Trade Secret Basics FAQ
What every business owner should know about trade secret law.
What is a trade secret?
What types of information can trade secrets protect?
What rights does the owner of a trade secret have?
How can a business protect its trade secrets?
» How can a business enforce its rights if someone steals or improperly discloses confidential information?
Is stealing trade secrets a crime?
How can a business enforce its rights if someone steals or improperly discloses confidential information?
Every state has a law prohibiting theft or disclosure of trade secrets. Most of these laws are derived from the Uniform Trade Secrets Act (UTSA), a model law drafted by legal scholars. A listing of states that have adopted some version of the UTSA is provided at the end of this FAQ.
A trade secret owner can enforce rights against someone who steals confidential information by asking a court to issue an order (an injunction) preventing further disclosure or use of the secrets. A trade secret owner can also collect damages for any economic injury suffered as a result of the trade secret's improper acquisition and use. Here are some examples of incidents that can lead to trade secret lawsuits:
- Sarah, a former employee of C-com, discloses C-com trade secrets to her new employer.
- Mary hacks her way into the network for a computer company and downloads the specs for a new silicon chip. She sells the information to a third party -- a rival computer company.
- Sheldon is a software programmer who works as an independent contractor for Diskco. Sheldon signed a nondisclosure agreement with Diskco, but later discloses Diskco secrets to a rival.
To prevail in a trade secret infringement suit, a trade secret owner must show (1) that the information alleged to be confidential provides a competitive advantage and (2) the information really is maintained in secrecy. In addition, the trade secret owner must show that the information was either improperly acquired by the defendant (if the defendant is accused of making commercial use of the secret) or improperly disclosed by the defendant (if the defendant is accused of leaking the information).
| The "Inevitable Disclosure" Doctrine |
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In some cases, 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 a 1995 case, PepsiCo successfully argued that a former executive could not work as Chief Executive Officer of Gatorade/Snapple because the executive could not help but rely on PepsiCo's trade secrets as he plotted Gatorade and Snapple's new course, giving the competitor an unfair advantage over PepsiCo.
Some states have rejected the inevitable disclosure doctrine because it challenges an employee's basic freedom to switch employers. In one case, a court refused to apply the doctrine unless there was additional showing of bad faith, underhanded dealing, or employment by a competitor lacking comparable technology.
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