Under the Uniform Trade Secrets Act (UTSA), "trade
secrets" are generally defined as confidential proprietary
information that provides a competitive advantage or economic
benefit. Trade secrets are protected under the Economic Espionage
Act of 1994 (EEA) at the federal level, and the vast majority of
states have enacted statutes modeled after the UTSA (note that some
jurisdictions, such as California, Texas and Illinois, have adopted
trade secret laws that differ substantially from the UTSA; thus,
businesses should research laws in the relevant jurisdiction(s).).
Under the UTSA, to be protectable as a trade secret, information
must meet three requirements:
i. the information must fall within the statutory definition of
"information" eligible for protection;
ii. the information must derive independent economic value from not
being generally known or readily ascertainable by others using
appropriate means; and
iii. the information must be the subject of reasonable efforts to
maintain its secrecy.
Trade secret theft continues to accelerate among U.S. companies,
and can have drastic consequences. To combat this threat, Congress
and certain state legislatures have recently enacted legislation to
broaden trade secret protection. As a result, it is paramount that
companies safeguard all proprietary information that may qualify as
protectable trade secrets. This blog post explains some key trade
secrets concepts, and offers pointers on how to identify and
protect trade secrets.
(1) Determine Which Data Constitutes "Information"
The UTSA-type statutes generally define "information" to include:
Financial, business, scientific,
technical, economic, and engineering information;
Computer code, plans, compilations, formulas, designs, prototypes,
techniques, processes, or procedures; and
Information that has commercial value, such as customer lists or
the results of expensive research.
Courts have similarly
interpreted "information" to cover virtually any
commercially valuable information. Examples of information that has
been found to constitute trade secrets includes pricing and
marketing techniques, customer and financial information, sources
of supplies, manufacturing processes, and product designs.
(2) "Valuable" and "Not Readily Ascertainable" Information
To be protectable, information must also have "economic value" and not be "readily ascertainable" by others. Courts generally determine whether information satisfies this standard by considering the following factors:
Reasonable measures have
been put in place to protect the information from disclosure;
The information has actual or potential commercial value to a
company;
The information is known by a limited number of people on a
need-to-know basis;
The information would be useful to competitors and would require a
significant investment to duplicate or acquire the information;
and
The information is not generally known to the public.
(3) Take Reasonable Measures to Maintain Secrecy
Businesses should implement technical, administrative,
contractual and physical safeguards to keep secret the information
sought to be protected. Companies should identify foreseeable
threats to the security of confidential information; assess the
likelihood of potential harm flowing from such threats; and
implement security protocols to address potential threats. Examples
of security measures might include restricting access to
confidential information on a need-to-know basis, employing
computer access restrictions, circulating an employee handbook that
outlines company policies governing confidential information,
conducting entrance interviews for new hires to determine whether
they are subject to restrictive covenants with former employers,
conducting exit interviews with departing personnel to ensure that
the employee has returned all company materials and agrees to abide
by post-employment obligations, encrypting confidential
information, limiting access to confidential information through
passwords and network firewalls, track all access to network
resources and confidential information, restrict the ability to
email, print or otherwise transfer confidential information, employ
security personnel, limit visitor access, establish surveillance
procedures, and limit physical access to areas that may have
confidential information.
Conclusion
This blog post is intended to provide some broad guidelines to identifying and protecting company trade secrets. Most if not all companies have confidential information that may be protectable as a trade secret. But certain precautions need to be in place to ensure that the information is protectable. Because each company and situation is different, you should seek advice about your specific circumstances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.