§ 1.04 Trade Secrets

• Jurisdiction: United States
• Publication year: 2020

§ 1.04 Trade Secrets

The subject matter of trade secret protection is very broad. Virtually any sort of information may qualify as a trade secret so long as it is used in a business, has some independent economic value, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.⁶⁵ Trade secrets are not limited to scientific or technological information and may include business information, such as customer lists, financial projections, and marketing plans. Trade secrets also may include "negative" know-how, i.e., information relating to processes or inventions that do not work.⁶⁶ Thus, as compared to patents, the potential scope of protection for trade secrets is significantly broader than for patents. In addition, even a small improvement to a known process can qualify as trade secret, which is a much lower standard than to qualify for patent protection.⁶⁷ Trade secrets have no definite term of protection. As long as the information is secret they are protected. However, once a trade secret is disclosed to the public they are no longer legally protected.

Trade secrets may be misappropriated generally under two distinct circumstances. First, a trade secret may be misappropriated when a person uses theft or other improper means such as theft or bribery of employees to acquire the secrets.⁶⁸ Second, a trade secret may be misappropriated where someone uses or discloses a trade secret in violation of a confidential relationship. No express promise is necessary, an understanding of secrecy may be implied from the circumstances. The relationship between an employer and an employee is normally considered confidential.

This means that under trade secret law that so long as the information is not acquired through improper means or in violation of a confidential relationship the information may be available for others to use. In addition, trade secret law does not protect against independent discovery. Nor does it prevent a competitor from reverse engineering a product and from using the secrets uncovered to manufacture and sell an identical product. Patent law, in contrast, does not distinguish between information acquired legitimately or illegitimately. A product that has been designed as a result of reverse engineering may still infringe a patent.

Remedies for trade secret misappropriation depend greatly on whether the act of misappropriation has been completed. To the extent that the defendant has not actually used or disclosed the trade secret, a court may issue an injunction prohibiting any future use or disclosure of the trade secret. Thus, for example, where an individual has copied the trade secrets of his former employer and left to join a competitor, the former employer may seek injunctive relief against the disclosure and use of the trade secrets. While at least one act of misappropriation has occurred through the unauthorized taking of the trade secrets, the court may prevent serious damage to the owner of the trade secrets by issuing an injunction barring the individual from disclosing the trade secrets and the new employer from using the trade secrets.

Similarly, where the trade secrets were taken in some tangible form, such as documents or computer disks, the trade secret owner may seek their return through the established remedy of replevin.

In cases in which the trade secrets have been publicly disclosed or already used by the defendant, monetary damages are generally available. A trade secret owner may seek recovery for loss caused by the misappropriation, together with any unjust benefit gained by the defendant, which is not accounted for in determining the loss to the trade secret owner. The protection of confidential business information dates back to Roman law. The development of U.S. trade secret law began with court decisions in Massachusetts citing common law from England. The first reported trade secret decision is Vickery v. Welch,⁶⁹ decided in 1837 by the Supreme Judicial Court of Massachusetts, holding that a contract for the sale of a secret process for making chocolate with a non-competition bond by the seller was lawful and enforceable.⁷⁰ Some thirty years later, the Massachusetts Supreme Court enforced an employee's promise not to disclose the employer's trade secrets in Peabody v. Norfolk in 1868.⁷¹ Thereafter, notable trade secret cases were decided in New York, Pennsylvania, and New Jersey, among other states.⁷²

The next major development in U.S. trade secrets law was the recognition of the common law of trade secrets by the American Law Institute in 1939.⁷³ Three sections were promulgated: Section 757—Liability for the Disclosure or Use of Another's Trade Secret (General Principle); Section 758—Innocent Discovery...