What THE DEFENDANT WILL TRY TO PROVE
If you do find yourself in a lawsuit, the defendant will try to prove that he did not violate the law. Here are the most common defenses made in a trade secret lawsuit. If any of these defenses is successful, your claim will fail.
The Information Does Not Qualify as a Trade Secret
One popular defense is that the information covered by an NDA does not qualify as a trade secret. To win, the defendant must prove that the information is known throughout the particular industry, has no economic value or was not the subject of reasonable security efforts.
The Information Was Acquired Lawfully
Most NDAs, including the ones in this book, include a statement that its restrictions do not apply for information that is publicly known at the time of disclosure, subsequently becomes publicly known or is otherwise learned through legitimate means other than from you. This means that your trade secret claim will fail if a defendant can prove that the secret was acquired by any of these lawful means. For example, you'll lose your suit if the defendant proves that through parallel research, it had independently conceived of the information or reversed engineered your product and learned the secret before signing the agreement. In cases where there is no NDA it is legal to reverse engineer a product or process. But it is not permissible for the defendant to reverse engineer your product in violation of a nondisclosure agreement.
EXAMPLE: Two computer consultants reverse engineered the interface of a computerized system for storing hospital data. The reverse engineering was performed in violation of a nondisclosure agreement. A court ruled that the consultants were barred from using the trade secrets because they were obtained by improper means. Technicon Data Systems Corp. v. Curtis 1000, Inc., 224 USPQ 286 (1984).
You Waited Too Long to Sue
You have a limited period of time ("statute of limitations") in which to file a trade secret claim: in most states, three or four years from when the NDA is breached. (If there is no NDA, it is three years from when the trade secret theft is discovered or should have reasonably been discovered.) If you file a claim after the time periods have expired, the defendant can have the claim dismissed.
Even if the statutory period has not passed, a court will not permit you to sue if you waited so long to file the lawsuit that it prejudices the other party. For example, say a family business knows that a relative is using its trade secret in a competitive business but does nothing for two years until the relative's business is about to be sold. The relative could argue that the delay in litigating was prejudicial.