Trade Secrets
TRADE SECRETS — PROTECTION OF VALUABLE BUSINESS INFORMATION
A trade secret can be anything from granny's cookie recipe to an email list of customers. A trade secret is legally defined as information that derives independent economic value “from not being generally known” and even more importantly, that is “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” As a practical matter, customer lists and other compilations used to target marketing at desirable consumers are probably the most fought-over trade secrets. Very likely any process that could be adequately described in a patent application (but which might not qualify for ultimate patent protection) can also obtain protection as a trade secret.
TRADE SECRET FAQs
How do you get trade secret protection? Very simply, by making people swear to keep a secret, and not blabbing about it yourself. It's all about agreements. Let's use an example. You are an inventor, but you are very far from obtaining a patent, and in fact you're just in the first stages of perfecting, oh, let's say, a better type of mold to make athletic shoe soles. You figure it's going to cost you another $100,000 to get the process totally worked out, and you need an investor. But if you show your idea to the investor, they may just steal your idea and avoid your phone calls, and a year later you will see your product has gone to market. During the delicate negotiation stage, in order to reveal your ideas to potential investors, you will use an “NDA,” a non-disclosure agreement. This will establish trade secret protection, so long as you do not disclose the process to others without the NDA.
What are the essential terms of a non-disclosure agreement? Basically, that the only reason you are revealing your precious secrets to the other person is because they are promising not to reveal them or exploit them commercially for their own purposes. A properly drafted NDA can be enforced in court to prevent the signatory, or persons obtaining information from him, from breaching its terms. Trade secret litigation is much more straightforward than patent litigation, the sort of thing that even a simple judge in a crowded courthouse can be made to understand. Since your NDA can additionally provide for injunctive relief and payments of attorney's fees in the event it is breached, a person who has suffered the theft of a trade secret can have themselves a very healthy lawsuit against someone who violates its terms.
What are the obstacles to obtaining trade secret protection? The biggest obstacle is when the cat's already out of the bag. If you post the information for wide use, or circulate it casually among your employees without first getting their agreement to keep it secret, you are not entitled to claim that it's a secret. Think of secrecy agreements as locks for different files. Indeed, in today's computer age, a secrecy agreement can be incorporated into each document that is used to provide password access to business databases. Especially if combined with an employment agreement that provides employees with notice that the information they receive in the course of their work is trade secret information, and otherwise confidential, you can usually obtain substantial assistance from the court in putting an end to the abuse of sensitive data by disgruntled employees.
Can you obtain a court order preventing third parties from exploiting trade secret information even if you had no agreement with them? Under the Uniform Trade Secrets Act that has been adopted in 38 of the 50 states, and under common law doctrine in many other states, the answer is “yes, under the right circumstances.” The right circumstances will all arise from having protected the secret information from disclosure internally and externally. As you would expect, the law protects you from betrayal by an employee or other person who comes into the trade secret information “under circumstances giving rise to a duty to maintain its secrecy or limit its use.” So, you can obtain enforcement of the trade secret protection against any person who knew or should have known that the information was supposed to be kept secret.
A trade secret can be anything from granny's cookie recipe to an email list of customers. A trade secret is legally defined as information that derives independent economic value “from not being generally known” and even more importantly, that is “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” As a practical matter, customer lists and other compilations used to target marketing at desirable consumers are probably the most fought-over trade secrets. Very likely any process that could be adequately described in a patent application (but which might not qualify for ultimate patent protection) can also obtain protection as a trade secret.
TRADE SECRET FAQs
How do you get trade secret protection? Very simply, by making people swear to keep a secret, and not blabbing about it yourself. It's all about agreements. Let's use an example. You are an inventor, but you are very far from obtaining a patent, and in fact you're just in the first stages of perfecting, oh, let's say, a better type of mold to make athletic shoe soles. You figure it's going to cost you another $100,000 to get the process totally worked out, and you need an investor. But if you show your idea to the investor, they may just steal your idea and avoid your phone calls, and a year later you will see your product has gone to market. During the delicate negotiation stage, in order to reveal your ideas to potential investors, you will use an “NDA,” a non-disclosure agreement. This will establish trade secret protection, so long as you do not disclose the process to others without the NDA.
What are the essential terms of a non-disclosure agreement? Basically, that the only reason you are revealing your precious secrets to the other person is because they are promising not to reveal them or exploit them commercially for their own purposes. A properly drafted NDA can be enforced in court to prevent the signatory, or persons obtaining information from him, from breaching its terms. Trade secret litigation is much more straightforward than patent litigation, the sort of thing that even a simple judge in a crowded courthouse can be made to understand. Since your NDA can additionally provide for injunctive relief and payments of attorney's fees in the event it is breached, a person who has suffered the theft of a trade secret can have themselves a very healthy lawsuit against someone who violates its terms.
What are the obstacles to obtaining trade secret protection? The biggest obstacle is when the cat's already out of the bag. If you post the information for wide use, or circulate it casually among your employees without first getting their agreement to keep it secret, you are not entitled to claim that it's a secret. Think of secrecy agreements as locks for different files. Indeed, in today's computer age, a secrecy agreement can be incorporated into each document that is used to provide password access to business databases. Especially if combined with an employment agreement that provides employees with notice that the information they receive in the course of their work is trade secret information, and otherwise confidential, you can usually obtain substantial assistance from the court in putting an end to the abuse of sensitive data by disgruntled employees.
Can you obtain a court order preventing third parties from exploiting trade secret information even if you had no agreement with them? Under the Uniform Trade Secrets Act that has been adopted in 38 of the 50 states, and under common law doctrine in many other states, the answer is “yes, under the right circumstances.” The right circumstances will all arise from having protected the secret information from disclosure internally and externally. As you would expect, the law protects you from betrayal by an employee or other person who comes into the trade secret information “under circumstances giving rise to a duty to maintain its secrecy or limit its use.” So, you can obtain enforcement of the trade secret protection against any person who knew or should have known that the information was supposed to be kept secret.