Database as a Trade Secret
Trade secrets in database records fall victim
to many who seek the potential value of stored records from a variety of
entities, either from government agencies and competitor businesses, to also
include medical and financial enterprises, and even from their own employer or
client. Intruding into another’s database is becoming too common in our
economy and database intrusion was a pivotal issue in a landmark Ninth Circuit
case, United States v. Nosal. While the case
largely engaged discussion on the scope of the Computer
Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030, the case also
addressed the issues of trade secrets under the Economic Espionage Act (“EEA”), 18 U.S.C. §
1831 et seq.[1] As
the Ninth Circuit notes in its Order, Nosal was convicted on
two counts of trade secret theft under the EEA. Nosal was
charged with unauthorized downloading, copying and duplicating of trade
secrets and unauthorized receipt and possession of stolen trade
secrets which violated §§ 1832(a)(2) & (a)(4) of the EEA.
The key to the analysis of the handling of the
trade secret intrusion issue of the case was the sufficiency of the evidence to
support a finding. The Court weighed into the Economic Espionage Act and
determined that the EEA requires that there be intent to convert a
trade secret and intending or knowing that the
offense will injure [an] owner of that trade secret. In so doing it saw
that the requirement of Nosal knowing that the receipt
or possession of a trade secret with knowledge that
it was “stolen or appropriated, obtained, or converted without authorization,
was instrumental in laying the foundation for establishing the condition for a
violation. Though Nosal challenged the sufficiency by
raising that the information culled was sourced from public records and that it
could not be deemed as a misappropriation of a trade secret, or for that
matter, a trade secret.
The Court made a clear distinction by
analogizing the subject before it to other trade secret cases involving
technical drawings, scientific formulas, specimens and data results in
research, or aeronautical assessments in engineering designs. The Court reasoned
that the EEA’s scope is not limited to select segments of the industry, but
that the EEA encompasses financial and business information.[2]
While it cited the definition of trade secrets under the Act, it emphasized
technical as well as financial and business information that is intended by the
owner to be kept secret because of the economic value import of the secret
itself. Furthermore, the Court reasoned that its value was engendered by
it not being generally known to the public.[3]
The Court opined that what Nosal sought and acquired was
“classic examples of a trade secret that derives from an amalgam of public and
proprietary source data” and that the “data came from public sources and
other data came from internal, confidential sources.”[4]
The Court gave import to the effort and system of research and algorithm
employed to compose the record database that made it unique and not commonly
searched information.
As the Ninth Circuit so clearly articulated
about the characteristic of the data record sought by Nosal, “Instead,
the nature of the trade secret and its value stemmed from the unique
integration, compilation, cultivation, and sorting of, and the aggressive
protections applied to, the Searcher database.”[5] Its
analysis borrowed from an Eight Circuit case, Conseco[6] and
a Tenth Circuit case, Hertz[7] where
customer lists were taken by employees. The customer lists in question
were unique by their form, manner of cataloging, and analysis that was involved
in the list’s composition. The Eight Circuit stated that they were trade
secrets as they are ““specialized” computer program that was “unique” to
Conseco.”” Similar to the Hertz case, the process
involved to gather and organize the data made it a trade secret.
In essence, the purported value of a data
record to be become and be considered a trade secret originates in the manner
in which the owner pursued its composition, characteristic, cataloging,
purpose, use, and its intended unique use and storage from others to use and
see. Its custodial handling is as well important to analyze, especially
how it is dealt with in personnel policies and employment manuals for employees
to follow and management to enforce.
[1] Computer Fraud and Abuse Act of
1986, Pub. L. No. 99-474. , § 2(g)(4), 100 Stat. 1213-15. CFAA was later
expanded to protect any computer “used in interstate or foreign commerce or
communication.” Economic Espionage Act of 1996, Pub. L.
104-294, § 201(4)(B), 110 Stat. 3488, 3493 (codified as amended at 18 U.S.C. §
1030(e)(2)(B)).
[2] Order, Ninth Circuit, #14-10037, at p.
32.
[3] Footnote 15 of the Order stated as
follows: Congress recently amended § 1839, replacing “the public” with “another
person who can obtain economic value from the disclosure or use of the
information.” Defend Trade Secrets Act of 2016, Pub. L. No.
114-153, § 2(b)(1)(A), 130 Stat. 376, 380.
[4] Order, at p. 34.[6]Conseco Finance Servicing Corp. v. North American Mortgage Co., 381 F.3d 811 (8th Cir. 2004).
[7] Hertz v. Luzenac Grp., 576 F.3d
1103, 1114 (10th Cir. 2009) (holding that a customer list may be a trade
secret where “it is the end result of a long process of culling the
relevant information from lengthy and diverse sources, even if
the original sources are publicly available”).
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