Vermont Trade Secret Law

How will Vermont law help your business to maintain its trade secrets?

There are many important types of intellectual property that are critical to businesses in the Green Mountain State. Trade secrets, one major category of intellectual property, often comprise customer lists, sensitive marketing information, non-patended (or non-patentable) inventions, software, formulas and recipes, techniques, processes, and other business information that provides a company with a business edge.

As a business owner in Vermont, how do your state's laws help to protect your trade secrets from competitors?

Basics of Trade Secrets

Not all information possessed by a business is considered a trade secret. Information is likely to be considered a trade secret if it is:

  • not known outside of the particular business entity
  • known only by employees and others involved in the business
  • subject to reasonable measures to guard the secrecy of the information
  • valuable, and
  • difficult for others to properly acquire or independently duplicate.

Trade secrets are often protected by nondisclosure agreements (NDAs). NDAs are a favored tool of employers. They 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 computer chip factory in Burlington. You could have your designers sign an NDA in which the employee promises not to disclose any information learned at your company to a competitor company within three months of leaving the job. 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 chip manufacturer and disclose all your trade secrets.

Misappropriation of Trade Secrets in Vermont

Vermont is one of the many states that have adopted the Uniform Trade Secrets Act (UTSA). Vermont’s trade secret law can be found at Vermont Ch. 143 Section 4601 et. seq.

The statute defines trade secrets as "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."

Vermont’s version of the UTSA refers to the theft of trade secrets as misappropriation. Under 9 V.S.A. § 4602, "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.

Vermont Law's "Reason to Know" Standard

Vermont 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 Vermont company was unaware it possessed purloined trade secrets, it can still be prosecuted under Vermont law if it should have known.

Penalties for Misappropriation in Vermont

Under Vermont 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 Vermont 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.

Statute of Limitations in Vermont

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. If you believe that a trade secret has been stolen from your business, you should act relatively quickly. Vermont courts will not allow you to sit on your rights for very long.

Filing Documents Under Seal

You may be worried that filing your lawsuit will, by itself, expose your trade secret. After all, most civil litigation is public. While this is certainly a risk, Vermont's statute explicitly empowers courts to allow certain aspects of the litigation to be filed under seal.

According to 9 V.S.A. § 4605, "a court shall preserve the secrecy of an alleged trade secret by reasonable means, which may include granting protective orders in connection with discovery proceedings, holding in-camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval." If you do file suit, your attorney might be able to take advantage of this provision to keep your trade secrets secure.

Federal Law Regarding Trade Secrets

In addition to Vermont’s rules regarding trade secrets, certain federal rules also apply in Vermont. 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.

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