Trade secrets are a form of intellectual property. Common examples of a business's trade secrets are customer lists, sensitive marketing information, non-patented (and non-patentable) inventions, software, formulas and recipes, techniques, processes, and other business information that provides a company with a business edge.
Information is more likely to be considered a trade secret if it is:
Before even considering the Washington-specific regulation around trade secrets, it is important to realize that trade secrets can be partially protected by contract.
Often, employers use non-disclosure agreements (NDAs) to accomplish this goal. NDAs are private contracts between the employer and the employee, in which the employee agrees not to disclose particular information learned during the course of employment after the employment concludes.
Imagine, for example, that you own a software company in Seattle. You could have your coder sign an NDA in which the employee promises that not to disclose any information learned at your company to a competitor company within three months of leaving employment. If you believe that an employee has breached this agreement, you would be able to sue for breach of contract and other associated damages. This threat decreases the likelihood that your employees will leave for a competitor software company and disclose all your trade secrets.
Washington is one of the many states that have adopted the Uniform Trade Secrets Act (UTSA). The UTSA is a uniform law, which has been passed in some form by most states. Washington’s trade secret law can be found at Wash. Rev. Code. Ann. Secs. 19.108.010 et seq.
Washington’s version of the UTSA defines a trade secret as ANY "information, including a formula, pattern, compilation, program, device, method, technique, or process that: (a) 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; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."
It refers to the theft of trade secrets as misappropriation. Under Washington law, "misappropriation" refers to the acquisition of a trade secret by someone who knows or has reason to know that the trade secret was acquired by improper means, such as theft, bribery, misrepresentation, breach, or inducement of a breach of duty to maintain secrecy. It also includes the disclosure or use of a trade secret without consent by someone who used improper means to acquire knowledge of the trade secret; for example, an ex-employee who spills company secrets to a rival.
Washington prohibits use of trade secrets by a company that has “has reason to know” that the material constitutes a trade secret. This is known as constructive knowledge (versus actual knowledge). In other words, even if a Washington company was unaware it possessed purloined trade secrets, it could still be prosecuted under Washington law if it should have known.
Under Washington law, a trade secret thief can be prevented from disclosure by court order, known as an injunction. This is true for both actual or threatened misappropriation. The injunction may be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate any commercial advantage that otherwise would be derived from the misappropriation.
In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances can include a theft that's so bad that the court order would be meaningless.
A victim of trade secret theft can also seek financial compensation that measures the actual loss attributed to the theft or the profits (or “unjust enrichment”) acquired by the trade secret thief. In egregious situations, a Washington court can award punitive damages up to twice the amount of any award. Attorney fees will also be awarded in egregious (willful and malicious) situations or if a claim is brought in bad faith.
An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. This statute of limitations is strict, meaning that courts are unlikely to give you any leeway. Therefore, if you have a claim for trade secret infringement, be sure to act on it diligently.
In addition to Washington’s rules regarding trade secrets, certain federal rules also apply in Washington. The Economic Espionage Act of 1996 makes the theft of trade secrets a federal crime. The Act prohibits the theft of a trade secret by a person intending or knowing that the offense will injure a trade secret owner.
The Act also makes it a federal crime to receive, buy, or possess trade secret information knowing it to have been stolen. The Act’s definition of “trade secret” is similar to that of the Uniform Trade Secrets Act. The penalties for a violation of this statute include a potential prison term of 15 years and fines up to $5 million, depending on whether the defendant is an individual or a corporation. A private party can still sue for trade secret theft even if the federal government files a criminal case under the Economic Espionage Act.