Opinion ID: 4530356
Heading Depth: 2
Heading Rank: 1

Heading: AFS’s Trade Secret Misappropriation

Text: Claims 5 The first and predominant issue in this appeal is whether AFS, by virtue of its Agreement with the Space Flight Authority – a contract that explicitly designates the confidential information at issue in this case as the Authority’s “exclusive property” – can maintain a trade secret misappropriation claim under Pennsylvania law. Appellants argue that AFS cannot, for three reasons: first, AFS does not “own” the claimed trade secrets; second, even if the Trade Secrets Act does not require ownership as a prerequisite for standing to sue, AFS still lacks standing because it did not “lawfully possess” the trade secrets; and, third, what AFS argues are trade secrets cannot properly be designated as such because inadequate measures were taken to ensure their continued secrecy. None of those positions is persuasive. 4 The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1332. We have jurisdiction under 28 U.S.C. § 1291. 5 We exercise de novo review over the District Court’s legal determinations that fee simple ownership of a trade secret is not a prerequisite to a misappropriation claim under the Trade Secrets Act and that AFS had protectable trade secrets as a matter of law. See Simpson v. Att’y Gen., 913 F.3d 110, 113 (3d Cir. 2019) (summary judgment); Blunt v. Lower Merion Sch. Dist., 767 F.3d 247, 266 (3d Cir. 2014) (standing). 13 In a closely reasoned opinion, the District Court considered what interest a plaintiff must have in a trade secret to have standing under the Trade Secrets Act to bring an action for misappropriation. After examining the text of the Act and surveying cases from other jurisdictions that have adopted some version of the Uniform Trade Secrets Act, the District Court explained why it is appropriate to follow the reasoning set forth in DTM Research, L.L.C. v. AT & T Corp., 245 F.3d 327 (4th Cir. 2001). In DTM, the United States Court of Appeals for the Fourth Circuit held that a party asserting a misappropriation claim under Maryland’s Uniform Trade Secrets Act need only demonstrate lawful possession of a trade secret, and not “ownership in its traditional sense[,]” to maintain such a claim. DTM, 245 F.3d at 333. That holding was based on the premise that “[t]he proprietary aspect of a trade secret flows, not from the knowledge itself, but from its secrecy[,]” because “[i]t 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.” Id. at 332 (internal quotation marks omitted). In other words, while ownership of the sort traditionally associated with real or personal property is sufficient to maintain a trade secret misappropriation claim because the complete bundle of rights related to trade secrets includes the right to enjoy the value of the information’s secrecy, it is not a necessary condition. A per se ownership requirement for misappropriation claims is flawed since it takes account neither of the substantial interest that lawful possessors of the secrets 14 have in the value of that secrecy, nor of the statutory language that creates the protection for trade secrets while saying nothing of ownership as an element of a claim for misappropriation. Although DTM involved Maryland’s version of the Uniform Trade Secrets Act, we, like the District Court, agree with the Fourth Circuit’s cogent explanation of why lawful possession of a trade secret can, under circumstances like this, be sufficient to maintain a misappropriation claim, even absent ownership. The relevant language of the Act, which on its face lacks any ownership requirement, is functionally identical to that of its Maryland counterpart. 6 And, while DTM’s rationale rejects the notion that trade secrets are just like tangible property, it still rests on the premise that trade secrets are a species of property, a view entirely consistent with Pennsylvania’s common law prior to the enactment of its version of the uniform act. See Heraeus Med. GmbH v. Esschem, Inc., 927 F.3d 727, 738 (3d Cir. 2019) (“Pennsylvania courts have adopted the ‘property’ view of trade secrets, under which the basis of a claim for trade secret 6 In addition, as the District Court correctly recognized, “[n]either the commentary to the uniform law nor [the Trade Secrets Act]’s legislative history include[s] any specific reference to legal ownership of the trade secrets as a prerequisite to a cause of action.” MTD Op., 28 F. Supp. 3d at 318. On the contrary, as a leading treatise recognizes, “because the gravamen of [a Uniform Trade Secrets Act] misappropriation action is wrongful acquisition or improper use of information gained from a plaintiff, possession, as opposed to ownership, suffices.” 4 Roger M. Milgrim & Eric E. Bensen, Milgrim on Trade Secrets § 15.01 (2020). 15 misappropriation is the violation of a property right[.]”). Again, the point is not that ownership is irrelevant. The point is that it is not the sole kind of interest that is relevant and subject to protection. Appellants’ briefing is devoid of any serious challenge to DTM’s reasoning. 7 Their argument, such as it is, lacks merit, and we reject it. 7 The Huber Parties merely note that the District Court was the first Pennsylvania court, state or federal, to follow DTM and that a district court in the Western District of Pennsylvania had held that a non-owner could not pursue a trade secret claim under Pennsylvania law. Huber Parties’ Opening Br. at 24 (citing Transp. Compliance Assocs. Inc. v. Hammond, No. 2:11-CV-1602, 2012 WL 1435445, at  (W.D. Pa. Apr. 25, 2012), modified on reconsideration, 2012 WL 8017416 (W.D. Pa. May 3, 2012)). We are not troubled that the District Court was the first to follow DTM, particularly since it appears to be the first Pennsylvania court to actually analyze whether Pennsylvania law includes an “ownership” requirement. For example, and as the District Court observed, Hammond “cursorily adopts an ownership approach without any discussion of the nature of trade secrets or the source of their value[,]” and, in support of that approach, relies entirely on a case that “did not turn on an ownership inquiry[.]” MTD Op., 28 F. Supp. 3d at 322 n.8. Other cases Appellants have relied on and that appear to adopt an ownership requirement were decided before adoption of the Trade Secrets Act and similarly lack any meaningful analysis of the ownership issue. More significantly, they address the issue of whether the party claiming misappropriation owned a trade secret, not the distinct question of whether other interests, such as lawful possession, can be sufficient to sustain a claim. See, e.g., Gruenwald v. Advanced Comput. Applications, Inc., 730 A.2d 16 Appellants’ second contention, that AFS did not lawfully possess the information it claims as trade secrets, is similarly unavailing. The gist of this argument is that the transfer of rights to the trade secrets effectuated by the Agreement included the transfer of any right to possess those trade secrets, thereby foreclosing AFS from lawfully possessing them. But that ignores the uncontroverted record that AFS not only physically retained possession of the drawings and other information constituting the trade secrets; it also was required to use, and in fact did use, those trade secrets to fulfill its obligations under the Agreement and in contracts that AFS and Orbital entered into after the Agreement. Moreover, despite necessarily being aware that AFS physically retained and was using the trade secrets to fulfill its contractual obligations, the “owner” 8 of those secrets never once objected to, or even so much as questioned, AFS’s retention or use of those secrets. It did not even push back when AFS affixed to documents containing the secrets a 1004, 1012–13 (Pa. Super. Ct. 1999) (analyzing whether former employee retained “ownership” of technologies he created during scope of employment with former employer); Varo, Inc. v. Corbin Mfg. Co., 50 F.R.D. 376, 378 (E.D. Pa. 1970) (noting “[m]ere possession is insufficient to establish the fact of ownership” where “Plaintiff’s sole position is that the defendant corporation is not the owner of the trade secrets”). 8 Because AFS states in its brief that it “conveyed legal title to its work product to the [Authority],” Appellee’s Br. at 47, we need not opine on any residual ownership interest it might otherwise claim and will treat the Authority as the owner. 17 confidentiality notice asserting that AFS had an ownership interest in them. Ownership of a trade secret – or any intellectual property for that matter – undoubtedly imbues the owner with the authority to give others lawful possession, including by merely consenting to that possession. Such possessory rights were given to AFS, even if a full ownership interest was not. The course of conduct evident in the record shows that AFS clearly had permission to hold and use the secrets. True, had the Agreement contained an explicit license for AFS’s benefit, any dispute about lawful possession could have been avoided. See Metso Minerals Indus. v. FLSmidth-Excel LLC, 733 F. Supp. 2d 969, 971–72 & n.4 (E.D. Wis. 2010) (holding nonexclusive license to use trade secrets at issue constituted “lawful possession” of that information). But Appellants cite no authority for the proposition that one who retains and uses a trade secret owned by another for that owner’s benefit, with that owner’s knowledge, and, at a minimum, with that owner’s implied consent, does not lawfully possess that trade secret. 9 We decline to adopt such a counter-intuitive rule of law. 9 In that regard, the District Court correctly distinguished BlueEarth Biofuels, LLC v. Hawaiian Elec. Co., No. CIV. 09-00181 DAE-KSC, 2011 WL 2116989 (D. Haw. May 25, 2011), aff’d, 531 F. App’x 784 (9th Cir. 2013). In that case, the court held that the plaintiff could not sustain a misappropriation claim because it had “transferred, without reservation, all of the relevant confidential information and trade secrets” pursuant to an agreement. Id. at . Unlike the plaintiff in BlueEarth, however, AFS “remains in possession of and continues to use the trade secrets.” MTD Op., 28 F. Supp. 3d at 323. 18 Finally, Appellants urge that the District Court erred in holding as a matter of law that the claimed trade secrets are protectable under the Trade Secrets Act. They say that, at a minimum, there was a genuine dispute of material fact regarding the reasonableness of the measures taken to ensure the secrecy of the information at issue. More particularly, Appellants point to the fact that the information was provided by AFS to the Space Flight Authority, a public entity subject to a state open-records law, without a formal non-disclosure or confidentiality agreement. On the summary judgment record before us, however, we are not persuaded that a reasonable trier of fact could find that AFS’s interactions with the Authority, or with Orbital, extinguished AFS’s protectable interest in the trade secrets. Consistent with its approach throughout this lengthy litigation, the District Court fully explained its rationale for concluding that AFS could claim trade secret protection as a matter of law, applying the six-part framework that Pennsylvania courts adopted from the Restatement First of Torts § 757. 10 See Bimbo Bakeries USA, Inc. v. Botticella, 613 F.3d 102, 109 (3d Cir. 2010) (citing Crum v. Bridgestone/Firestone N. Am. Tire, LLC, 907 A.2d 578, 585 10 As we noted in Bimbo Bakeries, although [the Act] “displaced Pennsylvania’s common law tort for misappropriation of trade secrets, [] there is no indication that the statute effected a substantive shift in the definition of trade secret.” 613 F.3d at 109 n.7 (internal quotation marks and citation omitted). 19 (Pa. Super. Ct. 2006)). 11 As part of its analysis, the Court explained that the Space Flight Authority “honored AFS’s proprietary designation and did not disclose its information except as needed for operation of the [Wallops Island] Hydraulic System.” Summary Judgment Op., 2017 WL 2445303, at . Based on our own review of the record, we agree with that assessment. The record shows that, even if the Authority did not contractually bind itself to do so, it nevertheless believed it had an obligation to preserve the confidentiality of AFS’s designs, and at all relevant times it conducted itself in a manner consistent with that belief. Appellants’ assertions regarding the Authority’s theoretical freedom to disclose AFS’s trade secrets, pursuant to Virginia’s open records law or otherwise, are entirely speculative. They cite no evidence that the Authority failed to take reasonable steps to ensure the confidentiality of the trade secrets, or that it ever did disclose those secrets to anyone to whom disclosure was not essential for the development or maintenance of the Antares launch system at Wallops Island. Similarly, Appellants cite no evidence that the Authority was 11 The District Court found that only the second factor, which addresses the extent to which AFS employees were privy to its confidential information, militated against trade secret status because AFS employees were not required to sign confidentiality agreements. We agree with the District Court that, under the specific facts of this case, this single factor does not raise a genuine dispute of material fact as to whether AFS possessed trade secrets as a matter of law because the other five factors weigh decisively in the opposite direction. 20 ever actually subject to a records request relating to AFS’s trade secrets, that the probability of such a request was anything more than extremely remote, or how the Authority may have handled such a request if one were made. Indeed, conspicuously absent from the record is any hint as to why, if AFS’s trade secrets were so readily obtainable from the Space Flight Authority, Appellants felt it necessary to engage in a coordinated, clandestine campaign of tortious conduct to obtain them. Therefore, we are in accord with the District Court’s conclusion that Appellants failed to raise a genuine dispute of material fact as to whether the confidential drawings and other information that they had a hand in stealing were not in fact and in law trade secrets. Appellants’ arguments opposing AFS’s trade secrets misappropriation claims thus fail. 12