Chicago Lock Co. v. Fanberg
676 F.2d 400, 216 U.S.P.Q. 289 (1982)
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Rule of Law:
Acquiring a trade secret from a third party is not accomplished by improper means if that third party legitimately discovered the secret through reverse engineering and owed no independent duty of confidentiality to the trade secret's owner.
Facts:
- Chicago Lock Company manufactures high-security 'Ace' tubular locks and maintains the secrecy of the correlation between each lock's serial number and its key code.
- The Company's policy is to only sell duplicate keys to the registered owner of record and it does not sell blank keys to locksmiths.
- When a lock owner loses a key, they can hire a locksmith to pick the lock and decipher its tumbler configuration (the key code) to create a new key.
- Locksmiths who reverse-engineered the locks in this manner often recorded the serial number and key code correlations for their customers.
- Morris and Victor Fanberg, who are locksmiths, advertised in a trade journal, requesting that other locksmiths send them the key code correlations they had compiled.
- In exchange for the data, the Fanbergs promised a copy of the complete compilation.
- The Fanbergs then published and sold a two-volume manual containing the compiled key codes, which allowed purchasers to create duplicate keys for Ace locks using only the lock's serial number.
Procedural Posture:
- Chicago Lock Company filed a complaint against the Fanbergs in U.S. District Court, alleging trademark infringement, federal unfair competition, and California common law unfair competition.
- The District Court granted summary judgment for the Fanbergs on the two federal claims.
- A bench trial was held on the remaining state law claim for common law unfair competition.
- The District Court entered judgment in favor of Chicago Lock Company, finding the key codes were improperly acquired trade secrets and constituted an unfair business practice.
- The District Court issued an injunction prohibiting the Fanbergs from publishing or distributing their compilation of key codes.
- The Fanbergs (appellants) appealed the District Court's judgment and injunction to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Does a party engage in the improper acquisition of a trade secret by soliciting and compiling information that individual third parties, who owe no duty of confidentiality to the trade secret owner, independently and legitimately discovered through reverse engineering?
Opinions:
Majority - Ely, Circuit Judge
No. Liability for trade secret misappropriation requires the use of 'improper means,' which is predicated on the breach of a duty of confidence owed to the trade secret holder. Here, the Fanbergs did not employ improper means because the locksmiths from whom they acquired the key codes owed no duty of confidentiality to the Chicago Lock Company. The court reasoned that trade secret law does not protect against discovery by fair and honest means, such as reverse engineering. The individual locksmiths properly obtained the key codes by reverse-engineering their customers' locks. While locksmiths may owe a fiduciary duty to their customers, they owe no such duty to the lock manufacturer. Furthermore, the lock owners themselves owe no duty to the Company to keep their own key codes secret and are free to discover and publish them. Because the locksmiths breached no duty to the Company by sharing the codes, the Fanbergs did not induce any breach and therefore did not use 'improper means' to acquire the information.
Analysis:
This decision reinforces the distinction between trade secret protection and patent protection, clarifying that trade secret law cannot be used to prevent the public from reverse-engineering a publicly sold product. It establishes that liability for misappropriation hinges on a breach of a confidential relationship, not merely the acquisition of valuable secret information. The case significantly limits a manufacturer's ability to control information about its products after sale, affirming that third parties can legally compile and distribute information discovered through legitimate reverse engineering by others, so long as no underlying duty of confidentiality to the manufacturer is breached.
