Identify the correct statement about trade secrets
Specifically identifying your trade secrets is the first step in being able to protect them Show
To some it may seem obvious, but before a business can take reasonable steps to protect its trade secrets, it must be able to identify which of its intellectual assets are protectable as trade secrets. A business may not differentiate between trade secrets and confidential information, but there is a difference and a business should differentiate between the two (see our previous post on the differences here). A business may believe that whatever steps it takes to protect its confidential information will be sufficient to protect all of its trade secrets. However, that approach can prove harmful in practice, as the practical measures to protect the intellectual assets may differ depending on the nature of the assets. First, there is a difference between what information courts determine to be a trade secret and what information courts determine to be confidential information. A trade secret is a subset of the information that falls under the umbrella of confidential information and requires heightened protection. Second, if a business protects its trade secret information as it protects its other confidential information, then the business may be vulnerable to losing trade secrets either through theft or through a judicial finding that the information is not a trade secret because the business did not take reasonable efforts to maintain the secrecy or confidentiality of the information. Under the Uniform Trade Secrets Act, which has been adopted in 47 states, to qualify as a trade secret, information must meet two requirements:
With regard to the first requirement, a business should consider creating a master list of the information it believes to be a trade secret. This master list may contain general categories of information or specific information. The more specific a business can be in identifying the information it believes to be its trade secrets, the more likely it is the business will be able to put in place measures to protect the information from disclosure and use by third parties under the act. Once a business has identified the information it believes to constitute its trade secrets, the business should identify where that information is located within the business and who has access to that information, internally and externally. Is the information something that can be accessed in only one place and only a few people have access to it? Is access limited to those who have a need to know or access the information to perform their business functions? Is the information something that is located in more than one place and can be accessed in several different ways by many people in the organization? Is this information shared with business partners outside the business? Once a business has identified the information it believes to be its trade secrets, where that information is kept and who has access to that information, the business can evaluate the appropriate measures to protect the secrecy and confidentiality of the information. The threshold is that the business must put in place protections that are “reasonable under the circumstances” to maintain the secrecy and confidentiality of the information. What is “reasonable under the circumstances” will depend on the nature of the information, where the information is located, who has access to the information and how it is used. A non-exhaustive checklist of steps a business might take to protect information it considers to be a trade secret can be found here. However, it is highly recommended that a business consult with an attorney familiar with litigating trade secret matters to develop a robust plan to protect its trade secrets. Authored by John F. Hornick The world's most famous trade secret is probably the formula for Coca Cola. Famous or not, trade secrets and confidential information are the lifeblood of many companies, and virtually all companies have them. Patents and copyrights, which are creatures of federal statutes, and trademarks, which are creatures of common law with statutory benefits, are often the more visible forms of corporate intellectual property. But quietly lurking in the shadows, and often supporting a company's basic infrastructure, are its trade secrets and confidential information. This guide tells you, the business person, what you need to know about US trade secret law. Identifying Trade Secrets and Confidential InformationTrade SecretsExamples of trade secrets can include engineering information; methods, processes, and know-how; tolerances and formulas; business and financial information; computer programs (particularly source code) and related information; pending, unpublished patent applications; business plans; budgets; methods of calculating costs and pricing; customer and supplier lists; internal marketing data; specifics concerning customers and suppliers; products and services in research and/or development; collections of data; and other information relating to a company's business. To be a trade secret, the subject information must not be generally known to the public or to persons outside of the company who are knowledgeable about the general subject matter of the information. To be a trade secret, information must be sufficiently secret to confer an actual or potential economic or business advantage or benefit upon one who possesses the information. Confidential InformationAll trade secrets are confidential information but business information that may not rise to the level of a trade secret may also be deemed confidential within the company. This includes any documents or physical objects marked as confidential, categories of documents and objects designated as confidential, physical areas designated as confidential, procedures, processes, and methods, computer programs, and any other information, objects, locations, etc. that the company wishes to treat as confidential by any means. Proprietary InformationAll trade secrets and confidential information are also company proprietary information, but proprietary information may also include information that is not secret in any way, such as copyrighted information and the subject matter of patents. In fact, a company may view as proprietary virtually everything it does or creates, even if some of it is not protectable as a form of intellectual property. For example, a company's philosophy of customer management may be considered proprietary, even though the philosophy itself may not be protectable in any way. Unfortunately, many business people and documents use the terms "trade secret," "confidential," and "proprietary" interchangeably or inconsistently. Although trade secrets and confidential information may have the same meaning in some contexts, they may not mean the same in other contexts, and the term "proprietary information" may often be used generically. In short, trade secrets and confidential information are a subset of the potentially much larger class of proprietary information. Moreover, if these terms are all used in an agreement, courts may infer that each term has a separate meaning even if the parties' intent was that they have interchangeable meanings, or worse, that the parties did not know what they meant by their loose use of these terms. Documentation of Trade SecretsTrade secrets should be documented whenever possible, in paper or electronic form. Though the company may not wish to document some trade secrets for fear that some important secrets may be omitted from the documentation process, the better approach, on balance, is to spend time identifying trade secrets and to document their secret status and the value that their secret status confers on the company. In Lynchval Systems, Inc. v. Chicago Consulting Actuaries, Inc.,1 the plaintiff lost on defendants' motion for summary judgment because it failed to meet its burden of persuasion that it actually viewed and treated the alleged trade secrets in suit as company secrets before filing suit. In litigation, courts may require the trade secret owner to identify its alleged secrets before discovery relating to the defendant's alleged misappropriation can begin. Thus, the company needs to be prepared to identify its trade secrets and to show that it has in fact viewed and treated them as such. Notice of Confidentiality and Marking of DocumentsAll trade secrets should be accompanied by a notice of confidentiality or be marked or designated as confidential information. An example of such a notice, to be stamped or otherwise applied to the first or main title page of all trade secret documents in either paper or electronic form, is as follows:
The words "Confidential Information of the Company" or similar words, should be stamped or otherwise applied to all other pages of such documents. When trade secrets cannot be marked as such, they should be accompanied by a notice of confidentiality or otherwise designated as confidential by a method appropriate under the circumstances. For example, physical facilities containing or constituting trade secrets may be designated as confidential by posting appropriate signs or placing appropriate labels on hardware or computer monitors. As another example, electronic media, emails, or electronic files containing trade secrets should bear or be accompanied by an appropriate notice of confidentiality. The following is a sample notice of confidentiality that can be modified as appropriate under the circumstances.
Questions regarding whether or how to mark or otherwise designate documents or other information as trade secrets should be directed to knowledgeable legal counsel. Nonwritten DisclosuresTrade secrets may be disclosed during meetings between parties. Ideally, such disclosures are made under a confidential disclosure or "nondisclosure" agreement, and should always reveal only as much trade secret information as is required under the circumstances. However, the relative bargaining power of the parties can substantially reduce or even eliminate the value of such an agreement. The more sophisticated a company is, the more likely that it will require the disclosing party to accept its own nondisclosure agreement, which may so favor the company that the disclosing party is virtually unprotected. Other companies with sufficient bargaining power may refuse to sign nondisclosure agreements. This can be a problem when trade secrets are, or may be, disclosed in nonwritten form during discussions between parties. Such disclosures could be verbal in nature, or they could be made through the exchange of sample devices or products. In such situations, it is important that the trade secret owner must not disclose secrets at all, or should do so only under an agreement providing that verbal or other nonwritten disclosures shall be treated as secret. The agreement may require that verbal or other nonwritten disclosures must be memorialized before disclosure. However, the agreement should also provide that if verbal or nonwritten trade secrets are not memorialized before they are disclosed, they can be described and reduced to writing after disclosure. The agreement should provide that verbal and nonwritten trade secrets must be identified reduced to writing, and designated as such within a certain number of days after disclosure, and that the receiving party's obligation to preserve such secrets is contingent upon the disclosing party identifying the secrets and reducing them to writing. Due DiligenceThe company, in the form of its directors, officers, supervisors, and employees, should regularly assess all company information within their purview to determine what information should be maintained as trade secrets, and to take appropriate steps to maintain the secrecy of such information. It is advisable to err on the side of maintaining the secrecy of company information. Protection of Trade Secrets in Relations with EmployeesEmployee ObligationsAs a condition of initial or continued employment, all employees should be required to sign a nonconfidential employment agreement setting forth their obligations with respect to the company's trade secrets and other matters. The permissible scope and enforceability of such agreements varies from state to state. The company should enforce such agreements to the fullest extent of the applicable law. The company's failure to do so could affect its right or ability to enforce the same or another agreement in other instances. Procedures for Arriving EmployeesAll new employees should be required to sign the company's standard employment agreement, which should evolve with the times. A designee of the Human Services Department should meet with each arriving employee within five (5) working days after the commencement of the employee's employment. Such person should:
If the employee answers affirmatively to item b, will be performing substantially the same nature of work or will be working in substantially the same subject matter areas for the company as for any prior employer, or disagrees with any of items a through e, the person conducting the interview should seek legal advice immediately so that appropriate action can be taken. The company should also consider contacting an employee's former employer(s) when, in the judgment of the appropriate officer of the company and legal counsel, such contact is likely to reduce the risk of a dispute between the company and any employee's former employer(s). If the employee has signed a confidentiality agreement with a former employer, the company should review such agreement unless the terms of the agreement itself are confidential. Procedures for Departing EmployeeAn appropriate designee of the Human Services Department should meet with each departing employee no more than five (5) working days prior the employee's last day of employment, unless an employee departs the company abruptly or without notice. In such situations, the HSD representative should try to speak to the employee before or even after he/she departs. Such person should:
If the employee answers affirmatively to item b, will be performing substantially the same nature of work or will be working in substantially the same subject matter areas for his/her next employer, or disagrees with any of items a through f, the person conducting the interview should seek legal advice immediately so that appropriate action can be taken. The company should contact an employee's next employer when, in the judgment of the appropriate officer of the company and legal counsel, such contact is likely to reduce the risk of a dispute between the company and the employee's next employer, or when such contact appears to be necessary to reduce the risk that the employee and/or his/her next employer will learn or use any company trade secrets. When an employee is terminated or laid off, steps should be taken before informing the employee of such termination or layoff to secure trade secrets and other proprietary information to which the employee has access. Protection of Trade Secrets in Relations with Non-EmployeesAgreements with Independent ContractorsAs a condition of initial or continued engagement, all independent contractors should be required to sign an agreement setting forth the contractor's obligations with respect to the company's trade secrets and other matters. The company should have the right to change such agreements from time to time. As a condition for continued engagement, and to reduce uncertainty regarding the contractor's obligations at any particular time, the company should require contractors to execute the company's current contractor agreement. The permissible scope and enforceability of such agreements varies from state to state. Agreements with Other CompaniesTrade secrets must not be disclosed to persons or entities other than company employees or independent contractors who have signed appropriate employment or other covenants, unless such persons or entities sign an appropriate confidential disclosure agreement or other agreement containing sufficient confidentiality obligations to protect the company. Such agreements should be prepared and/or approved by legal counsel. The obligations of recipients of trade secrets under such agreements should be perpetual unless the trade secrets become publicly known through no act or omission of the recipients, or other reasons exist for specifying a shorter trade secret term. Internal Security MeasuresAll of the company's officers, managers, directors, and supervisors should assure that the following security measures are instituted and followed, as appropriate, with respect to all trade secrets. Any questions regarding which security measures should be used in any particular circumstances, how to follow and enforce such security measures, and how to handle breaches of such security measures, should be directed to legal counsel.
Speeches and Technical PapersThe presentation of any speeches or technical papers containing any trade secrets by any employees to any person(s) not under an obligation of confidentiality to the company should be authorized in advance in writing by an officer the company. This preclearance is required to:
If any such speeches or papers relate to the subject matter of any joint venture between the company and any other entity or include any information that may be considered proprietary by any other entity, the company officer or designated employee with authority over such trade secrets should seek legal advice regarding the disclosure of such information. Limited Access to Trade SecretsOnly employees who need to know a trade secret for purposes of carrying out their employment duties may have access to such trade secret. The company should ensure that trade secrets are accessible only to employees with such need to know them, and only to the extent necessary for such employees to carry out their duties. Access should be appropriately limited to the particular materials containing the information the employee needs to know. DemonstrationsDemonstrations of company products or processes may be made at trade shows, customer meetings, or in other situations. However, trade secret aspects of such products or processes should not be revealed in demonstrations unless the person(s) receiving the demonstration have signed a confidential disclosure agreement. ConclusionThis guide is intended to be only a general overview of trade secret principles. Particular trade secret situations are very fact dependent and could require treatment different from or more complex than the principles set forth in this guide. Thus, this guide is not a substitute for obtaining legal advice from experienced trade secret counsel. Endnotes Reprinted with permission from the IP Litigator, Published by Aspen Law & Business This article is for informational purposes and is not intended to constitute legal advice. This memorandum may be considered advertising under applicable state laws. What is the correct statement about trade secrets?Trade secrets are intellectual property (IP) rights on confidential information which may be sold or licensed. In general, to qualify as a trade secret, the information must be: commercially valuable because it is secret, be known only to a limited group of persons, and.
What defines a trade secret?A trade secret: is information that has either actual or potential independent economic value by virtue of not being generally known, has value to others who cannot legitimately obtain the information, and. is subject to reasonable efforts to maintain its secrecy.
What is an example of a trade secret?Examples of trade secrets can include engineering information; methods, processes, and know-how; tolerances and formulas; business and financial information; computer programs (particularly source code) and related information; pending, unpublished patent applications; business plans; budgets; methods of calculating ...
What 3 elements are required to have a trade secret?In general, a trade secret has three parts: (1) information (2) economic value from not being generally known by others, and (3) reasonable efforts have been taken to protect the trade secret.
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