What Is a Trade Secret?

Portland Trade Secret Attorney

Vancouver Confidential Information Lawyer

How to define "valuable information"
Any proprietary business information can qualify for protection as a trade secret. It must, however, have some independent economic value to the business and the information must be generally unknown or not readily ascertainable by competitors. The UTSA lists many typed of qualified information. Oregon adds a few that are not listed in the federal act, for instance, drawing, cost data and customer lists. In litigated cases, a drug formula, a marketing cost study, and a customer list have all been held to have the requisite business value, and thus to be trade secrets. One may not, however, call something a trade secret if it is readily ascertainable by others. For example, if customer information can be obtained by looking in a public source, such as the phone book or public directory, it is not a trade secret. A food recipe could be a trade secret, but not if it is a widely known staple dish, such as macaroni and cheese. An edible apple coating, however, involving special processing techniques, did qualify for trade secret protection.

While the primary authority for the law of trade secrets is the UTSA, courts continue to apply traditional tests when determining whether something is a trade secret. Six factors are considered: (1) the extent to which the information is known outside the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken to safeguard the secrecy of the information; (4) the value of the information to the business or its competitors; (5) the amount of effort or money expended by the business in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. One theme of these factors is that the more security precautions undertaken, the more likely a court is to grant trade secret protection. If a business wants to shield information, establishing procedures that consider the six factors can strengthen a claim for state law trade secret protection.

Secrecy must be maintained
Even if information is valuable to a business, reasonable efforts must be made to keep it secret or the trade secret protection offered by the UTSA will be lost. Typically, both physical security precautions and contractual agreements with employees and business partners are required. The particular circumstances of a business and its secrets will determine the required degree of precautions. For some businesses, such as manufacturers, posting security guards and limiting access to confidential information may be appropriate. For a technology company, limiting access to research files, distributing files only on a need-to-know basis, erecting network firewalls, and requiring passwords for computer access are appropriate. The security measures enacted must relate to the information being protected. Reasonable measures are required to maintain secrecy, but absolute secrecy is not necessary. In the early 1970s, two photographers flew a plane over a DuPont plant then under construction. A competitor was hoping to discover a secret methanol manufacturing process. The court held that it would be unreasonable to require DuPont to build a roof over their unfinished plant just to protect against the possibility of aerial surveillance. Standards change, so in today’s time of more sophisticated satellite imagery perhaps a roof would be required. However, the principle of requiring reasonable efforts to maintain secrecy, rather than absolute secrecy, remains.

Disclosure of information to employees is a necessary part of conducting business, but unauthorized further use of such disclosures can be limited contractually. Because the secrecy required for trade secret protection is relative, rather than absolute, controlled disclosure of information to employees (and licensees) can be done without losing legal protection. Even after an employee moves to a new company, an implied duty of loyalty exists to prevent the employee from disclosing trade secrets to the new employer. This duty of loyalty can be made explicit through the use of non-disclosure agreements (NDAs). Requiring employees to sign NDAs can minimize the risk of an employee or ex-employee disclosing secrets. It also gives the employer a cause of action in contract, in addition to trade secret misappropriation, for any unauthorized disclosures. If a former employee does reveal a secret to a new employer, a business can sue for damages and for an injunction to prevent the new employer from using the information.

Before the enactment of the UTSA, the law would not protect a trade secret unless it was in actual use. Under the UTSA, information need not be in continuous use, it need merely have actual or potential commercial value. For example, research that eliminates a method or process as unworkable can be a trade secret because it gives a business a head start on figuring out what method or process will work. A line must be drawn somewhere though. The information cannot be purely speculative; a preliminary idea without a concrete means to achieve the result is not a trade secret.

Maintaining an ongoing trade secret program is vital to all businesses
Business should regularly conduct a Trade Secret Audit to identify secrets and update protection measures. A surprisingly broad range of information can qualify as trade secrets, but only if reasonable efforts are made to maintain them as secrets. These efforts need to be ongoing, and adapted to changing circumstances. It is not enough to have employees sign NDAs; these contracts need to be reviewed so that both the employer and employees know what information is covered and what uses are allowed. While trade secret law can afford long-term protection to proprietary business information, as that information becomes generally known, the secrets lose their value. If your only competitor has independently discovered your secret process, there is no longer any need to keep it a secret. Nor do you have protection under the UTSA once information is no longer a secret. To be safe in the trade secrets arena, protect your valuable business assets. Take a close look at potential trade secret information, implement a protection plan, and review the plan on a regular basis.

Call today at 1.866.601.9440 or e-mail us to discuss your business-related issues.