Trade Secret Protection under the Trade Secrets Act

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What is a trade secret? A trade secret is anything within your business that is not generally known to the public, that’s not readily ascertainable, and that give you, your company, or your business an economic advantage or other advantage over your competitors.  And so a trade secret definition typically incorporates these various concepts.  That, number one, it has to be this process, design, pattern, information or formula which is unique to you, that only you know about, and that your company has available to it, other competitors do not.

The next concept is that it has to provide you an economic advantage over competitors. So, trade secrets, by definition, can’t just be something that no one else knows. They have to be something that no one else knows, and that gives you an advantage over your competitors.  And these are very important concepts.  Trade secrets are, by definition, confidential information for your company.  And trade secret law will provide you protection in order to keep those trade secrets out of the hands of your competitors if you take the appropriate actions to make sure that you keep the information confidential; that you treat the trade secret information as a confidential piece of information.

My name is Trade Secret Law Attorney Enrico Schaefer, and today we’re going to be talking a little bit about trade secret protection, trade secret law, and how a good trade secret attorney will help you define and protect your trade secrets. So let’s just start with some of the basics.  As we talked about, trade secret isn’t generally known to the public.  Now that may be true, and you’re not doing whole lot internally to protect it, it just turns out that you developed this trade secret, and it’s never been disclosed to any sort of third party.

It also needs to confer some sort of economic advantage to your company, in the rough-and-tumble world of competition. And it must be subjected to reasonable efforts to maintain its secrecy.  So, if a trade secret is not generally known to the public, but you’re company, or small business, or start-up hasn’t done anything to maintain the information’s secrecy, then a court could rule that, in fact, it’s no trade secret at all.  And I will tell you as a trade secret lawyer that the hardest part is often establishing that the company itself treated its trade secret as a secret.

So a good trade secret law firm, a good trade secret lawyer, is going to help you understand what kind of measures to take internally in order to identify potential trade secrets, and take the necessary action so that you can meet the court test for “subjective reasonable efforts to maintain its secrecy.”  These are the types of things that a good trade secret attorney understands and can develop for your company.

So, we have something at our trade secret law firm, and that’s a trade secret audit.  And essentially what we do for businesses is we go through a process by which we are able to identify those things that provide economic advantage, and that are known only to the company itself.   Once we identify those things, then we do an analysis as to which ones provide this business advantage over competitors, and thus meet the trade secret definition.

Once we get those trade secrets identified, then we take a look at what kinds of things the company has been doing in order to keep the confidential information secret.  Those things can be such aspects as limited access to the information; non disclosure and non competition agreements to any employees who have access to this trade secret information; a clear indication to employees and others with access to this information, that you are claiming trade secret protection in those materials. It can be limited access to computers, and it certainly will involve making sure that you’re information is password protected.

So there are a variety of things that a court is going to look at if you should ever have to file a trade secret litigation case against the defendant who has stolen, or otherwise used your trade secret information.  And what you need to be able to do is affirmatively come forward with the program, with the information that a court will need in order to rule in your favor, at least at the preliminary injunction stage where you’re seeking an order which precludes further dissemination of the trade secret, that you’re going to be able to establish that you, in fact, treated the information as a trade secret, and you meet the statutory definition under the Uniform Trade Secrets Act, which has probably been adopted in your jurisdiction.

The Uniform Trade Secrets Act has been adopted everywhere, except Massachusetts, New York, North Carolina, and Texas.  All other states, including California, Michigan, Nevada, Utah, and New Jersey, these states have, in fact, adopted some form of the Uniform Trade Secrets Act.

So let’s talk a little bit about the difference between a trade secret and a patent. And the essential difference between a trade secret and a patent is that trade secrets are protected, and never disclosed to any third party, including a government agency such as a patent office.  Trade secrets can theoretically last forever because you don’t ever disclose it, and in fact, it can be maintained as a trade secret for as long as your company can manage to do that.

A patent is, in fact, publicly disclosed as part of the patent prosecution and filing process.  It is publicly disclosed, and the down side, of course, is that it has a limited term, and then it will pass into the public domain where, in fact, anyone can use it.  So, these are fundamental differences.  Are you going to keep this information secret within your company, or are you going to disclose it and try to get patent rights.

A trade secret, if disclosed, can be legally reverse engineered and used.  And the reason why is because, well, if some third party got the trade secret, it’s no longer confidential, and therefore it doesn’t meet the statutory definition under the Uniform Trade Secrets Act, and therefore, you’ve lost your trade secret protection.

So, it is very important that if there is any sort of public disclosure or you believe that someone has gained access to your trade secret as a result of an employee or contractor leaving the company with, for instance, a customer list, then you need to take immediate action.

A patent cannot be reverse engineered legally, and the patent is going to cover and require license fees to be paid for anything that is going to be functionally similar to the patent.  Trade secret protection is incredibly important.  Trade secrets can be assets of your company.  And one of the things that I, as a lawyer who practices in this area, am always taking a look at is what is the value of this information, this process, what have you, as a trade secret. If anyone should go to value your company or business at a later time, you’re going to want to make an affirmative pitch that you own these trade secrets. That because they have been protected as trade secrets, that they provide real value, and a properly protected trade secret that provides you could have an advantage over your competition, could double or triple the value of your company, or more. Stated the other way, if you don’t protect your trade secrets as trade secrets, your company value may be very close to zero, because if you lose your competitive advantage, you lose your revenue, and it’s very easy for your company to be destroyed as a result.

So these are some key elements that you need to understand whenever you’re trying to understand how to protect a trade secret, what a trade secret is, and how a good lawyer will go about protecting your trade secret.  So that if you ever have to litigate or send a threat letter on it, you’re positioned to do so.

My name is Trade Secret Law Attorney, Enrico Schaefer.  We’ll see you next time.

You’ve been listening to Trade Secret Law Radio, where trade secret protection, legal cases, and defenses are always the topic of the day.  Whether you are a trade secret attorney, a business looking to protect your trade secrets or have been accused of trade secret theft, we will answer your questions here.