Trade secrets consist of information. Therefore, for businesses specializing in information technology, protection of trade secrets is particularly important. Trade secrets are often the subject of litigation when an employee having access to the employer’s trade secrets goes to work with a competing employer, or opens a competing business. The first and best line of defense to protect an employer’s trade secrets from misappropriation is to have each employee sign a properly drafted confidentiality and non-competition agreement at the beginning of the employment. But even in the absence of a written contract, employers in some states can assert the protections of the Uniform Trade Secrets Act (UTSA).
A number of states, including Kentucky and Ohio, have adopted the UTSA. Though the definition of a trade secret varies slightly from state to state, the basic definition under the UTSA is as follows: A trade secret is information that both (1) 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, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
In determining whether information is a trade secret, some courts consider additional factors, such as:
• the extent to which the information is known outside the business;
• the extent to which it is known by employees within the business;
• the amount of savings and value the holder derives in having the information exclusive of competitors;
• the amount of effort or money expended in obtaining and developing the information; and
• the amount of time and expense it would take for others to acquire and duplicate the information.
What kind of information can qualify as a trade secret?
The possibilities are wide ranging and include programs, scientific or technical information, designs, processes, procedures, formulas, patterns, compilations, devices, methods, techniques, improvements, business information, financial information, lists of names, lists of addresses, and lists of telephone numbers.
Many states even protect memorized information, though the UTSA is silent on the topic of memorization. The traditional common law rule was that memorization could not give rise to misappropriation of a trade secret. This rule was based on the not-unreasonable rationale that employees cannot check their memories at the door. But a newer approach is emerging that recognizes no distinction between memorization and other methods of recording trade secret information. The Ohio Supreme Court last year joined the majority of UTSA states in determining that a confidential client list did not lose its character as a protectible trade secret simply because the former employee memorized it. In Kentucky the traditional rule has not yet been challenged.
Normally a litigant cannot obtain an award of attorney fees in the absence of a contract or a statute permitting the award. The UTSA, as applied in both Ohio and Kentucky, carries with it the possibility of recovering attorney fees by the prevailing party. Recovery of attorney fees can be an important incentive or deterrent to litigation, depending upon the specific circumstances of a given case.« Back to news