© Olivier Le Moal | stock.adobe.com

In the business world non-disclosure agreements are used to ensure the protection of valuable information that is not readily known to the public. These Non-Disclosure Agreements can have different names, such as confidentiality agreement, secrecy agreement, proprietary information agreement or other names. The agreements are essentially an enforceable contract to protect information from being shared or used for an unintended illegitimate purpose.

Perhaps this is not as widely known, but regardless of whether there is a signed Non-Disclosure Agreement, the Uniform Trade Secrets Act (UTSA) prohibits a person from wrongfully disseminating trade secret information. In other words, even if a non-disclosure agreement is not in place, the law protects trade secret information. The UTSA is a consistent law that has been adopted in all states except New York and Massachusetts.

Trade Secret Information

So, what is trade secret information? According to the Merriam-Webster dictionary, a trade secret is “a formula, process, device, or item of information used by a business that has economic value because it is not generally known or easily discovered by observation or examination and for which reasonable efforts to maintain secrecy have been made.” *

However, the UTSA grants even broader safeguards by protecting against information that has independent economic value, regardless of whether the economic value is actual or potential. It states “Trade secret” means information, including a formula, pattern, compilation, program device, method, technique, or process, that:

(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

(ii) (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

The UTSA protects against not only the actual misuse of information but also threatened misuse of information. The UTSA also provides that damages may include both actual loss and unjust enrichment. It further provides “in lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret.”

A willful and malicious misappropriation may result in the court awarding exemplary damages in the amount not exceeding twice the award of damages plus attorney fees.

Federal Protection

And while the majority of states have provided protection for trade secret information, the legislatures saw a need for a federal law. Earlier this year, President Obama enacted the Defend Trade Secrets Act (DTSA) of 2016. This law creates a federal cause of action for trade secret misappropriation. Formerly, while there was federal law for criminal trade secret thievery, civil trade secret causes of action were governed entirely by state law.

The Act, which received overwhelming support, provides even tighter protection for trade secret information including that DTSA allows ex parte seizure of information where the party against whom the seizure is ordered “would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person….” This provision allows a court to seize trade secret information and further directs the maintenance of that information by the court until the dispute is resolved. The DTSA conversely provides a cause of action for any party injured by “wrongful or excessive seizure” under the Act.

And while the DTSA has some teeth in it, it explicitly prohibits a federal court from entering an order to “prevent a person from entering into an employment relationship,” and further requires “conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows.”

Whistleblower Protection

The DTSA also protects whistleblowers who disclose trade secret information to officials and attorneys where the disclosure is “solely for the purpose of reporting or investigating a suspected violation of law.” The DTSA provides for immunity for trade secret disclosures if the filing is made under seal and the filing does not disclose any trade information except pursuant to court order.

Trade secret laws can affect your business and therefore it is important to address any issues before they arise, especially since we will likely see an increase in litigation in this area. If you have employees or agents, a written policy on non-disclosure of any business sensitive information should be put in place. Evaluate the protections in place and make sure that reasonable measures to protect information are taken. Some measures may include password protection, marking drawings or other documents with a notification that the information is “secret” and not for dissemination, and only sharing information with persons who need to know. Further, the implementation of a protocol for revoking information from an employee or contractor who leaves the company is necessary. This will assist in keeping tabs on business sensitive information so it is tracked and returned upon exiting.

* “Trade secret.” Merriam-Webster.com. 2016. http://www.merriam-webster.com (June 27, 2016).