TRADE SECRET PROTECTION
What is a Trade Secret? A trade secret is any
information used in business that is both valuable and kept hidden from
competitors. Some examples may include vendor information, customer lists,
marketing plans, research and development methods and results, financial
information, drawings, business practices, passwords, agreements, employee
ideas and developments conceived and developed during working hours,
employee work product, etc.
State Law. Trade secrets are protected in
all the states and 42 states have enacted the Uniform Trade Secrets
Act. Under state law, private individuals may sue to prevent the
unauthorized disclosure of trade secrets and for damages when unauthorized
Federal Criminal Law. Federal laws that protect
trade secrets criminalize two types of unauthorized disclosures:
- Economic Espionage - those that are intended to benefit a foreign
USC 1831), and
- Theft of Trade Secrets - those that are motivated by economic gain (18
For Economic Espionage there is a maximum penalty of 15 years in prison
and a $500,000 fine for an individual and a $10 million fine for a
corporate offender. For Theft of Trade Secrets there is a maximum penalty
of 10 years in prison and a $250,000 fine. A corporate offender is
subject to a maximum fine of $5 million.
Does it Have to Be Patentable? No. Unlike a
patent, novelty is not required, nor is an invention. If it is patentable,
however, it is usually a given that it qualifies as a trade secret.
Can a Trade Secret be Something Simple? A trade
secret does not have to be complicated. Clearly, one has a trade secret if
the information has never been published and is known only to the owner
prior to revealing it to another subject to that other person's agreement
The Gray Area. Generally, one cannot obtain
trade secret protection for information generally known or understood
within an industry even if not to the public at large. However, what is
generally known is a question of fact and is not usually a cut and dry
answer. For example, suppose you reveal what you consider to be a trade
secret to a person after that person agrees to keep it confidential.
Further suppose your trade secret is an elaboration based on published
information that had never before been utilized in the industry. Then,
that person says "Eureka" and proceeds to use your trade secret
to great economic advantage to him. You tell him "trade secret."
He says "public information." So who wins? It is not a cut and
First of all, Attorney Louis Ventre, Jr. usually recommends that the
confidentiality agreement also include a non-circumvention clause. This
helps to add a cause of action on breach of contract in addition to a
trade secret tort claim. However, let's assume that the non-circumvention
clause is not in place and that only a trade secret issue is involved.
Since this is a question of fact, a jury might consider whether the trade
secret has been employed in the industry, whether there was motivation in
the industry to otherwise employ the trade secret, and how easy it would
have been for the industry to duplicate that information without knowledge
of the trade secret.
If the trade secret hadn't been employed before and the industry would
have been well motivated to do it had it been well known, then this is a
factual circumstance that a jury could well use to conclude that the trade
secret was not generally known or understood within an industry. It
affects their judgment as to whether or not the trade secret could have
been easily acquired or duplicated through proper means. Basic fair play
issues often can influence a jury when the answer isn't cut and dry.
Are Punitive Damages Possible? Yes, punitive, or
exemplary, damages may be awardable when there is an intentional
misappropriation of a trade secret or when there is a misappropriation
resulting from the conscious disregard of the rights of the trade secret
owner. Attorney's fees may also be awardable, often when willfulness and
maliciousness are present.
Steps Taken to Preserve Secrecy? In order to
protect trade secrets, a company should implement a policy of secrecy and
consistently implement good precautionary practices within the office.
This policy should address use of email, shredders, restricting access to
information, marking materials, and many others. This is one of the
factors that a jury will consider when it determines if the trade secret
owner thought the trade secret had value and is one factor affecting a
jury's decision on whether or not to grant trade secret protection.
However, note that many states have enacted statutes which, with explicit
exceptions, make it unlawful for an employer to intercept or record any
private communication by telephone, or electronic communication.
What is Reasonable for Employees? An employee
should be required to execute a confidentiality agreement, non-disclosure
agreement and non-compete agreement as a precaution and deterrent to the
temptation to take and share with a new employer, that which is valuable
to the company's competitors.
A high-level employee with access to the company's secrets should have
agreement with a narrowly defined restrictive covenant not to compete
with the Company.
Upon leaving a job, an exit interview should be conducted and the
employee should be asked to sign an acknowledgment that during employment
the employee had access to confidential information, that the employee
kept it secret and that the employee won't take any written materials on
such secrets with him.
Yes, But Is a Non-Compete Agreement Enforceable? Maybe, but it is clearly better to have
a non-compete provision, than not. The potential to enforce a
non-compete provision is enhanced if it is reasonably limited in time and
geographic scope and necessary to protect the employer's legitimate
business interests. The risk in not having a non-compete provision
is that a court will probably not prevent a high-level, key employee with
crucial trade secret knowledge from taking a job with a competitor.
With it, many state courts would probably enforce it. However, even
if you have a non-compete provision, some states, like California and
Georgia, have strong policies prohibiting or restricting non-compete
Is a Patent Better? Maybe. Unlike a
patent, if a trade secret becomes known by reverse engineering or
independent creation, it is lost and little can be done. There is also value
in the certainty of a patent's definitive disclosure, its lifetime
regardless of who knows about it, and the clarity in specific claims. It
may also promote creation of derivative inventions by employees. It
seems apparent that defined rights can be more easily sold and policed as
to use by a competitor.
While trade secrets involving business knowledge are often ill-defined
within a company, it is also clear that trade secrets can be well defined,
if the effort is made to do so. So, if reliance on trade secret law
is attempted, it requires vigilance and steps to protect the trade secret.
A problem lies in being second guessed in terms of theft or employee
misuse of trade secrets, as to whether or not a company took adequate
steps to protect its trade secret.
Serious concerns involving trade secrets often relate to former
employees using inside knowledge to benefit a competitor and the
corresponding vagueness in knowing what is a trade secret and what lies in
an employees general experience in a field.
How Can the Law Firm Help? Attorney Louis
Ventre, Jr. can prepare a bare minimum company policy statement, an employee
agreement, and an exit interview acknowledgement for your company for
a fixed price of $500. Continuing advice concerning policies, procedures
and protection of company property is provided at a rate of $250 per hour.
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This file last modified 07/09/11.
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