Trade Secrets Law

by John Bandler

Introducing trade secrets law
Introducing trade secrets law

Now let us briefly introduce trade secrets law as the final part of my series on intellectual property law. In the first article, I introduce intellectual property (IP) law. (FYI, the four types of intellectual property law are copyright, trademark, patent, and trade secrets, and I have a short article on each).

Trade secrets starts with keeping confidential matters secret. If this is done well, the secrets don't get out, and we don't need to worry about enforcing our rights via trade secrets law.

Trade secrets compared to other IP law

Trade secrets are different from other intellectual property protections because it is about keeping information confidential, whereas other IP protection is generally for works and ideas that are made public. Copyright protection is for creative published works, patent protection is for inventions that are publicly described, and trademark protection is for marks that publicly identify a product or service. Of course, organizations should consider all forms of intellectual property protection, and trade secrets protection will always play a role,

Famous examples of trade secrets include the recipe for Coca Cola, the spices for KFC's chicken, and the location where the special mud is obtained that is used to rub on major league baseballs.

All organizations have some confidences and trade secrets

Every organization has information that it needs to keep confidential or secret. This may include customer lists and special ways of producing products or performing tasks. To keep this information confidential, organizations need to invest in an information security program. Information security and cybersecurity cover a broad area of management of information assets, but relevant to this article is confidentiality, preventing unauthorized individuals from gaining access to protected information.

Information that needs to be protected from unauthorized disclosure includes "trade secrets", as we will define in a moment and which gets special protection under the law. Separate from trade secrets, organizations also have a duty to protect personal identifying information belonging to employees, customers, and clients.

Trade secrets law is mostly from the states

Trade secrets law in the United States comes mostly from state laws, but also includes federal law.

State laws stem from the Uniform Trade Secrets Act (UTSA), which is a model law that 48 states have enacted, though sometimes with modifications. New York and Massachusetts are the two exceptions that have not enacted the UTSA. The UTSA was created by the Uniform Law Commission, which develops many uniform or model laws for states to consider and enact. Our United States of America is made up of fifty states plus some territories, and there are benefits from states following a similar legal framework in various areas of law.

UTSA definitions

Let's consider a few provisions from the UTSA, and remember that each state may have slightly different laws.

The UTSA defines a "trade secret" as:

information, including a formula, pattern, compilation, program, device, method, technique, or process that:

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; and

Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

UTSA Section 1, Par. 4.

Statutory language can be complex, I like to break it down and simplify it. Sometimes meaning is lost in that simplification, but consider this.

  • Under the UTSA, a trade secret is (essentially):
    • Information that has economic value if it is kept confidential (and out of the hands of competitors), and
    • Reasonable efforts are made to keep that information confidential.

Legal rights under the UTSA

If information is a trade secret, and if the information is acquired wrongfully (misappropriated), then the owner can bring a civil action against the offender. The owner would need to establish these elements:

  • The information qualifies as a trade secret
  • Reasonable precautions were taken to prevent disclosure of the information
  • The information was misappropriated (wrongfully taken through improper means).

The UTSA lays out what might constitute improper means, such as theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.

Federal law: The EEA

The federal law relating to trade secrets is the Economic Espionage Act of 1996 (EEA). This is found in Title 18 of the U.S. Code, sections 1831 to 1839 (18 U.S.C. §§ 1831-1839). It provides for criminal penalties for stealing trade secrets and also a private right of action (meaning a private party can sue an offender in civil court).

18 U.S.C. § 1839(3) defines "trade secret", to include “all forms and types of financial, business, scientific, technical, economic, or engineering information”, “whether tangible or intangible” if:

  • the owner “has taken reasonable measures to keep such information secret”; and
  • the information has economic value by not being generally known, and being kept confidential.

Criminal or civil offenses are committed when another party “misappropriates” and “improperly” obtains trade secrets. Improper is further defined to include things like “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means”. 18 U.S.C. § 1839(6).

Reasonable security

Federal and state trade secret laws all require the owners of the trade secrets to employ reasonable measures to maintain secrecy if they want protection under the law.

Of course, if organizations seek to keep their information confidential, it is common sense that they should employ reasonable security measures. As I mention elsewhere on this site, organizations should strive for reasonable, diligent security, and of course never be sloppy or negligent in their security measures.

This begs the question as to what security measures are necessary or optimal to protect the information from disclosure, and if disclosed to be able to obtain redress under a trade secrets statute.

Reasonable security measures may include:

  • Having a comprehensive information security and cybersecurity program (plenty of information about that within this website)
  • Employing reasonable physical, administrative, and administrative cybersecurity controls
  • Imposing contractual requirements whenever confidential information is shared, including with non-disclosure agreements (NDAs).
  • Considering other contractual requirements such as non-solicitation agreements and non-compete agreements.
  • Conducting proper onboarding, periodic training, and offboarding of employees and contractors.

Conclusion

This is a brief summary with many simplifications, bringing complex subject matter to all readers in an understandable and accessible manner. This article is for myself and students, and anyone else in need of information. It is not legal advice nor consulting advice, and is not tailored to your circumstances. I am not an intellectual property lawyer, which is a specialized area of law.

If your organization needs help in the areas of intellectual property law, I can help find someone experienced in intellectual property law, and see below. If your organization needs help with cybersecurity (including protecting trade secrets and other proprietary information and confidential data), contact me.

While I remain responsible for what I have written here (subject to my disclaimers in the article and my website's general disclaimer), I want to thank the following experts in intellectual property law for reviewing this article and providing quality control as needed:

References and additional reading

This article is hosted at https://johnbandler.com/intellectual-property-law/trade-secrets. Copyright John Bandler, all rights reserved.

This article is also available on Medium.com at COMING SOON (though not updated as frequently and without the references).

Originally posted 12/23/2021. Last updated 02/27/2022.