10.6 The Virginia Uniform Trade Secrets Act
Library | Employment Law in Virginia (Virginia CLE) (2020 Ed.) |
10.6 THE VIRGINIA UNIFORM TRADE SECRETS ACT
10.601 In General. One of the competitive practices a former employee must avoid is using the former employer's trade secrets. The Virginia Uniform Trade Secrets Act (the Act) 171 seeks to protect businesses from the misuse of trade secrets by codifying basic principles of common law trade secret protection as developed in the courts and by specifying appropriate remedies.
A trade secret is "information, including but not limited to a formula, pattern, compilation, program, device, method, technique, or process that . . . 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 . . . is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." 172 Examples include (i) research results of aeronautical
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tests; 173 (ii) internal strategy documents; 174 (iii) a compressed polystyrene product; 175 (iv) an object code for a computer program; 176 (v) a software program that performs various orbital simulations for satellites; 177 (vi) a demonstration and marketing device; 178 (vii) a franchisor's policy and procedure manual; 179 (viii) an employee policy procedure manual; 180 (ix) pricing information; 181 (x) a sales force's plan detailing how to best a particular competitor; 182 and (xi) a schedule of volume discounts given to certain customers. 183 The court generally considers the questions of whether a set of facts constitutes a trade secret and whether a party engaged in misappropriation to be questions of fact. 184
A party claiming misuse of trade secrets must identify each trade secret it claims was misappropriated. It is not sufficient to claim generally that trade secrets were stolen. 185
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One court found a privately held company's entire business operation, "from the specific sources and costs of its supplies, through the production of its [product], to the distribution of its product to three specific customers and the prices charged them," to be a protectable trade secret. 186 Underlying the court's rationale were the facts that the business was unique and that each component of the business plan could be considered a trade secret under the appropriate circumstances.
10.602 Customer Lists. While many jurisdictions have determined that customer lists are or may be trade secrets, 187 some jurisdictions hold that customer lists may not be protected as trade secrets. 188 Whether a customer list is a trade secret may also depend on the efforts used to maintain the secrecy of the list, 189 regardless of whether the list is written or committed to memory. 190
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At least one Virginia court has held that a contact list that merely compiles publically available contacts is not a trade secret but other courts have reached a different conclusion. 191
10.603 Novel Combination of Old Information. To be a protectable trade secret, the information need not be a discovery. Rather, it may be simply a novel combination of familiar substances, information, or principles. Although a trade secret cannot exist in the public domain, it can exist in a combination of public information, as long as the combination is itself secret. 192
10.604 Independent Discovery. The use of information developed by independent discovery or by other proper means, such as reverse engineering, does not violate trade secret protections. 193
10.605 Readily Ascertainable Information. Information cannot be a trade secret if it is "readily ascertainable" by legitimate means. 194 If the information to be protected is available without difficulty from legitimate sources other than the owner of the trade secret, the information probably is not protectable as a trade secret. This may be an issue when a former employer claims that a written customer list taken by a former employee is a trade secret
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entitled to protection under the Act. The employee may argue that the list can be recreated with minimal effort and expense by searching publicly available sources online or by other inexpensive means. The employer, on the other hand, may argue that the customer list is unique and was developed at great cost over many years.
10.606 Access to Other Information. Information is not a trade secret if its only value is that it can potentially provide access to other trade secret information. 195 Courts have refused to find that passwords, 196 encryption keys, 197 or account numbers are trade secrets 198 even if they were employed in order to protect trade secrets.
10.607 Maintaining Secrecy. To be protectable as a trade secret, the information must be the subject of reasonable efforts by the owner to maintain its secrecy, but the secrecy need not be absolute. The owner of the trade secret may, without losing protection, disclose it to a licensee, an employee, or a stranger if the disclosure is made in express or implied confidence. 199 Disclosure of information to a jury during a trial or in documents filed with the court not under seal does not by itself destroy trade secret status, 200 but if a document filed with the court is obtained by the public and subsequently published, it loses its trade secret status. 201
10.608 Misappropriation by Improper Means. The Act protects against both the acquisition and the disclosure of trade secrets. The acquisition
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or disclosure of another's trade secret by a person who knows or has reason to know that the trade secret was acquired by improper means is misappropriation. 202
"Misappropriation" includes the disclosure or the use of a trade secret of another without express or implied consent by a person who used improper means to acquire knowledge of the trade secret, or who at the time of the disclosure or use knew or had reason to know that knowledge of the trade secret was (i) derived from or through a person who had used improper means to acquire it; (ii) acquired under circumstances giving rise to a duty to maintain its secrecy or to limit its use; (iii) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (iv) acquired by accident or mistake. 203
"Improper means" include (i) theft; (ii) bribery; (iii) misrepresentation; (iv) breach of a duty or inducement of a breach of a duty to maintain secrecy; (v) espionage through electronic or other means; and (vi) use of a computer or computer network without authority. 204 "Proper means" include (i) discovery by independent invention or discovery by reverse engineering, that is, by starting with the known product or information and working backward to find the method by which it was developed; (ii) discovery under license from the owner of a trade secret; 205 (iii) observation of the item in public use or on public display; and (iv) obtaining the trade secret from published literature. 206
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10.609 Noncompetitive Use. Even if a trade secret is being used by a defendant in a way that is not competitive with the plaintiff's business, the misappropriation remains actionable because the Act only requires a plaintiff to prove the acquisition or disclosure of the trade secret—not competition with the plaintiff. 207
10.610 Employer Liability. An employer is liable for violations of the Act committed by an employee acting within the scope of employment. 208
10.611 Remedies.
A. Injunctive Relief. Actual or threatened misappropriation of a trade secret may be enjoined. 209 Because the Act authorizes injunctive relief, no showing of irreparable harm is required. All that needs to be proved is a violation of the Act. 210 However, simply going to work for a competitor while knowing the former employer's trade secrets is not sufficient to justify an injunction under the Act. There must be an actual or threatened disclosure. 211 Injunctive relief is no longer available after the trade secret becomes public by lawful means or the commercial advantage of having the trade secret has expired.
B. Damages. In addition to injunctive relief, the Act also provides for damages. 212 The appropriate measure of compensatory damages is the plaintiff's loss plus the defendant's unjust enrichment, unless this would provide an inadequate sum. Otherwise, damages should be "a reasonable
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royalty." 213 Punitive damages are available "[i]f willful and malicious misappropriation exists." In these cases, the court may award punitive damages in an amount not exceeding twice any award made under...
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