Trade Secret

A trade secret encompasses a body of information, such as a formula, pattern, compilation, program, device, method, technique or process that derives actual or potential independent economic value. A trade secret is the subject of reasonable efforts to maintain its secrecy. Trade secrets encompass a wide range of information, including chemical formulas, business plans, and customer lists. Individuals and entities may utilize passwords and restrictive access policies to protect the secret information. Protecting trade secrets becomes a heightened concern when employees leave the company to work for a competitor. The appropriate use of legal precautions may help provide further protection to ensure that the employee does not utilize the secret information with the competing company.

Generally, state laws govern trade secrets. In 1979, the Uniform Law Commission published the Uniform Trade Secrets Act (“UTSA”) and most states have since modeled their own trade secret laws after the UTSA. Both California and Washington D.C. have adopted the UTSA as part of their trade secret laws. In California Civil Code §§ 3426, et seq. govern trade secret laws. In Washington, D.C., District of Columbia Code §§ 36-401, et seq. govern trade secret laws.

A trade secret claim must involve the type of information that the trade secret law intends to protect. The information must not be generally known to qualify as common knowledge. The holder of the trade secret bears the responsibility of showing that there were reasonable precautions in place to protect against disclosure of the confidential information. The holder of the trade secret must also demonstrate that the confidential information was in fact wrongfully used, against the holder’s rights. However, obtaining trade secrets through reverse engineering, independent discovery, or a trade secret holder’s involuntary disclosure of the protected information is lawful.

In certain instances, accessing trade secrets unlawfully may constitute a federal offense. For example, under section 1832 of the Economic Espionage Act, an individual that is guilty of stealing a trade secret may face up to ten years in prison and fines of up to $5 million. In addition, pursuant to section 1835, courts may enter an injunction to protect trade secrets while a case is pending in court. The federal courts of the United States hold exclusive jurisdiction over civil litigation involving misappropriation of trade secrets in violation of the Economic Espionage Act. Therefore, parties wishing to bring a civil suit for a violation of the Economic Espionage Act may only do so in federal court. The Economic Espionage Act also applies to conduct outside of the United States if the offending party is an American citizen or entity or if the misappropriation took place, at least in part, in the United States.

In general, trade secrets are different from patents in that trade secret protection lasts until there is public disclosure of the confidential information. An inventor cannot seek protection through a patent and a trade secret, and must select only one.