Many Colorado companies rely on various forms of proprietary information as a core part of their business. They want to protect trade secrets such as their customer lists, sensitive marketing information, non-patented inventions, software, formulas and recipes, techniques, processes, and other knowledge that gives them a business edge. How do Colorado's laws help to safeguard such trade secrets?
In legal terms, information is likely to be considered a trade secret if it is:
Before even considering applicable statutes, many Colorado businesses will attempt to protect their trade secrets by the use of nondisclosure agreements (NDAs). NDAs are essentially private contracts in which the employee promises not to disclose certain information learned while working for the current employer to any future employer.
For example, imagine that you own a manufacturing plant in Denver. You have developed certain production methods that give you a competitive advantage, allowing your company to produce at greater efficiency than other similar plants. You require that your employees sign an NDA, so that if they leave for a competitor, they are contractually obligated to not share the information about your manufacturing process that they learned while working for you.
If you believe that an employee has violated the obligations described under the NDA, you can sue for breach of contract. This threat of litigation is often enough to prevent employees from stealing trade secrets.
Colorado is one of the many states that have adopted the Uniform Trade Secrets Act (UTSA). Colorado’s trade secret law can be found at Col. Rev. Stat Secs. 7-74-101.
Colorado defines a trade secret as "the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, improvement, confidential business or financial information, listing of names, addresses, or telephone numbers, or other information relating to any business or profession which is secret and of value." To be a trade secret, the statute provides that, "the owner thereof must have taken measures to prevent the secret from becoming available to persons other than those selected by the owner to have access thereto for limited purposes."
Colorado’s version of the UTSA refers to the theft of trade secrets as misappropriation. Under Colorado 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.e
Colorado 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 Colorado company was unaware it possessed purloined trade secrets, it can still be prosecuted under Colorado law if it should have known.
Under Colorado 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 statute broadly allows courts to fashion alternative remedies to stop trade secret infringement, with this language: "Temporary and final injunctions including affirmative acts may be granted on such equitable terms as the court deems reasonable to prevent or restrain actual or threatened misappropriation of a trade secret."
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. Under Col. Rev. Stat Secs. 7-74-104, financial damages "may include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss."
In egregious situations, a Colorado court can award punitive damages, up to twice the amount of any award. Attorney fees will also be awarded in cases where the court finds the infringement to have been willful and malicious.
Under Col. Rev. Stat Secs. 7-74-107, any lawsuit for trade secret misappropriation must be brought "within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered." Consequently, if you believe that your company was the victim of trade secret theft, you should move with alacrity to retain counsel to file suit.
Beyond mere civil liability for trade secret theft, Colorado also provides for criminal liability. Information about criminal theft of Colorado trade secrets can be found at Col. Rev. Stat § 18–4–408.
Under the criminal statute, anyone who, "with intent to deprive or withhold from the owner thereof the control of a trade secret, or with an intent to appropriate a trade secret to his own use or to the use of another, steals or discloses to an unauthorized person a trade secret, or, without authority, makes or causes to be made a copy of an article representing a trade secret, commits theft of a trade secret."
Theft of a trade secret is a class 1 misdemeanor in Colorado. A second or subsequent offense, if committed within five years after the date of a first conviction, is a class 5 felony. The statute of limitations on the prosecution of trade secret theft is also three years.
The criminal punishments here can be serious. The minimum penalty for a class 1 misdemeanor is a $500 fine and/or six months in jail. The maximum penalty for a class 1 misdemeanor is $5,000 and/or 18 months in jail. For a class 5 felony, the infringer could face a fine of up to $100,000 as well as up to three years in prison.
In addition to Colorado’s rules regarding trade secrets, certain federal rules also apply in Colorado. 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.