Trade Secret Overview

By Thomas W. Hanson, Patent Attorney*

What is a "trade secret"?** It's one of those rarities in the law: something that is exactly what it is named. In this case, it is a valuable piece of information, which is kept secret from others in your "trade" or business. The type of information which can be protected as a trade secret is quite broad. The Colorado Uniform Trade Secrets Act (UTSA) provides a list which includes ". . .any scientific or technical information, design, process, procedure, formula, improvement,. . .". This list is usually interpreted liberally to include a wide range of information. It is likely that any information important to the exploitation of your invention is covered in one of the categories in the statute.

One of the main points to remember about trade secrets is that if you want the courts to protect them, you must treat them as if they actually are a secret. The UTSA requires that the owner of the secret take "measures to prevent the secret from becoming available to persons other than those selected by the owner to have access thereto for limited purposes." Absolute secrecy is not required, but reasonable measures are. The information should only be made available to those people who need it and have signed either a non-disclosure agreement (NDA) or an employment agreement which requires them to keep the information confidential. Marking documents as CONFIDENTIAL or TRADE SECRET is also recommended.

It is also important to remember that only "misappropriation" is prohibited by the statute. If you voluntarily disclose the information to another person without a confidentiality agreement, they are not required to keep it secret. Reverse engineering is also not barred. That is, if a competitor lawfully obtains your product and can discover your secret by examining the product, or working backward from it, they are not prevented. from using that information.

Where someone does misappropriate a trade secret, various remedies are available. One of these is an injunction to restrain the person from using the information. Money damages are also available, both to compensate the actual loss incurred and to recover the "unjust enrichment" of the defendant. As an alternative, damages may also be awarded in the amount of a reasonable royalty for the use of the trade secret.

The NDA plays several roles in protecting trade secrets. As discussed above, it is an important factor in deciding whether certain information will be treated as a trade secret. It also provides notice to the receiving party that the information is confidential. This is a factor in deciding whether disclosure by the recipient is a misappropriation. The NDA also provides a contract with the recipient which can be enforced separately from trade secret law. A good NDA should contain a clause where the receiving party acknowledges that the information is confidential and agrees to take "all reasonable means" to protect the information from disclosure.

Trade secret law is intertwined with patent law in the area of disclosure. You can only obtain a US patent for an invention within one year of public disclosure. In most foreign countries, the one year grace period does not apply. Where you only reveal the information after an NDA has been signed, the disclosure is not "public" and the time period does not start running.

To summarize, the best way to protect a secret is to treat it as such. Keep it to yourself and only disclose it to others after they have signed an NDA in which they acknowledge the information as confidential and agree to take reasonable means to prevent its disclosure.

* Originally published in modified form as "Cloak & Dagger for IPP" in the Rocky Mountain Inventors and Entrepreneurs Congress Newsletter, ____ 1997

** Since October 1996, trade secret misappropriation is also a federal crime under the Economic Espionage Act of 1996.