Ownership of a Trade Secret

Intellectual property law is the written set of laws that provide certain privileges and protections for owners and inventors of certain intellectual property. The purpose of intellectual property laws is to encourage and protect new ideas, inventions and the creation of new technologies for the purpose of economic growth.

The idea is that with the protections granted by intellectual property laws, an owner of a piece of intellectual property will have the confidence that their creative work and ideas can be protected. The following is a list of different types of intellectual property that fall under the umbrella and protection of intellectual property law:

• Trademarks;
• Copyrights;
• Patents;
• Trade secrets.

As can be seen, a trade secret is a subcategory of intellectual property. Each state may have its own specific intellectual property laws and codes. Although the exact legal definition for what constitutes a trade secret may differ by state. In general, trade secrets are valuable information that provides businesses with competitive edges over other businesses. Because of the broadness of the definition, trade secrets may include all of the following information:

• Formulas;
• Patterns;
• Compilations;
• Programs;
• Devices;
• Methods;
• Techniques;
• Processes.

In order to have a valid trade secret, all of the following elements must generally be present:

• The trade secret information is not accessible by members of the public, i.e., the information is kept under lock and key from even most employees within the business;
• The information is economically beneficial to the business owner and provides the business owner with a significant advantage in the marketplace in which they operate; and
• The trade secretary owner makes a reasonable effort to maintain the secrecy of the trade secret, such as executing non-disclosure agreements and otherwise keeping the information physically or digitally secure.

In general, trade secrets generally pertain and are owned by a company rather than by an individual. As such, trade secret information is typically owned by businesses, even if it was information that was generated by an employee of that business.

Further, both federal and state laws may protect trade secrets under the Uniform Trade Secrets Act (“UTSA”), which has been enacted in most states. This means that the theft or misappropriation of some trade secrets can be a federal crime. In fact, pursuing a federal civil case for theft of a trade secret became possible in 2016 when Congress passed the Defend Trade Secrets Act (“DTSA”), which created a private civil right to sue for trade secret theft in federal courts.

Why Does Ownership Matter?

As can be seen, by the definition above, the person or company that has ownership of the trade secret is the only one who is allowed to use the trade secret. Ownership of that trade secret then gives that person or business a significant market advantage, so long as no one else is able to organically come up with the same information.

Oftentimes, companies will even forgo patenting a trade secret so that way they do not have to disclose the information to the general public through their application with the United States Patent and Trade Office (“USPTO”).

Ownership of a trade secret is also important when determining whether or not someone may be liable for theft or misappropriation of trade secret information. In other words, in order to be liable for any damages, a person will have to have misappropriated or stolen trade secret information from the proper owner of the trade secret. This means that the proper owner of the trade secret information must prove ownership and demonstrate the necessary elements for theft or misappropriation.

When Does the Issue of Ownership Come Up?

Disputes over trade secret ownership generally arise when two parties each claim that they have the right to a trade secret. This dispute commonly occurs when one party sues the other party for trade secret misappropriation or theft in federal court.

Then, in determining who has ownership rights to the trade secret, courts will generally use the elements of a trade secret to determine whether one of the parties got the information under circumstances that should have let them know they had a duty to keep the information secret or to limit its use. The most common situations where an issue of trade secret ownership arises include:

• Situations where there is an employer/employee relationship and both parties have full access to the information;
• Situations in which two parties terminate a contractual relationship, such as members of a research group or a buyer and supplier relationship;
• Situations in which an employee for the company claims to have independently created the trade secret which is being utilized by the company.

When Does a Company Have Ownership of Trade Secrets Developed by Its Employees?

In general, any piece of intellectual property that is generated by employees is owned by the employer. This is especially true in cases where the employee was developing intellectual property as part of their duties for work. However, the situation becomes more difficult when an employee develops the information independently.

Examples of common situations where ownership of trade secret information developed by employees belongs to the employer include:

• The employee has signed a contractual agreement promising to assign all rights to any intellectual property they develop or create to the company;
• The employee was hired to develop the trade secret information for the company;
• The employee was working within the scope of their employment when they developed the intellectual property.

There are many ways in which a company can develop evidence of ownership of a trade secret from its employees. One way for companies to protect their trade secrets is to add certain terms to employment contracts, such as a non-disclosure agreement (“NDA”). NDAs are one of the most direct protective measures utilized by employers in order to maintain the confidentiality of their trade secrets.

An NDA requires a company’s employees not to disclose the information specified in the agreement, which oftentimes includes trade secrets. Companies can also utilize non-compete agreements in order to prevent any former employees from disclosing trade secrets to competitors in the marketplace.

Can a Trade Secret Be Jointly Owned?

In short, yes. It is possible for two or more parties to be joint owners of a trade secret. However, joint ownership of a trade secret is rare due to the requirements necessary to prove ownership of a valid trade secret. Joint ownership of a trade secret typically occurs when two parties work together to develop trade secret information, and there is no contract that specifies ownership of the information that is developed.

It is also possible for two or more parties to develop the same trade secret information separately and independently from one another. In these cases, the parties are not joint owners of the trade secret but rather independent owners of the same trade secret.

Do I Need to Consult a Trade Secret Lawyer?

If you have any questions, concerns, or disputes associated with trade secrets, it is in your best interests to consult with a trade secret lawyer in your area.

An experienced intellectual property attorney can help you understand your legal rights and options in relation to trade secrets according to the laws of your specific state. Finally, an attorney will also be able to represent you in court, as needed, should the need for legal action arise.