Published in the ABA Business & Commercial Litigation Newsletter/Fall 2005
Co-authored by Jeffrey K. Riffer and Joanna H. Kim
Under the Uniform Trade Secrets Act (UTSA), a defendant can assert as a defense to a claim for misapropriation of trade secrets that the information in question is readily ascertainable by proper means. The underlying concept, as stated by the Supreme Court, is that a trade secret forfeits its protection if discovered by means such as “independent invention, accidental disclosure, or by so-called reverse engineering, that is by starting with the known product and working backward to divine the process which aided in its development or manufacture.” This article explores how courts have applied the concept of reverse engineering.
ls Reverse Engineering Possible?
Some courts have held that so long as the trade secret can theoretically be reverse engineered, it cannot be a trade secret. In Midland-Ross Corp. v. Sunbeam Equipment Corp., the Western District of Pennsylvania held that “[t]he sale of a product containing trade secrets constitute[s] a public disclosure which defeats acclaim founded upon those trade secrets where the nature of the trade secrets is ascertainable by inspection of the product.” In reference no the products at issue-two types of furnaces—the court reasoned that ‘[e]ven though a marketed product would have to be rendered inoperative and examined by a skilled engineer in order for a discovery robe made of the trade secrets contained therein. The sale of such a product nevertheless constitutes a public disclosure which will defeat a claim founded upon the trade secret contained in the product.” The court paid no mind to the actual time, expense, and effort to conduct such reverse engineering.
Similarly, in Carson Products v. Califano, the Fifth Circuit held that because “[a]ny competitor wishing to find the identity of the [secret ingredient] in the [product] could. by doing its homework of studying [certain] available sources, readily ascertain its presence in [the product]. “Based on ‘considerable authority,” another court went as far to opine that “[t]he obvious implication is that a public sale obliterate: any trade secret embodied in the particular article sold.“
These cases suggest that regardless of the time, expense, and effort to reverse engineer a product sold to the public, so long as it can theoretically be reverse engineered, the trade secret of the technology underlying that product loses its protection. Put another way, if a product can theoretically be reverse engineered, then that technology underlying the product is “readily ascertainable.”
An Alternative View
ln contrast other courts have suggested that information does not lose its trade secret protection where discovery through lawful means would require signiﬁcant time, expense, or effort. For example, in Crane Helicopter Services v. United States, the Court of Federal Claims examined evidence about the differences between two types of helicopters no determine whether those materials were trade secrets that properly should be filed under seal. Crane argued that the material was not a trade secret because both helicopters were sold in the marketplace and anyone could compare the parts used in each machine. The court disagreed:
A person attempting to discern the differences would have to inspect every part on each aircraft… The inspection would not only require a thorough observation of the aircraft, but also would necessitate that the person take apart both Aircraft… The court, therefore, finds that discovering the differences between the two aircrafts would be time consuming, difficult and costly and, thus, not readily ascertainable.°
Similarly, in Barr-Mullin, Inc. v. Browning, the North Carolina Court of Appeals determined that certain software was a protectable trade secret even though it could be reverse engineered because it was very difficult to reverse engineer the software using only the object code that was publicly available. According to the court. “[a] party asserting the existence of a trade secret does not have to establish the impossibility of reverse engineering.” Plaintiff must merely show the alleged trade secret was not “readily ascertainable through…reverse engineering!”
Other courts have agreed. The Indiana Supreme Court held in Amoco v. Laird that, “consistent with the interpretation of the UTSA in other jurisdictions, where the duplication or acquisition of alleged trade secret information requires a substantial investment of time, expense, or effort, such information may be found ‘not being readily ascertainable’ so as to qualify for protection under the Indiana Uniform Trade Secrets Act.” And an Illinois appellate opinion summarized: [T]he key to “secrecy” is the ease with which information can be developed through other proper means: if the information can be readily duplicated without involving considerable time. effort or expense, then it is not secret. Conversely, information which can be duplicated only by an expensive and time-consuming method of reverse engineering, for instance. could be secret, and the ability to duplicate it would not constitute a defense.”
In California, the defense of reverse engineering is even more limited. California omits the ‘readily ascertainable” language in adopting the UTSA, and therefore that concept is not part of the deﬁnition of a trade secret in California. As one court summarized: “In short, our Legislature chose to exclude from the definition only that information which the industry already knows, as opposed to that which the industry could easily discover.” In other words, unless the product in question was actually reverse engineered using lawful means. the fact that it could theoretically have been readily reverse engineered is irrelevant. Unlike many other jurisdictions, a defendant in California cannot argue that certain information is not a trade secret because a product would be easy to reverse engineer, unless the product had actually been reverse engineered and the information consequently divulged to the industry.
The courts have not reached a consensus regarding whether a manufacturer can claim a trade secret in the materials or components of its product. Several courts have held that there can be no trade “secret” because a purchaser of the product can learn the secret by reverse engineering the product. However, other courts have held that where the “secret” can be ascertained only by reverse engineering, which would be time-consuming, difficult, and costly, the manufacturer has a protectable trade secret.