A trade secret is any business information that is not publically available and provides a valuable competitive advantage to the business. The different classes of business information protected by various trade secret laws is expansive. For example, trade secrets include, a manufacturing process, chemical formula, customer lists, sales techniques, any business process and even names and locations of suppliers of raw materials. No registration or other administrative formality is required for the protection of trade secrets. There are no limits on the number of years a trade secret can benefit from protection. Thus, can offer a significant benefit with only minimal effort and cost.
The key to ensuring protection of a trade secret, is secrecy. The trade secret must not be generally known or available to the general public; it must be valuable to the business and the trade secret owner must establish that reasonable efforts have been made to prevent disclosure.
U.S. law governing trade secrets is well established. This body of law includes the federal Economic Espionage Act, which imposes criminal penalties, including imprisonment and heavy fines for misappropriation and use. The U.S. International Trade Commission has enforcement power and can block products manufactured using stolen trade secrets from importation into the U.S. The Uniform Trade Secrets Act, adopted by 40 states and the District of Columbia creates civil liability for misappropriation and use of a trade secret.
EU law governing trade secrets is fragmented. Not all member states protect trade secrets, those that do protect only certain classes of trade secrets. Protection of trade secrets, among member states, becomes a concerning matter for cross border business ventures where disclosure of trade secrets is necessary, yet misappropriation of the trade secrets is not actionable. TO address this growing concern, the European Commission, in late 2013, proposed a directive on “the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure”.
The proposed Directive sets out the civil remedies available for unlawful acts, including misappropriation, and misuse, and authorizes the compensation, the use of injunctions, seizure and destruction of goods. The proposed definition of ‘trade secret’ contains three elements: (i) the information must be confidential; (ii) it should have commercial value because of its confidentiality; and (iii) the trade secret holder should have made reasonable efforts to keep it confidential. Which closely tracks the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The adoption of this Directive will be a significant improvement, but it may still undergo a number of revisions.
How do you protect your trade secrets? When is becomes necessary to share a trade secret, whether to employees, potential business partners or others, each person to whom the trade secret will be shared should sign a non-disclosure or confidentiality agreement (NDA). This confidentiality agreement creates a contractual undertaking not to misappropriate, misuse or otherwise disclose this valuable business information without written consent and allows you to file a civil suit for damages and to prevent further breaches of the NDA. An additional step should be taken with regard to employees who have access to, or often create or develop the trade secret, by requiring the employee to enter into a non-compete agreement. The non-compete agreement should prevent your employees from misappropriating a trade secret by immediately taking a position with a direct competitor. A non-compete agreement must be reasonable in scope and duration otherwise, will not be upheld.
If you would like assistance in drafting a non-disclosure, confidentiality or non-compete agreement please contact us.