Trade Secrets

A trade secret is any valuable business information that is not generally known to your competitors and has been subject to reasonable efforts to preserve confidentiality.

The business information which constitutes a trade secret can include a formula, pattern, compilation, program, device, method, technique or process. The information must derive for its owner independent economic value, actual or potential, while it is not known by your business competitors. It should not be readily ascertainable through proper means by other persons, otherwise it can lose its trade secret status.

Generally speaking, a trade secret will be protected from use by those who are not authorized by you to use the information. This means they would have to obtain access through an improper means. This includes anyone who receives the information from a person who they know or should have known gained access through improper means, or those who breach a promise to keep the information confidential.

The Uniform Trade Secrets Act generally governs as the controlling law in this area. Virtually all states have adopted a portion or modified version of the Uniform Trade Secrets Act. According to the text of the Uniform Trade Secrets Act, a "trade secret" is:

information, including a formula, pattern, compilation, program device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from no being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

     Use of a company’s trade secret which has been obtained in an improper manner is known as “misappropriation”. Trade secret misappropriation can be thought of as a type of unfair competition. According to the Uniform Trade Secrets Act, misappropriation is defined as:

(i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (ii) disclosure or use of a trade secret of another without express or implied consent by a person who (A) used improper means to acquire knowledge of the trade secret; or (B) at the time of disclosure or use knew or had reason to know that his knowledge of the trade secret was (I) derived from or through a person who has utilized improper means to acquire it; (II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (C) before a material change of his position, knew or had reason to know that it was a trade secret ad that knowledge of it had been acquired by accident or mistake.

     Improper means is defined in the Uniform Trade Secrets Act to include "theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means." 

     Use of a trade secret without proper authorization is called “infringement”. Remedies for infringement of a trade secret include damages, profits, reasonable royalties, and an injunction. Damages can include both the actual loss caused by misappropriation and the unjust enrichment that is not taken into account in computing actual loss. In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for an  unauthorized disclosure or use of a trade secret. If willful and malicious misappropriation exists, the court may award exemplary “double” damages.

                  With respect to injunctive relief the Uniform Trade Secrets Act provides that both an actual or threatened misappropriation may be enjoined. This means that the court will step in and pre-empt a party from exploiting a trade secret. “Intention” is enough basis to bring a law suit against a potential violator.

Attorneys fees are also available under the Uniform Trade Secret Act if the misappropriation is willful and malicious. Some statutes also provide for enhanced damages and attorneys fees in certain circumstances.

Unlike patents, trademarks and copyrights, there is never a registration or certificate which tells a third party that a business is claiming information as a trade secret. The only certain way to determine if information is a trade secret is to have a court rule. This uncertainty makes trade secrets often difficult to quantify. However, there are steps a business owner can take to make it more likely that his proprietary information will be considered a trade secret.

To adequately protecting trade secrets is something businesses must practice routinely each day. Your business should have a formal trade-secret protection program. This includes continuous monitoring to ensure the procedures are being followed. The greater the effort a business puts into maintaining and monitoring its trade secret protection program, the more likely that the business's trade secrets will be protected against misappropriation.

      However, just because you have established a trade-secrets protection program, and you monitor that program, this alone usually is not sufficient to have a court rule to protect the company's allegedly secret information. A business's trade secret protection program should address all aspects of control over the company's trade secrets and should particularly focus on the areas where such trade secrets may be disclosed to employees, customers, vendors and contractors.

     A thorough program includes business premises security, control of confidential information on a need-to-know basis, nondisclosure agreements with third-parties including customers, vendors and consultants. As well as written employment agreements that prevent disclosure of confidential information, both during and after the period of employment.

     We are happy to provide a fee-based consultation to help you assess your current trade secret program, to prepare non-disclosure and employment agreements or to just answer your individual questions on trade secret law. Simply select the “Contact Us” option on the left hand menu bar to reach us and arrange an appointment to discuss your individual needs.