In-House Lawyer's Intro to Trade Secrets

By Jonathan R. Tung, Esq. on August 19, 2016 | Last updated on March 21, 2019

When it comes to intellectual property, everyone talks patents. Trademarks, copyrights, and other bits of intellectual property are scattered about. Even attorneys can sometimes fall into the trap of knowing just enough to be dangerous to themselves.

Less known is the trade secret. Trade secret law mostly gets invoked in the context of employment law. Almost everyone has signed a lengthy employment contract that stipulates in prolix language that the employee will not divulge valuable trade secret information to third parties. But what key factors should in-house lawyers be aware of when it comes to this lesser known aspect of intellectual property?

Trade Secret Law Is Broader Than Patent Law

Unlike patents, which require a series of specific characteristics in order to be patent-eligible, A much broader range of things are eligible for trade secret protections under state and (just recently) federal law. The grand majority of states in the US have adopted some form or another of the Uniform Trade Secrets Act (UFTA) which generally follows the following two-pronged test for trade-secret protection.

  • Trade secret information must derive its value from being a secret, i.e., not publicly known, and;
  • The efforts used to maintain the information's secretive status are "reasonable under the circumstances."

The law above is taken from Rockwell Graphic Systems, Inc. v. DEV Industries, Inc. and Cal. Civ. Code section 3426.1(d). What is important to know is that almost anything can be a trade-secret (and thus protected under applicable law) even if the components and information that make up the trade secret are already known to the public. For example, if you are a trading company and you have developed a technique for accurately determining market movements in the coming weeks based on widely public information, that technique qualifies for trade secret protection.

Plaintiffs Must Prove State of Mind

However, in order to successfully bring a case against an employee, the company must be prepared to present facts pointing to the employee's state of mind. Simple possession of trade secret information does not a case make. There has to be factual evidence that the defendant in this case "acquired, disclosed, or used ... the information through improper means." See Brocade Communications Sys., Inc. v. A10 Networks, Inc. Of course, "improper means" is subject to reasonable interpretation but, needless to say, a determination of something beyond mindless negligence is a definite requirement.

Breach of Contract and UTSA Can Overlap

A widely used technique that employers like to employ is the use of contract provisions to fill in the gaps that state trade secret law or UFTA might miss. Of course, employers should be wary of laws being drafted in California or subject to California law. The Golden State has largely looked rather dimly at non-complete agreements that seek to restrict an employee's geographical domain of employment. The state has typically regarded this as an unreasonable restraint on trade according to the Bus. and Prof. Code.

New Developments: DTSA

President Obama's recent signing of the Defend Trade Secrets Act of 2016 put into place federal laws with regard to the improper appropriation of trade secrets; and since we're talking federal law here, we're talking removal to federal courts despite the Act's language being borrowed heavily from the UTSA. For plaintiffs and defendants, this likely means things got more expensive. Hardly a surprise, right?

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