A Brief History of Trade Secret Law, Part 1 by Ernie Linek veryone has heard of trade developed it independently and secrets. Employees are kept it secret. often asked to sign an An exact definition of a trade agreement regarding their secret is not possible because each protection, whereas secret is specific to a particular Eemployers often worry that business operation. Some of the employeesE will move to a factors typically considered in competitor and take the company’s determining whether business trade secrets with them. The information qualifies as a trade Internet appears to contain secret are information on every company • the extent to which the now in business (and many no information is known outside of longer in business). Much of the the business public corporate information now • the extent to which it is available on the Internet would known by employees and others have been viewed as trade secret involved in the business information just a few years ago. • the extent of measures taken What is a trade secret today? Are by the business to guard its secrecy trade secrets still important? Are • the value of the information there any left to protect? If yes, to the business and its competitors how can those secrets be protected • the amount of effort or in today’s information age? Part money expended in developing it The secret formula for Coca-Cola is one of one of this article discusses legal • the ease or difficulty with the oldest and most famous trade secrets in definitions of trade secrets in the which it could be properly acquired the world. THE COCA-COLA COMPANY United States and their or duplicated by others. (WWW2.COCA-COLA.COM) implications for protection. Part See the Restatement of Torts two will discuss federal box for one famous legal definition commercial importance to enforcement provisions and specific of trade secrets. interstate business. Trade secret methods companies can use to Unlike the federal patent laws litigation often occurred in states protect their trade secrets. (1) and trademark laws (2), trade with large commercial centers, but secret protection was traditionally it rarely occurred in less populous WHAT ISATRADE SECRET? provided by various laws of the and more agricultural jurisdictions. A trade secret is information that individual states, and litigation Even in states where there had can be used in the operation of a involving trade secrets was usually been significant litigation, the business or other enterprise that is handled in the state court systems. parameters of trade secret both sufficiently valuable and Some states protected trade secrets protection and the appropriate sufficiently secret to give the owner under the common law; some remedies for misappropriation were an actual or potential competitive enacted statutes specifically directed uncertain. Adding to the confusion advantage. Two or more businesses to their protection. Thus trade- was the 1978 release of the Second could each possess the same trade secret law developed unevenly Restatement of Torts, which secret (or variations of the same around the United States, which eliminated the Section 757 secret) because each of them was a problem because of its OCTOBER 2004 BioProcess International 1 RESTATEMENT OF TORTS lengthy and expensive research The following definition of trade concessions in a price list or catalogue, proving that a certain process will secrets was made in Section 757 of the or a list of specialized customers, or a not work, which could be of great 1939 Restatement of Torts. method of bookkeeping or other office value to a competitor. A trade secret may consist of any management. The UTSA codified the basic formula, pattern, device, or The subject matter of a trade secret must principles of common law trade- compilation of information which is be secret. Matters of public knowledge secret protection, preserving its used in one’s business, and which or of general knowledge in an industry essential distinction from the patent gives him an opportunity to obtain an cannot be appropriated by one as his laws. Under both the UTSA and advantage over competitors who do secret. Matters which are completely common law principles, for example, not know or use it. It may be a formula disclosed by the goods which one more than one person can be for a chemical compound, a process of markets cannot be his secret. entitled to trade-secret protection of manufacturing, treating, or preserving Substantially, a trade secret is known the same information, and analysis, materials, a pattern for a machine or only in the particular business in which in the hope of “reverse engineering” other device, or a list of customers. it is used. It is not requisite that only a lawfully obtained product to It differs from other secret information the proprietor of the business knows it. discover a trade secret, is permissible. in a business in that it is not simply He may, without losing his protection, Misappropriation or Proper information as to single or ephemeral communicate it to employees involved Discovery? For liability to exist under events in the conduct of the business, in its use. He may likewise as, for example, the amount or other communicate it to others pledged to the UTSA, a trade secret must exist, terms of a secret bid for a contract or secrecy. and either a person’s acquisition of that secret, disclosure of it to others, the salary of certain employees, or the Others may also know of it or use of it must be improper. For security investments made or independently, as, for example, when contemplated, or the date fixed for the they have discovered the process or example, the mere copying of an announcement of a new policy or for formula by independent invention and unpatented item is not a violation of bringing out a new model or the like. are keeping it secret. Nevertheless, a the UTSA. A trade secret is a process or device for substantial element of secrecy must Misappropriation, as defined by continuous use in the operation of the exist, so that, except by the use of the UTSA means business. Generally it relates to the improper means, there would be (I) acquisition of a trade secret of production of goods, as, for example, a difficulty in acquiring the information. machine or formula for the production another by a person who knows or has reason to know that the of an article. It may, however, relate to REFERENCE trade secret was acquired by the sale of goods or to other operations Restatement of Torts, Section 757, in the business, such as a code for Comment b, 1939. improper means; or determining discounts, rebates, or other (II) disclosure or use of a trade secret of another without express definition of trade secrets quoted (i) derives independent economic or implied consent by a person above that had served as a legal value, actual or potential, from who guide for trade secret protection not being generally known to, and (A) used improper means to since 1939. not being readily ascertainable by proper means by, other persons acquire knowledge of the trade secret; or A STANDARD DEFINITION? who can obtain economic value Thus starting in the 1980s, many from its disclosure or use, and (B) at the time of disclosure or states adopted a new trade-secret (ii) is the subject of efforts that are use, knew or had reason to know law called the Uniform Trade reasonable under the circumstances that his knowledge of the trade Secrets Act (UTSA) (3). Some states to maintain its secrecy. secret was that adopted the UTSA modified (i) derived from or through a certain provisions of the original The UTSA definition goes person who had utilized improper model, so a local attorney should beyond the 1939 Restatement of means to acquire it; always be consulted to determine Torts definition, which required that which sections and/or definitions a trade secret be continuously used (ii) acquired under have been adopted by your state (4). in one’s business. The broader circumstances giving rise to a duty The UTSA defines a protectable definition in the UTSA extends to maintain its secrecy or limit its trade secret as follows: protection to a trade-secret owner use; or who has not yet had an opportunity “Trade secret” means (iii) derived from or through or acquired the means to put a information, including a formula, a person who owed a duty to the secret to use. The definition also pattern, compilation, program, person seeking relief to maintain includes information that has device, method, technique, or its secrecy or limit its use; or commercial value from a negative process, that viewpoint, such as the results of 2 BioProcess International OCTOBER 2004 (C) before a material change of published materials. Often, a injunction should last as long as is his/her position, knew or had product lends itself to being readily necessary, but no longer, to reason to know that it was a trade copied as soon as it is available on eliminate the commercial advantage secret and that knowledge of it the market. On the other hand, if or “lead time” a misappropriator has had been acquired by accident or reverse engineering is lengthy and over good faith competitors. An mistake. (4) expensive, a person who fairly injunction should thus terminate One of the broadly stated policies discovers the trade secret through when a former trade secret becomes behind the UTSA is maintenance of reverse engineering can the either generally known to good faith standards for commercial ethics. In information obtained as a trade competitors or generally knowable connection with that policy, the secret.