Academic journal article Defense Counsel Journal

Identifying and Protecting Employers' Interests in Trade Secrets and Proprietary Information: Every Company Has Something That It Hopes Will Give It an Edge over the Competition, and It's Wise to Protect This as a Trade Secret

Academic journal article Defense Counsel Journal

Identifying and Protecting Employers' Interests in Trade Secrets and Proprietary Information: Every Company Has Something That It Hopes Will Give It an Edge over the Competition, and It's Wise to Protect This as a Trade Secret

Article excerpt

TO BE successful, companies must distinguish themselves in a marketplace saturated with consumer products and services. To do so, they must cultivate and maintain a client base and recruit, train and retain a skilled work force. They must do all this while keeping their trade secrets and proprietary information from their competitors--which isn't easy. Trade secret misappropriation is estimated to cost American companies more than $100 billion annually. (1)

Today's work force is increasingly transient. When coupled with the ease of electronically storing, copying and transmitting information, the fact that a company's most valuable and skilled employees are also the most mobile presents companies with a Catch-22. How does it provide employees with trade secrets and proprietary information to facilitate their work and the company's success, while at the same time protecting itself against the possibility that employees eventually may work for a competitor or start their own competing business?

IDENTIFYING TRADE SECRETS

In all American jurisdictions trade secrets are protectable through either statutory or common law. Forty states and the District of Columbia have adopted the Uniform Trade Secrets Act (UTSA). Two states (Massachusetts and Alabama) have separate statutes affording protection, and eight states protect trade secrets under common law (Michigan, Missouri, New Jersey, New York, Pennsylvania, Tennessee, Texas and Wyoming). Many states that have not adopted the UTSA rely on the definition of "trade secret" in the Restatement (Second) of the Law of Torts.

A. Defining "Trade Secrets"

Courts and writers have commented on the difficulty of defining "trade secrets." As the Fifth Circuit remarked, what precisely constitutes a "trade secret" is "one of the most elusive and difficult concepts in law to define." (2) A commentator states, "Almost any subject matter may be claimed to be a trade secret. But what will be protected as such, and when and against whom such protection will be granted, are questions that cannot be answered with such certainty." (3) Even the venerable Restatement itself agrees with this assessment in Section 757, comment b: "An exact definition of a trade secret is not possible."

1. Common Law

Jurisdictions that have not enacted some form of the UTSA generally look to the Restatement's definition in Section 757:

      Any formula, pattern device, or compilation of information which is used
   in one's business, and which gives him an opportunity to obtain an
   advantage over competitors who do not know or use it. It may be a formula
   for a chemical compound, a process of manufacturing, treating or preserving
   materials, a pattern for a machine or other device, or a list of
   customers.... A trade secret is a process or device for continuous use in
   the operation of the business.

2. Uniform Trade Secrets Act

Before adopting the UTSA, a state's courts may have used the Restatement definition, and even after adoption courts also may look to the cases decided under the common law in determining whether trade secret protection exists. Under the UTSA, "trade secret" means:

   information, including the whole or any portion or phase of any scientific
   or technical information, design, process, procedure, formula, pattern,
   compilation, program, device, method, technique or improvement, or any
   business information or plans, financial information, or listing of names,
   addresses, or telephone numbers, that satisfies both the following:

   (1) It derives independent economic value, actual or potential, from not
   being generally known to, and not being readily ascertainable by proper
   means by, other persons who can obtain economic value from its disclosure
   or use.

   (2) It is the subject of efforts that are reasonable under the
   circumstances to maintain its secrecy. … 
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