Are you involved in a dispute about “trade secrets”? Trade secrets are governed by a state statute. You must know the specifics of that statute to determine whether the situation even involves a “trade secret.”
At Gardner Employment Law, we have handled many statutory matters, including trade secrets. If you need expert legal advice on the subject, give us a call.
What Are Trade Secrets?
Trade secrets are a subset of confidential information, which we explained in “The Legal Meaning of Confidential Information.” Confidential information is broader in scope and is not limited to trade secrets. You can think of trade secrets as intellectual property rights that can be sold or licensed.
The Texas Legislature passed a statute protecting trade secrets, the Texas Uniform Trade Secrets Act. Under that statute, to constitute a “trade secret,” the following is required:
“Trade secret” means all forms and types of information, including business, scientific, technical, economic, or engineering information, and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, or list of actual or potential customers or suppliers, whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:
(A) the owner of the trade secret has taken reasonable measures under the circumstances to keep the information secret; and
(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.
Trade secrets, thus, must be quantifiable by an economic value. Many times trade secrets can be patented. “Confidential Information,” on the other hand may not have an independent economic value but if misused it nevertheless can damage an employer’s business.
Extra Statutory Benefits
With the passage of the Texas Uniform Trade Secrets Act, businesses gained certainty in an area of litigation that had been confusing and unclear. In addition, the statute added a collection of remedies that did not exist. A company can take proactive steps to prevent improper use of its trade secrets. The statute allows a party to file suit to enjoin “threatened misappropriation” before actual misappropriation even occurs.
One pro-employee remedy permits the court, upon a showing of “exceptional circumstances,” to allow an employee to continue using the trade secret by paying “a reasonable royalty for no longer than the period of time for which use [of the trade secret] could have been prohibited.”
Further, the prevailing party in these lawsuits may be entitled to recover attorneys’ fees, depending on whether the misappropriation was “willful or malicious” or the suit was brought in “bad faith.”
Examples of Trade Secrets
One excellent example of a trade secret is Coca Cola’s formula for that brown fizzy liquid which is the number one seller in carbonated drinks. How many people love “Coke”? As explained in “Noncompete Lawyer,” the upper management of Coca Cola holds this formula so valuable that it has never been written down, never patented, and disclosed only to a very select few people at the very top of the company. As a result, Coca Cola maintains its number one position in the market against the second best, Pepsi, by many percentage points.
Businesses can rest on “potential” economic value as opposed to realized value when attempting to prove a trade secret. Also, considering the enormous expense involved in research and development, the statutory definition arguably would include the value of time and effort spent to learn that certain processes or things would not offer competitive value, “negative knowhow.”
Lawsuits involving trade secrets many times are exceedingly expensive. Rather than getting caught in that nightmare, you should obtain expert legal advice about whether you are dealing with a trade secret or not.
Make the right call. Start with us.