Trade secrets are valuable business assets. Trade secret law in the US is relatively uniform. Under most statutes and laws, a trade secret is any information, like a formula, design, data, blueprint or customer list, that is kept confidential and that has commercial value from the fact that the information is not known. The form of the information is not relevant to whether the information is a trade secret or not. For example, the information does not have to be on paper or held in an electronic format or even exist in tangible form.

A recent case from Oregon demonstrates the point. In that case, the court concluded that information held in a former employee’s memory was information that was protectible under the relevant trade secret statute. See Pelican Bay Forest Products, Inc. v. West Timber Products, Inc., 443 P.3d 651 (Or. App. 2019). In that case, an employee of Pelican Bay gave information from a Pelican Bay customer list to a family member who worked for one of Pelican Bay’s competitors. There was no evidence that the customer list itself, either on paper or via electronic format, was ever disclosed. The evidence showed that the customer names and contact information was held in the memory of the employee and was passed verbally to the family member. On summary judgment, for various reasons, the trial court held that there was no evidence that the customer information was a trade secret. The plaintiff’s case was dismissed.

On appeal, the appellate court reversed, finding that various disputes of fact existed as to whether the customer information constituted a “trade secret” by virtue of whether it was sufficiently protected and whether such information was obtainable through proper means.

More importantly for our discussion, the court rejected the employee’s claim that information held in memory could not be a trade secret as a matter of law. The court rejected this argument for several reasons. First, the text of the uniform trade secret statute does not, in any way, state or imply that only information that is in tangible form is protected by the statute. Information, by its nature, is intangible. Second, policy worked against allowing an exception for memorized information. Finally, the court noted that several other courts had rejected similar claims in other cases.

Further support for the court’s conclusion can be found in other states where courts have generated an extensive body of case law concerning what is called the “inevitable disclosure” doctrine. Under this doctrine, a court can order various injunctive relief based on the presumption that a former employee possessing secret information cannot help but rely on and disclose that information when working for a new employer. Because the information is held in the former employee’s mind and is part of how the employee does his or her work, the secret/confidential information will inevitably be used.

The inevitable disclosure doctrine is not valid law in all states. Michigan, for example, has not yet adopted the inevitable disclosure doctrine. See Erlich Protection Systems, Inc. v. Flint, Case No. 345323 (Mich. App. November 7, 2019) (unpublished). But the doctrine supports the more accepted legal doctrine that trade secrets do not have to be reduced to tangible form to be protected under the trade secrets statutes.

Pelican Bay highlights the need for employers to use nondisclosure and confidentiality agreements with their employees that have access to trade secrets that could be held in memory.

Federal Trade Secret Law: The Defend Trade Secrets Act

In 2016, Congress enacted the Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836 et seq., creating a federal civil cause of action for trade secret misappropriation. Prior to the DTSA, trade secret claims were almost exclusively governed by state law. The DTSA did not preempt state law; rather, it created a parallel federal remedy that often makes federal court available for trade secret disputes.

The DTSA defines a trade secret broadly as “all forms and types of financial, business, scientific, technical, economic, or engineering information” that the owner takes reasonable measures to keep secret and that derives independent economic value from not being generally known. See 18 U.S.C. § 1839(3). This definition is intentionally expansive and consistent with the principle established in Pelican Bay that trade secrets need not exist in tangible form.

The DTSA also introduced a powerful new remedy: the ex parte seizure order. Under 18 U.S.C. § 1836(b)(2), a court may, in extraordinary circumstances, issue an order authorizing the seizure of property necessary to prevent the propagation or dissemination of trade secrets without prior notice to the adverse party. This remedy is designed for situations where a former employee is about to share confidential information with a new employer or where electronic files are about to be transmitted abroad.

What Employers Must Do to Protect Trade Secrets

A trade secret is only protectable if the owner takes “reasonable measures” to maintain its secrecy. Courts scrutinize whether the plaintiff implemented adequate precautions. Reasonable measures typically include the following:

• Written nondisclosure and confidentiality agreements. Every employee, contractor, vendor, or partner with access to sensitive business information should sign a comprehensive NDA before accessing that information. The agreement should specifically identify the categories of information that are confidential and prohibit disclosure during and after employment.
• Non-compete and non-solicitation agreements. In states that enforce such agreements, these covenants provide an additional layer of protection by restricting a departing employee’s ability to immediately compete using the employer’s trade secrets. Michigan courts will enforce reasonable non-competes under M.C.L. § 445.774a.
• Access restrictions. Limit access to sensitive information on a need-to-know basis. Use access controls, passwords, and encryption to restrict who can view, copy, or transmit confidential data.
• Exit interview procedures. When an employee with access to trade secrets departs, conduct an exit interview that reminds the employee of their confidentiality obligations, retrieves all company property, terminates access to systems, and documents the steps taken.
• Document what is a trade secret. Maintain records identifying which information constitutes trade secrets, when the information was created, and how it is protected. This documentation is invaluable in litigation.

Customer Lists as Trade Secrets

Customer lists occupy a contested space in trade secret law. Not every customer list qualifies for trade secret protection. Courts examine whether the list contains information that is not readily ascertainable by competitors through proper means. A list of publicly available business contacts may not qualify. But a list that includes customer-specific pricing arrangements, purchase history, buying preferences, and contact information that was compiled through significant effort and that is not publicly available can constitute a protectable trade secret.

The Pelican Bay case is a useful example. Even though the customer names and contact details were passed verbally from memory, the court found that the information could qualify as a trade secret if it met the statutory requirements. This ruling underscores that the medium of transmission — whether paper, email, or human memory — is irrelevant to whether trade secret law applies. The analysis always focuses on the nature of the information and whether it was adequately protected.

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.