A trade secret must derive independent 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. 18 U.S.C. § 1839(3)(B). Also, a trade secret must be the subject of efforts that are reasonable under the circumstances to maintain its secrecy. 18 U.S.C. § 1839(3)(A) (requiring that “the owner thereof has taken reasonable measures to keep such information secret”). Courts often refer to the two elements of the trade secret definition as “independent economic value” and “reasonable secrecy.”

Both must be proven to establish the existence of a trade secret. Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 661 (4th Cir. 1993) (“[Plaintiff] had to describe the subject matter of its alleged trade secrets in sufficient detail to establish each element of a trade secret.”).

Independent Economic Value

Establishing “independent economic value” from being secret requires proof not just of value, but of value specifically tied to secrecy. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1012 (1984) (“The economic value of that property right lies in the competitive advantage over others that [the plaintiff] enjoys by virtue of its exclusive access to the data, and disclosure or use by others of the data would destroy that competitive edge.”).

Part of the putative trade secret owner's obligation is to come forward with evidence that each individually alleged trade secret has value because they remain secret. See DTM Research, L.L.C. v. AT&T Corp., 245 F.3d 327, 332 (4th Cir. 2001) (“[A trade secret's] continuing secrecy provides the value, and any general disclosure destroys the value.”); see also Oakwood Laby's LLC v. Thanoo, 999 F.3d 892, 913 (3d Cir. 2021) (“The trade secret's economic value depreciates or is eliminated altogether upon its loss of secrecy”); Stromback v. New Line Cinema, 384 F.3d 283, 305 (6th Cir. 2004) (“Thus, the essence of a trade secret is that it derives its value from secrecy.”).

Proof of value untethered to value derived from secrecy does not show an alleged trade secret's independent economic value. E.g., Buffets, Inc. v. Klinke, 73 F.3d 965, 969 (9th Cir. 1996) (affirming the district court's conclusion that the evidence did not establish independent economic value of the plaintiff's recipes because, . . . the plaintiff had not established a connection between the asserted value of the recipes and those recipes “being kept secret”).

Seventy-Five Trade Secrets in a Database

The Fourth Circuit in Synopsis, Inc. v. Risk Based Security, Inc., No. 22-1812, — F.4th — (4th Cir. Jun. 15, 2023), recently ruled that Synopsys's rival, Risk Based Security (“RBS”), had not proved that the alleged seventy-five trade secrets embodied in the information in RBS's VulnDB database on vulnerabilities in open-source software, were trade secrets.

To show that the alleged trade secrets had independent economic value derived from their secrecy, RBS relied on a recent sale of the company and that 90% of the company's revenue was derived from licensing VulnDB.

Without deciding whether such value needed to be established individually “per trade secret” or by “groupings” of trade secrets, the Court concluded that RBS's reliance “on evidence of valuation that was not particularized to its seventy-five alleged trade secrets whether they are viewed individually, in smaller groupings, or as a whole” was a “fundamental disconnect.”

The Court characterized RBS's attempts to show the independent economic value of the seventy-five alleged trade secrets through proof that RBS and the entire VulnDB have value as “sleight-of-hand” that was “no more availing as to this evidence than it is to the rest.”

According to the Court, RSB's trade secrets needed to be assessed individually, something that RBS's expert did not do.

Sweeping conclusions untethered to specific shared characteristics of a group of trade secrets that show that each has independent economic value would not aid the trier of fact in undertaking that task.

 * * *

            In sum, the district court properly concluded that RBS failed to put forward admissible evidence showing that the seventy-five alleged trade secrets had independent economic value. Absent proof sufficient to satisfy that part of the statutory definition of a “trade secret,” RBS could not prevail in a misappropriation-of-trade-secrets claim, and the district court properly granted summary judgment to Synopsys.

The Court further noted that whether reasonable efforts had been made to maintain secrecy need not be decided here because RBS had failed to establish independent economic value for its alleged trade secrets.

The attorneys at Thomas P. Howard, LLC litigate trade secrets nationwide including in Colorado.