Fig Leaf or Battle Shield? The Scope of Trade Secret Protection

The broader intellectual property community and a lot of companies seem to forget or neglect trade secrets. Maybe theySir Trade Secret find trade secrets unmarketable, maybe just plain un-sexy (sexiness of protection is not a recommended basis for an intellectual property policy!). But not you, dear reader! To summarize, we have learned that a trade secret is any information that a company takes reasonable steps to keep secret which provides that company with a competitive edge because the information is not generally known! We know that trade secrets apply to a wide swath of ideas and information. Some of the information trade secrets apply to are also potentially protectable by other forms of intellectual property protection, such as copyright of patent law. Other ideas and information are only covered by trade secret law, making a functioning trade secret protection policy an essential part of any emerging technology company’s business operations. We know what a trade secret is, but what does it protect exactly?

Trade secrets are exactly what they sound like: secrets. Their protection originates from the fact that the information (e.g. fuel mixture, machining process, communications protocols) is not known to the public. A trade secret can exist forever, as long as the owner of it keeps it a secret. This is no small feat; trade secret protection can be lost via inadvertent disclosure by the company, its employees, former, employees, visitors, or contractors, just to name a few possible leak sources. Elon Musk, of SpaceX and Tesla Motors fame has historically treated such leaks very seriously. He has every reason to because once the cat is out of the bag, you can’t stuff it back in. Ad hoc exposure of a (former) trade secret can be potentially very damaging. Recently, Apple experienced a significant drop in sales of the iPhone 3GS when the design of the next-generation iPhone 4 was leaked by a forgetful employee.

Because trade secrets are secrets, most trade secret laws protect against “misappropriation” of trade secrets and unauthorized exposure of trade secrets. Prohibited misappropriate includes traditional corporate espionage; it’s a no-no to break in to your competitors offices and steal their plans for next generation rockets. Misappropriation can also include doing legal things for improper purposes. For example, flying a private airplane from point A to point B is a normal, legal thing. If you fly that same private airplane from point A to point B, but happen to use it as aerial reconnaissance of a competitor’s manufacturing plant layout during the construction of that plan, you have potentially misappropriated the trade secrets, just ask Rolfe and Gary Christopher.

To better understand the scope of trade secret protection, let’s take a look at the definition of “misappropriation”

“Misappropriation” means:

(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; or
(b) Disclosure or use of a trade secret of another without express or implied consent by a person who:
1. Used improper means to acquire knowledge of the trade secret; or
2. At the time of disclosure or use, knew or had reason to know that her or his knowledge of the trade secret was:
a. Derived from or through a person who had utilized improper means to acquire it;
b. Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
c. Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
(c) before a material change of his [or her] 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.
“Improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.

Top Secret Stamp

As an extreme measure, one could simply tattoo this on all the employees.

As we can see from the definition, not only are people not allowed to utilize your trade secrets without your consent, they cannot use it if they have reason to know the trade secret was acquired improperly by the person giving it to them! Nor can they use the trade secret if they received the information from a person who was charged with maintaining its secrecy, such as an employee or former employee. This is provision, (b)(2)(c), is very important, because it is part of the reason it’s a great practice to include confidentiality disclaimers in emails. By pointing out that the email contains confidential/trade secrets, you have informed the recipient that they cannot utilize the information, under laws such as your state’ s trade secret law. Similarly, it is important to mark documents or other media containing trade secrets as “confidential” or “trade secret” when dealing with the government. Pharmaceutical companies, defense companies, and aerospace companies should be aware that, unless a regulation provides otherwise, the disclosure of a trade secret to a governmental agency or a court without the indication that the information is to be maintained in confidence acts as an abandonment of that trade secret! In some cases, a naked disclosure like that has consequences for securing other protections, like patent rights, so it’s a good idea to implement and follow an IP policy, tailored to your company’s needs and business environment.

In summary, trade secret law prohibits misappropriation of trade secrets by another person or company. In most cases, misappropriation means corporate espionage, violation of confidentiality agreements, bribery, and most other forms of unfair business practices. Trade secret law does not protect information from being reverse engineered, independently discovered, or derived from some other public source. It’s always a good idea to treat research and development as confidential and to take steps to ensure that your hard earned knowledge is kept a secret by others, including the government. Intellectual property professionals can help create and implement trade secret protection policies that are appropriate for your company and business environment.

Happy creating!

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  1. Pingback: Trade Secrets Are Not Enough « IPinSpace

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