Friday, May 18, 2012

Part 2, Introduction to Trade Secrets.

In my last post, I discussed what a trade secret was. My succinct definition was that a trade secret is something that 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.

To determine whether information is a trade secret, courts consider a variety of factors. Again, courts in different jurisdictions may consider different factors. However, if a state adopted the UTSA, their factors are probably similar to what Iowa uses. First, a court looks at the extent to which the information is known outside of the business. Second, they look at the extent to which it is known by employees and others involved in the business. Third, they look at the extent of measures taken to guard the secrecy of the information. Fourth, they look at the value of the information to the business and its competitors. Fifth, the courts look at the amount of effort or money expended in developing the information. Sixth, they look at the ease or difficulty with which the information could be properly acquired or duplicated by others. [1]

One can see that there are numerous factors that a court examines when determining whether information is protectable as a trade secret. If you are a businessperson and think you may have a trade secret, you may be asking yourself, "how can I get protection for a trade secret?" Well, one cannot get protection for a trade secret, a priori, meaning that one cannot get protection for a trade secret before there is a lawsuit. When one has a valid patent or trademark, that is prima facie evidence of a patent or trademark. As a result, when it comes to the lawsuit, one does not need to prove that it is protectable. With trade secrets, there is a fairly large gamble, because there is no register or process one can go through to prove that they have a trade secret. If one thinks they have a trade secret, they have to treat it as such, and sit back and wait for a misappropriator to come along before they can prove it in court.

It is a gamble, no doubt. It is also cheaper than getting a patent. It all comes down to an economic analysis: If you think your company can make more money in the long-run from keeping your formula, pattern, compilation of data, computer program, device, method, technique, process, or other form or embodiment of economically valuable information secret, then a trade secret may be for you. This assumes that another company will not reverse engineer or otherwise stumble across your secret through proper means. Reverse engineering is a proper means of discovering a trade secret. If you have information that is likely to be discovered in the amount of time it would take for a putative patent to expire, then you would want to go through the patent process. That way you could at least earn fruits from your labor when another company reverse engineers your trade secret.

[1] See Kendall/Hunt Pub'g Co. v. Rowe, 424 N.W. 2d 235, 246 (Iowa 1988).

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