Advanced Fluid Systems v. Huber: Trade Secrets

The Third Circuit held lawful possession, not title, lets a plaintiff sue for trade-secret misappropriation under Pennsylvania law, affirming a $3.1M award.

Trade-secret defendants often raise a threshold objection that sounds unanswerable: you do not own this information, so you cannot sue over it. The United States Court of Appeals for the Third Circuit rejected that argument in Advanced Fluid Systems, Inc. v. Huber, 958 F.3d 168 (3d Cir. 2020), decided April 30, 2020. Applying Pennsylvania’s Uniform Trade Secrets Act, the court held that lawful possession of a trade secret, not formal ownership, is enough to confer standing to bring a misappropriation claim, and it affirmed an award of roughly $3.1 million, including punitive damages.

The ruling resolves a recurring and practical question for contractors, licensees, custodians, and vendors who routinely hold sensitive information they do not technically own. In a world of layered supply chains and commissioned work, the party best positioned to detect and pursue misappropriation is frequently a possessor rather than a titleholder. Advanced Fluid Systems confirms that lawful possession, meaning possession the owner has permitted, supplies the interest needed to sue.

At a glance

Case: Advanced Fluid Systems, Inc. v. Huber, 958 F.3d 168, Nos. 19-1722 and 19-1752 (3d Cir. 2020) (Jordan, J.).
Decided: April 30, 2020, on appeal from the Middle District of Pennsylvania; opinion affirming the district court.
Holding: Under the Pennsylvania Uniform Trade Secrets Act, lawful possession rather than fee-simple ownership is sufficient to maintain a misappropriation claim.
Status: Final; judgment of approximately $3.1 million, including punitive damages, affirmed.

The doctrinal frame: who is a proper plaintiff

The Pennsylvania Uniform Trade Secrets Act (PUTSA), 12 Pa. Cons. Stat. §§ 5301 through 5308, mirrors the Uniform Trade Secrets Act adopted in most states. It authorizes injunctive relief and damages for the misappropriation of a trade secret but, critically, does not say in so many words that only an “owner” may sue. That silence framed the appeal. Huber argued that a plaintiff must own the trade secret to have standing, and that because the contract designated the proprietary hydraulic designs the “exclusive property” of the government entity that had commissioned the work, Advanced Fluid Systems (AFS) lacked the interest necessary to pursue the claim. AFS acknowledged that it had conveyed legal title to that entity, so the court simply treated the entity as the owner and asked whether ownership was required.

The court read the statute as written. Where the uniform act conditions suit on the existence of a trade secret and an act of misappropriation, it does not graft on an ownership prerequisite. The relevant question is whether the plaintiff has a legally cognizable interest in the secrecy of the information, and lawful possession supplies that interest. Following the Fourth Circuit’s decision in DTM Research, L.L.C. v. AT&T Corp., 245 F.3d 327 (4th Cir. 2001), the panel reasoned that the proprietary aspect of a trade secret flows not from the knowledge itself but from its secrecy, so a lawful possessor has a substantial interest in that secrecy even without title. The court was careful to say that this is not a rejection of the property view of trade secrets. Pennsylvania courts treat trade secrets as a species of property, and the point is only that ownership is not the sole protectable interest.

The facts and posture

In 2009 AFS contracted with the Virginia Commonwealth Space Flight Authority to build, install, and maintain the hydraulic system for the NASA rocket-launch facility at Wallops Island, Virginia. In performing that work, AFS developed and handled detailed proprietary hydraulic designs and technical information. The agreement deemed all materials generated under it “work for hire” and the “exclusive property” of the Authority, yet AFS physically retained the drawings, kept using them to meet its contractual obligations, and stamped them with its own confidentiality notice. The Authority never objected to any of that. In 2012 the Authority ran into financial trouble and Orbital Sciences Corporation took control of the launch system.

Kevin Huber, an AFS engineer, began feeding AFS’s confidential drawings and internal documents to a competitor, Livingston & Haven, while still employed by AFS, and he inflated AFS’s own bid to help Livingston win a gripper-arms contract from Orbital. He then quietly formed his own company, INSYSMA, downloaded roughly 98 gigabytes of AFS files, and resigned. INSYSMA ultimately won the cylinder-upgrade contract from Orbital. AFS sued Huber, INSYSMA, Livingston, and two Livingston employees under PUTSA and on common-law theories. The district court held the Huber parties liable for misappropriation on summary judgment, and after a bench trial it held the Livingston parties jointly and severally liable and entered judgment totaling roughly $3.1 million. The defendants appealed, leading with the ownership-standing argument.

The court’s reasoning

The Third Circuit affirmed in full. On the central question, it held that PUTSA does not restrict standing to owners and that AFS lawfully possessed the trade secrets, because the owner had at a minimum impliedly consented to AFS retaining and using them. AFS held the drawings, was required to use them to perform the agreement, and did so openly, and the Authority never questioned that retention or the confidentiality stamp AFS affixed. An owner may give another lawful possession, the court observed, including by simply consenting to it. The defendants cited no authority that one who retains and uses a trade secret for the owner’s benefit, with the owner’s knowledge and consent, fails to possess it lawfully.

The court also sustained the damages. The district court had awarded roughly $1.1 million in compensatory lost profits against all appellants jointly and severally, $1 million in exemplary damages under PUTSA against Huber alone for the trade-secret theft, and $1 million in punitive damages on the breach-of-fiduciary-duty claims against Huber, Livingston, and Vann jointly and severally. The panel found the record supported those awards and that the compensatory figure rested on an adequate evidentiary basis. The panel rejected the defendants’ remaining challenges to liability, concluding that the record supported the district court’s conclusions that the hydraulic information qualified as a trade secret, that AFS had taken reasonable measures to protect it, and that the defendants had acquired and used it through improper means and breaches of duty.

What it changed, and what it confirmed

Advanced Fluid Systems is now the leading Third Circuit statement that possession, not ownership, anchors trade-secret standing under the uniform act. Its practical reach is broad. Contract manufacturers holding a customer’s specifications, IT vendors entrusted with a client’s proprietary databases, joint-venture partners sharing pooled know-how, and prime contractors handling a government agency’s technical data can all point to Advanced Fluid Systems when a defendant argues that only the titleholder may sue. The decision aligns Pennsylvania with the general current of authority under the uniform act and forecloses a formalistic ownership defense that would have immunized many misappropriators simply because the plaintiff was a possessor rather than an owner.

The decision’s reasoning also implies an allied point: the same information can support claims by more than one interested party. An owner and a lawful possessor may each have standing, so long as each can show a cognizable interest in the secrecy of the information. That has consequences for how supply-chain contracts allocate the right to enforce, and for whether a defendant faces exposure to multiple plaintiffs over the same misappropriation.

Open questions

The opinion does not chart every boundary of possessory standing. It holds only that lawful possession can suffice “under circumstances like this,” so it does not decide how tenuous a permitted possessory interest can become before it fails. An unauthorized holder is plainly outside the rule, since the possession must be lawful, but the opinion leaves open how courts should coordinate parallel claims by an owner and a possessor over the same secret, including questions of claim preclusion and the risk of duplicative recovery. And because it arises under Pennsylvania’s version of the uniform act, its persuasive force in states with idiosyncratic statutory language, or under the federal Defend Trade Secrets Act, which defines an “owner” as one in whom rightful legal or equitable title, or a license, is reposed, remains a matter of argument rather than command.

Implications for inventors and businesses

Lawful possession equals standing. A contractor, vendor, or custodian that holds a trade secret with the owner’s permission, even implied permission shown by a course of conduct, can sue for misappropriation without holding title to the information.
Allocate enforcement rights by contract. Because owners and possessors may each have standing, supply agreements and commissioned-work contracts should state expressly who may enforce, to avoid duplicative suits or gaps in coverage.
Willful misappropriation invites punitive exposure. The affirmance of a punitive award underscores that malicious, deliberate taking of a trade secret can multiply damages under the uniform act.
Do not assume the ownership defense wins. Defendants who take proprietary information cannot escape liability merely by pointing out that the plaintiff was a possessor rather than the titleholder.

Frequently asked questions

Do you have to own a trade secret to sue for its misappropriation under Pennsylvania law? No. The Third Circuit held that the Pennsylvania Uniform Trade Secrets Act does not limit standing to owners. A party in lawful possession of a trade secret, such as a contractor holding a customer’s proprietary information, may bring a misappropriation claim even without title to the information.

Why did lawful possession matter in Advanced Fluid Systems v. Huber? The contract designated the proprietary hydraulic designs the exclusive property of the Virginia state authority that commissioned the work, and AFS conceded it had conveyed title. The court held that AFS still possessed the designs lawfully, because it retained and used them openly with the owner’s knowledge and implied consent, and that this gave it a sufficient interest to sue the former employee and competitors who took them.

What was the outcome of the case? The Third Circuit affirmed the district court’s judgment for Advanced Fluid Systems in full, upholding an award of roughly $3.1 million: about $1.1 million in compensatory lost profits against all appellants, $1 million in exemplary damages under PUTSA against Kevin Huber alone, and $1 million in punitive damages on the fiduciary-duty claims against Huber, Livingston & Haven, and Clifton Vann.