Trade Secrets Overview
A trade secret is information that is not known to the public, that its owner takes steps to keep from public knowledge and that has value because it is not known to the public. The owners of trade secrets can protect them using non-disclosure agreements, non-competition agreements and state trade and federal trade secrets statutes.
Trade Secrets Defined
The Uniform Trade Secrets Act, as adopted by Ohio, defines a trade secret as:
- It derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.
- It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
The most common forms of trade secrets in employment litigation are customer lists and pricing information. Marketing plans, software, engineering drawings and other non-public information stored in electronic form under password protection will also likely qualify as trade secrets.
The Trade Secrets Act describes a violation in terms of "misappropriation." A misappropriation means any of the following:
- Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means;
- Disclosure or use of a trade secret of another without the express or implied consent of the other person by a person who did any of the following:
- Used improper means to acquire knowledge of the trade secret;
- At the time of disclosure or use, knew or had reason to know that:
- the knowledge of the trade secret that the person acquired was derived from or through a person who had utilized improper means to acquire it,
- was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use,
- or was derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use;
- Before a material change of their position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
Inevitable Disclosure Doctrine
Some states have adopted the inevitable disclosure doctrine that allows an employer to enjoin an employee from accepting competitive employment, even in the abscence of a non-competition agreement. Specifcally the inevitable disclosure doctrine states that an employee who is performing essentially the same work for a new employer, which work requires the knowledge and use of proprietary information, will find it difficult or impossible, not to use or disclose his former employer’s confidential information. In other words, trade secrets law has been applied to employees who have not actually committed a trade secret violation, if a court finds that it is inevitable that they will do so due to the nature of their job.
Unwritten Trade Secrets
Some states have found that a customer list or other secret information contained only in the employee's head is, nonetheless, a protectible trade secret. In those states, the employee does not have a defense that he or she actually took nothing. Rather, the court treats the memorized information the same as written information.
Injunctive Relief and Money Damages
The trade secret owner can bring a civil action under the Trade Secret's Act for an injunction, which is a court order directing the employee and new employer to stop using the trade secret information. If the parties violate the order, they are subject to civil contempt sanctions. Parties to non-disclosure agreements may also agree to an injunction in the event of a breach of the agreement.
In addition to an injunction, a trade secrets owner can seek money damages for the misappropriation. Ohio's Uniform Trade Secret Act permits money damages that
In addition, if willful and malicious misappropriation exists, the court may award punitive or exemplary damages in an amount not exceeding three times the monetary award, as well as reasonable attorneys' fees. Conversely, if a party brings a trade secrets act claim in bad faith, the responding party can recover his or her attorneys' fees as well.
Unlike the Trade Secrets Act remedies, the non-breaching party to a NDA cannot recover treble damages or attorneys' fees. The non-breaching party can only recover lost profits and obtain an injunction against further breaches.
Trade Secrets and Non-competition Agreements
Trade Secrets protection and NDAs restrict a person's use of confidential information. Non-competition agreements, however, prevent a person from engaging in a particular activity for a certain time and in a certain area. Thus, a non-competition agreement can have significantly more adverse effects on an employee.
Non-competition agreements exist to protect legitimate employer interests. A widely recognized employer interest is the protection of employer trade secrets. Hence, courts tend to enforce non-competition agreements whose purpose is aimed at preventing an employee from, for example, engaging in a competing business through the use of the employer's trade secrets.
Federal Trade Secret Protection
The federal Economic Espionage Act makes the theft or
misappropriation of trade secrets a crime. Covered misappropriation includes theft of trade secrets for the
benefit foreign powers and the theft of trade secrets for commercial or economic purposes regardless
of who benefits. The Economic Espionage Act of 1996 applies outside of the United
States where the offender is a U.S. citizen or any act occurred in the United States involving the misappropriation of the trade secret.
Ohio Trade Secrets Act
Economic Espoinage Act, 18 U.S.C. 1831
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