Trade Secret Law

Instability in the workforce (especially as regards key employees) subjects companies to risk of loss of confidential information. Most state jurisdictions grant protection to employers against such loss. They do so by adopting a version of the Uniform Trade Secrets Act.

A “trade secret” means information, including, but not limited to, a formula, pattern, compilation, program, device, method, technique, product, system, or process, design, prototype, procedure, or code that: (1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means, by the public or any other person who can obtain economic value from its disclosure or use, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Businesses should take proactive steps to protect their trade secrets from misappropriation by employees, subcontractors, agents, and others. They can do this by relying on the language of the Act or by using more specific trade secret nondisclosure provisions.

Where employees are concerned, a state’s trade secrets act can be especially useful. Unlike a covenant not to compete, which the law requires parties to reasonably restrict in time and geography, the law generally protects a trade secret until someone voluntarily discloses it or another party discovers it through proper means.

An employer may also rely on common-law rules where an employer and employee enter into a private agreement with respect to the creation and use of trade secrets. Where a written agreement exists, an employer and employee may expressly agree that an employee will assign all his or her creative output, include all trade secrets, to the employer, and that the employee will maintain all such trade secrets in confidence.

In the absence of a written non-disclosure agreement, under common law:

For example, if an employer specifically hires an employee to conduct research and development and provides time and resources for that purpose, courts generally find an implied agreement. As a result, any trade secrets the employee develops within the scope of employment belong to the employer, and the employee has a duty not to disclose or use them independently.

If an employee creates a trade secret during the course of employment but was not hired to conduct research and development, the employee generally retains ownership of the trade secret. However, if the employee uses the employer’s work time, facilities or supplies to develop the trade secret, the employer may have a “shop right” in it. A shop right is a nonexclusive license to use the employee’s trade secret.