A trade secret is valuable information which provides a business with a competitive edge over another business. This information may be in the form of:
- An idea;
- A formula;
- A process;
- A pattern;
- A physical device;
- A program;
- A method; or
- A technique.
A trade secret provides the owner with a competitive edge in their industry. In addition, it is protected in a way which prevents a competitor or the public from learning about the trade secret.
Trade secrets includes these three elements:
- The public does not know the information;
- The information is economically beneficial to the individual who holds it; and
- The holder of the information makes a reasonable effort to maintain its secrecy.
Who Owns a Trade Secret?
Trade secrets are types of intellectual property which come in many different forms. Trade secrets typically pertain to information which is held by a company instead of an individual.
Because of this, often, employers or hiring parties own trade secret information even if that information is generated by an employee.
Why Does Ownership of the Trade Secret Matter?
The individual or company with ownership of a trade secret is the only one who is permitted to use the trade secret. If an individual uses the trade secret and does not have ownership of that trade secret, they may be guilty of misappropriation and may be held liable for any damages which they cause.
Disputes regarding trade secret ownership often arise when two parties each claim that they have the right to a trade secret. When determining what party has ownership rights to a trade secret, a court will generally inquire about several factors. For instance, they may determine whether one of the parties obtained the information under circumstances which should have altered them so that they had a duty to keep that information secret or to limit its use.
Common situations in which ownership disputes arise include:
- Employer and employee relationships; and
- Two parties who terminate a contractual relationship. For example, trade secret ownership disputes may arise between a buyer and a supplier, or between two members of a research group.
What Are the Differences Among Trade Secrets, Trademarks, and Patents?
There are different statutes which protect different types of intellectual property. Federal statutes, including The Lanham Act and The Patent Act, protect patents and trademarks.
On the other hand, state laws, in general, protect trade secrets. Many states have enacted the Uniform Trade Secrets Act (UTSA). However, the theft or misappropriation of certain trade secrets may be considered a federal crime.
Patents and trademarks are not kept secret from members of the public. In most cases, it is advantageous for the owner of a patent or trademark to share with as many individuals as possible that they own that specific patent or trademark.
In contrast, trade secrets are kept from the public. This is because, if that information became public, the holder of the trade secret would lose their economic edge.
In addition, patents and trademarks are subject to certain legal exemptions which do not apply to trade secrets. Individuals are normally permitted to parody or satire trademarks, as they are typically speech which is protected by the First Amendment.
In addition, patents usually expire after 20 years. In contrast, trade secrets may extend indefinitely.
How Do Businesses Protect Their Trade Secrets?
A company may legally protect their trade secrets by including certain terms in their employment contracts. A Non-Disclosure Agreement (NDA) provides the most straight-forward protections.
NDAs require employees to keep company information confidential. A company may also use a Non-Compete Covenant to prevent an ex-employee from disclosing trade secrets to competitors.
A company may also be able to develop policies and procedures for the way employees use the trade secret and how they communicate regarding the trade secret. A company that chooses to protect their trade secrets by using this method typically addresses the policies in orientations and training as soon as an employee is hired.
Companies that do not employ these types of policies should clearly convey their intent to maintain the confidentiality of any trade secrets so that the employees will understand the necessity of confidentiality.
What are the Difficulties Surrounding Trade Secret Lawsuits?
The majority of trade secret lawsuits involve the alleged holders of trade secrets and their competitors or former employees. In a lawsuit against a competitor, a competitor will often claim that they, in fact, created the trade secret first.
Because of this, it is extremely important for a company to maintain a record of the dates when they created any trade secrets.
Is Theft of Trade Secrets a Crime?
Yes, pursuant to federal and state laws, the theft of trade secrets is a crime. The theft of trade secrets is classified as a white collar crime.
What is the Economic Espionage Act of 1996?
The Economic Espionage Act of 1996 (EEA) is a federal law which criminalizes the theft of trade secrets. Pursuant to the EEA, trade secret theft includes:
- Receiving the trade secret;
- Intentionally stealing the secret; and
- Copying the trade secret.
According to the EEA, the United States Attorney General may prosecute any individual or business that is involved in the misappropriation of trade secrets. Several states, including Alabama and California, have adopted the EEA into their state laws.
What if I Actually Figured Out the Trade Secret on My Own?
It is not a crime for an individual to figure out information which is designated as a trade secret on their own without having access to the company’s source of that trade secret. For example, if an individual figured out the exact ingredients of a recipe which is designated as a trade secret by experimenting in their kitchen at home and not consulting the written recipe in the company’s database, it would not be a crime.
What is the Punishment for Being Found Guilty of Stealing Trade Secrets?
If an individual is convicted of stealing trade secrets, pursuant to the EEA, punishment may include:
- Up to 10 years in prison in addition to a $500,000 fine;
- A $5,000,000 fine for a corporation;
- Having to forfeit any proceeds and property which were earned by stealing trade secrets;
$10,000,000 fine for a foreign agent or country that benefited from the trade secret, and up to 15 years imprisonment for the individual involved in the theft.
- It is important to note that each state may have its own punishments for stealing trade secrets.
Will Consulting with an Attorney about My Case Help Me?
Consulting with a criminal lawyer about your case is very important, especially if charges have been brought against you. The crime of stealing trade secrets is serious and you may be facing a long prison sentence as well as a hefty criminal fine. Your attorney can determine what defenses may be available to you and represent you in court.
If you believe that another individual is using your trade secret without your permission, your attorney can help by determining if you have a valid claim. If so, you may be entitled to receive money damages or to have the court issue an injunction to stop the other individual or company from using your trade secret.
In addition, if an individual unlawfully obtained the trade secret, such as by theft, they may be subject to criminal penalties. If, on the other hand, you are considering using information which may be another’s trade secret, you should speak with an attorney as soon as possible to evaluate your liability.