be obligated to indemnify and defend its partner who transmitted that secret to it. It is only a matter of time before it is raised, and we urge the New Jersey courts to follow what appears to be a majority (and growing) position in support of relief for the possessor, and not just the owner, of the trade secret.
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May 31, 2020 at 09:00PM
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Third Circuit Got it Right on Trade Secret Standing | New Jersey Law Journal - Law.com
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