Hayes Soloway, P.C.

Trade Secrets

In the many years that I have been before the public, my secret methods have been steadily shielded by the strict integrity of my assistants, most of whom have been with me for years… so far as I know, I am the only performer who ever pledged his assistants to secrecy, honor and allegiance under a notarial oath. - Harry Houdini

A trade secret is business information that is the subject of reasonable efforts to preserve confidentiality and has a value because it is not generally known in the trade. Such confidential information will be protected against those who have obtained access through improper methods or by a breach of confidence. Infringement of a trade secret is a tort and a type of unfair competition. In the case of a contractual relationship, infringement may also constitute breach of contract.

The law of trade secrets is a matter of state, not federal law. Accordingly, in assessing whether particular know-how is protectable as a trade secret and the remedies available for misappropriation, one must look to state law. In those states that have adopted the Uniform Trade Secrets Act (UTSA), trade secret law is governed by the provisions of the UTSA. It also has been held that misappropriation of a trade secret can form the nucleus of an allegation of a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO).

The UTSA defines a trade secret as:

information including a formula, pattern, compilation, program, device, method, technique, or process, that:

(i) 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

(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

The law of trade secrets often provides broader and longer lasting protection than either a patent or copyright. While patent or copyright must meet certain requirements in order to issue, a trade is not so restrictive. Moreover, while patent and copyright provide a fixed term of protection, as long as the trade secret is properly maintained and preserved in secrecy, its protection continues.

As noted, the UTSA requires that the information must not be capable of being readily ascertained by “proper means.” Proper means is not defined in the UTSA. However, if others are able to discover or ascertain the confidential information by examining the product or by reverse engineering a product which is publicly available and which incorporates the trade secret or by independent development, the information will not be protected.

Enforcement of Trade Secret Rights

Once it has been determined that the information is a protectable trade secret, the owner must establish that the secret was misappropriated, that is that the secret was acquired by improper means in violation of the owner's rights. “Improper means” on the other hand, is defined to include “theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy or espionage through electronic or other means.” Misappropriation means either:

(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means;

(b) Disclosure or use of a trade secret of another without express or implied consent by a person who:

(i) Used improper means to acquire knowledge of the trade secret.

(ii) At the time of the disclosure or use, knew or had reason to know that his knowledge of the trade secret was derived from or through a person who had utilized improper means to acquire it, was acquired under circumstances giving rights to a duty to maintain its secrecy or limit its use or was derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use.

(iii) Before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

The UTSA provides a number of remedies for misappropriation of trade secrets. Actual or threatened misappropriation may be subject to injunctive relief and may also allow the Plaintiff to recover actual damages and disgorgement of unjust enrichment traceable to the misappropriation. In lieu of damages measured by those methods, the Court may assess as damages a reasonable royalty for the value of the trade secret misappropriated. Willful and malicious misappropriation can result in an award of treble damages and attorney's fees.

Similar to other intellectual property rights, the best way to protect a company's trade secrets and other ideas and developments is to establish and implement sound policies for recognizing proprietary and trade secret information and procedures for maintaining and protecting the information.

We invite you to contact one of our attorneys to inquire further about trade secrets.

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