Trade secret

Definition

The Uniform Trade Secrets Act ("UTSA") defines a trade secret as: 

  • information, including a formula, pattern, compilation, program, device, method, technique, or process,
  • that derives independent economic value, actual or potential, from not being generally known to or readily ascertainable through appropriate means by other persons who might 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 UTSA has been enacted, in one form or another, by 40 states and the District of Columbia.  Prior the the development of the UTSA, improper use or disclosure of a trade secret was traditionally a common law tort. Sections 757 and 758 of the Restatement of Torts (1939) set forth the basic principles of trade secret law that were widely adopted by U.S. courts.  In particular, § 757, comment b, listed six factors to be considered in determining whether information constitutes a trade secret:

  • The extent to which the information is known outside the claimant's business
  • The extent to which it is known by employees and others involved in the business
  • The extent of measures taken by the claimant to guard the secrecy of the information
  • The value of the information to the business and its competitors
  • The amount of effort or money expended by the business in developing the information
  • The ease or difficulty with which the information could be properly acquired or duplicated by others 

There are three essential elements to a trade secret claim:

  • The subject matter involved must qualify for trade secret protection; it must be the type of information trade secret was intended to protect, and it must not be generally known.
  • The holder of the trade secret must establish that reasonable precautions were taken to prevent disclosure of the secret information.
  • The trade secret holder must prove that the information was wrongfully acquired by another; that the information was misappropriated.

Use of a trade secret belonging to another does not always consitute misappropriation.  There are two basic situations in which obtaining the use of a trade secret is illegal; where it is acquired through improper means, or where it involves a breach of confidence.  Trade secrets may be obtained by lawful means such as independent discovery, reverse engineering, and inadvertent disclosure resulting from the trade secret holder's failure to take reasonable protective measures.  The misappropriation of trade secrets is considered a form of unfair competition, and is discussed in the Restatement (Third) of Unfair Competition. 

Unlike patents, trade secrets do not last for a specific term of years.  Trade secret protection continues indefinitely until public disclosure of the secret occurs.  Additionally, patent law requires public disclosure of the means to reproduce an invention in exchange for a limited monopoly over such invention.  Thus, an inventor must choose between either patent or trade secret protection; the same invention cannot be protected by both simultaneously.

In some circumstances, misappropriation of trade secrets is not only a tort; it is a federal crime.  As a result of shortcomings in the federal law and the threat of economic espionage sposored by foreign governments, Congress enacted the Economic Espionage Act of 1996 ("EEA"). See 18 U.S.C. §§1831-1839.  The definition of "trade secrets" employed by the EEA is substantially the same as the definition provided by the UTSA, but the definition of "misappropriation" is unique to the Act and has no parallel in existing trade secret law.

 

Examples

Customer lists, and lists of particular contacts at customers' locations, qualify for trade secret protection if they cannot be ascertained from other generally available sources.

Particular manufacturing details that are not publicly available often qualify as protectable trade secrets. For a discussion of practical intellectual property issues, particularly trade secrets, see The Gates Rubber Co. v. Bando Chemical Industries Ltd., United States Court of Appeals, 10th Circuit, Oct. 19, 1993, 9 F.3d 823, 28 USPQ2d 1503.

Related terms

See also: