In January 2012, New Jersey enacted the New Jersey Trade Secrets Act (NJTSA), N.J.S.A. 56:15-1 et seq., based on the Uniform Trade Secrets Act (UTSA). Under the New Jersey statute, it is not a defense to a misappropriation claim that “proper means to acquire the trade secret existed” at the time a trade secret was misappropriated (N.J.S.A. 56:15-5). However, proof that stolen information was, or could have been, reverse engineered may be a defense to whether it was a “trade secret” in the first place.
The NJTSA defines a trade secret as having been “subject to efforts that are reasonable under the circumstances to maintain its secrecy,” and having “economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use.” N.J.S.A. 56:15-2. “Proper means” includes reverse engineering.
“Reverse engineering,” in turn, is defined as “working backward” to analyze a “known product” that was obtained “lawful[y] or from sources having the legal right to convey it, such as the purchase of the item on the open market,” in this context, to discern secret information needed to make or reproduce a competitor’s trade secret. That “product” can be a “formula, pattern, business data compilation, program, device, method, technique, design, diagram, drawing, invention, plan, procedure, prototype or process.”
To evaluate reverse engineering arguments, New Jersey courts will likely examine decisions from other states that have adopted or are influenced by the USTSA. Brigham Young Univ. v. Pfizer, 2012 WL 1029, *2 n. 15 (D. Utah 2012). Under the UTSA, a misappropriation defendant cannot contend that proprietary information is not a trade secret merely because it can be reverse engineered. If the information has been disclosed using a confidentiality agreement or other reasonable step to preserve its secrecy, then it may be a trade secret even if it is subject to reverse engineering. However, once the information has been “publicly disclosed,” then “the ease” with which it can be reverse engineered can determine whether it is a trade secret. Walker Mfg. v. Hoffman, 261 F.Supp.2d. 1054, 1082 (N.D. Iowa 2003).
The Ease or Difficulty of Reverse Engineering
Under the USTA, courts measure the ease of reverse engineering based on whether that process “would require a substantial investment of time, effort and energy,” Avidair Helicopter Supply v. Rolls-Royce Corp., 663 F.3d 966, 972 (8th Cir. 2012), which is an extremely fact-sensitive analysis. For example, in Cemen Tech v. Three D Indus., 753 N.W.2d 1, 9 (Iowa S.Ct. 2008), the ability to reverse engineer a cement mixer in six months did not defeat the plaintiff’s misappropriation claim because of the economic value of the plaintiff’s advantage during that “short” time period.
In Televation Telecomm.Sys. v. Saindon, 522 N.E.2d 1359 (Ill. App. 1988), analog circuitry was deemed a trade secret because it would take nine months to two years to reverse engineer. And the court in Analog Devices v. Michalski, 579 S.E.2d 449 and n. 1 (N.C. App. 2003), upheld the denial of a preliminary injunction because integrated circuits could be reverse engineered in 12 weeks.
In Berster Technologies v. Christmas, 2012 WL 33031,*9-10 (E.D.Cal. 2012), the court granted a preliminary injunction because reverse engineering codes for computer games required “sophisticated techniques informed by highly advanced reverse engineering experience.” The court in Agilent Technologies v. Kirkland, 2010 WL 610725, *19 (Del.Ch. 2010), found that processes for creating particles and solvents for liquid chromatography columns were trade secrets because reverse engineering required the “tedious process of testing molecular combinations with a variety of other components.”
Reverse Engineering a Partially Disclosed Trade Secret
Evaluating whether a product or formula is not a trade secret becomes more complicated when only part of that information was publicly available. The “fact that some or even most of the information was publicly available is not dispositive.” Avidair Helicopter Supply, 663 F.3d at 972. The court in Avidair went on to state that:
Compilation of non-secret and secret information can be valuable so long as the combination affords a competitive advantage and is not readily ascertainable. Compilations are valuable, not because of the quantum of secret information, but because of the expenditure of time, effort, and expense involved in its compilation gives a business a competitive advantage. This value is not dependent on how much of the information is otherwise unavailable because “the effort of compiling useful information is, of itself, entitled to protection even if the information is otherwise generally known.”
Similarly, protection of a process comprised of published components “turns on how easy or difficult it is to assemble the relevant elements into the secret combination.” Uniram Tech. v. Taiwan Semiconductor Mfg. Co., 617 F.Supp.2d 938, 943 (N.D.Cal.2007). If all the individual parts of a process are in the public domain, so that the entire process is ascertainable through independent development, then that entire process may lose any trade secret protection. Softchoice Corp. v. MacKenzie, 636 F.Supp.2d 927, 936-39 (D.Neb. 2009). If only part of the process becomes known, but other steps remain undisclosed, then the secret steps may maintain trade secret protection. See Coca–Cola Bottling Co. of Shreveport v. Coca–Cola Co., 107 F.R.D. 288, 289 (D.Del.1985). For example:
Although most of the ingredients of Coca–Cola are publicly known, the complete formula is one of the best-kept trade secrets in the world If, however, Coca–Cola’s potential competitors uncovered from various public sources not just the ingredients for the beverage, but also the exact measures of those ingredients with the proper mixing methods, times, and temperatures, so that the competitors could recreate the beverage from the discovered components, the formula itself would lose its trade secret protection. If a competitor were to discover which “natural flavors” the company adds to the recipe through legitimate outside sources, part of the process would lose trade secret protection, though the rest of the formula could remain protected.
SCR-Tech v. Evonik Energy Services, 2011 WL 3209080, *12 n. 119 (N.C. Sup. Ct. 2011).
if the Coca–Cola formula consists of a combination of ten nonsecret ingredients, then a document which lists those ten ingredients in the middle of a sea of other chemicals might not constitute adequate disclosure of the formula because the precise recipe would be too difficult to derive. In that instance, it may be unfair to hold accountable trade secret defendants for picking out the ten ingredients from a very long list and contending that those ten and only those ten would have some special benefit once combined. On the other hand, if the list has only eleven ingredients, and if one skilled in the relevant art or science viewing the list would likely know that the formula was a combination of ten of the ingredients, then the matter is quite different.
Id. at n.118; see also Merck & Co. v. Smithkline Beecham Pharmaceutical Co., 1999 WL 669354, *21 (Del. Ch. 1999) (“[M]isappropriation occurs even where the trade secret is used only as a starting point in developing a process” or where merely used “to understand ‘what pitfalls to avoid.’”)
Most trade-secret plaintiffs will seek an injunction barring the defendants from using or disclosing their information, in part to avoid being limited to a somewhat Pyrrhic victory, where they prove their claim but lose the secrecy of their proprietary information. Applications for injunctions may well depend on presenting overwhelming, expert-supported and often complex evidence that the trade secret cannot be easily reverse engineered.
For example, in General Power Products v. MTD Products, 2006 WL 3692953, *4 (S.D.Ohio 2006), the plaintiff was denied an injunction because its product could be reverse engineered at relatively low cost, “casting doubt on the trade secret status.” In SCR-Tech, the court evaluated, in great scientific detail, a trade secret claim regarding a selective catalyst reduction used to convert harmful nitrogen oxide, contained in exhaust gas from coal-burning power plants, into harmless nitrogen gas and water. The court in Dresser-Rand Co. v. Schutte & Koerting Acquisition Co., 2012 WL 460275,*9 (D.N.J. 2012), decided the reverse engineering issue based on the testimony of an expert in mechanical engineering and rejected the testimony of the project manager, “despite his years in the business.” Thus, experts should be consulted early during if not before the litigation.
The term “reverse engineering” is not a talisman that can immunize trade secrets from theft. Telerate Systems v. Caro, 689 F.Supp. 221, 233 (S.D.N.Y. 1988). Trade secret litigators should think strategically and proactively regarding reverse engineering issues in NJTSA litigation. n