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Trade Secrets Tutorial

    A trade secret is information that is not generally known and is capable of adding economic value to the holder. Usually the information falls into one of several categories: formula, pattern, compilation, program, device, method, technique, or process. Coke's original formula is the canonical example. Trade secrets are also often referred to as "confidential information" or "classified information." Essentially it is knowledge that the holder possesses and that the holder wants to keep hidden from the marketplace because secrecy produces a competitive advantage.

    In general, there are three elements that must be shown by plaintiff when bringing a trade secret action: (1) that the information produced a competitive advantage because it was not generally known; (2) that reasonable and diligent steps were taken to protect the information; and (3) that the information in question was acquired through deception or theft. Trade secrets are protected under state law. The majority of states have adopted the Uniform Trade Secrets Act (UTSA). UTSA is a model act that was developed by the National Conference of Commissioners on Uniform State Laws.

    Trade secret protection is relatively straight forward to obtain since it does not require application and registration with a government entity. All that is required is that a business take reasonable steps to protect the information. Obviously, what is reasonable is dependent on a number of factors but primarily on the economic value derived from the information. For example, a customer list may be considered a trade secret and if a business deems it as such then at least some steps must be taken to protect it. This might mean marking it as confidential and restricting access on a need to know basis. It does not mean that it need be kept under a "Fort Knox" level of security. On the other hand, Coke's formula may indeed require a level of security akin to a "state secret."

    Trade secret protection may be obtained for a potentially infinite duration. Protection is essentially a process problem in that as long as the process to maintain secrecy is reasonable and diligently followed, protection is both triggered and maintained. The latter is both the most beneficial aspect of trade secret protection (because of its relatively low cost) and its Achilles heel. Most businesses either (1) do not have the correct processes in place; or (2) are not diligent in following them. For these and other reasons trade secret protection is often considered fragile. However, that need not necessarily be the case if trade secret fundamentals are attended to.

    Even if the fundamentals are followed, trade secret protection has its limits under the law. For example there is no protection from independent discovery (unlike a patent) and neither is there protection from reverse engineering, unless of course the information necessary to reverse engineer was acquired through deception. This tutorial focuses on the UTSA, however, the interested reader should also be aware of the Economic Espionage Act of 1996 which "criminalizes" the theft or misappropriation of a trade secret by making such conduct a federal crime. The relevant USC code sections are 1831 through 1839.


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