Tools
- Send page to a colleagueWhat's this?
- Bookmark this pageWhat's this?
- Register to rate this What's this?
If you like this page, share it!
Click What’s This to learn more.
Find this page again, or share it on the web using social bookmarks.
Click What’s This to learn more.
Receive updated versions of this page using RSS.
Click What’s This to learn more.
Great, good, or just okay? Rate this page, then we will all know.
Click What’s This to learn more.
Follow NCTI
Trade Secret FAQs
- What is a trade secret?
- What laws protect trade secrets?
- What do I have that might need trade secret protection?
- How can I protect trade secrets?
- What is a nondisclosure agreement?
- What is a noncompete agreement?
- How can a business enforce its trade secret law rights?
- Additional Resources
A: According to the Uniform Trade Secret Act
(UTSA), which most states have adopted in some form:
“Trade secret” means information, including a formula, pattern,
compilation, program device, method, technique, or process, that: (i)
derives economic value, actual or potential, from no being generally known
to, and not being readily ascertainable by proper means, other persons
who can obtain economic value from its disclosure or use; and (ii) is
the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
In short, if you have information, which you make a reasonable attempt
to keep secret and is economically valuable to you because of its secrecy,
then you have a trade secret. One common and extreme example of a trade
secret involves Coca-Cola. The Coca-Cola Corporation reaps an immediate
economic benefit from the secrecy of the formula for Coca-Cola, so much
so that the official formula is kept in a bank vault that can only be opened
by a resolution of the Board of Directors. Taking it a step further, only
two Coca-Cola employees can know the formula at the same time. The identities
of those two employees are never disclosed and they are not allowed to fly
on the same airplane when traveling.
Q: What laws protect trade secrets?
A: Most states (43 states and the District
of Columbia) have enacted statutes modeled on the UTSA, which sought to
provide consistency for protection of trade secrets. Other states either
have separate statutes protecting trade secrets or have such protections
under common law.
Q: What do I have that might need trade secret protection? A: Trade secret protections can be applied
to information a business possesses which gives that business a competitive
advantage and thus must be kept secret. This can include customer lists,
financial data, software codes, results of research and development efforts,
employee records and other valuable information.
Q: How can I protect trade secrets? A: The threshold for secrecy under the UTSA
is not merely the declaration of an item as a trade secret. First and foremost,
the piece of information must be kept secret. This may be as simple as marking
important documents as “Confidential”, but can also include the use of safes,
nondisclosure agreements, and noncompete agreements. In fact, nondisclosure
agreements are the best way to protect valuable trade secrets.
Q: What is a nondisclosure agreement? A: A nondisclosure agreement is a contract
among persons or entities to ensure that secret or sensitive information
that is disclosed during employment or any other business transaction is
kept confidential. While some states may allow nondisclosure agreements
to be oral or implied, most states require the non-disclosure agreement
to be a written contract. That contract can be either “one-way”, in which
one party discloses information to another, or “mutual”, where parties exchange
confidential information.The most critical elements of a nondisclosure agreement are: (1) the definition
of the confidential information; (2) exclusions from the confidential information;
(3) obligations of the receiving party; (4) time periods; and (5) other
miscellaneous provisions. The time period of a nondisclosure agreement is
negotiable and is often as long as desired by the party with the greater
bargaining power.
Q: What is a noncompete agreement? A: A noncompete agreement specifies conditions
under which an employee with access to a trade secret must not compete with
his or her previous employer. Noncompete agreements differ by state depending
on the forms and terms of competition that the state allows a prior employee
to encumber; however, the noncompete form must be able to withstand legal
scrutiny.First, the employer must have a good reason for having an employee sign
a noncompete form. The agreement shouldn’t merely be used to punish an employee
for leaving the company. If an employer is selective about who is required
to sign a noncompete form, then the agreement is more likely to be upheld
in court.Second, an employer must provide some benefit to an employee in return
for signing a noncompete agreement. Making a job offer contingent upon signing
such an agreement constitutes an adequate benefit.Finally, a noncompete agreement must be reasonable. Such terms have included
(a) a reasonable length of time for enforcement, (b) a reasonable limit
of geographic area, and (c) a reasonable limit as to tasks allowed. While
there is no legally mandated time period for a noncompete agreement, a term
of six months to two years is generally considered reasonable.
Q: How can a business enforce its trade secret law rights? A: Every state has laws to protect businesses
from theft or disclosure of trade secrets. In order to prevail in a lawsuit,
an employer must prove that the information disclosed or stolen actually
provides some competitive advantage. In addition, the information must be
proved to have been maintained in secrecy, and the trade secret owner must
show that the defendant acquired the trade secret through “improper means,”
which is defined by the UTSA as including “theft, bribery, misrepresentation,
breach or inducement of a breach of duty to maintain secrecy, or espionage
through electronic or other means.”Additionally, the Economic Espionage Act of 1996 gives the U.S. Attorney
General sweeping powers to prosecute any person or company involved in theft
or misappropriation of a trade secret, and punishes intentional stealing,
copying or receiving of trade secrets. If found guilty, individuals may
be fined up to $500,000 and corporations may be fined up to $5 million.
A violator may also be sent to prison for up to ten years, with the government
seizing all property used and proceeds derived from the theft.
Additional Resources
Information from the following websites was used in creating these FAQs.
You may find of the information contained in these websites useful in further
investigating issues of trade secret law.
- http://library.lp.findlaw.com/articles/file/00982/008856/title
/Subject/topic/Intellectual%20Property%20Law_Trade%20Secrets/
filename/intellectualpropertylaw_1_238 - http://www.nolo.com/lawcenter/ency/article.cfm/ObjectID/90781CA8-
0ECE-4E38-BF9E29F7A6DA5830/catID/
1FBE2D95-203C-4D38-90A2A9A60C6FD618 - http://www.patentcafe.com/faq/index.asp?id=13&option=menu
- http://www.lawguru.com/faq/19.html
- http://profs.lp.findlaw.com/patents/patents_3.html
- http://www.businessandlaw.com/ip.html#tradesecret
* Disclaimer: This site cannot be responsible for the manner in which the
information provided is used and the consequences of its use. All fact patterns
differ and are related to the jurisdiction in which they are raised. If
you are concerned with these issues, you are encouraged to retain an attorney.
CommentsWhat's this?
Tell us what you think or share your perspective.
You must be logged in to post a comment
