What is Misappropriation of Business Trade Secrets Under North Carolina Law, and How To Stop It
What qualifies as a “trade secret” under North Carolina law, an often-contested issue in business litigation? Let's explore the trade secret topic and how to protect your business's trade secrets.
What happens if you own a business and someone steals or uses your trade secrets? North Carolina law gives business owners the right to file a civil lawsuit if your trade secrets are misappropriated. G.S. § 66-153.
And, if your trade secrets are being misappropriated – for instance, by an employee, a former employee, or another business – you not only have the right to sue them, you also have the right to ask a judge to order them to preliminarily and permanently stop using it. G.S. § 66-154(a). This is called an injunction.
What exactly is “misappropriation” of a trade secret? What does someone have to do to engage in misappropriation? The North Carolina Legislature has given a definition of “misappropriation” at G.S. § 66-152, which is as follows: Misappropriation is
acquisition, disclosure, or use … Without express implied authority or consent, unless [the] trade secret was arrived at by independent development, reverse engineering, or was obtained from another person with a right to disclose [it].
Essentially, you misappropriate a trade secret if you acquire or disclose it without the right to do so. However, you are allowed to try to reverse-engineer someone’s trade secret.
The main issue in litigation is often whether the knowledge or information actually qualifies as a “trade secret.” The statute contains the definition of this term, as well. G.S. § 66-152(3). A trade secret consists of “business or technical information” that:
derives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use; and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
The first step in any trade-secret litigation is to file a lawsuit, usually in Superior Court or in the North Carolina Business Court. Your lawsuit must allege two things to pass muster without being dismissed immediately. Under the North Carolina Supreme Court’s decision in Krawiec v. Manly, 370 N.C. 602 (2018), you must allege that the defendant:
Knows or should have known of the trade secret, and
Has had a specific opportunity to acquire for disclosure or use or has acquired, disclosed, or used it without the express or implied consent or authority of the owner.
It is important to note that courts will not assume just anything that’s secret qualifies as a “trade secret.” The Supreme Court has noted that “there is no presumption that a thing is a secret” and “emphasize[d] the shortcomings of general allegations in making a case for misappropriation of trade secrets.” Krawiec v. Manly, 370 N.C. 602 (2018).
Courts will six factors in determining whether something is a trade secret. These six factors come from the case of Wells Fargo Ins. Servs. USA, Inc. v. Link, 372 N.C. 260 (2019). The factors are as follows:
The extent to which information is known outside the business,
The extent to which it is known to employees and others involved,
The extent of measures taken to guard secrecy of the information,
The value of information to the business and its competitors,
The amount of effort or money expended in developing the information, and
The ease or difficulty with which the information could properly be acquired or duplicated by others.
Some of the things that have been determined to qualify as trade secrets are customer lists, pricing formulas, sales reports, financial projections, and customer proposals. If the information is generally known in the industry or is publicly available, however, it is not a trade secret.
As you can see, determining whether there has been misappropriation of a trade secret is a complex and fact-dependent analysis that involves reviewing the details of your particular case to come to a conclusion.
If you are a business owner whose trade secrets have been misappropriated, or if you have been wrongfully accused of misappropriating trade secrets, our office may be able to represent you. Dye Culik PC is a Charlotte, North Carolina law firm representing businesses, entrepreneurs, and franchisees throughout the state. Contact us to see how we can help.