As lawyers, we sometimes lose sight of the purpose that gave rise to a statute or legal doctrine in the first place. For that reason, it is refreshing to read an opinion that takes a step back to thoroughly examine the underlying goals behind the legal principles at issue. The U.S. Court of Appeals for the Eighth Circuit’s recent holding in AvidAir Helicopter Supply, Inc. v. Rolls-Royce Corp., Case No. 10-3444 (8th Cir., Dec, 13, 2011), is one of those rare cases that methodically does so in the trade secret context.
In affirming the trade secret rulings by the district court under Indiana and Missouri law, the Eighth Circuit reiterated three core principles of trade secret law: (1) unlike patent law, trade secrets derive their primary value not from their novelty but rather from the fact that they are secret and require effort and resources to compile; (2) that commercial ethics are the key underpinning of trade secret law; and (3) the fact that a trade secret may be reverse engineered does not render that trade secret unprotectable.
This dispute arose from the misappropriation of technical information necesary to secure FAA compliance for the repair and maintenance of a helicopter engines developed by Rolls-Royce. Because Rolls-Royce’s predecessor, Allison Engine Co., had failed to exert tight control over that technical information, third-party overhaul shops saw the opportunity to step in and compete for those ervices. One of those repair and overhaul shops, AvidAir, secured some of that technical information without Rolls-Royce’s consent in the 1990s. As Allison, and later Rolls-Royce, sought to improve the controls over that information, they discovered that AvidAir had improperly secured that technical information from authorized maintenance shops and was using it to repair and overhaul those engines.
After a jury awarded $350,000 to Rolls-Royce for the misappropriation of the technical information, AvidAir appealed and argued that the information was not worthy of trade secret protection. AvidAir argued that the technical information at issue did not provide independent economic value because there was only a trivial amount of information that was not readily ascertainable from prior publicly available materials and that those improvements offered no engineering advances.
The Eighth Circuit rejected that contention, reasoning that the “existence of a trade secret is determined by the value of a secret, not the merit of its technical improvements. Unlike patent law, which predicates protection on novelty and nonobviousness, trade secret laws are meant to govern commercial ethics.”
The Eighth Circuit rejected AvidAir’s other main argument, that the information could be easily reverse engineered, by focusing on AvidAir’s conduct. Noting that AvidAir repeatedly elected to take Rolls-Royce’s information rather than compile it on its own from publicly available sources, the Eighth Circuit held that AvidAir’s conduct belied any claim that the information was readily ascertainable or not valuable to a competitor. By so doing, the Eighth Circuit joined other courts that have recently rejected a defendant’s efforts to “retrace” its steps and argue it could have gathered the information from publicly available sources.
The takeaway? The AvidAir opinion does not break any new ground, although it may provide support for those cases where the trade secrets at issue are close calls. The opinion’s real value comes from its methodical analysis and affirmation of the key concepts underpinning trade secret law.