Trade secret
Encyclopedia
A trade secret is a formula
, practice
, process
, design
, instrument
, pattern
, or compilation of information
which is not generally known or reasonably ascertainable, by which a business
can obtain an economic advantage over competitors or customers. In some jurisdiction
s, such secrets are referred to as "confidential information" or "classified information".
By comparison, under US law, "A trade secret, as defined under (3) (A), (B) (1996), has three parts: (1) information; (2) reasonable measures taken to protect the information; and (3) which derives independent economic value from not being publicly known."
and non-disclosure contracts
with its employees (within the constraints of employment law, including only restraint that is reasonable in geographic and time scope). The law of protection of confidential information effectively allows a perpetual monopoly in secret information - it does not expire as would a patent
. The lack of formal protection, however, means that a third party is not prevented from independently duplicating and using the secret information once it is discovered.
The sanctioned protection of such type of information from public disclosure is viewed as an important legal aspect by which a society
protects its overall economic vitality. A company typically invests money, time and energy (work) into generating information regarding refinements of processes and operations. If competitors had access to the same knowledge, the first company's ability to survive or maintain its market dominance or market position and market share would be impaired. Where trade secrets are recognized, the creator of knowledge regarded as a "trade secret" is entitled to regard such "special knowledge" as intellectual property
.
In the United States, trade secrets are not protected by law in the same manner as trademark
s or patent
s. Specifically, both trademarks and patents are protected under federal statutes, the Lanham Act
and Patent Act
, respectively. Instead, trade secrets are protected under state law
s, and most states have ratified the Uniform Trade Secrets Act
(UTSA), except for Massachusetts
, New York
, New Jersey
, North Carolina
, and Texas
. One of the differences between patents and trademarks, on the one hand, and trade secrets, on the other, is that trade secret is protected only when the secret is not disclosed.
, one must simply use the mark "in commerce." It is possible to register a trademark in the U.S., both at the federal and state levels. (Registration of trademarks confers some advantages, including stronger protection in certain respects, but it is not required in order to get protection.) Registration may be required in order to file a lawsuit for trademark infringement. Other nations have different trademark policies and this information may not apply to them. Assuming the mark in question meets certain other standards of protectibility, it is protected from infringement on the grounds that other uses might confuse consumers as to the origin or nature of the goods once the mark has been associated with a particular supplier. (Similar considerations apply to service mark
s and trade dress
.) By definition, a trademark enjoys no protection (qua trademark) until and unless it is "disclosed" to consumers, for only then are consumers able to associate it with a supplier or source in the requisite manner. (That a company plans to use a certain trademark might itself be protectible as a trade secret, however, until the mark is actually made public.)
on the subject matter of the patent is regarded as a quid pro quo
for thus disclosing the information to the public.
One popular misconception held by many is that trade secret protection is incompatible with patent protection. It is typically said that if you apply for a patent you can no longer maintain a trade secret on the invention, but this is an oversimplification. It is true that in order to obtain a patent you must disclose your invention so that others will be able to both make and use the invention
, and, to obtain a patent in the United States, if you have any preferences you must likewise disclose your preferences. What is typically not appreciated though is that the critical time for satisfying this disclosure requirement is at the time the application is filed. In many if not most situations, improvements will be made to an invention even after filing of the patent application, and additional information will be learned. None of this additional information must be disclosed and can instead be kept as a secret. Virtually all patent licenses include clauses that require the inventor to disclose any trade secrets they have. Frequently it is this information not disclosed in the patent that is the most commercially viable. Thus, if you are attempting to sell or license your patent rights you want to make sure that you take steps to continue to maintain your trade secrets as secrets, otherwise they will be lost. Accordingly, before disclosing any secrets not already protected by an issued patent you should use a non-disclosure agreement
.
s. In exchange for an opportunity to be employed by the holder of secrets, an employee may sign an agreement not to reveal his or her prospective employer's proprietary information. An employee may also surrender or assign to his employer the right to his own intellectual work produced during the course (or as a condition) of employment. Violation of the agreement generally carries the possibility of heavy financial penalties. These penalties operate as a disincentive to reveal trade secrets. A holder of a trade secret may also require similar agreements from other parties he deals with, such as vendors or licensees.
Protection of trade secret can, in principle, extend indefinitely and therefore may provide an advantage over patent protection, which lasts only for a specific period of time. Coca-Cola
, for example, has no patent for its formula
and has been very effective in protecting it for many more years than the twenty years of protection that a patent would have provided. In fact, Coca-Cola refused to reveal its trade secret under at least two judges' orders. The disadvantage is that there is no protection once information protected as trade secret is uncovered by others through reverse engineering
, for example, whereas patent has a guaranteed time of protection in exchange for disclosing the information to the public.
or employee poaching on one hand, and potentially unlawful methods including industrial espionage
on the other. Acts of industrial espionage are generally illegal in their own right under the relevant governing laws. The importance of that illegality to trade secret law is as follows: if a trade secret is acquired by improper means (a somewhat wider concept than "illegal means" but inclusive of such means), the secret is generally deemed to have been misappropriated. Thus if a trade secret has been acquired via industrial espionage, its acquirer will probably be subject to legal liability for acquiring it improperly. (The holder of the trade secret is nevertheless obliged to protect against such espionage to some degree in order to safeguard the secret. As noted above, under most trade secret regimes, a trade secret is not deemed to exist unless its purported holder takes reasonable steps to maintain its secrecy.)
The suggestion that trade secret law has its roots in Roman law was introduced in 1929 in an article entitled, “Trade Secrets and the Roman Law: The Actio Servi Corrupti,” 30 Colum. L. Rev. 837 (1930). (The article has been reproduced in A. Arthur Schiller, An American Experience in Roman Law 1 (1971).) See Trade Secrets and Roman Law: The Myth Exploded, at 19. However, according to University of Georgia Law School professor Alan Watson, while the claim existed, it was not used to protect trade secrets. Trade Secrets and Roman Law: The Myth Exploded, at 19. Rather, Professor Watson explains as follows:
Id.
Trade secrets law continued to evolve throughout the United States, but as a hodgepodge of state laws. In 1939, the American Law Institute issued the Restatement of Torts, containing a summary of trade secret law as it then existed. That summary served as the primary resource until the latter part of the century. By now, however, only four states – Massachusetts, New Jersey, New York, and Texas – still rely on the Restatement as their primary source of guidance (other than their body of state case law).
A relatively recent development in the United States is the adoption of the UTSA, the Uniform Trade Secrets Act
, which has been adopted by approximately 46 states as the basis for trade secret law. Another significant development in U.S. law is the Economic Espionage Act of 1996
, which makes the theft or misappropriation of a trade secret a federal crime. This law contains two provisions criminalizing two sorts of activity. The first, , criminalizes the theft of trade secrets to benefit foreign powers. The second, , criminalizes their theft for commercial or economic purposes. (The statutory penalties are different for the two offenses.)
In Commonwealth
common law
jurisdictions, confidentiality and trade secrets are regarded as an equitable right rather than a property
right (with the exception of Hong Kong
where a judgment of the High Court indicates that confidential information may be a property right). The Court of Appeal of England and Wales
in the case of Saltman Engineering Co Ltd v. Campbell Engineering Ltd, (1948) 65 P.R.C. 203 held that the action for breach of confidence is based on a principle of preserving "good faith".
The test for a cause of action for breach of confidence in the common law world is set out in the case of Coco v. A.N. Clark (Engineers) Ltd, (1969) R.P.C. 41 at 47:
The "quality of confidence" highlights that trade secrets are a legal concept. With sufficient effort or through illegal acts (such as break and enter), competitors can usually obtain trade secrets. However, so long as the owner of the trade secret can prove that reasonable efforts have been made to keep the information confidential, the information remains a trade secret and generally remains legally protected. Conversely, trade secret owners who cannot evidence reasonable efforts at protecting confidential information, risk losing the trade secret, even if the information is obtained by competitors illegally. It is for this reason that trade secret owners shred documents and do not simply recycle them.
A successful plaintiff is entitled to various forms of judicial relief, including:
Formula
In mathematics, a formula is an entity constructed using the symbols and formation rules of a given logical language....
, practice
Best practice
A best practice is a method or technique that has consistently shown results superior to those achieved with other means, and that is used as a benchmark...
, process
Business process
A business process or business method is a collection of related, structured activities or tasks that produce a specific service or product for a particular customer or customers...
, design
Design
Design as a noun informally refers to a plan or convention for the construction of an object or a system while “to design” refers to making this plan...
, instrument
Legal instrument
Legal instrument is a legal term of art that is used for any formally executed written document that can be formally attributed to its author, records and formally expresses a legally enforceable act, process, or contractual duty, obligation, or right, and therefore evidences that act, process, or...
, pattern
Pattern
A pattern, from the French patron, is a type of theme of recurring events or objects, sometimes referred to as elements of a set of objects.These elements repeat in a predictable manner...
, or compilation of information
Information
Information in its most restricted technical sense is a message or collection of messages that consists of an ordered sequence of symbols, or it is the meaning that can be interpreted from such a message or collection of messages. Information can be recorded or transmitted. It can be recorded as...
which is not generally known or reasonably ascertainable, by which a business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
can obtain an economic advantage over competitors or customers. In some jurisdiction
Jurisdiction
Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...
s, such secrets are referred to as "confidential information" or "classified information".
Definition
The precise language by which a trade secret is defined varies by jurisdiction (as do the particular types of information that are subject to trade secret protection). However, there are three factors that, although subject to differing interpretations, are common to all such definitions: a trade secret is information that:- is not generally known to the public;
- confers some sort of economic benefit on its holder (where this benefit must derive specifically from its not being generally known, not just from the value of the information itself);
- is the subject of reasonable efforts to maintain its secrecy.
By comparison, under US law, "A trade secret, as defined under (3) (A), (B) (1996), has three parts: (1) information; (2) reasonable measures taken to protect the information; and (3) which derives independent economic value from not being publicly known."
Protection
A company can protect its confidential information through non-competeNon-compete clause
A non-compete clause , or covenant not to compete , is a term used in contract law under which one party agrees not to pursue a similar profession or trade in competition against another party . As a contract provision, a CNC is bound by traditional contract requirements including the...
and non-disclosure contracts
Non-disclosure agreement
A non-disclosure agreement , also known as a confidentiality agreement , confidential disclosure agreement , proprietary information agreement , or secrecy agreement, is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties...
with its employees (within the constraints of employment law, including only restraint that is reasonable in geographic and time scope). The law of protection of confidential information effectively allows a perpetual monopoly in secret information - it does not expire as would a patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
. The lack of formal protection, however, means that a third party is not prevented from independently duplicating and using the secret information once it is discovered.
The sanctioned protection of such type of information from public disclosure is viewed as an important legal aspect by which a society
Society
A society, or a human society, is a group of people related to each other through persistent relations, or a large social grouping sharing the same geographical or virtual territory, subject to the same political authority and dominant cultural expectations...
protects its overall economic vitality. A company typically invests money, time and energy (work) into generating information regarding refinements of processes and operations. If competitors had access to the same knowledge, the first company's ability to survive or maintain its market dominance or market position and market share would be impaired. Where trade secrets are recognized, the creator of knowledge regarded as a "trade secret" is entitled to regard such "special knowledge" as intellectual property
Intellectual property
Intellectual property is a term referring to a number of distinct types of creations of the mind for which a set of exclusive rights are recognized—and the corresponding fields of law...
.
In the United States, trade secrets are not protected by law in the same manner as trademark
Trademark
A trademark, trade mark, or trade-mark is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify that the products or services to consumers with which the trademark appears originate from a unique source, and to distinguish its products or...
s or patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
s. Specifically, both trademarks and patents are protected under federal statutes, the Lanham Act
Lanham Act
The Lanham Act is a piece of legislation that contains the federal statutes of trademark law in the United States. The Act prohibits a number of activities, including trademark infringement, trademark dilution, and false advertising.-History:Named for Representative Fritz G...
and Patent Act
United States patent law
United States patent law was established "to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;" as provided by the United States Constitution. Congress implemented these...
, respectively. Instead, trade secrets are protected under state law
State law
In the United States, state law is the law of each separate U.S. state, as passed by the state legislature and adjudicated by state courts. It exists in parallel, and sometimes in conflict with, United States federal law. These disputes are often resolved by the federal courts.-See also:*List of U.S...
s, and most states have ratified the Uniform Trade Secrets Act
Uniform Trade Secrets Act
The Uniform Trade Secrets Act , published by the Uniform Law Commission 1979 and amended in 1985, was a uniform act promulgated in an effort to provide legal framework for improved trade secret protection for industry in all 50 states within the United States of America. The U.T.S.A...
(UTSA), except for Massachusetts
Massachusetts
The Commonwealth of Massachusetts is a state in the New England region of the northeastern United States of America. It is bordered by Rhode Island and Connecticut to the south, New York to the west, and Vermont and New Hampshire to the north; at its east lies the Atlantic Ocean. As of the 2010...
, New York
New York
New York is a state in the Northeastern region of the United States. It is the nation's third most populous state. New York is bordered by New Jersey and Pennsylvania to the south, and by Connecticut, Massachusetts and Vermont to the east...
, New Jersey
New Jersey
New Jersey is a state in the Northeastern and Middle Atlantic regions of the United States. , its population was 8,791,894. It is bordered on the north and east by the state of New York, on the southeast and south by the Atlantic Ocean, on the west by Pennsylvania and on the southwest by Delaware...
, North Carolina
North Carolina
North Carolina is a state located in the southeastern United States. The state borders South Carolina and Georgia to the south, Tennessee to the west and Virginia to the north. North Carolina contains 100 counties. Its capital is Raleigh, and its largest city is Charlotte...
, and Texas
Texas
Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...
. One of the differences between patents and trademarks, on the one hand, and trade secrets, on the other, is that trade secret is protected only when the secret is not disclosed.
Comparison with trademarks
To acquire rights in a trademark under U.S. lawUnited States trademark law
Trademarks were traditionally protected in the United States only under State common law, growing out of the tort of unfair competition. As early as 1791, Thomas Jefferson proposed that the marks of sailcloth makers could be protected under the Commerce Clause, but it was not until 1870 that...
, one must simply use the mark "in commerce." It is possible to register a trademark in the U.S., both at the federal and state levels. (Registration of trademarks confers some advantages, including stronger protection in certain respects, but it is not required in order to get protection.) Registration may be required in order to file a lawsuit for trademark infringement. Other nations have different trademark policies and this information may not apply to them. Assuming the mark in question meets certain other standards of protectibility, it is protected from infringement on the grounds that other uses might confuse consumers as to the origin or nature of the goods once the mark has been associated with a particular supplier. (Similar considerations apply to service mark
Service mark
A service mark or servicemark is a trademark used in some countries, notably the United States, to identify a service rather than a product. When a service mark is federally registered, the standard registration symbol ® or "Reg U.S. Pat & TM Off" may be used...
s and trade dress
Trade dress
Trade dress is a legal term of art that generally refers to characteristics of the visual appearance of a product or its packaging that signify the source of the product to consumers...
.) By definition, a trademark enjoys no protection (qua trademark) until and unless it is "disclosed" to consumers, for only then are consumers able to associate it with a supplier or source in the requisite manner. (That a company plans to use a certain trademark might itself be protectible as a trade secret, however, until the mark is actually made public.)
Comparison with patents
To acquire a patent, full information about the method or product has to be supplied to the patent office and upon publication or issuance, will then be available to all. After expiration of the patent, competitors can copy the method or product legally. The temporary monopolyMonopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
on the subject matter of the patent is regarded as a quid pro quo
Quid pro quo
Quid pro quo most often means a more-or-less equal exchange or substitution of goods or services. English speakers often use the term to mean "a favour for a favour" and the phrases with almost identical meaning include: "give and take", "tit for tat", "this for that", and "you scratch my back,...
for thus disclosing the information to the public.
One popular misconception held by many is that trade secret protection is incompatible with patent protection. It is typically said that if you apply for a patent you can no longer maintain a trade secret on the invention, but this is an oversimplification. It is true that in order to obtain a patent you must disclose your invention so that others will be able to both make and use the invention
Sufficiency of disclosure
Most patent law systems require that a patent application disclose a claimed invention in sufficient detail for the notional person skilled in the art to carry out that claimed invention. This requirement is often known as sufficiency of disclosure or enablement, depending on the...
, and, to obtain a patent in the United States, if you have any preferences you must likewise disclose your preferences. What is typically not appreciated though is that the critical time for satisfying this disclosure requirement is at the time the application is filed. In many if not most situations, improvements will be made to an invention even after filing of the patent application, and additional information will be learned. None of this additional information must be disclosed and can instead be kept as a secret. Virtually all patent licenses include clauses that require the inventor to disclose any trade secrets they have. Frequently it is this information not disclosed in the patent that is the most commercially viable. Thus, if you are attempting to sell or license your patent rights you want to make sure that you take steps to continue to maintain your trade secrets as secrets, otherwise they will be lost. Accordingly, before disclosing any secrets not already protected by an issued patent you should use a non-disclosure agreement
Non-disclosure agreement
A non-disclosure agreement , also known as a confidentiality agreement , confidential disclosure agreement , proprietary information agreement , or secrecy agreement, is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties...
.
Trade secret protection
Trade secrets are by definition not disclosed to the world at large. Instead, owners of trade secrets seek to protect trade secret information from competitors by instituting special procedures for handling it, as well as technological and legal security measures. Legal protections include non-disclosure agreements (NDA) and non-compete clauseNon-compete clause
A non-compete clause , or covenant not to compete , is a term used in contract law under which one party agrees not to pursue a similar profession or trade in competition against another party . As a contract provision, a CNC is bound by traditional contract requirements including the...
s. In exchange for an opportunity to be employed by the holder of secrets, an employee may sign an agreement not to reveal his or her prospective employer's proprietary information. An employee may also surrender or assign to his employer the right to his own intellectual work produced during the course (or as a condition) of employment. Violation of the agreement generally carries the possibility of heavy financial penalties. These penalties operate as a disincentive to reveal trade secrets. A holder of a trade secret may also require similar agreements from other parties he deals with, such as vendors or licensees.
Protection of trade secret can, in principle, extend indefinitely and therefore may provide an advantage over patent protection, which lasts only for a specific period of time. Coca-Cola
Coca-Cola
Coca-Cola is a carbonated soft drink sold in stores, restaurants, and vending machines in more than 200 countries. It is produced by The Coca-Cola Company of Atlanta, Georgia, and is often referred to simply as Coke...
, for example, has no patent for its formula
Coca-Cola formula
The Coca-Cola formula is The Coca-Cola Company's secret recipe for Coca-Cola. As a publicity, marketing, and intellectual property protection strategy started by Robert W...
and has been very effective in protecting it for many more years than the twenty years of protection that a patent would have provided. In fact, Coca-Cola refused to reveal its trade secret under at least two judges' orders. The disadvantage is that there is no protection once information protected as trade secret is uncovered by others through reverse engineering
Reverse engineering
Reverse engineering is the process of discovering the technological principles of a device, object, or system through analysis of its structure, function, and operation...
, for example, whereas patent has a guaranteed time of protection in exchange for disclosing the information to the public.
Discovering trade secrets
Companies often try to discover one another's trade secrets through lawful methods of reverse engineeringReverse engineering
Reverse engineering is the process of discovering the technological principles of a device, object, or system through analysis of its structure, function, and operation...
or employee poaching on one hand, and potentially unlawful methods including industrial espionage
Industrial espionage
Industrial espionage, economic espionage or corporate espionage is a form of espionage conducted for commercial purposes instead of purely national security purposes...
on the other. Acts of industrial espionage are generally illegal in their own right under the relevant governing laws. The importance of that illegality to trade secret law is as follows: if a trade secret is acquired by improper means (a somewhat wider concept than "illegal means" but inclusive of such means), the secret is generally deemed to have been misappropriated. Thus if a trade secret has been acquired via industrial espionage, its acquirer will probably be subject to legal liability for acquiring it improperly. (The holder of the trade secret is nevertheless obliged to protect against such espionage to some degree in order to safeguard the secret. As noted above, under most trade secret regimes, a trade secret is not deemed to exist unless its purported holder takes reasonable steps to maintain its secrecy.)
Roman law
Commentators starting with A. Arthur Schiller assert that trades secrets were protected under Roman law by a claim known as, “actio servi corrupti,” interpreted as an “action for making a slave worse” (or an action for corrupting a servant). The Roman law is described as follows:- [T]he Roman owner of a mark or firm name was legally protected against unfair usage by a competitor through the action [sic] servi corrupti, . . . , which the Roman jurists used to grant commercial relief under the guise of private law actions. “If, as the writer believes [writes Schiller], various private cases of action were available in satisfying commercial needs, the state was acting in exactly the same fashion as it does at the present day.”
The suggestion that trade secret law has its roots in Roman law was introduced in 1929 in an article entitled, “Trade Secrets and the Roman Law: The Actio Servi Corrupti,” 30 Colum. L. Rev. 837 (1930). (The article has been reproduced in A. Arthur Schiller, An American Experience in Roman Law 1 (1971).) See Trade Secrets and Roman Law: The Myth Exploded, at 19. However, according to University of Georgia Law School professor Alan Watson, while the claim existed, it was not used to protect trade secrets. Trade Secrets and Roman Law: The Myth Exploded, at 19. Rather, Professor Watson explains as follows:
- Schiller is sadly mistaken as to what was going on. . . . The action [sic] servi corrupti presumably or possibily [sic] could be used to protect trade secrets and other similar commercial interests. That was not is purpose and was, at most, an incidental spin-off. But there is not the slightest evidence that the action was ever so used. In this regard the action [sic] servi corrupti is not unique.
- Exactly the same can be said of many private law actions including those for theft, damage to property, deposit, and production of property. All of these could, I suppose, be used to protect trade secrets, etc., but there is no evidence they were. It is bizarre to see any degree the Roman action [sic] servi corrupti as the counterpart of modern law for the protection of trade secrets and other such commercial interests.
Id.
19th century
Trade secret law as we know it today made its first appearance in England in 1817 in Newberry v. James, 35 Eng. Rep. 1011, 1013 (Ct. Ch. 1817), and in the United States in 1837 in Vickery v. Welch, 36 Mass. (19 Pick.) 523, 527 (1837). See The Surprising Virtues of Treating Trade Secrets as IP Rights, 61 Stan. L. Rev. at 315 & n.6. While those cases involved the first known common law causes of action based on a modern concept of trade secret laws, neither involved injunctive relief; rather, they involved damages only. Id. In England, the first case involving injunctive relief came in 1820 in Yovatt v. Winyard, (1820) 37 Eng. Rep. 425, 426 (Ch.), while in the United States, it took until 1866, in Taylor v. Blanchard, 95 Mass. (13 Allen) 370 (1866). See The Surprising Virtues of Treating Trade Secrets as IP Rights, 61 Stan. L. Rev. at 315 & n.7; but see Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 493 n.23, 94 S.Ct. 1879, 1892 n.23, 40 L.Ed.2d 315 (1974) (trade secret law imported into the United States from England in 1868 in Peabody v. Norfolk, 98 Mass. 452 (1868)).Trade secrets law continued to evolve throughout the United States, but as a hodgepodge of state laws. In 1939, the American Law Institute issued the Restatement of Torts, containing a summary of trade secret law as it then existed. That summary served as the primary resource until the latter part of the century. By now, however, only four states – Massachusetts, New Jersey, New York, and Texas – still rely on the Restatement as their primary source of guidance (other than their body of state case law).
Current regulation
Although trade secrets law evolved under state common law, prior to 1974, the question of whether patent law preempted state trade secrets law had been unanswered. In 1974, the United States Supreme Court issued the landmark decision, Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974), which resolved that question, and cleared the way for the states to freely develop their own trade secret laws.A relatively recent development in the United States is the adoption of the UTSA, the Uniform Trade Secrets Act
Uniform Trade Secrets Act
The Uniform Trade Secrets Act , published by the Uniform Law Commission 1979 and amended in 1985, was a uniform act promulgated in an effort to provide legal framework for improved trade secret protection for industry in all 50 states within the United States of America. The U.T.S.A...
, which has been adopted by approximately 46 states as the basis for trade secret law. Another significant development in U.S. law is the Economic Espionage Act of 1996
Economic Espionage Act of 1996
The Economic Espionage Act of 1996 was a 6 title Act of Congress dealing with a wide range of issues, including not only industrial espionage , but the insanity defense, the Boys & Girls Clubs of America, requirements for presentence investigation reports, and the United...
, which makes the theft or misappropriation of a trade secret a federal crime. This law contains two provisions criminalizing two sorts of activity. The first, , criminalizes the theft of trade secrets to benefit foreign powers. The second, , criminalizes their theft for commercial or economic purposes. (The statutory penalties are different for the two offenses.)
In Commonwealth
Commonwealth of Nations
The Commonwealth of Nations, normally referred to as the Commonwealth and formerly known as the British Commonwealth, is an intergovernmental organisation of fifty-four independent member states...
common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
jurisdictions, confidentiality and trade secrets are regarded as an equitable right rather than a property
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
right (with the exception of Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
where a judgment of the High Court indicates that confidential information may be a property right). The Court of Appeal of England and Wales
Court of Appeal of England and Wales
The Court of Appeal of England and Wales is the second most senior court in the English legal system, with only the Supreme Court of the United Kingdom above it...
in the case of Saltman Engineering Co Ltd v. Campbell Engineering Ltd, (1948) 65 P.R.C. 203 held that the action for breach of confidence is based on a principle of preserving "good faith".
The test for a cause of action for breach of confidence in the common law world is set out in the case of Coco v. A.N. Clark (Engineers) Ltd, (1969) R.P.C. 41 at 47:
- the information itself must have the necessary quality of confidence about it;
- that information must have been imparted in circumstances imparting an obligation of confidence;
- there must be an unauthorized use of that information to the detriment of the party communicating it.
The "quality of confidence" highlights that trade secrets are a legal concept. With sufficient effort or through illegal acts (such as break and enter), competitors can usually obtain trade secrets. However, so long as the owner of the trade secret can prove that reasonable efforts have been made to keep the information confidential, the information remains a trade secret and generally remains legally protected. Conversely, trade secret owners who cannot evidence reasonable efforts at protecting confidential information, risk losing the trade secret, even if the information is obtained by competitors illegally. It is for this reason that trade secret owners shred documents and do not simply recycle them.
A successful plaintiff is entitled to various forms of judicial relief, including:
- an injunctionInjunctionAn injunction is an equitable remedy in the form of a court order that requires a party to do or refrain from doing certain acts. A party that fails to comply with an injunction faces criminal or civil penalties and may have to pay damages or accept sanctions...
- an account of profitsAccount of profitsAn account of profits is a type of equitable remedy most commonly used in cases of breach of fiduciary duty...
or an award of damagesDamagesIn law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :... - a declarationDeclaration (law)In law, a declaration ordinarily refers to a judgment of the court or an award of an arbitration tribunal is a binding adjudication of the rights or other legal relations of the parties which does not provide for or order enforcement. Where the declaration is made by a court, it is usually...
Cases
- Data General Corp. v. Digital Computer Controls, Inc.Data General Corp. v. Digital Computer Controls, Inc.Data General Corp. v. Digital Computer Controls, Inc. was a 1971 case in which the Delaware Court of Chancery determined that widespread, confidential disclosure of trade secrets does not necessarily compromise their secrecy...
, 297 A.2d 433 (Del. Ch. 1971): protection and disclosure of design documents. - Rivendell Forest Prods. v. Georgia-Pacific Corp.Rivendell Forest Prods. v. Georgia-Pacific Corp.Rivendell Forest Prods. v. Georgia-Pacific Corp., 28 F.3d 1042 was a case in which the United States Court of Appeals for the Tenth Circuit reversed the decision of the United States District Court for the District of Colorado, which had decided that Rivendell had failed to establish the existence...
, 28 F.3d 1042: trade secrets and software systems. - IBM v. PapermasterIBM v. PapermasterIn 2008, Mark Papermaster, IBM's Vice President of the Blade Development Unit, became the subject of a notable trade secret misappropriation and non-compete clause case when he announced a plan to move to Apple as Senior Vice President of Devices Hardware Engineering. On October 22, 2008, IBM filed...
(No. 08-9078, 2008 U.S. Dist): Mark PapermasterMark PapermasterMark Papermaster was the Senior Vice President of Devices Hardware Engineering at Apple Inc. He replaced Tony Fadell who was responsible for the team that created the iPod. Papermaster worked at IBM from 1982–2008. His last position at IBM was as vice president of IBM's blade server division...
moving from IBMIBMInternational Business Machines Corporation or IBM is an American multinational technology and consulting corporation headquartered in Armonk, New York, United States. IBM manufactures and sells computer hardware and software, and it offers infrastructure, hosting and consulting services in areas...
to Apple computerApple ComputerApple Inc. is an American multinational corporation that designs and markets consumer electronics, computer software, and personal computers. The company's best-known hardware products include the Macintosh line of computers, the iPod, the iPhone and the iPad...
in 2008. - Du Pont de Nemours and Company v. Kolon Industries Incorporated, Nos. 10-1103, 10-1275. United States Court of Appeals for the Fourth CircuitUnited States Court of Appeals for the Fourth CircuitThe United States Court of Appeals for the Fourth Circuit is a federal court located in Richmond, Virginia, with appellate jurisdiction over the district courts in the following districts:*District of Maryland*Eastern District of North Carolina...
. Argued Oct. 26, 2010 — March 11, 2011.: trade secrets case involving Kevlar fiber, resulting in award to DuPont of ~US$920 million.
See also
- Glossary of legal terms in technology
- Biswamohan PaniBiswamohan PaniBiswamohan Pani is a former design engineer at Intel. In November 2008 he was charged with stealing $1 billion worth of trade secrets from Intel while he worked for its main rival, Advanced Micro Devices . The information he apparently obtained is believed to be related to Intel's next-generation...
, charged in 2008 with stealing $1 billion worth of trade secrets from Intel - Data General Corp. v. Digital Computer Controls, Inc.Data General Corp. v. Digital Computer Controls, Inc.Data General Corp. v. Digital Computer Controls, Inc. was a 1971 case in which the Delaware Court of Chancery determined that widespread, confidential disclosure of trade secrets does not necessarily compromise their secrecy...
addressing secrecy given widespread disclosure
External links
- Economic Espionage and Trade Secrets U.S. Attorneys' Bulletin (2009).
- International Aspects of Trade Secrets Law by Karen A. Magri.
Literature
- Eiichiro Kubota: Protection of Trade Secrets in Japan. A.I.P.P.I. (Journal of International Association for the Protection of Intellectual Property of Japan) 36(5), 231 - 238 (2011),