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5. TRADE SECRETS



5.1 What Is a Trade Secret?
5.2 How Can Trade Secrets Be Protected?
5.3 What Can Be Protected By Trade Secret?
5.4 What a Trade Secret Does Not Protect
5.5 Protection Strategies
5.6 Summary

5.1 WHAT IS A TRADE SECRET?^

Any information that is not generally known, which provides a com-mercial advantage, and is being maintained in secret, is a trade secret. For instance, client lists, business plans, secret processes, certain aspects of computer programs, contents of pending patent applications, and chemical formulations are just a few of the many different kinds of trade secrets. Knowing which research avenues will prove fruitless or what not to do can also be a trade secret.

5.2 HOW CAN TRADE SECRETS BE PROTECTED?^

Trade secret law can be an important tool in protecting information that gives a company its competitive edge. If the information can be kept secret, trade secret protection may be obtained more quickly and at less cost than patent protection. Additionally, trade secrets can cover information, such as client lists, that is not patentable. Trade secret protection may also extend to matter that is not protectable under copyright law, such as ideas, facts, and methods of operation.

5.3 WHAT CAN BE PROTECTED BY TRADE SECRET?^

Unlike patent law and copyright law, trade secret law varies from state to state. However, Utah and most other states have adopted some version of the Uniform Trade Secrets Act. That Act, like other trade secret laws, protects valuable business secrets against misappropriation by theft, espionage, or other improper means.

Information is not protected under trade secret law unless reasonable steps are taken to keep the information secret. What steps are adequate depends on the circumstances. Generally speaking, however, reason-able steps serve to warn those with legitimate access to secrets that they are obligated to maintain the secrecy, and serve to make it difficult (but not necessarily impossible) for others to gain access. Possible measures are discussed further below.

Because patents are public, nothing in a patent application is a trade secret after the patent application is published under the American Inventor Protection Act. However, material in the application may be a trade secret before it is published. Moreover, so long as the best mode for practicing the invention is disclosed in the patent application, certain material which is useful in connection with the patented inven-tion but which is not revealed in or covered by the patent may remain a trade secret even after the patent issues. For instance, the software used to control a piece of patented hardware may be a trade secret even after the hardware patent issues from the Patent and Trademark Office.

5.4 WHAT A TRADE SECRET DOES NOT PROTECT^

Trade secret protection does not extend to prevent competitors from gaining secret information by legitimate means. Two common legitimate means for gaining trade secret information are independent discovery and reverse engineering. If a suit for misappropriation of trade secrets is brought, chances are very good the defendant will argue one of these two defenses.

Unlike a patent owner, the owner of a trade secret has no recourse against someone who discovers the protected matter independently. For example, a patent owner of a patent for a process of manufacturing printed circuit boards has a cause of action against someone else who independently discovers and uses the same process. Patent rights can prevent that person or anyone else from using the process, even if that person has never read or even heard of the patent.

By contrast, suppose the process was not patented, but that reasonable steps had been taken to maintain the process as a trade secret. If some-one else independently discovered the unpatented process, they can use it. Thus, although in theory trade secrets can last forever, in practice

many trade secrets have a limited life. The life span that a trade secret will enjoy is unknown, because one never knows when someone else might discover the secret on their own or through legitimate means.

A holder of a trade secret likewise has no recourse against someone who legitimately obtains the product and extracts its secrets by reverse engineering. For instance, suppose a competitor buys one of the printed circuit boards manufactured using the secret process and is able to learn the secret process by studying the board. The competitor is then permitted by law to use the process.

Additionally, an employee’s general knowledge or "tools of the trade" cannot be legitimately claimed by an employer as a trade secret. To permit this would unfairly restrict the employee’s freedom to make a living by practicing his or her chosen professional.

The line between general knowledge and trade secrets is sometimes difficult to draw, but these two examples may help. Sales techniques learned at a national conference open to any business are not trade secrets, while a client list ranked in order of receptiveness to prior promotions probably is a trade secret. Likewise, knowledge of a programming language such as C++ or LISP is a tool of the trade for a computer programmer, but an algorithm devised by another employee for validating passwords may be a protectable trade secret.

Despite these limitations, trade secret protection is often worth preserv-ing. Many valuable secrets are difficult to discover independently, expensive to reverse engineer, or both. Such secrets are worth some measure of protection. Unlike patent or copyright protections, which are administered by the government, the level of protection for trade secrets depends mainly on your ability to keep your valuable informa-tion secret.

5.5 PROTECTION STRATEGIES^

MINIMAL APPROACH^

At a minimum, reasonable precautions must be taken to maintain the secrecy of any information preserved as a trade secret. The steps taken need only be reasonable. They do not need to provide perfect security. For instance, you are not required to prevent a competitor from flying over your new plant and photographing it during its construction. Nor does your trade secret protection evaporate if someone burglarizes your safe (unless such burglaries are so common in your industry that any reasonable person would have taken additional steps to prevent them). Some minimal reasonable steps to protect trade secrets include:

• Warn employees not to reveal your trade secrets.

• Warn employees not to reveal to you the trade secrets of others.

• Clearly label documents that contain trade secrets.

• Lock away documents that contain trade secrets.

MODEST APPROACH^

• A more comprehensive approach to trade secret protection may require, in addition to the minimal steps taken above, the following steps:

• Require employees to sign confidentiality agreements.

• Promulgate a written company policy on confidentiality.

• Conduct exit interviews with employees who terminate their employment.

• Require nonemployees such as consultants or independent contractors to sign confidentiality agreements.

• Require nonemployees to sign in and be escorted through the facility, or entirely barring nonemployees from certain areas within a facility.

• Institute sign in and sign out procedures for gaining access to confi-dential information.

AGGRESSIVE APPROACH^

• A more aggressive approach to protecting trade secrets may include additional measures such as:

• Place trade secret provisions into licensing agreements (for example, in a software license, prohibit disassembly of the object code).

• Adopt an aggressive enforcement program to preserve trade secrets by warning misappropriators in writing, or by bringing suit in court seeking an injunction against improper use, compensation for the improper use, attorneys’ fees, and punitive damages.

• Install guards, fences, or other physical barriers.

5.6 SUMMARY^

Trade secrets may provide a competitive edge that is worth protecting. The reasonable steps needed for effective protection can be relatively easy and inexpensive. Moreover, trade secret law may protect matter that is not protected by patent or copyright law. In short, trade secret law often provides a cost-effective way to stay one step ahead in today’s competitive market.