Is reverse engineering misappropriation of trade secrets?

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. While California's Uniform Trade Secrets Act does not provide an explicit definition of "reverse engineering," Texas's counterpart helpfully defines it as "the process of studying, analyzing, or disassembling a product or device to discover its design, structure, construction, or source code." Tex. Civ. Prac. & Rem. Code § 134A.002(5). While it may seem like reverse engineering a product to develop a competing product is skirting the law, readers may be surprised to learn that it is not - with some caveats.

Is reverse engineering permissible under federal law?

Reverse engineering generally is allowed under the federal Defend Trade Secrets Act (DTSA). The DTSA prohibits misappropriating trade secrets, which 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." 18 U.S.C. § 1839(6)(A). The DTSA explicitly declares that reverse engineering by itself is not an "improper means." 18 U.S.C. § 1839(6)(B). 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, that would still be trade secret misappropriation.

Is reverse engineering permissible under state 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 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 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." Cal. Civ. Code § 3426.1(a).

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 contract, that activity may serve not only as the basis for a breach of contract claim, 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 the 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. Synergy Indus., L.P. v. Nat'l Oilwell Varco, L.P., No. 4:18-CV-1968, 2019 WL 3325637 (S.D. Tex. Mar. 26, 2019). The court explained that reverse engineering is only a "proper means" if it is not prohibited, including contractually. Id.

A California court 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. Aqua Connect, Inc. v. Code Rebel, LLC, No. CV 11-5764-RSWL, 2012 WL 469737 (C.D. Cal. Feb. 13, 2012). 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. Id.

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.

Katie Prescott is a principal in the Silicon Valley office of Fish & Richardson P.C. She can be reached at prescott@fr.com. Autumn Wu is an associate in the Boston office of Fish & Richardson P.C. She can be reached at qwu@fr.com.