Tuesday, August 21, 2012

Trade Secrets In Your Business

When it comes to trade secret, most of the public would be able to point to the Coca-Cola or the KFC secret recipes. It is common for many businesses to hold secret and confidential information that is not known to the public. In order for this information to rise to the level of a trade secret a two-prong test must be met: the information must be kept secret through reasonable efforts, and an economic value must be derived from the secret information. If both these prongs are met then you are likely dealing with a trade secret.

Trade secrets are valuable intellectual property because they never expire (so long as the information is kept secret) and unlike a patent, no disclosure to the public is required. In the United States most states, and the District of Columbia, have adopted the Uniform Trade Secrets Act (the “Act”), or have adopted a version of the Act (Massachusetts, New York and Texas have not adopted the Act but have their own trade secrets acts).

What is a Trade Secret?

Most states adopting the Act define a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
     (a) derives independent economic value, actual or potential, from not 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
     (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” (See Utah Code Ann. § 13-24-2(4)).

Ultimately courts will look at six general criteria when determining if information constitutes a trade secret:

1.   Is the information claimed to be trade secret known outside of the business?
2.   Is the information readily known and available to most employees in the business?
3.   Is the information labeled as “confidential” or “trade secret” and are steps or measures taken to maintain the secrecy of the information? (also with this, courts will look at if employees are told certain information is protected trade secret).
4.   The amount of money spent by the business in developing the trade secret.
5.   The economic value derived from maintaining the information as secret.
6.   The difficulty or ease of discovering the secret.

A trade secret must be identified with reasonable particularity. In other words, claiming all documents created in a business are trade secret is not sufficient. Businesses should take steps to identify what they believe is trade secret and determine why it is trade secret. If it meets the definition and would pass the court’s scrutiny, then reasonable efforts should be immediately taken to protect the information as a trade secret.


One of the tricks in trade secret protection and litigation is that the mere taking of information does not necessarily rise to the level of trade secret misappropriation. Another difficulty is if an employee or person is given access to the allegedly secret information, but is not told it is secret and given instructions on how to protect the secret, the information may have lost its trade secret status.

If you are able to show that the misappropriator used the secret information, and they had actual or constructive knowledge that the information was secret, then the courts can grant injunctive relief and can grant damages and attorney’s fees in some states.

Ultimately the burden rests on the business to prove trade secret protection. 

If you have a business that allows its employees to have access to confidential and trade secret information, you should develop a clear policy that prohibits the information from being stored on personal computers, taken from the office without prior authorization, and that requires any copies made to be immediately returned to the employer. These and other steps can minimize the exposure of a trade secret inadvertently (or purposefully) leaving the business and in turn lowering the amount of protection afforded to that information.