From Internet Law and Business Handbook by J. Dianne Brinson and Mark F. Radcliffe.

A trade secret is information of any type that is valuable to its owner, not generally known, and kept secret by the owner. Even negative information such as research options that have been explored and found to be worthless can be trade secrets.

Trade secrets are protected only under state law. The Uniform Trade Secrets Act, in effect in a number of states, defines trade secrets as "information, including a formula, pattern, compilation, program, device, method, technique, or process that derives independent economic value from not being generally known and not being readily ascertainable and is subject to reasonable efforts to maintain secrecy."

Types of Works Protected

The following types of technical and business information are examples of material that can be protected by trade secret law:

  • Customer lists
  • Designs
  • Instructional methods
  • Manufacturing processes
  • Document-tracking processes
  • Formulas for producing products

Inventions and processes that are not patentable can be protected under trade secret law. Patent applicants generally rely on trade secret law to protect their inventions while the patent applications are pending.

Standards

Six factors are generally used to determine whether material is a trade secret:

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

Information has value if it gives rise to actual or potential commercial advantage for the owner of the information. Although a trade secret need not be unique in the patent law sense, information that is generally known is not protected under trade secret law.

Procedure for Getting Protection

Trade secret protection attaches automatically when information of value to the owner is kept secret by the owner.

Exclusive Rights

A trade secret owner has the right to keep others from misappropriating and using the trade secret. Sometimes the misappropriation is a result of industrial espionage. Many trade secret case defendants are people who have taken their former employers' trade secrets for use in new businesses, or new employers of such people.

Trade secret protection endures so long as the requirements for protection—generally, value to the owner and secrecy—continue to be met. The protection is lost if the owner fails to take reasonable steps to keep the information secret.

EXAMPLE / After Sam discovered a new method for manipulating images in multimedia works, he demonstrated his new method to a number of other developers at a multimedia conference without requiring the developers to sign nondisclosure agreements. Sam lost his trade secret protection for the image manipulation method because he failed to keep his method secret.

Limitations on Exclusive Rights

Trade secret owners have recourse only against misappropriation. Discovery of protected information through independent research or reverse engineering (taking a product apart to see how it works) is not misappropriation. However, many software license agreements prohibit reverse engineering. This topic is discussed in "When You Don't Need a License," chapter 9.

Federal Criminal Trade Secret Law

The Economic Espionage Act of 1996 (EEA) makes stealing or knowingly buying trade secrets a criminal offense punishable by a fine of up to $250,000, imprisonment of up to fifteen years, or both. The EEA provides higher penalties for stealing or knowingly buying trade secrets for the benefit of a foreign government or agent.

Avoiding Infringement

To avoid infringing trade secrets, you should avoid using valuable confidential business and technical information you acquired while working for a former employer. When you hire someone to perform exactly the same duties he or she used to perform for another company, you run the risk of being sued for trade secret infringement. An individual is allowed to carry general knowledge or skill from one job to the next. Drawing the line between general knowledge or skill and protected trade secrets belonging to the former employer can be difficult. Consider consulting an experienced attorney if you need to make this distinction.

Customer Contacts List

Haber worked in sales at North Atlantic Instruments. He left North Atlantic and joined Apex Signal Corporation, where he immediately began calling the customer contacts he had developed and used while working at North Atlantic. North Atlantic sued for trade secret misappropriations and won. The customer contact list was held to be a trade secret belonging to North Atlantic because North Atlantic had taken appropriate steps to keep the information secret. North Atlantic Instruments v. Haber, 188 F3d 38 (2d Cir 1999).

International Protection

To obtain patent, trademark, and trade secret protection in another country, you must comply with that country's requirements for obtaining protection. For these intellectual property rights, there are no international conventions that provide automatic protection for U.S. rights owners. However, the World Intellectual Property Organization has proposed a Patent Law Treaty which will, if adopted, simplify the filing of multi-country patent applications.

Some inventors file patent applications in other countries simultaneously with the U.S. filing. The Paris Convention and the Patent Cooperation Treaty allow an inventor who files a patent application in the U.S. to delay filing in member countries based on the earlier U.S. application date. The European Patent Convention offers a way to file a single patent application for a patent which will be valid in seventeen European countries. The European Community Trademark system provides a centralized procedure for obtaining trademark rights in European Community countries. The Madrid Protocol permits United States trademark owners to obtain trademark rights in a number of countries by filing a single application.

License Notice
This article is an excerpt from the book Internet Legal Forms for Business by J. Dianne Brinson and Mark F. Radcliffe (Copyright 2000 by Brinson and Radcliffe). The article is used on this site with the authors' permission. You may copy the article for personal or educational use, as long as all copies include the author and title source information at the beginning and this License Notice at the end. The article may not be modified or displayed on other Web sites or intranets without the written permission of the authors.