Every business has valuable trade secrets which often make the business successful. Trade secrets can be something exotic like a unique business method, an unusual raw material or a long-held secret recipe. More often, trade secrets are mundane items like customer lists, monthly sales figures, and source vendors.
Trade secrets are protected at the federal level by the Defend Trade Secrets Act of 2016 (DTSA), 18 U.S.C. § 1831 et seq. Trade secrets are also protected at the state level by the Uniform Trade Secrets Act (“UTSA”) which has been widely adopted. See, for example, Michigan Uniform Trade Secrets Act (“MUTSA”), Mich. Comp. Laws § 445.1901 et seq. Even where a given state, such as New York, has not adopted the UTSA, trade secrets are still protected under common law. The legal principles are similar under the UTSA and common law.
To have a legally protectable trade secret, in general, three conditions must apply. There must exist
- Information, data, business method or something similar
- That has independent economic/commercial value from the fact that the information is secret/confidential and
- The owner has “… taken reasonable measures to keep such information secret”
See 18 U.S.C. § 1839. If a trade secret is misappropriated by an employee or a competitor, the owner can bring suit under the federal law and under the relevant state law. The owner may obtain injunctive relief, significant damages and, potentially, attorneys fees, and punitive damages.
While the bar for protecting trade secrets is low, it is still necessary for an owner to legally demonstrate the three elements listed above. In this article, we explore how courts define “reasonable measures” to keep the information secret.
What Measures are Reasonable?
To begin, the “reasonable measures” taken to keep information secret must be SOME effort. This is the legal lesson of the case of Raben Tire Co., LLC v. McFarland, Case No. 5:16-CV-00141 (W.D. Kentucky 2017). At the pleading stage, the case was dismissed because the plaintiff did not describe ANY effort to keep the relevant information secret. The only effort made by the plaintiff was to call the information “confidential” in the pleadings. The court held that more was required and the case was dismissed.
While the “reasonable measures” must be more than nothing, the measures do not have to be extensive. Further, the “reasonable measures” may vary depending on the information and depending on the size of the company. For example, in the case of Puroon, Inc. v. Midwest Photographic Resource Center, Inc., Case No. 16 cv 7811 (N.D. Illinois 2018), the court held that a jury could hold that “reasonable measures” were taken by a small, one-person company where the relevant prototypes were shown only to a limited number of potential customers and where full access to the prototype’s specifications was granted only after a nondisclosure agreement was signed. The fact that it was a one-person company obviated a typical “reasonable measure” like keeping the information under lock and key. Likewise, sometimes only one set of measures is necessary to demonstrate “reasonable measures.” For example, in Q-Co Industries, Inc. v. Hoffman, 625 F. Supp. 608 (S.D. New York 1985), the court found “reasonable measures” were taken where the owner maintained strict computer security over source code for various software programs.
That being said, in general, the more measures taken, the easier it is to demonstrate the legal requirement that the information has been kept secret. Among the many possible measures are the following:
- Informing employees generally about the confidentiality and secrecy of the information/data
- Identifying specifically for employees what is deemed as confidential trade secret information
- Marking and stamping documents and files as “confidential” or as “trade secrets”
- Counting and tracking copies of the confidential information
- Training employees on how to maintain confidentiality
- Taking appropriate security measures for both physical and electronic versions of the information — examples include locked rooms, locked cabinets, pass-code protected computers and files, etc.
- Limiting access to the information
- Not sharing or disclosing the information purposely or accidentally
- Requiring employees, vendors and others to sign confidentiality agreements
- And more
If you have questions about protecting your trade secrets or if you need to initiate trade secret litigation, contact the trade secret lawyers at Revision Legal at 231-714-0100.