Trade Secrets: Your Undisclosed Intellectual Property

by:  Kathleen Kuznicki, Esq.

Proprietary information such as customer lists and recipes are intellectual property.  However they are not formally protected in the same way as are trademarks, copyrights or patents.  These and other types of confidential information can only be protected if they are treated as trade secrets. For confidential information to be classified as a trade secret it must not be generally known (i.e. it is only known and used by you) or reasonably ascertainable (i.e. it cannot be reversed engineered or accessed by somebody else).  It also must be of economic value.  Some other examples of trade secrets are formulas, data-gathering protocols, and employee’s salaries.

Trade secret law effectively allows a perpetual monopoly in the secret information; a trade secret does not expire like a patent.  The lack of formal protection, however, means that a third party is not prevented from independently duplicating and using the secret information once it is discovered.  Many inventions are submitted for patent applications rather than kept as a trade secret because of the fear of reverse engineering.  And at least with a patent there is a guaranteed time of protection in exchange for disclosing the information to the public.

You do not register or apply for trade secret protection in the same way you do for patent, copyright or trademark protection.  It is up to the entity holding the trade secret to keep it a secret!  Protocols should be established to maintain secrecy and confidentiality.  A company protects its confidential information via its employees is through using non-disclosure and non-compete agreements that spell out consequences for inappropriate disclosure or use of a trade secret.  Most often trade secret protection is violated when a former employee goes to work for a competitor.  A good best-practices tip is to conduct a thorough exit interview with departing employees to clearly remind them of their obligations with regard to the employer’s trade secrets. When interacting with other companies such as vendors or licensees, nondisclosure or confidentiality agreements should be agreed to before any proprietary information is given.

Technological security measures should also be taken such as password protecting files or servers with confidential information and tracking those who access the information.  All documents and emails with attachments that are considered a trade secret should be labeled with a notice that they are confidential/trade secret.  As long as the owner of the trade secret can prove that reasonable efforts have been made to keep the information confidential, the information remains a trade secret and is legally protected. Conversely, trade secret owners who cannot show evidence of reasonable efforts at protecting confidential information risk losing the trade secret, even if the information is obtained by competitors illegally.

Most states, including Pennsylvania, have adopted the Uniform Trade Secrets Act which attempts to codify and harmonize the law regarding misappropriation of trade secrets among all the states.  For example, in Pennsylvania, misappropriation of trade secrets is a violation of 12 PA.C.S.A. § 5302; and is defined as the acquisition by improper means or disclosure without consent.  Misappropriation includes the acquisition of a trade secret of another by a person who knows, or should have known, that the trade secret was acquired by improper means. “Improper means” is further defined to include theft, bribery, misrepresentation, breach, or inducement. Misappropriation includes disclosure or use of a trade secret without express or implied consent of the trade secret owner.  The person disclosing or using the trade secret must have obtained it by improper means, or through someone who obtained it by improper means.

Businesses should take an inventory of all of their assets, identify those assets that are trade secrets, and then incorporate those assets into their confidentiality protocols.  If such protocols have not been developed, then they should be developed promptly.  The status of the trade secret assets should be reviewed on a regular basis, because over time some may inadvertently become available to the public.  Businesses should also be guarded about new employees utilizing trade secrets from their former employers, because they are at risk of a misappropriation law suit.   Even though liability is based on a known or should have known standard, a business does not want to be dragged into a law suit having to fight a misappropriation claim.   With a potential new employee the business should first ascertain whether there was a non-compete agreement with the prior employer.  Second, the business should have the new employee sign a statement that they do not have knowledge of any trade secrets of the prior employer or that they shall not use any of the trade secrets of the prior employer while employed by the business.  While such a statement may not guarantee protection against liability, it at least shows a good faith effort to avoid misappropriation of trade secrets.

Kathleen Kuznicki is a contributing writer to Exit Promise. Please visit www.exitpromise.com to view more articles by Kathleen.

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