Introduction to Trade Secrets
One result of the technology boom is the increasing importance of intellectual property. Indeed, we often hear about the traditional forms of intellectual property (patent, copyright and trademark), but an often ignored intellectual property right is the trade secret.
What is a Trade Secret?
Many companies believe all of their business information is a "trade secret" subject to protection from disclosure to competitors. This, however, generally is not the case. Not all "confidential" business information is a "trade secret" and not all "trade secrets" are afforded protection by the courts. Basically, every bit of confidential information or technology that provides your company with a competitive edge may be protectable as a trade secret. But just because the information is proprietary and important to your company's success does not necessarily mean it qualifies as a trade secret worthy of protection under the law.
A trade secret may consist of any information, formula, pattern, device, or compilation of data that is not generally known by others and provides its owner with a competitive business edge. Any company wanting to protect its proprietary information as a trade secret must therefore be able to prove the information qualifies as a trade secret.
The Test Applied By the Courts To Determine If Trade Secret Protection Applies
Although state courts differ on what is and is not a trade secret, the main three factors include:
- information that is unknown to the public and not readily
ascertainable by the public;
- which the owner has used reasonable efforts to safeguard; and
- is valuable because it provides the owner with a competitive
advantage in the market place.
Additional Factors Considered by California Courts
Some additional factors considered by the California courts to
determine what business information qualifies as a protectable trade secret
- Common Knowledge. As a trade secret must in fact be a
secret, there is no cause of action for misappropriation of non-secret information. Thus, if a customer or supplier list can be reconstructed by competitors simply by picking up an industry directory, a court may not protect the information as a trade secret.
- Limited Disclosure. Trade secret information cannot be disclosed to others without an express or implied obligation of confidentiality, and even then only on a "need-to-know" basis. If it is routinely disclosed and readily assessable to all employees, the court will likely find that it is not a trade secret worthy of protection.
- Protection and Safeguards. The more safeguards the company has in place (confidentiality agreements, restricted access, etc..), the more likely the court will find trade secret protection.
- Value of the Information. Another factor often looked at by the courts is the value of the information to the owner and to his or her competitors.
- Time and Expense. The courts will also consider the amount of time, effort, and money expended by the owner in developing or compiling the information and the ease or difficulty with which the information could be properly acquired or duplicated by others.