Like many fellow business owners, you may have confidential information or business “secrets” kept under lock and key. These secrets could be a family recipe for the next restaurant, a coding algorithm built over the years, a carefully cultivated client list, a specialized manufacturing process or data and research compiled within the company. But regardless of how tightly you’ve worked to protect your business trade secrets, people may still find ways to steal them and use them to their advantage. Trade secret law provides a way to obtain legal recourse from someone misappropriating your business secrets.
However, just because something is private does not make it a trade secret, so it is important to understand what private information can be protected, as well as your rights and remedies for the unauthorized taking of trade secrets.
NEW YORK STATE LAW VS. FEDERAL
While all other 49 states have adopted some version of the Uniform Trade Secrets Act (UTSA), New York is the sole exception. Instead, New York relies mainly on common law protection, which creates civil liability for misappropriation of someone else’s trade secret.
On the federal side, the Defend Trade Secrets Act of 2016 (DTSA) is similar to the UTSA, including how the act defines trade secrets and misappropriation.
What can be considered A TRADE SECRET?
New York State Law
Before bringing any potential claims for misappropriation of a trade secret, you must first determine what confidential information is considered a trade secret. The definition likely varies by state.
In New York, a trade secret can be any formula, pattern, device or compilation of information. However, the information must be used in business and provide an advantage over competitors who do not know or use it. Trade secrets must not be public knowledge and must be a process or device for continuous use in business operation, rather than for a single use.
New York Courts look at several factors in determining whether the information is a trade secret, such as:
(1) the extent to which the information is known outside of the business,
(2) the extent that it is known by employees and others involved in the business,
(3) the extent of the measures taken by employees and others to guard the secrecy of the information,
(4) the value of the information to the business and its competitors,
(5) the amount of effort or money spent by the business in developing the information,
(6) the ease or difficulty for others to acquire or duplicate the information.
The analysis of these factors is fact-specific, but courts are essentially looking to see whether the business owner took reasonable measures to protect its secrecy.
While New York doesn’t have a general statute defining trade secrets, there are several other statutes that mention or protect trade secrets within a certain context. Some examples include: (a) protecting computer data or computer programs, which may include trade secret information, against illegal possession or duplication under state criminal law; and (b) exempting records containing trade secrets from being publicly inspected or copied by state agencies under state freedom of information law.
Federal Law
The DTSA defines a trade secret as “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.” 18 U.S.C. §1839(3).
Generally speaking, even if a business secret falls under one of the DTSA categories above, it must also meet the following requirements: (1) the owner must have taken reasonable measures to keep the information secret, (2) the information has an independent economic value from being not disclosed and (3) the information is not readily ascertainable by someone else who can obtain economic value from disclosing or using it. 18 U.S.C. §1839(3)(B).
MISAPPROPRIATION and other claims
Misappropriation
If someone uses or discloses your trade secret without permission, it may constitute misappropriation depending on how the person obtained the information.
To prove trade secret misappropriation in New York, you must be able to show that (1) you possessed a trade secret, and (2) that the person misappropriating used the trade secret either in breach of an agreement or a confidential relationship/duty, or after discovering the trade secret by improper means.
The DTSA generally defines misappropriation as acquiring someone else’s trade secret when the person knows, or should know, that they’ve improperly acquired the information or disclosed it without the owner’s consent. This could take the form of acquiring the trade secret through improper means, or where the person either sharing or acquiring the information had a duty to keep it secret. It could also involve acquiring the information accidentally or by mistake.
Other Claims
In New York, you can also bring legal action for breach of contract; breach of fiduciary duty; unfair competition; conversion; and tortious interference against a person for wrongful acquisition, misuse or disclosure of your trade secret.
REMEDIES
Misappropriation of trade secrets can cause significant damage to a business. Once a trade secret is no longer a “secret,” it cannot be undone. As a result, owners have several remedies. The first is to ask a court for injunctive relief whereby the court orders the defendant to cease further use or disclosure of the trade secret. However, New York state courts and New York federal courts have slightly different requirements for seeking injunctive relief. Monetary damages are also available to compensate the owner for any resulting economic harm, including lost profits or profits the defendant unjustly made from exploiting the trade secret, as well as other costs and attorneys’ fees. New York may also allow punitive damages under exceptional circumstances.
The DTSA allows for similar remedies of injunctive relief and monetary damages, provided certain conditions within the statute are met. The DTSA also creates additional criminal liability against the person who misappropriated a trade secret.
STATUTE OF LIMITATIONS
Both the DTSA and New York law have a statute of limitations of three years to bring a claim.
The statute of limitations period begins at different times depending on whether the person misappropriates and discloses your trade secret publicly, or whether the person does not disclose the trade secret but uses it for their own commercial advantage.
CONCLUSION
If you are concerned about protecting your trade secrets, our attorneys can assist with drafting appropriate confidentiality and nondisclosure agreements with anyone who may have access to such information, such as employees, vendors and business partners. In the event of misappropriation, a lawyer can also advise regarding potential claims and seek appropriate remedial actions to prevent publication of the trade secret and obtain damages. Contact a member of our team for next steps.
[This blog post has been updated from a previous version, published June 30, 2020]