RESTATEMENT OF THE LAW THIRD--UNFAIR COMPETITION

A BRIEF SUMMARY

R. Mark Halligan, Esq.

Copyright 1995 R. Mark Halligan, Esq.

By far, one of the most significant recent development in the law of trade secrets is the issuance of the final draft of the Restatement of the Law Third, Unfair Competition, which was issued by the American Law Institute in January, 1995.

Chapter 4, entitled Appropriation of Trade Values devotes an entire topic (Topic 2) to Trade Secrets and the Restatement (3d) contains the following sections:

TRADE SECRETS

39. Definition of Trade Secret
40. Appropriation of Trade Secrets
41. Duty of Confidence
42. Breach of Confidence by Employees
43. Improper Acquisition of Trade Secrets
44. Injunctions in Trade Secret Actions
45. Monetary Relief in Trade Secret Actions

The definition of a trade secret has been simplified:

§ 39. Definition of Trade Secret

A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.

The Restatement (3d) makes it clear that the "knew or should have known" standard for trade secret misappropriation is a "reasonable person" standard.

"To subject an actor to liability... the [trade secret] owner need not prove that the actor knew that its possession of the trade secret was wrongful, it is sufficient if the actor had reason to know. Thus, if a reasonable person in the position of the actor would have inferred that he or she was in wrongful possession of another's trade secret, the actor is subject to liability for any subsequent use or disclosure.
Restatement (3d) § 40 Comment d.

The Restatement (3d) establishes a "duty of confidence" to govern the myriad of circumstances in today's marketplace in which trade secrets are disclosed. Liability can be premised upon (1) an "express promise" (whether oral or written) or (2) the circumstances surrounding the disclosure. Restatement (3d) § 41.

The Restatement (3d) establishes a specific section to govern the rights of employees and former employees and expressly limits liability to the use or disclosure of a trade secret owned by the employer and in breach of a duty of confidence. This will now open up a whole new line of "ownership" defenses in trade secret cases. See Restatement (3d) § 42.

Modernizes the definition of "improper means" to include "the unauthorized interception of communications" and a catch-all "improper means" that are "either wrongful in themselves or wrongful under the circumstances of the case." Restatement (3d) § 43.

Sets forth an 8-FACTOR TEST for evaluating the appropriateness and scope of injunctive relief in trade secret misappropriation cases. Restatement (3d) § 44.

Sets forth a 6-FACTOR TEST for evaluating the appropriate method of measuring monetary relief in trade secret misappropriation cases. Restatement (3d) § 45.