Elements of a Trade Secret
There must be some economic value attached to the trade secret – The owner of the trade secret generally gains some economic value or commercial benefit because of it. The term “economic value” refers to the “value of the information to either the owner or a competitor,” including information “that would be useful to a competitor and would require cost, time, and effort to duplicate.”[i] Basically, any information from which the competitor stands to gain from knowing and if the secret was not disclosed, would have had to put in time, effort and money to create that information on its own.
Information is not generally or readily available – The information should not be readily available or easily ascertainable by the use of proper or fair means. “Whether information is readily accessible or easily discoverable by proper means is a question of fact. Discovering the accessibility of information requires a factual determination of the time and money employed to develop the information.”[ii] Publication of the trade secret information destroys its status as a trade secret; however, such disclosure must be sufficient “to translate the theoretical concepts described into practical application.”[iii]
Reasonable efforts must have been made to maintain secrecy – The owner of the information must utilize reasonable efforts to maintain its secrecy; the trade secret must be, in fact, a secret.[iv] The “reasonable efforts to maintain secrecy” element does not require the owner to maintain absolute secrecy over its information; only partial secrecy or qualified secrecy is required.[v]It must be kept in mind that when the owner discloses the secret to its employees in confidence, it would not amount to it losing its trade secret characteristic. There are a number of factors to determine whether reasonable steps were made by a person or company to maintain secrecy: (1) keeping secret documents in locked files;[vi] (2) providing guarded entrances to a plant;[vii] (3) restricting visitors and requiring badges for all employees;[viii] (4) using non-disclosure agreements with subcontractors;[ix] and (5) incorporating a system of passwords to protect secrecy of computer data and software.[x]A mere intent to keep the information a secret is not enough.
Misappropriation of Trade Secret
The disclosure or use of another’s trade secret constitutes misappropriation. It refers to the unfair acquisition that is, acquiring a trade secret by theft, fraud, coercion, or other unlawful or dishonest acts.[xi]
Misappropriation by disclosure or use without consent is common in cases where there is a contract or confidential connection, such as an employer-employee or a licensor-licensee, and the party obtaining trade secrets has an obligation to keep the knowledge confidential. Misappropriation occurs when a receiving party exposes trade secret information without the owner’s permission.
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As per John H. Mathenson, “Misappropriation of trade secrets can be divided into two areas. First, one is subject to liability for misappropriation of another’s trade secret if that person acquires the information by improper means. Second, a person is subject to liability for the misappropriation of another’s trade secret if he/she improperly uses or discloses the other’s trade secret without the other’s consent, when the trade secret was brought to his/ her attention through a confidential relationship, was acquired by improper means, or was acquired from another who was in breach of a confidential relationship or was disclosed by accident or mistake.”[xii]
Because plaintiffs in trade secret misappropriation cases must show that they had used “reasonable measures” to maintain confidentiality, the first step in preventing trade secret theft is to put safeguards in place. Steps to notify contractors, vendors, workers, and anyone associated in a firm of sensitive information, as well as notification of contractual agreements that limit disclosure, are frequent precautions that can be taken.
Generally trade secrets are stolen by using industrial espionage. Intense competition in local and export markets have resulted in an alarming surge in industrial espionage, or stealing by outsiders. Due to increased global competition, shorter product cycles, dwindling profit margins, and dwindling staff loyalty, such operations are on the rise.
Industrial espionage is of two types: (a) external theft, and (b) internal theft.
- External theft – Corporate espionage by professional criminals targeting specific technologies, network attacks (hacks), and laptop computer thefts are all examples of external risks. It could be done to accessing source code, product designs, marketing plans, customer lists, etc.
- Internal theft – Internal theft is done on purpose by angry employees or former employees. Some of these individuals allow themselves to be exploited by rival intelligence operatives for monetary gain or simply out of anger. Despite signing a non-disclosure or confidentiality agreement, a fired or retrenched employee might go directly to a competitor and offer to disclose the employer’s trade secrets, marketing strategies, or new product plans, for a fee or just to seek revenge.
It can be said – “It is not necessary that the defendant physically take possession of a document containing the trade secret information. Misappropriation can occur where an employee memorizes a customer list and uses his or her memory of that list in competition with his or her ex-employer.”[xiii]
Thereby, the businesses use corporate security measures and confidentiality clauses mostly in “employment, technology licensing, distributorship, and joint venture agreements to protect their trade secrets.”
Author : Shambhawi Choudhary, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at IIPRD
References
[i]US West Communications, Inc. v. Office of Consumer Advocate, 498 N.W.2d 711, 714 (Iowa1993).
[ii]John H. Matheson, Employee Beware: The Irreparable Damage of the Inevitable Disclosure Doctrine, 10 Loy. Consumer L. Rev. 145 (1998).
[iii]Jostens, Inc. v. National Computer Sys., Inc.,318 N.W.2d 691, 700 (Minn. 1982).
[iv]Kewanee Oil Co. v. Bicron Corp., 416 U.S.475 (1974).
[v]Electro-Craft Corp. v. Controlled Motion,Inc., 332 N.W.2d 901 (Minn. 1983).
[vi]Surgidev Corp. v. Eye Tech., Inc., 648 F.Supp. 691 (D. Minn. 1986).
[vii]Electro-Craft Corp. v. Controlled Motion,Inc., 332 N.W.2d 902 (Minn. 1983).
[viii]Sigma Chemical Co. v. Harris, 794 F.2d371, 374 (8th Cir. 1986).
[ix]Pioneer Hi-Bred Int’l v. Holden Found.Seeds, Inc., 35 F.3d 1226, 1236 (8th Cir. 1994).
[x]Trandes Corp. v. Guy F. Atkinson Co., 996F.2d 655, 664 (4th Cir. 1993).
[xi] Module 4: Trade Secrets, WIPO (November 2, 2021, 08:15 PM), https://www.wipo.int/export/sites/www/sme/en/documents/pdf/ip_panorama_4_learning_points.pdf.
[xii] John H. Matheson, Employee Beware: The Irreparable Damage of the Inevitable Disclosure Doctrine, 10 Loy. Consumer L. Rev. 145 (1998).
[xiii] Stampede Tool Warehouse, Inc. v. May, 651 N.E.2d 209, 217 (1st Dist. Ill. 1995).