Trade secrets - the new risks to trade secrets posed by computerization.

Author:Beckerman-Rodau, Andrew


Business enterprises have always relied on intellectual property to further economic goals. (1) Well-known trademarks have been critical to the success of many consumer products companies that have spent years inculcating the public with an association between their products and a specific trademark. (2) Entire industries, such as publishing, music, and software, rely on intellectual property rights afforded by copyright law (3) to protect their investments. Patents (4) provide protection for much of the research and development activities conducted by commercial enterprises. Trade secret law (5) is utilized both as an alternative to patent protection and to protect commercial information that is outside the scope of patent protection.

The modern development of technology significantly impacts intellectual property. The increasing reliance on modern technology has resulted in intellectual property comprising a substantial portion of the business assets of modern commercial enterprises. (6) This is in contrast to the past when most business assets consisted of tangible property. (7) As a result, enterprises are increasingly utilizing intellectual property laws to protect the value of their intellectual property. (8) Correspondingly, the domain of intellectual property law has expanded to cover more types of intellectual assets. (9) This protection increases the economic value of such assets. Nevertheless, the modern development of technology has adversely affected the value of some intellectual property. For example, the widespread availability of the Internet, (10) coupled with its global reach, allows rapid and inexpensive dissemination of data. (11) As a result, intellectual property that can be converted into digital data, such as music, software, and movies, can be distributed almost immediately, via the Internet, to literally millions of individuals for negligible cost. (12) This rapid dissemination reduces the ability to control access to intellectual property, which negatively affects its economic value. Additionally, the global reach of the Internet imposes significant jurisdictional limitations on the utilization of legal remedies to protect intellectual property, since legal redress under our system is generally based on the geographic location of the infringing party. (13) One response to this procedural problem has been enactment of at least some federal statutes that reach beyond the geography of the United States. (13) Another response has been the advent of intellectual property protection as an important trade issue that is addressed in trade discussions among the various nations of the world. This has resulted in the creation and adoption of international agreements to ensure worldwide protection of intellectual property. (15)

This article will specifically address the impact of modern technology on trade secret law. Part I will provide an overview of United States trade secret law; Part II will discuss specific threats to trade secrets posed by the ubiquitous use of computer technology in the modern commercial environment.


    At its most basic level, trade secret law is a body of predominantly state law (16) that provides protection for valuable commercial information that is maintained in secrecy. (17) Typically, it allows legal redress against anyone who acquires or discloses such secret information in breach of a contractual agreement, in breach of a duty to maintain secrecy, or through improper actions. (18)

    1. Sources of Trade Secret Law

      (1) Common Law

      Actions for misappropriation of trade secrets have their origins either in property law, contract law, or tort law depending upon the court and the particular facts of the case. (19) The Restatement (First) of Torts accurately summarizes the basic concepts embodied in common law trade secret law. (20) Typically, an action for misappropriation of a trade secret involves a party improperly disclosing or using a trade secret in violation of a contractual agreement entered into between that party and the trade secret owner. (21) Alternatively, even in the absence of an agreement, acquiring a trade secret via improper means is actionable. (22) Typically, improper means includes illegal conduct and legal conduct deemed to be commercially unacceptable. (23) Despite the common law origins of trade secret law, a high degree of consistency existed among jurisdictions, at least with regard to the definition of a trade secret and the basic underlying concepts of trade secret law. (24) Nevertheless, some differences existed among states, for example with regard to statute of limitations and remedies. This prompted a movement to create a uniform body of law. (25)

      (2) Uniform Trade Secrets Act

      The Uniform Trade Secrets Act (UTSA) (26) was promulgated by the National Conference of Commissioners on Uniform State Laws (27) in an attempt to create a uniform body of state trade secret law. (28) Arguably, creation of such a consistent body of law is critical in light of the importance of intellectual property assets to businesses that operate throughout the United States. (29) Inconsistencies in state intellectual property law increase state-to-state compliance costs. Additionally, they may threaten the continued existence of a trade secret that is utilized nationwide by a business enterprise. Unlike other types of intellectual property, all rights in a trade secret cease to exist once the trade secret is released to the public, since absent secrecy a trade secret does not exist. (30) In the area of patent and copyright law, for example, federal statutes preempt state law, thereby eliminating the possibility of inconsistent state laws in these areas. (31) Nevertheless, in the past, a patent could be treated differently in different federal circuits. For example, the Court of Appeals for the Fifth Circuit could find a patent valid, while the Eighth Circuit could find the same patent invalid. (32) Unless the Supreme Court agreed to hear an appeal, the inconsistent results would stand. Despite the obvious problems, patent rights would continue to be valid and enforceable in the Fifth Circuit but not in the Eighth Circuit. (33) By contrast, failure to find something a trade secret in one jurisdiction creates the potential for public disclosure of the secret in that jurisdiction. Upon such disclosure the trade secret ceases to exist everywhere. Hence, the formulation of a uniform national trade secret law is imperative. (34)

      To date, the UTSA has been adopted by forty-four jurisdictions. (35) Many jurisdictions, however, adopted the Act with some changes. Additionally, since the UTSA is state law, different states may interpret and apply it differently. (36) Nevertheless, courts continue to rely on the Restatement (First) of Torts' definition of a trade secret as an interpretive guide, both in states that have adopted the UTSA and in the few states, such as Massachusetts, that have not adopted the UTSA. (37)

      (3) Federal Law

      The Economic Espionage Act (the LEA) of 1996 (38) creates a federal crime for theft of trade secrets. (39) The LEA provides for exclusive original jurisdiction in U.S. District Courts for civil actions brought under this act, (40) and expressly states that it does not preempt other remedies available under state or other federal statutes for misappropriation of a trade secret. (41) Therefore, although the LEA does not create a private cause of action, an injured party can still bring an action under state law without regard to whether a federal prosecution is undertaken by the government.

      Unlike both state trade secret law and other federal intellectual property law, such as copyright and patent law, the LEA states that is has extraterritorial effect. (42) Conduct in a foreign country is within the domain of the act if the offender is a citizen or permanent resident alien of the United States. (43) Additionally, foreign actions of organizations created under state, federal or local United States laws are subject to the Act. (44) Finally, the LEA encompasses foreign actions if any act in furtherance of the foreign action was committed in the United States. (45)

      To date, only a limited number of actions have been brought under this Act. (46) Nevertheless, the EEA appears to be aimed at providing greater protection from theft and subsequent use of proprietary information utilized in modern industry. (47) It reflects recognition that industrial espionage is a serious problem (48) that is engaged in both by competitors and foreign countries. (49) In light of this, the Act contains a specific section that prohibits certain actions that will benefit foreign governments, their instrumentalities, or their agents. (50) This section is aimed at intelligence efforts carried out by foreign governments. (51) Another section of the Act prohibits trade secret misappropriation by any party if that misappropriation will injure or economically benefit someone other than the owner. (52) The EEA defines "trade secret" in a manner similar to how it is defined under both the common law and the UTSA. (53) The EEA prohibits attempting to misappropriate (54) or conspiring to misappropriate (55) trade secrets. Additionally, anyone who knowingly receives, buys or possesses trade secrets with knowledge that they were obtained improperly violates the Act. (56)


      (1) Common Law Definition

      The most commonly accepted (and cited) (57) common law definition of a trade secret is contained in the Restatement (First) of Torts. It states, in pertinent part, that "A trade secret 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." (58)

      (2) Uniform Trade Secrets Act Definition

      The UTSA defines "trade secret" as follows:

      "`Trade secret'" means...

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