October 3 2020 | Milbank LLP - John Lu and Mollie GalchusProtectionLegislation and legal definitionWhat legislation governs the protection of trade secrets in your jurisdiction? How is a ‘trade secret’ legally defined?Trade secrets in the United States are governed by federal and state law.The Uniform Trade Secrets Act (UTSA), a uniform law proposed by the American Law Institute in the 1970s, has been adopted by every state except New York and North Carolina.Section 1 of the 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 (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.The Defend Trade Secrets Act of 2016 created a federal civil cause of action for trade secret misappropriation. Federal courts also have jurisdiction over criminal trade secret actions that fall under the Economic Espionage Act of 1996.OwnershipHow is ownership of a trade secret established?Since a trade secret is protected information, ownership will only be established if the holder has taken reasonable precautions to protect the non-public proprietary information from discovery by other entities. One cannot establish ownership of information that is common knowledge or readily ascertainable. However, a trade secret holder generally needs to establish relative secrecy, not complete secrecy.SecrecyWhat criteria are used to establish the state of secrecy of a trade secret before misappropriation or disclosure?Section 1 of the Uniform Trade Secret Act provides that secrecy of information is established when the information is not ‘generally known’ or ‘readily ascertainable’ by others who may obtain economic value from the information. According to the Restatement of Torts, there must be ‘a substantial element of secrecy’ that would make it difficult to acquire the information without improper means.One cannot claim public information or general knowledge in an industry as one’s trade secret. According to the Restatement, information may remain secretive even when disclosed to ‘employees involved in its use’ and ‘others pledged to secrecy’. Secrecy is not extinguished when others independently discover the secret information and continue to keep the information a secret.The Restatement lists the following six factors to consider when determining whether information is a trade secret:(1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.Commercial valueHow is the commercial value of a trade secret established?A trade secret’s value is established if the secret gives its owner a ‘competitive advantage’ (Roger M Milgrim, Milgrim on Trade Secrets). According to section 1 of the Uniform Trade Secrets Act, a trade secret is information that ‘derives independent economic value, actual or potential’ because it is a secret. Value is established ‘if the trade secret would be useful to a competitor and would require cost, time, and effort to duplicate’ (Milgrim). Value may be established without a formal valuation of the secret and the secret ‘need not be vital to its owner’s business’. The definition of a trade secret also includes negative commercial value, which exists when research proves that a technique would not be of great value to a competitor.Protective measuresWhat criteria are used to determine whether the rights holder has adopted reasonable protective measures to prevent disclosure and misappropriation of trade secrets?Reasonable efforts must be taken to maintain the secrecy of a trade secret.Courts assess the reasonableness of protective measures based on a totality of the circumstances. For example, in Rockwell Graphic System, Inc v DEV Industries, Inc, the Seventh Circuit stated that disclosure of a trade secret to a ‘limited number of outsiders for a particular purpose’ does not extinguish trade secret protection. The court found that after looking at the physical and contractual precautions taken by Rockwell to protect its engineering drawings, a jury could find that the secrecy efforts were reasonable.Best practicesWhat best practices and internal policies should rights holders consider to ensure maximum protection of their trade secrets?A trade secret holder must take reasonable precautions to protect the secret. Trade secret holders should employ the following measurements: notice of secrecy and confidentiality, cautionary signs, restricted access for visitors, separation of internal processes to keep the complete information from single departments or employees, locks and other security measures, and passwords.Trade secret holders should implement policies and procedures that train employees and hold them to confidentiality agreements. In the treatise Milgrim on Trade Secrets, Roger M Milgrim suggests that employers should screen new hires about restrictive covenants protecting trade secrets from prior employment relationships, and should determine whether the new hire ‘ha[s] a track record of innovative work that requires special attention, such as providing for a contractual definition of proposed activities within the scope of employment. . . .’Milgrim suggests that employers should notify employees, through hiring agreements and employment contracts, of the employer’s confidentiality policies and the types of materials that are protected. Further, an employer should notify an employee at hiring that when the employee leaves, he or she will be required to tell the employer the ‘identity of the next employer, that employer’s address and telephone number and the proposed activity that the employee will be involved in’. Employers should also allow departing employees to consult the employer about further questions and conflicts that arise after the employee departs.Law stated dateCorrect onGive the date on which the information above is accurate.12 August 2020.-End-Source:https://www.lexology.com/library/detail.aspx?g=2d05dd75-629f-4da1-b8d9-ccf8462d4068Each article is copyrighted to their original authors. The news is for informational purposes only and does not provide legal advice.
