Chapter 36 - § 36.2 • SUBJECT MATTER OF TRADE SECRETS

• Jurisdiction: Colorado

§ 36.2 • SUBJECT MATTER OF TRADE SECRETS

Generally, a trade secret involves proprietary business information that is secret and of value. Often, information that constitutes a trade secret may implicate another aspect of intellectual property law. For example, the same information, or different aspects of the same information, may be protected by patent law and copyright law in addition to being eligible for trade secret protection. It is important that a business lawyer have a foundational understanding of the relationship and overlap of these different forms of intellectual property protection. Excellent discussions of other forms of intellectual property rights may be found in Chapter 35, "Trademarks, Copyrights, and Domain Names," and Chapter 37, "Patent Law," of this book.

The subject matter of trade secret coverage can be quite broad. In order to be a trade secret, a business must make reasonable efforts to keep the information secret. Businesses cannot protect information that has already been disclosed to, or generally known by, the public or within the industry. Thus, a business must be proactive in keeping its trade secrets private.

Businesses should consider implementing an innovation program or invention policy to identify inventions and developments that belong to the company and may be protectable. The innovation program also may help determine what type of intellectual property protection (e.g., patent, trademark, copyright, trade secret, etc.) is warranted for each development.

Practice Pointer
Advise clients to adopt an innovation program or invention policy to:

• Incentivize and otherwise encourage employees to disclose to management the creation of confidential information and inventions;
• Specify that the company owns all developments and inventions related to the company's business that were created or conceived by employees on company time or using company assets or information;
• Designate a person or create a committee to identify the specific confidential information and inventions that merit patent, trade secret, or other protections; and
• Catalog the identified confidential information and inventions, and pursue the appropriate actions (e.g., pursuing patent protection (as discussed in Chapter 37, "Patent Law") or maintaining secrecy of trade secrets (as discussed below)).

Determining whether to seek patent protection or maintain trade secrecy for a specific innovation involves several considerations. Patentable innovations, for example, must be new and non-obvious when a patent application is filed.³ Trade secrets do not have to meet these same standards, providing a broader range of coverage. Valid patents provide protection against others who independently develop the same innovations.⁴ Trade secret protection, on the other hand, generally does not provide protection if others come upon the same innovations through proper means.⁵

Patent protection is usually preferable over trade secret protection if an innovation is likely to become public. For example, if a business is going to commercialize and sell a product, it may be difficult to keep the product design a secret. However, the process or recipe used to manufacture the product may remain secret, even as the product is sold — e.g., Coca-Cola's recipe is maintained as a trade secret. Thus, different aspects of bringing a product to market may be covered by different types of intellectual property protection.

Some additional issues may be worth considering as well. Trade secret protection can provide perpetual protection as long as the trade secrets actually remain secret.⁶ In contrast, patents are made public, providing protection of limited duration, typically around 20 years.⁷ One other important difference is that patent protection falls exclusively under federal law, while trade secret protection can be a question of both state and federal law.⁸

A business that owns a patentable innovation may choose to protect it as a trade secret rather than pursue a patent. However, there may be the risk that someone else may independently develop the same innovation and seek patent protection. In 2011, the U.S. Congress reformed U.S. patent law to provide a broadened defense to patent infringement in cases where an owner can show prior commercial use of the invention, even if the owner kept it a trade secret.⁹ Federal requirements must be met in order to utilize these new federal provisions as a defense to patent infringement. The key provision requires that the owner show that it had commercially utilized the invention at least one year prior to the effective filing date of the claimed invention or the date on which the claimed invention was disclosed to the public.¹⁰ This defense may be asserted by "the person who performed or directed the performance of the commercial use . . . , or by an entity that controls, is controlled by, or is under common control with such person."¹¹

There is a "university exception" to the prior commercial use defense that prohibits the defense when the claimed invention in the patent was, at the time the invention was made, owned or subject to an obligation of assignment to either an institution of higher education or a technology transfer organization whose primary purpose is to facilitate the commercialization of technologies developed by an institution of higher education.¹² The broadened prior-user-rights defense now covers processes, machines, manufactures, or compositions or matter used in a manufacturing or other commercial process with respect to patents issued on or after September 16, 2011.¹³ For patents issued prior to that date, the prior rights use defense is limited to business method patents.

To further assess whether to seek patent or trade secret protection, business attorneys should consider the characteristics of information that may be protected by trade secret law in Colorado and the proactive steps that businesses should take to maintain these valuable rights.

§ 36.2.1—Types of Eligible Information

Adopted by the Colorado legislature in 1986, the Colorado Uniform Trade Secrets Act¹⁴ defines a trade secret as follows:

"Trade secret" means 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. To be a "trade secret" the owner thereof must have taken measures to prevent the secret from becoming

...