In general, a trade secret is valuable information which gives a business a competitive edge over other businesses. The information may include:

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

Specifically, trade secrets include the following three elements:

  • The information is not known to the public;
  • The information is beneficial economically to its holder; and
  • The information holder made reasonable efforts to maintain the secrecy of the information.

What are the Differences among Trade Secrets, Trademarks, and Patents?

There are different statutes which protect the different sources of intellectual property. Federal statutes, including the Lanham Act as well as the Patent Act protect patents and trademarks.

State laws mainly protect trade secrets. The majority of states have enacted the Uniform Trade Secrets Act (UTSA).

The theft or misappropriation of some trade secrets, however, is a federal crime. Patents and trademarks are not kept secret from the public.

In contrast, a trade secret is concealed from the public because if the information were to become public, the trade secret holder would lose their economic edge. Patents and trademarks are also subject to a number of legal exemptions which do not apply to trade secrets.

For example, individuals are typically permitted to parody trademarks, as these satires and parodies are typically speech which is protected by the First Amendment. In addition, a patent usually expires after 20 years, while a trade secret may last indefinitely.

How Do Businesses Protect Their Trade Secrets?

A business may legally protect its trade secrets by adding certain terms to its employment contracts. A non-disclosure agreement (NDA) is one of the more straight-forward protection options.

NDAs require employees to keep business information confidential. A company may also use a non-compete covenant to prevent an ex-employee from disclosing any trade secrets to competitors.

A company may also develop policies and procedures regarding the employee’s use of the trade secret as well as communications regarding the trade secret. A company can address these policies in orientation when the employee is hired as well as in later training.

A company should clearly convey its intent to maintain the confidentiality of their trade secrets.

What is Improper Acquisition?

Improper acquisition occurs when an individual obtains a trade secret through an improper means. The means of acquisition does not have to be criminal in order to be considered improper.

Criminal means, however, are typically improper means. In some cases, even a legal action may be improper.

Common examples of means of improper acquisition include:

  • Theft;
  • Bribery;
  • Misrepresentation;
  • Breach or encouraging another individual to breach a duty to maintain secrecy;
  • Spying through electronic or other means; and
  • Industrial espionage.

Are There Ways to Acquire Trade Secret Information that are not Improper?

Yes, there are ways to acquire trade secrets which are not considered improper under trade secret laws. Examples of commonly accepted means of acquisition include:

  • Discovering the trade secret independently;
  • Discovering the trade secret through reverse engineering;
  • Obtaining the trade secret from a publication; and
  • Seeing the item publicly used or displayed.

What is Improper Disclosure or Use?

Improper disclosure or use involves the disclosure or use of a trade secret without the implied or express consent of the owner of the trade secret by an individual who:

  • Acquired the trade secret through improper means;
  • Knew that the information was acquired wrongfully; and
  • Knew that they should be under a duty to maintain secrecy.

What is Misappropriation?

Misappropriation occurs when there is improper use, acquisition, or disclosure of a trade secret. Pursuant to trade secret laws, misappropriation, not infringement, is the main reason for a lawsuit.

What Can I Recover if My Trade Secrets have been Misappropriated?

A trade secret is protected against misappropriation, which includes a breach of a confidentiality agreement or the discovery of a trade secret that is held by another party by an improper means. There are several remedies which may be available to a trade secret owner in the event misappropriation occurs, including:

  • Monetary relief;
  • Equitable relief; and
  • Attorneys’ fees and costs.

What is Monetary Relief?

Monetary relief comes in the form of money damages and is available to remedy a trade secret misappropriation. Type of monetary relief may include:

  • Compensatory damages: An owner of a trade secret may recover losses incurred as well as the profits resulting from the misappropriation;
  • Royalties: The court may also opt to award a reasonable royalty amount pursuant to the Uniform Trade Secrets Act; and
  • Punitive damages: Punitive damages may be available for willful and malicious misappropriation under the Uniform Trade Secrets Act. In certain cases, these awards have been in the amount of millions of dollars.

What is Equitable Relief?

Equitable relief is a form of relief that is not monetarily based, for example, an injunction. An injunction is an order issued by a court which orders an individual to do something or prohibits them from doing something.

An injunction is available in two forms, including:

  • Preliminary injunctions: Court orders made in the early stages of a lawsuit or petitions which prohibit the parties from doing an act which is in dispute; and
  • Permanent injunctions: Final orders of a court that an individual or entity discontinue doing certain activities permanently or take certain actions.

Preliminary injunctive relief is typically granted to the prevailing trade secret owner. Permanent injunctive relief typically has a time limit which follows the head start theory.

The head start theory is based upon a determination of how long it would have taken the misappropriating company to discover the trade secret. In many cases, a trade secret injunction will be involved with an order which requires the return of the materials that relate to the trade secret at issue.

What are Costs and Attorneys’ Fees?

In most cases, court costs may be recovered. In addition, in those jurisdictions which have adopted the Uniform Trade Secrets Act, a court may award attorneys’ fees if the misappropriating party has been found to have acted in bad faith.

What are Some Difficulties Surrounding Trade Secret Lawsuits?

The majority of trade secret lawsuits involved the alleged holder of the trade secret and its competitor or former employee. In a lawsuit against a competitor, the competitors will frequently claim that they created the trade secret first.

Because of this, it is very important for a company to maintain a record of the dates of when they created their trade secrets.

Should I Consult a Lawyer about My Trade Secret Issues?

The issues and available remedies or resolutions for trade secret issues are detailed and often complicated. If you believe an individual or entity may be using your trade secret without your permission, it may be helpful to consult with an intellectual property lawyer.

Your lawyer can advise you regarding the laws in your jurisdiction as well as whether you may have a valid legal claim. Your lawyer will be able to assist you in determining the remedy which best suits your needs.

You may be entitled to monetary damages or an injunction to stop another party from using your trade secret. If an individual or entity used unlawful means, for example, theft, to acquire the trade secret, they may be subject to additional criminal penalties.

Your attorney can also conduct research to ensure that no other individual or entity is using your trade secrets without your permission. In a case of trade secret misappropriation, an attorney can guide you through the difficult and strict procedural requirements for litigation.

If you are considering using information which may be another party’s trade secret or if you have been accused of taking another party’s trade secret, it may be helpful to consult with an attorney to evaluate your potential liability.