Business, innovation and proprietary information are often the cornerstones of a companies’ success. Companies invest significant time, resources, and expertise to develop and maintain their unique processes, formulas, and strategies that provide an edge over their competitors. However, just because the information is a valuable business assets does not automatically make it a trade secret and provide the foundation for a lawsuit over its unauthorized use. To be protected as a trade secret companies must protect their valuable information as a secret.
What are Trade Secrets?
A trade secret is a narrow exception to the general rule that companies in the United States are free to compete with each other and have the freedom to adopt business methods, ideas or processes of manufacture from competitors. Otherwise, the first person in the field with a new process or idea would have a monopoly which would limit competition, which is essential. Thus, there is a limited exception to the general rule favoring free competition in the marketplace that protects a limited class of information, information which qualifies as a “trade secret.” The general rule providing for free and open competition, is thus only limited in special situations when there is some special information which qualifies as valuable secret information.
Trade secrets are defined as confidential information that derives its economic value from not being generally known or readily ascertainable by others who could obtain economic benefit from its disclosure or use. Protecting Confidential Information does not make it a trade secret. Trade secrets are valuable secrets which provide a company a competitive advantage.
The Six-Factor Test for Trade Secrets
To determine whether protecting confidential information qualifies as a trade secret, courts often apply the six-factor test originally set forth in the comments to Section 757 of the Restatement of Torts.
- The extent to which the information is known outside the claimant’s business.
- The extent to which it is known by employees and others involved in the business.
- The extent of measures taken by the claimant to guard the secrecy of the information.
- The value of the information to the business and its competitors.
- The amount of effort or money expended by the claimant in developing the information.
- The ease by which the information could be acquired or duplicated.
Based on the limited situation when information is actually protected and maintained as a secret should it qualify as a trade secret.
Elements of a Trade Secret Claim
However, even if it qualified for trade secret protection, the Plaintiff must still establish that the case has the elements of a trade secret claim. To establish a successful trade secret claim, plaintiffs must prove the following elements:
- The subject matter involved qualifies as a trade secret. The plaintiff must demonstrate the information falls within the scope of protectable information which provides a competative advantage to the Plaintiff. Things like technical information, manufacturing processes, pharmaceutical test data, designs and drawings of computer programs or code, and commercial information, such as distribution methods, list of suppliers and clients, and advertising strategies typically qualify as trade secrets. A trade secret may be also made up from a combination of various elements, each of which by itself are in the public domain, but where the combination, which is maintained as a secret, provides a competitive advantage to the business.
- Reasonable efforts to maintain secrecy. The plaintiff must show that they took reasonable steps to safeguard the trade secret, such as using confidentiality agreements, limiting access to the information, and implementing security measures.
- Misappropriation of the trade secret. The plaintiff must prove that the defendant acquired, used, or disclosed the trade secret through improper means or without authorization or consent.
- Damages. The plaintiff must demonstrate that as a result of the misappropriation of the trade secret information by the Defendant, the Plaintiff was harmed.
Protecting Your Trade Secrets
Implementing proactive measures to maintain secrecy can further minimize the risk of misappropriation and unauthorized use. The following proactive tips can help a company protect its trade secrets:
- Identify and classify trade secrets. Clearly define and document all information that qualifies as a trade secret.
- Implement confidentiality measures. Use confidentiality agreements with employees, contractors, and business partners.
- Limit access. Restrict access to trade secrets to authorized personnel and only then on a need to know basis.
- Implement physical and technological safeguards. Use reasonable measures to protect the information such as securing the facilities, using double authentication password protection and encryption.
- Educate employees. Train employees on trade secret protection and the importance of maintaining the informaiton as a secret.
- Monitor disclosure risks. Regularly review and update security measures to address potential threats.
Trade secrets are valuable assets of a company which if protected can last indefinately and provide businesses with a significant competitive advantage. Protecting confidential information is just a start. By understanding the six-factor test and the elements of a trade secret claim, companies can protect their intellectual property and safeguard their business interests. If you have questions about trade secret protection, contact one of our attorneys.