SSHHHH! It’s a Trade Secret
Slides 1-19 Adapted from
Steve Baron
1
A Trade Secret is
Information:
 that
has economic value
 that is not generally known
 over which reasonable efforts to
maintain secrecy have taken
place.
2
Types of Trade Secret
Information






Technical or nontechnical data
Formula
Pattern
Compilation
Program
Device






Method
Technique
Drawing
Process
Financial data
List of actual or
potential customers
3
Economic Value
 Actual
(could be
development/implementation costs; lost
profits, etc.)
 Potential (value that would have been
gained had the secret not been
misappropriated).
4
Availability of Information
 Not
generally known by competitors
5
“Reasonable” Efforts to Maintain
Secrecy
 Absolute
secrecy not required
 Reasonable under the circumstances
 Comprehensive program
6
Examples of Methods to
Maintain Secrecy
 Lock
& Key
 Passwords
 Restricted access
 Sign-in sheets
 Confidential stamps
 Non-Disclosure Agreements
7
“Beware” of
 Agreements
you are bound by under
terms of employment.
 Employer expectations and behavior that
may be inappropriate (turning you into a
spy)
 Questions you ask your new employees
about their former employment.
8
Confidentiality Agreements

Protects against disclosure of confidential
information and trade secrets of employer.
 Term: during employment and potentially
forever.
 May not cover stuff you already know. But, how
do you prove you already knew it.
 Check terms of employee handbook.
Confidentiality Agreements

Confidentiality. Employee will not disclose any Confidential Information to any person or entity for
any reason, except as required to perform its obligations under this Agreement. For purposes of
this Agreement, Confidential Information shall include the financial terms of this Agreement and all
records, reports, documents, designs, plans, contracts, literature, data, concepts, ideas, software,
computer programs, source code, object code, information, memoranda, correspondence, and
other material created, developed or used by Employer or Employee pursuant to this Agreement,
or delivered or transmitted to Employer by Employee pursuant to this Agreement or otherwise.
Confidential Information shall also include information in Employee’s knowledge or possession
concerning Employer’s business, marketing, administrative, advertising, budgeting or
organizational plans, practices, policies and procedures, as well as Employer’s customer lists and
scientific or technical information, Employer’s advertising rates, information about users of any
Employer Web site, and any traffic patterns or usage information about Employer Web sites,
regardless of whether such knowledge or information was obtained pursuant to this Agreement or
otherwise. Employer shall own all rights, title and interest in all Confidential Information. Employee
acknowledges that much of this information constitutes trade secrets or proprietary information
unique to Employer, and that disclosure in breach of this Paragraph will result in irreparable injury
to Employer for which Employer shall be entitled to injunctive relief in addition to all other
remedies available at law or in equity.
Non-Competition Agreements/Restrictive Covenants




Prevent employee/independent contractor from engaging in work or projects that may
compete with business of employer.
Disfavored (but enforceable) under the law.
Must be limited in scope, geography and time.
No bright line test on what’s acceptable.
Non-Competition Agreements/Restrictive Covenants

Upon termination of this Agreement and/or the date Optometrist ceases to perform services for
Corporation for any reason, with the sole exceptions of termination by the Optometrist for “Cause”
as defined in Section 14(b), or termination by Corporation without cause pursuant to Section
13(b), and for a period of five (5) years following termination, Optometrist will not, without written
consent of Corporation, engage in the Practice of Optometry (i) at either of the ___________, or
(ii) at any other facility within the Service Area. The parties agree that these covenants are
necessary to protect the activities of Corporation and the professional practices of employees of
Corporation. Optometrist agrees that any breach of these restrictive covenants will result in
irreparable damage to Corporation for which it will have no adequate remedy at law, and hereby
consents to an injunction by any court of competent jurisdiction in favor of Corporation enjoining
any breach of such covenants, without prejudice to any other right or remedy to which Corporation
may be entitled. If Corporation institutes a suit or takes action against Optometrist for violation of
or to enforce this Section 16, Corporation shall be entitled to all of its costs and expenses,
including, without limitation, reasonable attorney’s fees. In the event that these covenants shall
be determined by any court of competent jurisdiction to be unenforceable by reason of their being
extended to too great a period of time or too large a geographic area or over too great a range of
activities, they should be interpreted to extend only over the maximum period of time, geographic
area, or range of activities as to which they may be enforceable.
Non-Disclosure Agreements (“NDAs”)

Like confidentiality agreement but may be used outside of employment context.

Presenting ideas to:
•
•
•
•
Venture capital firm
Other funding source
Potential joint venturer
Potential business partner.
The sum may be a trade secret, even if each part
is not.
14
Advantages/Disadvantages of
Trade Secrets
 No
time limit
 No public disclosure
 No governmental filing process
 Depends
on employee-employer
relationships, and those can change.
 Pandora’s box
 May distract from your knitting
15
What Law Governs





Historically – Common Law
Uniform Trade Secrets Act
Illinois Trade Secrets Act
Economic Espionage Act
[the American Law Institutue’s
Restatement of Torts, 1939 – and
subsequent updates—have/has played
an important interpretative role.
16
Historically – Common Law –
Six Factor Test
Extent known outside company
2. Extent known by employees
3. Measures taken to guard secrecy
4. Value to company and competitors
5. Time, effort and money to develop
6. Difficulty of proper acquisition
1.
17
Uniform Trade Secrets Act
1.
Adopted by nearly 40 states
18
Illinois Trade Secrets Act
1.
2.
3.
Effective since 1988
Adjunct to common law
Gives “teeth” to infringement claims
19
Illinois Trade Secrets Act
Remedies




Injunction
Compensatory damages
Punitive damages
Attorney’s fees
20
Economic Espionage Act
 Gives
U.S. Attorney sweeping powers to
prosecute any person or company
involved in trade secret misappropriation
 Punishes intentional stealing, copying or
receiving of trade secrets
 For product produced or placed in
interstate commerce
21
Economic Espionage Act
 Penalities



Individual fines up to $500,000
Company fines up to $5 million
Prison – up to 10 years for individuals and 15
years if theft performed for foreign
government
22
Proper Methods to Obtain Trade
Secrets
 Legitimate
Observation
 Reverse Engineering
 Independent Invention
23