Keeping it Secret in Colorado
| Publication year | 2010 |
| Pages | 39 |
| Citation | Vol. 39 No. 11 Pg. 39 |
2010, November, Pg. 39. Keeping It Secret in Colorado
November 2010
Vol. 39, No. 11 [Page 39]
Intellectual Property and Technology Law articles are sponsored by the CBA Intellectual Property and Technology Law and Policy Sections. They provide information of interest to intellectual property and technology attorneys who advise clients on protecting and exploiting various forms of intellectual property in the marketplace.
Coordinating Editors
Steven J. Merker, Denver, of Dorsey and Whitney LLP-(303) 629-3400, merker.steve@dorsey.com; William F. Vobach, Littleton, of Swanson and Bratschun, L.L.C.-(303) 268-0066, bvobach@sbiplaw.com
About the Authors
Michael L. Drapkin is a patent attorney and a Partner in the Intellectual Property Group at Holland and Hart LLP, where he focuses his practice on patent counseling and prosecution in the electronics and communications fields-mldrapkin@hollandhart.com. David B. Wilson is a patent attorney at Townsend and Townsend and Crew, focusing on patent counseling and prosecution in the electronics and software fields-dbwilson@townsend.com. Amy L. Kramer is an attorney at Townsend and focuses her practice on patent and general intellectual property litigation-lkramer@townsend.com.
Both trade secrets and patents protect information. Trade secrets provide valuable, cost-effective alternatives to patents for protecting certain types of information and innovations. Generally defined as proprietary information that a company makes reasonable efforts to keep secret, trade secrets have a very broad scope. Information that already has been disclosed to the public generally is not protectable. Customer lists, secret recipes, production processes, and product designs are just a few examples of protectable trade secrets.
Trade secrets offer wide-ranging protection for information that is secret and valuable. Patentable subject matter must be novel, useful, and nonobvious,(fn1) but the subject matter of trade secrets is not similarly restricted. In some instances, information that is eligible for patent protection might be better protected as a trade secret, but the type of protection afforded is fundamentally different. Accordingly, a lawyer counseling a client about protecting trade secrets should have a foundational understanding of the relationship and overlap of these different forms of intellectual property protection.(fn2)
This article discusses the requirements for trade secret protection; the elements of misappropriation and the available remedies; and practical considerations including licensing, confidentiality agreements, and agreements not to compete. Also discussed are the characteristics of information that may be protected by trade secret law in Colorado and the proactive steps that companies can take to maintain these valuable rights. Some of the specific considerations involved in deciding whether to seek patent or trade secret protection are highlighted.
Information Covered by Colorado Trade Secret Law
The Colorado Uniform Trade Secrets Act (CUTSA), enacted in 1986, codifies Colorado trade secret law.(fn3) The legislature modeled Colorado's law after the Uniform Trade Secrets Act (UTSA), which forty-four states and the District of Columbia have adopted.(fn4) A provision of the UTSA encourages uniformity among states, but trade secret protection varies based on the form of the UTSA adopted by that particular state.
In Colorado, "trade secret" is defined as follows:
the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, improvement, confidential business or financial information, listing of names, addresses, or telephone numbers, or other information relating to any business or profession which is secret and of value.(fn5)
As several courts have summarized, trade secrets
may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.(fn6)
Protectable trade secrets can include customer lists, marketing and strategic plans, pricing and margin information, customer data and preferences, secret recipes and formulas, training methods, production processes, and product designs.(fn7) Trade secret law does not protect against reverse engineering. Accordingly, only information that is not readily ascertainable through reverse engineering can be protected as a trade secret.(fn8)
The general ability and knowledge an employee brings into an employment relationship does not qualify as a trade secret; moreover, the skill and experience acquired during an employment relationship does not become the employer's property.(fn9) General business practices and methods of conducting business hold only a tenuous relationship to trade secrets, and typically are beyond the scope of protection.(fn10) However, confidential information in one of these categories acquired during an employment relationship can qualify for trade secret protection.(fn11) Confidential information that may be used against a company by a direct competitor generally is afforded more protection.(fn12)
Secrecy Requirements
Although the type of information that can be protected as a trade secret in Colorado is broad, the information must be kept secret to remain trade secret eligible. CRS § 7-74-102(4) provides:
Information that can be obtained easily from other sources does not qualify for trade secret protection.(fn13)To be a "trade secret" the owner thereof must have taken measures to prevent the secret from becoming available to persons other than those selected by the owner to have access thereto for limited purposes.
Courts consider the following factors in determining whether to characterize certain information as secret and therefore protectable under Colorado law:
the extent to which the information is known outside the company;
the extent to which the information is known to those inside the company; and
the precautions taken by the holder of the trade secret to guard the secrecy of the information.(fn14)
Companies must take significant precautions to keep trade secrets private. Such efforts may include identifying and labeling confidential information as "Confidential" and/or "Trade Secret" and advising only key employees of its existence. Companies should control access to trade secret information by using physical methods, such as password protection, security log-ins, or encryption.(fn15) Trade secret information can be housed on a separate, secure, user-access controlled server.(fn16) Additionally, companies should maintain access logs to track disclosure of trade secret information.
A "kill e-mail" is an extreme measure that companies can use to protect their trade secrets. Sent after termination of employment, a kill e-mail automatically deletes any files and e-mails stored on that employee's computer once the e-mail is opened.(fn17) At a minimum, employees should be informed that the information is restricted and confidential and should be required to sign non-disclosure agreements (NDAs).
Non-Disclosure or Confidentiality Agreements
NDAs provide an essential tool to protect trade secrets because companies must make reasonable efforts to keep protected information secret. These agreements may be referred to by different names, such as confidential disclosure agreements (CDAs), proprietary information agreements (PIAs), confidential review and non-disclosure agreements (CRNDAs), or simply secrecy agreements.
A well-crafted NDA directed at specific trade secrets allows for protection and control over the use and dissemination of protected information. Because NDAs can be used to illustrate that efforts have been made to maintain secrecy, a company should integrate NDAs into its trade secret policies and practices.(fn18) A company also should work with counsel to consider and identify the areas where and the individuals for whom NDAs may be needed. NDAs may be used, for example, when a new employee joins a company, or when an existing employee gains access to trade secret information. They also may be used when working with third parties, such as contractors or other outsiders who may get access to trade secrets during the course of business.
An NDA drafted to protect trade secrets generally should include several provisions. Fundamentally, the NDA should clearly define the scope of information protected by the NDA. It often is advisable for an NDA to include broad secrecy pronouncements while also targeting specific subject matter and types of information. Such agreements should state what may be done with the accessed trade secret information, and limit those with whom the information may be discussed. In addition, an NDA should specify the measures the party must take to keep the information secret. This could be a provision specifying that the party must protect the information as if it were his or her own trade secret. An NDA also may include provisions exempting information that already is publicly known or information a party already knows before signing the NDA.
A primary tension that...
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