WHAT IS A TRADE SECRET?

Generally, it can be said that a trade secret is any valuable information, which is valuable, at least in part, simply because it is not commonly known. To put it a more legalistic way, a trade secret can be any information, including a formula, pattern, compilation, program, device method, technique or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by 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. The fact is, no exact definition of a trade secret is possible. A trade secret is only defined within the parameters and nature of the product, service or process as found within the particular business in which it is claimed. A trade secret can be more easily demonstrated by examples rather than vague definitions and accordingly, the following are some categories of information which the courts have recognized as trade secrets:

1. Special Manufacturing Processes. For example, courts have found trade secrets from a process for manufacturing chocolate powder, an extrusion blow molding process and a manufacturing technique for a veterinary vaccine.

2. Marketing Strategies and Pricing Information.

3. Specialized Customer lists if the customer lists are not easily derived from widely available sources.

4. The Sources of Raw Materials.

5. Product Formulas.

6. Product Specifications such as plans, designs and specifications for components of a machine, which are not readily ascertainable from the marketed product.

7. Testing Techniques.

8. A Doctor’s Recall List or the Expiration Dates of Customer Contracts.

9. Proven Modifications or new uses for readily available ingredients or machines.

10. Dead Ends derived from extensive research if it has value by the fact it is not known in the industry because “knowing what not to do often leads automatically to knowing what to do.”

The most important aspect of a trade secret is that it must be and remain a secret. A trade secret is easily lost by violating the requirement of “secrecy.” If valuable information is released in the public domain, other parties are free to take and use the information unless its use is barred by other laws such as copyright, patent or trademark law. Even inadvertent or accidental disclosure of the secret will result in it no longer being protected as a trade secret. Thus, the owner of a trade secret must learn to identify and implement means of protecting the confidentiality of their trade secret information or, lose it.

EMPLOYEE THEFT OF TRADE SECRETS

The most frequently litigated trade secret situation involves an employee or independent contractor who has had access to trade secret information and then accepts employment with a competing company. The similar nature of the employment between the two companies always makes it virtually “inevitable” that the former employer’s trade secrets will be used. As a result, any employer who has developed, or maintains, any valuable information must understand that generally, the California Labor Code does NOT protect:

1. Information obtained by an employee during employment that is not kept confidential. See King v. Pacific Vitamin Corp. (1967) 256 Cal. App.2d 841.

2. Information that the employee himself or herself creates. Williams v. Weisser (1969) 273 Cal. App. 2d 726.

3. Information that the employee creates or develops outside the scope of employment even though relevant to their duties at the workplace. See Cal. Labor Code § 2870 and Cubic Corp. v. Marty (1986) 185 Cal. App. 3d 438.

To the employer’s advantage is the fact that many courts consider the employment situation to be presumptively confidential with reference to trade secret information. YET, TRADE SECRET STATUS CAN BE EASILY LOST. As a result, any employer who has any significant trade secrets should learn to identify and implement means of protecting the confidentiality of their trade secret information or, lose it.

HOW TO KEEP TRADE SECRET INFORMATION

Development of a Formal Intellectual Property and Trade Secret Program

Inherent in trade secret law is the notion that the owner must employ reasonable effort to maintain the secrecy of the trade secret information as a condition of granting protection under the law. There is no simple “yellow brick road” to achieve this goal. Accordingly, it is ESSENTIAL that any business that owns proprietary or trade secret information must develop a comprehensive Trade Secret Program (a “TSP”). A properly designed TSP institutes appropriate measures and policies for the identification, security, maintenance and protection of confidential information. Although there is no “yellow brick road” to do this, a properly designed TSP will include:

1. CONDUCTING AN INTELLECTUAL PROPERTY REVIEW: Before it can be determined what is the best way to protect your confidential information, it must first be determined what it is that you have to protect.

2. SECURING RIGHTS: This will include:

Copyright Registration of all appropriate creative works (including software).

• Trademark Registration of all trade names, logos and identifying marks used in commerce.
• Patent Filing for any appropriate invention including software.

3. IMPLEMENT EMPLOYMENT AGREEMENTS, which define the rights and responsibilities of employees and independent contractors with regard to confidential information. A confidentiality agreement is often the only effective means of controlling the loss of proprietary information after an employee leaves. In addition:

• It serves as an explicit reminder to the employee to prevent the loss in the first place and specifies the terms of the relationship to avoid the confusion that often arises when duties of confidentiality are “oral.”
• It creates essential evidence if litigation becomes necessary.
• It increases the likelihood that a court will enforce a trade secret.

In summary, keeping and protecting trade secret information requires that the owner conduct a thoughtful and methodical process. This is one area where it pays to plan in advance as the courts seldom help those who complain after they have allowed their trade secrets to “fly the coup” into the public domain.