How can businesses protect trade secrets?

A recent case provides an example of the elements the court will often consider when a business looks to protect trade secrets from infringement.

The business market is full of competition. Some of this competition is healthy and fuels a strong marketplace that benefits consumers. Other types of competition are unethical and, at times, criminal.

In this competitive arena, business owners may wonder what information is safe and what they can do to keep their business secrets confidential. This piece will delve into some basics involving the legalities that surround the protections of trade secrets.

When are trade secrets legally protected?

Simply stating something is a secret is not enough. A recent case provides an example. The case involves a long-time president who left a company to start a competing business. When he left, he took information about his former company with him. This included information about customers, pricing and suppliers. He later hired another individual from his former business who brought along additional information. Based on this information, the former employer filed suit claiming trade secret misappropriation.

The judge presiding over a the case, Abrasic 90 Inc., d/b/a CGW Cael Grinding Wheels, USA v. Weldcote Metals, Inc., discussed how a court determines whether information is protected as a "trade secret." He broke it down into two elements: first, the information in conflict must have been "sufficiently secret to impart economic value because of its relative secrecy" and second, the owner of the secret must have made "reasonable efforts to maintain the secrecy of the information." This is similar to Washington state law, which defines a trade secret as information like a formula, program, technique or device that has independent economic value, is not generally known and is subject to reasonable efforts to maintain secrecy.

Based on the elements used in Abrasic 90 Inc., the court found the former employer had taken no steps to protect the information and that the company's data security systems were so lacking they were almost nonexistent.

The judge denied the request for an injunction.

What can be done to protect trade secrets?

Employers can act to protect their proprietary information. This can include the use of non-compete and non-disclosure agreements with employees, training sessions to teach employees what information is deemed confidential and their obligations to maintain that confidentiality, use of data security systems and properly labeling confidential documents as such.

Employers that believe they are the subject of trade secret misappropriation can file suit against the party believed to have appropriated the secret. If successful, the suit can result in an injunction to eliminate the competitor's commercial advantage and monetary damages to cover the loss due the misappropriation as well as exemplary damages if the court determines the appropriation was "willful and malicious."