Protection Tailor-Made For Your Trade Secrets

Companies that don’t have a comprehensive understanding of the evolving definition of "trade secret" are opening themselves up to possible liabilities.

trade secretsWhat is a trade secret?

The answer to this question has been fluctuating since 1939. The Restatement of Torts initially provided that “[a]n exact definition of a trade secret is not possible” and simply provided courts and the public with several factors to determine whether the particular information was a trade secret. The only definite requirement was that the information must be continuously used in one’s business. Id.

The impossible-to-define term, however, was defined by the Uniform Trade Secrets Act (“UTSA”) as information that “derives economic value” from its secrecy. The UTSA also removed the Restatement’s requirement that the trade secret must be used continuously in one’s business. Id.

As States implemented identical or similar definitions within their respective trade secrets acts, the 1995 Restatement of Unfair Competition and the Economic Espionage Act (“EEA”), in 1996 attempted to provide additional guidance on the definition. The plethora of definitions and national businesses, encouraged the Federal government to implement the Defend Trade Secrets Act (“DTSA”) to provide a Federal private cause of action to protect trade secrets. The DTSA’s trade secret definition was nearly identical to the UTSA and EEA with a few alterations: it provided additional example categories of trade secrets (designs, prototypes, and codes), it specified that trade secrets could be tangible or intangible, and it specified that the information must derive its economic value from lack of disclosure or use by “another person who can obtain economic value from the . . . information.” However, the DTSA does not preempt existing state trade-secret laws, thus it is pertinent to also analyze any state’s trade secret definition where applicable.

“Trade secret policies and procedures should be customized to perfectly fit the business’s unique trade secrets.”

How do businesses best protect their trade secrets?

Businesses should have legally compliant documents. The DTSA revised the requirements for any contract relating to trade secrets, such as non-disclosure agreements. Prior to the DTSA, businesses could not prohibit the disclosure of trade secrets if it: (1) related to activity regarding the terms and conditions of employment; or (2) was necessary in order for an employee to report a legal violation to governmental agencies. The DTSA expanded upon these exclusions by expressly establishing a safe harbor for the disclosure of trade secrets for the purpose of reporting or investigating a legal violation. All businesses must include notice of the DTSA’s whistleblower immunity through their non-disclosure agreements or other contracts pertaining to use of trade secrets; if notice is not given, that business may not seek punitive damages or attorney fees as remedies for trade-secret misappropriation.

Businesses must sufficiently identify and protect the secrecy of trade secrets that they will want to protect through litigation, most notably: customer lists or detailed information concerning a business’s customers, manufacturing methods, formulae and sales data or marketing funnels. It is also advised to have a well drafted agreement to provide full protection and remedies.

Trade secret policies and procedures should be customized to perfectly fit the business’s unique trade secrets. To ensure sufficient protection of one’s trade secrets, it is best to consult not only with the legal department, but also individuals within various relevant departments of the business (including I.T. and HR, and the key business groups) when drafting trade secret policies. Additionally, businesses must also ensure their trade secret policies are realistic and implemented through best practices, such as requiring acknowledgment if a meeting will reveal trade secrets, marking information containing trade secrets, and designating an individual with the duty of ensuring all necessary steps have been taken to protect the secrecy of the business’s trade secrets. Businesses are most successful in maintaining the secrecy of their trade secrets, and decreasing legal risks when their policies and procedures are tailor-made for their trade secrets and their specific business operations.

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