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Trade Secrets: Requirements

There is no precise definition of what constitutes trade secret subject matter because a trade secret depends on a particular business context (i.e. what is considered to be a trade secret within one business may not be considered as such in another). Courts often look to the following factors to determine whether or not a trade secret exists:

  • the extent to which theinformation is known outside of the business
  • the extent to which it is known by employees and others involved in the business
  • the extent of measures taken by the business to guard its secrecy
  • the value of the information to the business and its competitors
  • the amount of effort or money expended in developing it
  • the ease or difficulty with which it could be properly acquired or duplicated by others.

The UTSA defines a trade secret as follows:

(4) "Trade secret" means 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.

Obviously protection is not triggered unless the subject matter in question is deemed to be a trade secret. Equally obvious is that the analysis is highly fact dependent and that sufficient evidence must be proffered in order to make the necessary showing. This is why it is imperative that a business develop, document and diligently follow its trade secrecy policy.

Although the law requires secrecy, absolute secrecy is not required, sans a revelation to the public at large. The 5th Circuit in Metallurgical Industries v. Fourtek (1986) makes this point by quoting the relevant language from the restatement:

He may, without losing his protection, communicate it to employees involved in its use. He may likewise communicate it to others pledged to secrecy.... Nevertheless, a substantial element of secrecy must exist, so that, except by the use of improper means, there would be difficulty in acquiring the information.

Here the court goes on to conclude that the divulging of information to a limited extent in furtherance of the holder's economic interest is not sufficient to require the loss of trade secret status.

In addition to a showing of suitable subject matter the UTSA requires reasonable efforts to maintain secrecy (see 4(ii) above). A leading case here is Rockwell Graphics Systems v. DEV Industries (7th Cir. 1991) wherein the court goes to great lengths to ground the legal rationale for the necessity of the holder to take reasonable measures vis-a-vis trade secret protection. The court concludes that reasonable does not mean extravagant and highlights the cost benefit ratio (i.e. the economic impact) to the holder if forced to take burdensome measures. The court also emphasizes the growing importance of trade secret protection to American industry given the temporary protection and high costs associated with the acquisition of patent rights.

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