Are Your Trade Secrets Under Lock and Key?

may 14, 2019

By: Jim Nowogrocki

Lock it or lose it

Both federal and state law require that in order for information to qualify as a trade secret (and gain legal protection) a company must use “reasonable” efforts to maintain its secrecy. And while absolute secrecy is not required, courts do not designate which particular steps an employer must use to protect confidential data, such as product ingredients or technical processes. It all depends on the unique business environment for each employer.

And a jury ultimately decides if a trade secret exists or not after hearing evidence of what steps were taken in a very case-specific inquiry.

Creating a confidential relationship

One federal court astutely noted that trade secret protection depends upon a continuing course of conduct by the employer, a course which creates a confidential relationship. This relationship, in turn, creates a reciprocal duty in the employee to treat the information as confidential insofar as the employer has so treated it.

Compare these two case results from trade secrets litigation in federal court. In one instance, a former employee testified that his former employer permitted him to share the software with outside institutions, give public presentations, and publish articles on the code software without restriction. Allegedly, the employer had no security procedures for the source code, and did not require employees to sign confidentiality or non-disclosure agreements concerning the code. The former employer countered that with respect to electronic security measures, the source code was kept on a secure server that was only accessible by a limited group of employees. Ultimately, the trial judge said that a jury would have to decide if the former employer took reasonable measures to protect its trade secrets.

In another case, the following evidence was sufficient to find a product formula was a trade secret: the company president testified that he told employees that the formula was confidential; sales personnel were instructed not to give the product formula to customers or potential customers; and personnel were instructed to conceal key ingredients, especially a proprietary thickener, from visitors to the plant.

Conclusion

In sum, a business needs to be able to describe, with specificity, the measures it took to protect confidential and proprietary information if it hopes to meet the threshold requirement for trade secret protection.