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Trade Secret Basics

Trade secrets law evolved from a common-law understanding that things like customer lists, specialized knowledge or processes were part of the goodwill of a company. Many states have enacted versions of the Uniform Trade Secrets Act, which has been held to supersede certain common law understandings.

Trade secrets generally are defined as information, methods or processes that have independent economic value, are not being generally known in the business, and have been the subject of efforts to maintain their secrecy. A trade secret can include, for instance, a pattern or algebraic formula (for example one that predicts stock trends), a method of doing business (for example layout of assembly lines to be more efficient), a compilation (such as a customer list) or a technique or process (like the recipe for making Coca-Cola®).

Publication or dissemination of the “secret” destroys it. So while it is sometimes advisable to seek protection of a piece of intellectual property by protection under patent or copyright laws, the publication requirement for patent or copyright issuance generally makes those protections mutually exclusive of protection under trade secrets law. On the other hand, a trade secret can last indefinitely if protected properly and technological advancement does not make it obsolete, whereas a copyright or patent has a limited lifetime.

Damages for trade secret misappropriation can cripple a new business and often are tools of competition in industry. It is not uncommon to see claims of trade secret theft when a highly placed employee leaves one company to work at another. A court may order injunctive relief to restrain continued misappropriation, monetary damages for the loss caused by misappropriation or the improper profits, and royalties. If a plaintiff can prove a defendant misused a trade secret willfully and maliciously, exemplary (punitive) damages can be awarded. In some instances, attorneys’ fees may also be recovered.

Employees departing from a company to start their own business in the same field should seek competent legal advice before taking any steps, or missteps. Employers thinking of hiring a competitors’ employee should have in place policies and procedures to ensure the potential new employee will not also bring a lawsuit.