Economic Value of Trade Secret Information

A trade secret lawsuit is a remedy available when a party’s trade secret is stolen or used without the party’s permission. Trade secret lawsuits are becoming more common In our digital age, reportedly because employees are more mobile and regularly change jobs. When changing jobs, employees now often seek new employment with a competitor of their former employer, and it is easier for these employees to take confidential information with them in digital form when they leave.

The economic value of information is essential, because In order to qualify as a trade secret, information must not only be kept secret, but must also deliver economic value to its owner from being kept secret. The information must be confidential and commercially valuable to its owner. The owner should also be able to show that it expends resources to maintain the secrecy of the information.

Some examples of trade secrets are as follows:

• Formulas: For example, the formula for a food product, such as a soft drink;
• Patterns: For example, a special pattern for an item of clothing;
• Programs and Applications: An application for accomplishing some task with a mobile phone;
• Devices: Global positioning system devices are examples of products that make use of trade secrets;
• Methods: An example of a method that is a trade secret would be the way in which Nielsen ratings of popular TV shows are determined.

Proving that information has economic value is essential to proving that information constitutes a protectable trade secret in the first place and that the owner of the information should win an award of damages, because it has been stolen.

So, it is important to understand what independent economic value is and how it is relevant to the issues of liability and damages in a trade secrets lawsuit. Failure to plead and prove independent economic value could lead to the dismissal of a lawsuit for theft of a trade secret.

Must the Economic Value of the Information Relate to Gaining an Advantage over Competitors?

As long as the information a person is trying to protect has some economic value to someone, it is eligible for trade secret protection. It does not have to be related to business competition. For example:

• If a person conducts extensive and costly research, only to discover that a certain process does not work, that result can be protected as a trade secret, because it could be of great value to a competitor;
• If a person has information pertaining to ongoing research and development for a product that is not yet on the market, they may be able to protect it as a trade secret.

In addition, of course, the information has to have economic value.

What Other Factors Do Courts Consider in Determining Economic Value?

When determining whether or not information is valuable as a trade secret, courts also consider the following factors:

• A person or company spent a significant amount of money to develop the information. The simple fact that money was spent to develop information does not necessarily mean the information is valuable. It does, however, show that another company or person might be willing to pay to get it as well. It does lead to the implication that the information has economic value;
• The person or company in possession of the information has licensed others to use it. The fact that other people have been willing to pay for the information might show that it is valuable;
• The owner has spent money to keep the information secret. A person’s willingness to spend money to protect the information may indicate its value;
• Someone used improper means to obtain the information. If a person was willing to violate ethics and possibly the law to get the information, that might show that that person thought that the information was valuable;
• It would cost someone else a significant amount of money to develop the information. Even if the owner did not spend a great deal of money getting the information, if it would cost someone else a great deal of money to develop it themselves, the information is likely to be valuable.

Each state has its own trade secrets law and of course, the factors that courts consider in determining economic value may differ in certain respects. In California, courts look at the following factors:

• The extent to which the trade secret owner has obtained or could obtain economic value from keeping the information secret;
• The extent to which other parties could obtain economic value from the trade secret, they had access to it;
• The amount of time, money, or labor that the owner invested in developing the the information;
• The amount of time, money, or labor that a competitor would save by not developing information themselves and using the owner’s secret information.

The state of Washington also has a list and it is similar to California’s list, but adds a few additional factors as follows:

• The measures that the owner took to preserve the secrecy of the information;
• How difficult or easy it would be to obtain the information by proper means;
• Whether third parties have already revealed the information in the public domain or made the information readily accessible.

When determining independent economic value, courts note that they may not consider every one of the factors or even any of them at all. Rather, each case is determined on the basis of its specific, unique facts.

As can be seen from the examples, the factors are similar, if not the same, in the various states. The main point is the same as well. Whatever factors are considered in a case, there must be enough evidence to show that the information being claimed as a trade secret gives its owner more than some unimportant advantage in the marketplace by being kept secret.

The owner should be able to present some evidence to show how and why the information is valuable and how much time, money and expertise it saves because it has the information. Or, it might show how much time, money and expertise it invested in coming up with the information.

Does Information Have to Be Kept Absolutely Secret in Order to Be Economically Valuable?

Trade secret law requires that the information not be generally known and not be available to the public. The legal definition of “trade secret” does not require that the information be an absolute secret, but the owner should be able to show that it takes all of the measures that would be expected to protect it from disclosure.

So, for example, only a limited number of employees even within a company should have access to the company’s trade secrets. In addition, a company would want to have all employees who have access to the information to sign non-disclosure agreements.

Should I Consult a Lawyer Experienced in Trade Secret Law?

If you have questions about whether information that you or your company owns qualifies for trade secret protection because it is economically valuable, you may want to consult an intellectual property lawyer. A lawyer experienced in the law of trade secrets can answer any questions you may have and make sure your information receives the protection it deserves.

If you are unsure whether your company is taking all of the steps it should take to protect its trade secrets, an experienced trade secrets lawyer can advise you as to whether your protective measures are adequate.