We are often asked, what is a trade secret? A trade secret is a form of intellectual property protected by state law, not registered with the federal government, like trademarks, copyrights, or patents. Michigan has adopted the Michigan Uniform Trade Secrets Act to protect businesses’ private information.
One of the most litigated areas of trade secret cases, including the misappropriation of trade secrets, turns on whether the information at issue constitutes a protectable trade secret.
So, what is a trade secret under Michigan law?
Michigan law defines a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that is both of the following:
(i) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.
(ii) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
Confidential information, alone, is not necessarily protectable as a trade secret. Most businesses have large amounts of confidential information. For example, employment terms and salary considerations are generally held in confidence, however, this alone does not render the item a protectable trade secret. The definition of trade secret is intended to delineate a more narrow class of information, specifically a type of process, pattern, or plan.
The improper disclosure of confidential information can for the basis of a number of other claims. Prepared businesses have a confidentiality agreement in place that provides for specific penalties for the unauthorized disclosure of confidential information. If such an agreement is not in place, causes of action for breach of fiduciary duty, conversion, or unjust enrichment may remain.
Employees are not required to simply forget what they have learned on the job. If someone works for an extended period of time in a particular industry, the employee will likely obtain general knowledge about the industry the layperson would not possess. This is not a protectable trade secret.
But, a thin line separates general knowledge of the industry and a secret process or formula used within a specific business. A fact intensive analysis is required to distinguish between general information and a protectable trade secret.
Are customer lists a trade secret? Yes and no. The Eastern District of Michigan, in Wysong Corp v MI Indus, 412 F Supp 2d 612, 629-30 (ED Mich 2005), held that “customer lists developed by a former employee and information relating to a customer’s needs are not ‘trade secrets’ under the MUTSA unless the employee is bound by a confidentiality agreement.”
This presents another reason why employers should take steps to draft enforceable confidentiality agreements with all employees.
An issue common with the determination of whether a vendor list constitutes a trade secret lies in the general availability of the information contained on the vendor list. For example, if a business lists its customer or vendor list on its website, and that website is open to the general public, that information is not a secret, and thus, not protectable.
The same idea applies to vendor lists that are made available through other means, including trade shows, conventions, and other public forums.
If you are asking what is a trade secret, you should consult with an attorney today. Revision Legal has experience protecting business information and defending former employees alleged to have misappropriated trade secrets.
If you are facing a trade secret issue in Michigan, contact our trade secret attorneys today by completing the contact form on this page or by calling the number above.
While Michigan’s trade secret law is governed by the MUTSA, federal law also provides protection through the Defend Trade Secrets Act of 2016 (DTSA), codified at 18 U.S.C. § 1836. The DTSA created a federal civil cause of action for trade secret misappropriation that runs alongside — not instead of — state law claims. A business with a trade secret claim can now bring both MUTSA and DTSA claims in a single federal lawsuit.
The DTSA’s definition of trade secret is substantively similar to the MUTSA’s, covering all forms and types of financial, business, scientific, technical, economic, or engineering information if the owner has taken reasonable measures to keep it secret and it derives independent economic value from that secrecy. 18 U.S.C. § 1839(3). One important distinction is that the DTSA contains a whistleblower immunity provision — an employee who discloses a trade secret in confidence to a government official or attorney for the purpose of reporting a suspected violation of law cannot be held liable under the DTSA or state trade secret law.
Businesses often ask whether to pursue patent protection or rely on trade secret law to protect their innovations. The choice involves significant strategic tradeoffs. Patent protection requires public disclosure of the invention as part of the application and provides a time-limited monopoly — generally 20 years from the application filing date — after which the invention enters the public domain. Trade secret protection, by contrast, requires no registration, no public disclosure, and theoretically lasts forever — as long as the information remains secret.
The Coca-Cola formula is the iconic example of a trade secret that has outlasted what a patent would have provided. However, trade secret protection vanishes the moment the information is independently discovered or reverse engineered by a competitor using proper means. A patent blocks independent development; a trade secret does not. Businesses must weigh the certainty and scope of patent protection against the indefinite but fragile nature of trade secret protection based on their specific circumstances.
The “reasonable measures” requirement is not satisfied by simply labeling documents “confidential.” Courts examine the totality of circumstances to determine whether a business actually treated information as a secret. Factors courts consider include: whether access to the information was limited to employees who needed it; whether employees with access signed confidentiality agreements; whether physical and digital security measures protected the information; whether visitors and contractors with access were required to sign non-disclosure agreements; and whether the business consistently treated the information as confidential in practice — not just on paper.
Businesses that broadly distribute information internally without access controls, fail to use confidentiality agreements, or casually share information with vendors and contractors without any duty of confidence will find it difficult to establish the reasonable measures element in litigation. The secrecy requirement is not demanding — a business need not achieve perfect security — but it does require consistent, documented effort.
For most businesses, trade secret protection works best as part of a comprehensive intellectual property strategy alongside trademarks, copyrights, and, where appropriate, patents. Trademarks protect your brand identity. Copyrights protect original expression. Patents protect inventions disclosed to the public. Trade secrets protect the proprietary information and processes that make your business run — and that you are not willing to disclose to the world.
Revision Legal’s attorneys advise Michigan businesses on IP strategy across all of these areas. Whether you are trying to understand what protections your business already has, identify gaps in your current IP program, or address an active trade secret dispute, our attorneys are ready to help. Contact us today at (855) 473-8474 or complete the contact form on this page for a free consultation.
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