T RADE S ECRETS Copyright © 2010 by Jeffrey Pittman

W HAT IS A TRADE SECRET ? Secret information owned or developed by a business that gives it a competitive advantage 2 Pittman - Cyberlaw & E-Commerce

A PPLICABLE L AW – T RADE S ECRETS Federal Law - the Economic Espionage Act State Law - the Uniform Trade Secret Act 3 Pittman - Cyberlaw & E-Commerce

T RADE S ECRET S UBJECT M ATTER Trade secret law protects information, including a formula, pattern, compilation, program, device, method, technique, or process, that: Derives independent economic value from not being generally known or readily ascertainable by proper means by other persons, and Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy 4 Pittman - Cyberlaw & E-Commerce

T RADE S ECRET S UBJECT M ATTER Arkansas courts use a six-factor analysis in determining whether information qualifies as a trade secret: (1) the extent to which the information is known outside the business (2) the extent to which the information is known by employees and others involved in the business (3) the extent of measures taken by the company to guard the secrecy of the information 5 Pittman - Cyberlaw & E-Commerce

T RADE S ECRET S UBJECT M ATTER Arkansas courts six-factor analysis (cont.): (4) the value of the information to the company and to its competitors; (5) the amount of effort or money expended by the business in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others 6 Pittman - Cyberlaw & E-Commerce

M AINTAINING T RADE S ECRETS Companies should consider the following methods to protect trade secrets: Review all company operations and proprietary information to determine where trade secrets exist Use nondisclosure (confidentiality) agreements with all individuals having access to the trade secrets, including employees, officers, bankers, vendors, etc. Note the possible “inevitable disclosure” doctrine 7 Pittman - Cyberlaw & E-Commerce

M AINTAINING T RADE S ECRETS Use noncompetition agreements (covenants not to compete) A covenant not to compete is a contract clause where a person agrees not to engage in a specified business or occupation The covenant will identify the applicable time and geographic region, e.g., the employee will not leave the company's employ and work in the meat processing industry for the next two years, within the United States 8 Pittman - Cyberlaw & E-Commerce

M AINTAINING T RADE S ECRETS Examine physical and network security issues: Restrict access to company trade secrets Utilize computer passwords, "confidential" stamps/legends, record-keeping procedures, entrance and exit interviews, etc. 9 Pittman - Cyberlaw & E-Commerce

C OVENANTS NOT TO C OMPETE Covenants not to compete are disfavored by the law, especially in employment contracts In Arkansas, covenants not to compete will be upheld if the business has a legitimate interest to protect, and the time and geographic restrictions are reasonable ( Federated Mutual Insurance Company v. Bennett, 818 S.W.2d 596 (1991)) 10 Pittman - Cyberlaw & E-Commerce

C OVENANTS NOT TO C OMPETE Regarding employment contracts, legitimate business interests have been found where employees were provided special training, or allowed access to trade secrets, confidential business information, or customer lists (Girard v. Rebsamen Insurance Company, 685 S.W.2d 526 (1985)) 11 Pittman - Cyberlaw & E-Commerce

“P ROPER M EANS ” Trade secrets may be legally discovered by the following proper means: Independent invention “Reverse engineering", that is, starting with the known product and working backward to find the method by which it was developed (assuming the reverse engineering is not prohibited by contract) Discovery under a license from the owner of the trade secret Observing the item in public use or on public display Obtaining the trade secret from published literature 12 Pittman - Cyberlaw & E-Commerce

"I MPROPER M EANS " A partial list of improper means includes theft, bribery, misrepresentation, breach, or inducement of a breach of a duty to maintain secrecy or espionage through electronic or other means 13 Pittman - Cyberlaw & E-Commerce

P ROPER VERSUS I MPROPER M EANS Using a football analogy, it is legally permissible to discover your opponent's game plan through watching old films, or through independent analysis and guessing It is not permissible to acquire the opponent's game plan by theft or bribery of an opposing player 14 Pittman - Cyberlaw & E-Commerce