March 30, 2017

Trade Secrets

The subject matter of trade secret protection is very broad.  Virtually any sort of information may qualify as a trade secret so long as it is used in a business, has some independent economic value, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.  Trade secrets are not limited to scientific or technological information and may include business information, such as customer lists, financial projections and marketing plans.  Trade secrets also may include “negative” know-how, i.e., information related to processes or inventions that do not work.  Thus, as compared to patents, the potential scope of protection for trade secrets is significantly broader than for patents.  In addition, even a small improvement to a known process can qualify as a trade secret which is a much lower standard than to qualify for patent protection.  Trade secrets have no definite term of protection.  As long as the information is secret they are protected.  However, once a trade secret is disclosed they are no longer legally protected.  Easy come easy go.

Trade secrets may be misappropriated generally under two distinct circumstances.  First, a trade secret may be misappropriated when a person uses theft or other improper means such as theft or bribery of employees to acquire the secret.  Second, a trade secret may be misappropriated where someone uses or discloses a trade secret in violation of a confidential relationship.  No express promise is necessary, an understanding of secrecy may be implied from the circumstances.  The relationship between an employer and employee is normally considered confidential.

This means that under trade secret law that so long as the information is not acquired through improper means or in violation of a confidential relationship the information may be free.  Trade secret law does not protect against independent discovery or invention of the same information.  Nor does it prevent a competitor from reverse engineering a product and from using the trade secrets uncovered to manufacture and sell an identical product.  Patent law, in contrast, does not distinguish between information acquired legitimately or illegitimately.  A product that has been designed as a result of reverse engineering may still infringe a patent.

Remedies for trade secret misappropriation depend greatly on whether the act of misappropriation has been completed.  To the extent that the defendant has not actually used or disclosed the trade secret, a court may issue an injunction prohibiting any future use or disclosure of the trade secret.  Thus, for example, where an individual has copies the trade secrets of his former employer and left to join a competitor, the former employer may seek injunctive relief against the disclosure and use of the trade secrets.  While at least one of misappropriation has occurred through the unauthorized taking of the trade secrets, the court may prevent serious damage to the owner of the trade secrets by issuing an injunction barring the individual from disclosing the trade secrets and the new employer from using the trade secrets.

Similarly where the trade secrets were taken in some tangible form, such as documents or computer disks, the trade secret owner may seek their return through the established remedy of replevin.

In cases in which the trade secrets have been publicly disclosed or already used by the defendant, monetary damages are generally available.  A trade secret owner may seek recovery for loss caused by the misappropriation, together with any unjust benefit gained by the defendant which is not accounted for in determining the loss to the trade secret owner.

Prior to the enactment of the Economic Espionage Act (EEA) in 1996, there was only a single, very limited federal statute that directly prohibited the misappropriation of trade secrets.  Federal prosecutors were only moderately successful in prosecuting thefts of trade secrets under more general federal criminal laws such as the Interstate Transportation of Stolen Property Act and the Wire Fraud and Mail Fraud Statutes.  The inherent limitations of these laws coupled with the lack of state criminal trade secret laws meant that individuals who were involved in the theft of trade secrets worth potentially millions of dollars could not be prosecuted.

In general, the EEA criminalizes the misappropriation of trade secrets which are broadly defined to include almost all proprietary information, however stored or maintained so long as “the owner has taken reasonable measures to keep such information secret and the information derives independent economic value from not being generally known to, and not being readily ascertainable through proper means by the public.  The broad definition of trade secrets means that almost anything may qualify as a trade secret, including, for example, genetic material, as long as the owner has taken reasonable measures to keep it secret.