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Trade Secrets
Trade Secrets fall into the category of law know as Intellectual Properties, which includes areas such as patents, copyrights, and trademark law. Intellectual Property rights can be traced back to the early pioneers founding our nation, Article 1, Section 8, Clause 8 of the US Constitution states that Congress shall have the power “to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries. This cultivation of exploration and invention for personal gain, ultimately lead to capitalism. Trade secrets cases date as far back as sixteenth century England with the first case in the United States taking place in Massachusetts in 1868 (Silver 1).
Trade secrets can be defined as; a secret formula, pattern, process, program, device, method, technique, or compilation of information that is used in its owners business and affords that owner a competitive advantage. State law protects trade secrets, they must involve information that is not generally known and is not readily ascertainable through proper means. The owner of the information also must take reasonable measures to protect its secrecy (Mallor 17). To determine whether a trade secret exists, a variety of factors must be examined. Four sources are particularly important in review trade secret law, what the factors should be considered, and how they should be applied the Restatement (First) of Torts, the Uniform Trade Secrets Act, the Restatement (Third) of Unfair Competition and the Economic Espionage Act of 16.
The most widely quoted definition of a trade secret, prior to the adoption of the Uniform Trade Secrets Act (UTSA), was that of the Restatement (First) of Torts
A trade secret may consist of any formula, pattern, device or compilation of information which is used in ones business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.... Generally, it relates to the production of goods, as, for example, a machine or formula for the production of an article. It may, however, relate to the sale of goods or to other operations within the business, such as a code for determining discounts, rebates or other concessions in a price list or catalogue, or a list of specialized customers or a method of bookkeeping or other office management. This definition was adopted by a number of states and has been applied in both state and federal cases. Under the Restatement (First) of Torts, §757, comment b, the criteria for determining whether a trade secret exists are
• The extent to which the information is known outside of the business;
• The extent to which it is known by employees and others involved in the
business;
• The extent of measures taken to guard the secrecy of the information;
• The value of the information to the business and to competitors;
• The amount of effort or money expended in developing the information;
• The ease or difficulty with which the information could be properly
acquired or duplicated by others.
The Uniform Trade Secrets Act (UTSA) defines a trade secret as Information, including a formula, pattern, compilation, program, device, method, technique, or process, that (1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and () is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The vast majority of states have adopted the UTSA.
The Restatement (Third) of Unfair Competition defines a trade secret as A trade secret is any information that can be used in the operation of a business or other enterprise that is sufficiently valuable and secret to afford an actual or potential economic advantage over others. The definition is intended to be consistent with the UTSA and goes on to note that a trade secret may, “consist of a formula, pattern, compilation of data, computer program, device, method, technique, process, or other form or embodiment of economically valuable information. A trade secret may relate to technical matters such as the composition or design of a product, a method of manufacture, or the know-how necessary to perform a particular operation or service. A trade secret may also relate to other aspects of business operations such as pricing and marketing techniques or the identity or requirements of customers.
In addition to these the Economic Espionage Act of 16 (EEA) was enacted. This act brought the ability to focus criminal penalties and federal prosecution on violators where the previous acts brought mainly common law coverage (Ingersoll 1). This type of protection had previously only been available to patents. The definition of trade secrets used in the EEA follows closely to both the UTSA and the Restatement (First) of Torts. The EEA describes trade secrets as, “information that, (1) belongs to the general class of information that bears “Trade Secret” characteristics; () is guarded through “reasonable measures” designed to keep the information secret; and () derives independent economic value through not being known or readily ascertainable through proper means by others.”
The secrecy requirement of trade secrets is stressed in all of the previous statements. The trade secret owner is under a duty to take reasonable steps to preserve the secrecy of the trade secret (Ingersoll 1). If the owner of a trade secret is found to have inadequately protected the secret, protection under the law can be denied. The property then would be deemed forfeited by the original owner. According to the trade secret basics section of FindLaw.com, one precaution that can be taken to protect trade secrets is the use of employee non-disclosure or confidentiality agreements. By requiring employees to sign nondisclosure agreements, restricting visitor access to sales and administrative areas, keeping customer information in locked files, and distributing customer information on a need-to-know basis companies can usually be sufficient in meeting the reasonable precaution test. The duty to take reasonable steps to preserve the secrecy of the trade secret varies with the circumstances of each item, and simply having each employee sign confidentiality agreements may not be adequate to preserve trade secret protection if the other precautions taken are insufficient (Friscolanti).
Although the courts continually caution that the circumstances of each case will vary, several basic requirements for protecting trade secrets exists that can reduce the risk associated
• Reasonable precautions against industrial espionage;
• Marking plans and documents confidential;
• Use of confidentiality legends, warnings and agreements;
• Restricting visitors and similar types of plant security;
• Locking up or otherwise securing sensitive information;
• Taking technical precautions, such as dividing the system into steps
handled by different individuals or departments;
• Copy protection and embedded codes to trace copies; and
• Employee exit interviews.
Trade secret protection, however, is not lost if the secret is discovered through improper means. The UTSA defines improper means as theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means” (Sinrod). The Restatement (Third) of Unfair Competition simply requires that the information be secret. The comments state Only secrecy sufficient to confer an actual or potential economic advantage upon one who possesses the information. Thus, the requirement of secrecy is satisfied if it would be difficult or costly for others who could exploit the information to acquire it without resort to the wrongful conduct proscribed under. The general rule is that an employer should make sure that its confidential information is accessible only to those with a need to know it (Friscolanti).
The growth in global Business has put an increased pressure for a global policy on trade secrets but to date there are no comprehensive international treaties that focus directly on the subject. The North American Free Trade Agreement (NAFTA) and the Agreement on Trade Related Aspects of Intellectual Property (TRIPs) both contain specifics related directly to trade secret protection, but provide only brief attention to the topic. The risks associated with doing business globally will increase the need to have a standardized process for handling trade secret issues and disputes in a fair and timely manner across the new frontiers of business (Magri 1).
The primary risks involved in trade secret protection include policy interests � the balancing of interests of employees, employers, competitors and society. Trade secret laws all encompassing goal focuses on commercial ethics and fair dealings, while providing businesses an incentive to grow (Glahn ). Other risks to trade secret law include the misappropriation by memory noting that memorized trade secrets are protectable. It may be difficult to distinguish between protectable trade secrets and non-protectable knowledge and the skills of the former employee. In addition when using trade secrets you lose the increased safety and structure of the patent and copyright registration and disclosure process. Secondly, you would miss the other intellectual property protections, that the registration process provides proof of your ownership of the material as of the registration date. The main legal course of action in the majority of trade secret cases is establishing the date of creation, who developed it first, which can be difficult to prove if detailed records are not kept (Glahn).
Textron Inc. the owner Cessna Aircraft Company, my current employer, has a large amount of trade secret data that changes hands daily. They have compiled an Intellectual Properties, Management Process Guide to help align all of the companies under their ownership. The guide has many factors relevant to trade secrets, it parallels the topics being discussed and funnels them into a functional process to make both managers and employees aware of the risks associated with trade secrets and the actions needed to prevent the unapproved release of information.
Textron’s Process Guide contains
· Trade secret protection and procurement strategy. The preservation of confidential technology as a trade secret as an alternative to the protection through patents.
· Definition of a trade secret. Trade secrets can be technical information (e.g., business information (e.g., business plans, customer lists, and other customer or commercial information) generated in the course of Textron’s business, which are maintained in secrecy and from which Textron receives economic value because it is not generally known in the industry. Provided that Textron uses reasonable efforts to keep such information secret or confidential. Whereas patent protection is finite in term, properly handled trade secrets can provide protection indefinitely.
· Recent Trends
· Importance of confidentiality. Valuable intellectual property rights can be forfeited by failing to adhere to adequate standards of confidentially with respect to commercial products and processes developed and/or used by Textron.
· Limited Disclosure. Textron’s trade secrets and confidential information should be disclosed to employees only on a “need to know” basis.
· Contract Employees.
· Publications. Reviews of all data and information being released publicly.
· Consult with Textron Counsel Prior to Disclosure.
· Protection of Information Supplied by Third Parties. Textron’s policy is to protect that information by taking similar steps in respect to Textron’s confidential information.
· Compliance With Export Controls. The transmission of data from one country to another may require compliance with applicable export laws.
Lastly, Textron strongly advises, “trade secret protection requires tangible efforts. If for any reason it is not realistic to expect that the necessary protective steps will be taken, then trade secret protection should not be considered as an alternative to patenting.
Although there are no guarantees that trade secrets wont be revealed in the daily course of business, there are steps that employers and individuals can take to make it less likely to happen. Having communications policies in place will make employees aware not only of the potential dangers that are present when dealing with trade secrets but also how to identify potential secrets, develop proper communication methods, and become knowledgeable in the processes required to keep secrets safe in today’s business environment.
Work Cited
Economic Espionage Act of 16. NACIC.gov. http//www.nacic.gov/pubs/eea_6.htm.
Friscolanti, Michael. Trade Secrets Policy Framework and Best Practices. WIPO.org.
http//www.wipo.org/sme/en/documents/wipo_ magazine/05_00.pdf. Feb. , 00.
Glahn, Wilbur A. and Shilling, Cameron G. The Cutting Edge of Trade Secrets. FindLaw.com.
http//articles.corporate.findlaw.com/articles/file/0016/008541
Magri, Karen A. International aspects of Trade secret Law. FindLaw.com. http//www
.myersbigel.com/ts_articles/trade_secret.htm
Mallor, Jane P., Barnes, James A., Bowers, Thomas., Phillips, Michael J., Langvardt, Arlen W.
Business Law and Regulatory Environment Concept and Cases. New York McGraw-Hill, 001.
Schwab, Arthur J. Federal Protection of Trade Secrets Understanding the Economic Espionage
Act of 16. FindLaw.com.http//articles.corporate.findlaw.com/articles/file/
00/00741/title/subject/topic/Intellectual%0Property%0Law_Trade%0Secrets/filename/intellectualpropertylaw_1_8
Silver, Judith. What is Intellectual Property? Trade Secret Law. FindLaw.com. http//
Library.lp.findlaw.com/articles/file/008/008856/title/subject/topic/Intellectual%0Property%0Law_Trade%0secrets/filename/intellectualpropertylaw_1_8.
Sinrod, Eric J. E-Legal Electronic Monitoring of Employees by Employers. Law.com.
http//pirate.shu.edu/~jenninju/AIL/Privacy/ElectronicMonitoringByEmployers.htm . 001.
Trade Secret Basics. FindLaw.com. http//bizfindlaw.com/intellectual_property/nolo/faq/
0781CA8-0ECE-4E8-BFEF7A6DA580.html.
Uniform Trade Secrets Act (UTSA). http//ccsun57.cc.ntu.edu.tw/r661110/laws/tradelaw-
Us-utsa.htm.
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