Thursday, May 17, 2012

Introduction to Trade Secrets.

Forty-six of the 50 states have enacted some form of the Uniform Trade Secrets Act ("UTSA"). The UTSA was written by the Uniform Law Commission in 1979 and amended in 1985. [1] There are a number of Uniform Acts written by the ULC in order to streamline the legal process in the United States. For obvious reasons, there are benefits to having substantially similar laws throughout the states.

There is a tension between the grant of patent rights and a trade secret. Patents must be disclosed while trade secrets must not be. Even if a trade secret is improperly disclosed, once it is out it is out. There is no getting it back. You can sue whomever responsible for damages, but your secret is no longer protected.

The prefatory note to the UTSA explicates this dichotomy. "A valid patent provides a legal monopoly . . . in exchange for public disclosure of an invention. If, however, the courts ultimately decide that the Patent Office improperly issued a patent, an invention will have been disclosed to competitors with no corresponding benefit. In view of the substantial number of patents that are invalidated by the courts, many businesses now elect to protect commercially valuable information through reliance upon the state law of trade secret protection." [2]

Unlike patents which are covered by federal law, trade secrets are protected under state law. States that have enacted the UTSA may have some variations over what they consider a trade secret. They will have case law that has developed independently since their state adopted of the UTSA. Nevertheless, most have the following definition of a trade secret or something substantially similar to it:

A "trade secret" is information including but not limited to a formula, pattern, compilation, program, device, method, technique, or process that: (a) derives actual or potential independent economic value from not being generally known to, and not being readily ascertainable by proper means by a person able to obtain economic value from its disclosure or use; and (b) is subject to reasonable efforts under the circumstances to maintain its secrecy. [2]

So, there you have it. A trade secret must derive actual or potential independent economic value from not being well-known and not easy to figure out without using dishonest means, and must be kept reasonably secret under the circumstances. As long as they are kept secret, they are theoretically protectable in perpetuity.

When hiring new employees, a small business may be unsure of whether their formula, pattern, compilation, program, device, method, technique or process is legally protectable. Sometimes, they will have an employee sign a nondisclosure agreement to prohibit them from competing after their employment ends. Other times, the employer may just take it on faith that the employee will not surreptitiously steal information or otherwise abscond with valuable company information.

Future posts will include more information on trade secrets and how a business can approach their treatment. They will also cover several other fields of law related to business and commerce.


[1] Wikipedia, Uniform Trade Secrets Act, (last visited May 17, 2012).
[2] University of Pennsylvania Law School, Uniform Trade Secrets Act with 1985 Amendments, (last visited May 17, 2012).

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