Trade Secret Statutes Protect Information Held in an Employee’s Memory

By John DiGiacomo

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.

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.

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