Updated: June 30, 2020
You, like many fellow business owners, may have confidential information or business “secrets” kept under lock and key. Secrets could be a family recipe for the next restaurant, a coding algorithm built over the years, client list developed in the business, manufacturing processes or data and research compiled within a company. But no matter how tightly you’ve secured your secrets, someone found a way to steal them. 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 the rules, as well as your rights and remedies in the case of misappropriation.
Federal vs New York State Law
While most states adopted some version of the Uniform Trade Secrets Act (UTSA), New York relies on common law 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.
Definition of a Trade Secret
Now you’re wondering what confidential information is considered a trade secret. The definition may vary state by state.
In New York, a trade secret is defined as a formula, process, device, or compilation which one uses in his business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. Such information must be in continuous use in the operation of the business rather than used as a single occurrence.
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 these 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).
Courts look at various factors in determining whether the information is a trade secret including whether the information is known outside of the business, its value to the owner and its competitors, the effort or money spent in developing the information, the difficulty for others to get or create the information, and the actions taken to guard the secrecy of the information. This analysis is fact-specific. Essentially, courts are looking to see that the information is genuinely secret and not readily ascertainable, that it is valuable information that affords a competitive advantage, and that the owner took reasonable steps to protect it.
If someone uses or discloses a trade secret without permission it may constitute misappropriation depending on how the person obtained the information. One main difference between a state and federal action for misappropriation is DTSA’s requirement that the trade secret is used in interstate commerce. In New York, the person must have acquired the trade secret through a relationship of trust (such as employment), or through fraud or other improper means, such as theft, bribery, espionage or hacking. Misappropriation may also be found where the person obtained the information from another party but was aware of facts that indicated the information was acquired improperly by the other party.
Misappropriation of trade secrets can cause significant damage to a business. As a result, owners have several remedies. The first is to ask a court for injunctive relief whereby the court orders a defendant to cease further use or disclosure of the trade secret. Damages are also available to compensate the owner for the resulting economic harm from the trade secret violation, including the owner’s direct losses as well as obtaining any profits the defendant made from stealing the trade secret. While New York may allow punitive damages under exceptional circumstances, the DTSA provides for 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.
If you are concerned about protecting your trade secrets, an attorney 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.
This Blog is made available by Romano Law PLLC for general informational and educational purposes only, not to provide specific legal advice. By using this Blog you understand that there is no attorney client relationship between you and Romano Law PLLC or any individual contributor. You should consult a licensed professional attorney for individual advice regarding your own situation.