Trade Secrets and Confidential Information: Who has Access to Them?
March 19, 2019
In today’s technologically advanced world, trade secrets and confidential information are critical elements for the success and continued growth of many businesses. Many business owners regularly sign non-disclosure agreements with their employees, contractors and other third parties. They have increased their efforts to secure and protect from physical and digital theft. Yet, as technology continues to advance, there are more potential opportunities to download and misappropriate such trade secrets and confidential information. And with the recent trend of weakening of non-competition provisions, businesses need to review and increase their protection of their trade secrets and confidential information.
Trade secrets are one of several forms of intellectual property. The other forms are copyrights, patents and trademarks. It is important to understand what is, and what is not, a trade secret. Most people are familiar with the examples of Coca-Cola’s secret formula and Kentucky Fried Chicken’s secret ingredients. The process to make the Thomas’ English muffins is also a trade secret.
In Maryland, the Maryland Trade Secret Act (“MTSA”) has been in effect since 1989. Prior to that time, trade secrets were addressed under common law. A “trade secret” is any information, including but not limited to, a formula, pattern, compilation, program, device, method, technique or process that derives independent economic value from not being generally known to others. Under Maryland law, the following may also be trade secrets: software source code and object code, manufacturing processes, business plans, and certain customer lists. However, the following may not be a trade secret: certain outdated business records, and customer lists whose customer information are publicly available via a phone directory. Of course, these are not exhaustive lists.
At the federal level, the Defend Trade Secrets Act (“DTSA”) has been in effect since 2016. The definitions of a trade secret and of misappropriation are similar between the MTSA and the DTSA. In one of the first cases decided, the court awarded damages for misappropriation of a trade secret – in this case, the recipe for a fig jam. See Dalmatia Import Group v. FoodMatch, 16-cv-02767 (E.D. Pa. 2017).
Businesses should keep in mind that not all confidential information may be determined to be a trade secret under the law. Contractual protections must be implemented to protect such confidential information.
Unlike patents that have rights for a limited time period, trade secret rights continue as long as their secrecy is maintained. Trade secrets can survive for decades and longer. A trade secret does not need to be a new discovery or inventive step. Even when a patent is filed, the invention to be patented is disclosed to the world, but some knowledge and know-how related to the invention is protected as a trade secret. Unlike patent rights, trade secrets do not require expensive filings with a government agency.
However, reasonable efforts must be taken by a business to maintain the secrecy of the trade secret and to limit access to the trade secret. One step in achieving reasonable measures is to obtain an agreement that restricts publication or disclosure of the trade secret. This could include non-disclosure agreements with third parties. It could also include confidentiality provisions as a part of an agreement with an employee or a contractor. Another step to achieve reasonable measures is to limit access to those who actually have a need-to-know. Other steps may include limiting access to trade secrets, whether by physical or digital means, through steps like physical security and digital passwords.
Most businesses are familiar with misappropriation of trade secrets when one uses improper means to acquire the trade secret. As an example, an employee misappropriates a trade secret by improper means by taking the trade secret via a computer disk without the employer’s authorization. But misappropriation can also occur with disclosure or use of another’s trade secret by a person who, at the time of disclosure or use, knew that trade secret was acquired under circumstances giving rise to a duty to maintain secrecy.
In recent years, there has been a trend to make non-competition provisions more favorable to the employee via changes to state law. And non-competition provisions are not favored in some states. In late 2018, Massachusetts updated its laws to shorten the post-employment enforceable time period and to limit the applicability to certain employees. Accordingly, some non-competition provisions need to be revised to make them enforceable under current law.
In light of these recent legal and technological trends, businesses need to increase other efforts in protecting their trade secrets and confidential information. Businesses should work with a trade secret lawyer to promptly identify their trade secrets and confidential information, determine their location, and increase their physical and digital safeguards. Non-disclosure agreements and other contractual means must be regularly reviewed and updated. Maintaining secrecy is key to these intellectual property rights.
1 Vasilios Peros is founder and principal of Law Office of Vasilios Peros, P.C. His practice is focused primarily on business, technology and intellectual property law. He has been recognized as one of Greater Baltimore’s top attorneys, including SmartCEO’s 2016 Centers of Influence, 2015 CPA + ESQs, 2014 Power Players, and Legal Elite in 2011, 2010 and 2009. He can be reached at (410) 274-2053 and VPeros@PerosLaw.com.
2 This article is provided for informational purposes only and should not be construed as a legal opinion or legal advice. The reader should not rely on this article in making business, legal or other decisions on any matter without first consulting an attorney regarding any such decision or undertaking.