Sociology Index

Trade Secrets Law

Trade Secrets Case Law

Under Trade Secrets Law any establishment can protect its confidential information through non-compete non-disclosure contracts with its employees. In the absence of formal protection under Trade Secrets Law, a third party is not prevented from independently duplicating and using the secret information once it is discovered. The Trade Secrets Law of protection of confidential information allows a perpetual monopoly in secret information.

Trade secret law has gained importance in India only recently with the intensification of competition. Coca Cola’s formula has been protected for over a century under tradesecret law. The first reported trade secret case in England is Newbery v. James, 35 Eng. Rep. 1011 (Ch. 1817)..

Trade secrets are not registered with the government as is done in the case of intellectual properties such as patents, copyrights and trademarks.

The only way to protect trade secrets is to keep the information confidential. Tradesecret protection lasts for as long as the trade secret is kept confidential. Trade secret protection ends the moment a tradesecret is made available to the public. 

In order to succeed in a trade secret infringement suit, a trade secret owner must show:

that the information alleged to be confidential provides a competitive advantage,

that the information really is maintained as a trade secret,

that the information was improperly acquired by the defendant, or

that the information was improperly disclosed or leaked by the defendant.

To prove that measures have been taken to guard the secrecy one has to diligently:

Maintain adequate information security and access security.

Encode trade secret information.

Restrict trade secret information under a written obligation to maintain secrecy.

Restrict trade secret information only to staff who are directly concerned with it

Post signs on all information related to the trade secret.

What are trade secrets?
Trade secrets may consist of any formula, idea, physical device, pattern, process, customer lists or other compilations.
Trade secret provides the owner of the information with a competitive advantage in a competitive market.
Trade secret is protected in such a way that competitors gain knowledge of it only through acquisition or theft.
Potential trade secrets are a secret recipe or a formula for a drink, survey methods used by professional pollsters, a new invention for which a patent application has not yet been filed, marketing strategies, manufacturing techniques and computer algorithms.

How to keep and protect trade secrets?
Trade secrets are valuable intellectual property that cannot be protected by intellectual property laws such as patents, copyrights and trademarks laws. So, the best way to keep and protect trade secrets is:

By keeping a new idea or business concept secret in order to enjoy a competitive advantage as a early mover.

By keeping competitors from learning that a product or service is under development and from discovering its functional or technical attributes.

By protecting valuable business information such as marketing plans, cost and price information and customer lists.

By protecting both negative and positive information learned during the course of research and development.

By protecting any other information that has some value and is not generally known by your competitors.

What are trade secret ownership rights?
A company owning tradesecrets can prevent any employee who routinely comes into contact with the employer's trade secrets as part of the employee's job, who is automatically bound by a duty of confidentiality, not to disclose or use trade secret information, from copying, using and benefiting from its trade secrets or disclosing them to others without permission.

How can trade secrets be protected?
Trade secrets are best protected through the use of nondisclosure agreements. Courts have repeatedly reiterated that the use of nondisclosure agreements is the best demonstrated way to maintain the secrecy of confidential information.
Lack of nondisclosure agreements gives rise to doubts about genuine intention to keep trade secrets protected.
Every state has enacted a law prohibiting theft or disclosure of trade secrets. Most of these laws are derived from the Uniform Trade Secrets Act (UTSA).
A trade secret owner can enforce rights against someone who steals confidential information by asking a court to issue an injunction preventing further disclosure.

Examples of trade secret infringement that can lead to trade secret lawsuits:

X, a former employee of Y, discloses Y's trade secrets to a new employer.

X hacks into the network for a company and downloads information. X sells the information to a third party which a rival company.

X works as an independent contractor for Y. X signed a nondisclosure agreement with Y, but later discloses Y's secrets to a rival.

The "Inevitable Disclosure" Doctrine
A company may prevent a former employee from working for a competitor if the company can demonstrate that employment with the competitor will inevitably lead to disclosure of trade secrets.

In PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995), there is discussion of when disclosure of trade secrets is “inevitable.”
The court identified several factors to be weighed in determining whether disclosure of trade secrets in “inevitable” including.

PepsiCo (1995 case) successfully argued that a former executive could not work as Chief Executive Officer of a competitor Gatorade and Snapple because the executive will inevitably rely on PepsiCo's trade secrets and in the process give the competitor an unfair advantage over PepsiCo.

The inevitable disclosure doctrine has been rejected by many States because it challenges an employee's basic freedom to switch employers.

Does the stealing of trade secrets constitute a crime under trade secrets law?
Intentional theft of trade secrets can constitute a crime under both federal and state laws. “Theft” includes not only literal theft but also such practices as flying a plane over a factory to take pictures to deduce the production process. The most significant federal law dealing with trade secret theft is the Economic Espionage Act of 1996 (EEA) (18 U.S.C., Sections 1831 to 1839).

Books On Trade Secrets Law

The Uniform Trade Secrets Act : An article from: JOM [HTML] by David V Radack.

Nondisclosure Agreements: Protect Your Trade Secrets and More by Richard Stim, Stephen Fishman - Bk&CD-Rom edition.

Protecting Trade Secrets Under the Uniform Trade Secrets Act by Michael Craig Budden

Trade Secrets: Protecting Your Confidential Business Information by Nishan Swais.