Is “Reverse Engineering” Misappropriation of Trade Secrets?

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What is reverse engineering?

Reverse engineering refers to the process of working backward from an available product to understand what its parts are, how it functions and/or how it was made. The Texas Uniform Trade Secret Act, for example, defines reverse engineering as “the process of studying, analyzing, or disassembling a product or device to discover its design, structure, construction, or source code.”

Is reverse engineering permissible under federal trade secret law?

Generally, reverse engineering is allowed under federal trade secret law, the Defend Trade Secrets Act (DTSA). The DTSA prohibits misappropriating trade secrets—this means acquiring trade secrets by “improper means,” such as “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” The DTSA explicitly declares that reverse engineering—by itself—is not an “improper means.” But, reverse engineering combined with an “improper means” will violate the DTSA. For example, if the product that was reverse engineered was stolen or obtained through lying, then there is still trade secret misappropriation.

Is reverse engineering permissible under state trade secret laws?

Yes. The United States Supreme Court has ruled that state trade secret laws may not preclude “discovery by fair and honest means,” such as reverse engineering. Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1971). The Supreme Court further confirmed the legitimacy of reverse engineering in Bonito Boats, Inc. v. Thunder Craft Boats, Inc., where it held that the “public at large remained free to discover and exploit the trade secret through reverse engineering of products in the public domain or by independent creation.” 489 U.S. 141, 155 (1989). The comments to the Uniform Trade Secrets Act, which most states have adopted in some form, recognize that it is lawful to conduct reverse engineering, provided that the analyzed product was obtained “by a fair and honest means, such as purchase of the item on the open market.”

California explicitly recognizes “reverse engineering or independent derivation alone shall not be considered improper means.” Similarly, in Texas, “reverse engineering unless prohibited” is statutorily defined to be a “proper means” of obtaining information.

Can parties contract away the right to reverse engineer?

Contract provisions imposing obligations not to reverse engineer or restricting the purpose for which reverse engineering can be performed are generally enforceable.

If a defendant conducts reverse engineering in breach of a contract, that activity may serve not only as the basis for breach of contract, but in some courts, as the basis for a trade secret misappropriation claim. For example, a Texas court found that an alleged breach of an agreement that required defendant to maintain the confidentiality of and not reproduce the technology-in-dispute was sufficient to maintain a trade secret misappropriation claim under Texas law. In that case, the defendant gave a device embodying the alleged trade secret to a third party to reverse engineer in violation of the defendant’s duty of confidentiality to the plaintiff. In denying the motion to dismiss the trade secret misappropriation claim, the court recognized that reverse engineering is only a “proper means” if it is not prohibited, including by a contract.

A California court, on the other hand, handled a similar situation differently. There, the court found that private parties may not expand the statutory definition of “improper means” under California trade secret law to include reverse engineering. While reverse engineering in violation of an End User License Agreement could be the basis for a breach of contract claim, it could not be the basis for a trade secret misappropriation claim.

Takeaway

Generally, reverse engineering is allowed and will not violate trade secret laws by itself. When performing reverse engineering, however, it is critical to be aware of the contractual obligations and rights from purchase, end user license, and other agreements that may impact the scope of permissible reverse engineering. And different states may view reverse engineering contract provisions differently, which may in turn affect claims for misappropriation of trade secrets.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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