1 Trade Secrets ___________________________ Business Organizations II Mike Brigner, J.D.

2 Law of Trade Secrets Roman law punished a person who induced another person to divulge secrets relating to the master's commercial affairs. Modern law- evolved in England during the Industrial Revolution. 1st US case: Vickery v. Welch, 36 Mass. 523 (1837).

3 Trade Secret Definition ___________________________ A trade secret is any valuable information that, if known to a competitor, would afford the competitor some benefit or advantage. The information derives commercial value from being not generally known or ascertainable.

4 Trade Secret: Statutory Definition R.C. § , et seq. "Trade secret" means information, including a formula, pattern, compilation, program device, method, technique, or process: –That derives economic value (actual/potential) and –Reasonable efforts are made under the circumstances to maintain its secrecy

5 Court Standards Six factors generally determine whether material is a trade secret: –1. Extent information is known outside the business –2. Extent information is known by employees –3. Extent of measures taken to guard the secrecy of the information –4. Value information to owner and competitors –5. Amount of effort or money expended in developing the information –6. Ease with which the information could be acquired by others

6 Examples of Trade Secrets Customer lists Recipes Financial projections Business methods Marketing plans Formulas Devices Manufacturing techniques Processes Sales data Market studies Pricing information Computer programs

7 A Famous Trade Secret The recipe for Coca-Cola: Ingredients 30 lb Sugar 2 gal Water 2 pint Lime juice 4 oz Caffeine citrate 2 oz Citric acid 1 oz Vanilla extract 6 drams Cola, fluid extract 6 drams Coca, fluid extract

8 Stealing Trade Secrets Nearly any type of info can qualify as a trade secret, if it affords owner a competitive edge A trade secret owner has the right to keep others from stealing & using trade secrets Sometimes “misappropriation” is a result of industrial espionage Often people take their former employer’s trade secrets for use by new employers, or in their own new business

9 Keeping Trade Secret Protection Automatic protection when information of value is kept secret by the owner. Owner must make reasonable efforts –Confidentiality Agreements with agents/employees –Exit interviews w/departing employees –Covenant not to compete w/departing employees –Warning letter to new employers about former employee’s prior access –Secure areas visibly posted –Limiting access to confidential info –Marking documents “Confidential”

10 Covenant Not to Disclose To protect secrets, employment contracts may prohibit disclosure Can be made effective during employment, and after, even indefinitely

11 No Trade Secret, If: Matter is in the public domain (it is public knowledge) It was already known to employee Employee developed it independently

12 How long? Trade secret protection endures so long as the requirements for protection (value to the owner and secrecy) continue to be met Which means trade secrets can sometimes be protected indefinitely

13 Trade Secret Protection Is Lost, If: Mistake/Innocent disclosure –Example: Factory group tour –Example: Demonstration at seminar Owner fails to take steps to protect Discovery of protected information –Independent research or reverse engineering (taking a product apart to see how it works) is not misappropriation Enforcement of anti-trust laws

14 Regulation of Trade Secrets –Governed only by states until 1996 –Most state criminal laws dealing with trade secret theft are only misdemeanors and such state laws are rarely used by State prosecutors

15 Economic Espionage Act of 1996 Trade secret theft is now a federal criminal offense. A major development in the law of trade secrets in the U.S. and internationally. Gives the Department of Justice authority to prosecute trade secret theft whether it is in the United States, via the Internet, or outside the U.S.

16 Heavy Federal Penalties A person –Prison up to 10 years + –Fine up to $500,000 A corporation or other organization –Fine up to $5,000,000 A foreign agent or government –Prison up to 15 years + –Fine up to $500,000 if offense committed knowing it will benefit a foreign agent or government Foreign corporation –Fine up to $10,000,000

17 Trade Secrets ___________________________ Concluded Thank you Mike Brigner, J.D.