By Hung Ou Yang and Shih-Cheng Yen
Hypothetical
John Doe had been the general manager of corporation A, taking charge of contacting client B, delivering the customized design of machine Z finished by employees of corporation A and thoroughly assembled machine Z to client B, during his tenure. Afterwards, John Doe left corporation A, but incorporated corporation C engaging in the production of machine Z via outsourcing factories. As a result, corporation A sued John Doe for infringing corporation A's trade secret. John Doe argued that the component parts of machine Z could be readily ascertained by disassembling and surveying the machine publicly sold by X so he did not violate the Taiwanese Trade Secrets Act. See 107 Taiwan Taichung District Court's IP Litigation Judgment No.1 (2018).
The Defense of Reverse Engineering
The infringement of trade secrets involves two steps of examination: The court would examine whether the information at issue constitutes a trade secret at the first step. If yes, such information will be considered as protected under Taiwanse Trade Secret Act. The court will then review if the perpetrator has indeed infringed the trade secret at the second step. That is to say, absent the secrecy at the first step, there will be no infringement.
Regarding the second step, Taiwan refers to the legislation of the United States and Japan and provides some patterns of infringement of trade secrets in Article 10 of the Taiwanese Trade Secrets Act. One of them is to see if the perpetrator obtained the trade secret via improper means. On the other hand, if the perpetrator gets to know the trade secret through legitimate channels, there will be no liabilities as regulated by the Taiwanese Trade Secrets Act. For example, an employee who performs business for and on behalf of the employer and also has the authority to know the trade secret at issue would not infringe the trade secret since his/her knowledge of the trade secret is legitimate.
In the trial procedures of trade secret claims, a commonly seen defense is the defense of reverse engineering. The reason is, this has been clearly formulated as a legitimate means in the legislative purposes of the Taiwanese Trade Secrets Act. For example, in the trade secret litigation between United Microelectronics Corporation and Micron Technology, Inc., the defense lawyer had advanced the defense of reverse engineering. Notably, same as the defense advanced by John Doe, here the Defendant argued: the parameters of DRAM design rules are ascertainable through reverse engineering, therefore those parameters lack secrecy. It seems that they were mixing up the first step and the second step and we will explain why it is like this below.
The so-called defense of reverse engineering, based on the legislative purposes, purports to analyze the components and design of the product acquired through legal means so as to obtain the trade secret embedded therein. The definition of reverse engineering, according to the Supreme Court's precedents, is held as follows: Reverse engineering is a means to understand how a product is manufactured and developed through deriving design elements such as the processing flow, organizational structure, functional performance, and specifications, of a specific product by a third party independently that acquired legally. See 110 Supreme Court Tai-Appellate No. 3193 (2021). The information obtained through reverse engineering, since it is researched and developed by the third party independently, it is not the fruit of unfair competition and therefore reverse engineering is not subject to Taiwanese Trade Secrets Act, in principle.
Generally, the defense of reverse engineering is related to the second step: Whether the trade secret at issued has been infringed. As to this, the aforementioned Supreme Court precedent further held: "If a third party obtained the product via illegitimate way (such as theft of the prototype) and then acquired the trade secret embedded therein through reverse engineering, even though the third party has devoted efforts and costs in reverse engineering, the third party still may not obtain any benefits through such illegal practice since the way the third party acquired the product was illegitimate. Thus, if a third party claims the trade secret at issue may be readily ascertained through reverse engineering, the court shall investigate how the third party obtained the information; if the third party obtained the information via illegitimate way, even though the information may be readily ascertained through reverse engineering, such information is still protected by the laws of trade secrets." We can find that the defense of reverse engineering usually involves the legitimacy of the specific means, rather than the judgment of whether the specific information is secret.
In some cases, however, the defense of reverse engineering may still involve whether the specific information is secret. Some court precedents held that: "If high-technology is not required in reverse engineering and the person involved can learn the information through simple disassembly, surveying, or analysis upon the publicly disclosed product, it shall be deemed as non-secret." See 108 Intellectual Property and Commercial Court IP Criminal Appellate No. 37 (2019). In United Microelectronics Corporation v. Micron Technology, Inc., the defense lawyer was attempting to establish such an argument. After all, since the relevant information could be obtained through reverse engineering, this means that the industry or ordinary people could easily learn the information, so that the information does not constitute a so-called trade secret. This is also the trial strategy adopted by John Doe in the case at the beginning of this article.
It is also worth noting that the courts incline to hold that: If specific enterprise needs to invest considerable efforts and capitals in reverse engineering so as to obtain the information embedded therein, it shall be deemed as secret as well, otherwise most of the trade secrets embedded within products will lose secrecy just because of market sales. See 106 Taiwan Taichung District Court IP Litigation No. 11 (2017).
This idea is also shown in the text of the aforementioned Supreme Court precedent: "If the implementation of reverse engineering requires considerable costs (such as money, time, professional apparatus, specialized knowledge, etc.), this shows that the information involved is not readily ascertainable; Since a third party still has to pay many efforts to obtain the information embedded therein, it could be recognized that the information is still secret therefore shall be protected by the laws of trade secrets." See 110 Supreme Court Tai-Appellate No. 3193 (2021). Thus, the courts tend to hold that the defense of reverse engineering will not change the determination of secrecy regarding trade secrets.
In conclusion, per the legislative purposes, framework of statutes, and court precedents, reverse engineering is a legitimate way to obtain trade secrets in principle so that it generally will not constitute an infringement of trade secrets. However, any person or entity who wishes to raise the defense of reverse engineering should observe the pertinent facts as a whole and check whether the product at issue was illegally obtained before conducting reverse engineering. If yes, the Taiwanese courts will not accept such defense. Moreover, when reverse engineering requires considerable efforts or capitals on the product at issue, the information sought via reverse engineering will be considered as trade secret protected under Taiwanese legal structure. In this vein, the defense of reverse engineering may still be accepted by the court when the defendant can prove that the product at issue was legitimately obtained.
AUTHOR: Hung Ou Yang
Managing Partner
Taipei
+886-2-2707-9976
[email protected]
AUTHOR：Shih-Cheng Yen
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Taipei
+886-2-2707-9976
[email protected]
Copyright Brain Trust International Law Firm
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
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