Trade Secrets

• Trade Secret Introduction

  • What is a trade secret?

    • Secret information owned or developed by a business that gives it a competitive advantage

    • The Economic Espionage Act (federal law) and the Uniform Trade Secret Act are very similar

      • The Arkansas Trade Secret Act (Ark. Code Ann. §4-75-610) is based on the Uniform Trade Secret Act

  • What are the advantages and disadvantages of trade secret protection versus patent protection?  Specifically, compare the following factors:

    • The nature of information that may be protected via patent or trade secret law

    • The cost and time involved in obtaining protection

    • The public nature of patents, and

    • The remedies available if the information/invention is used or discovered by another company

     

• Trade Secret Subject Matter

  • Information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

    • 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

    • Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
       

• Maintaining Trade Secrets

  • Review all company operations and proprietary information to determine where trade secrets exist

  • Use nondisclosure (confidentiality) agreements with all individuals having access to the trade secrets, including employees, officers, bankers, vendors, etc.

  • Use noncompetition agreements (covenants not to compete)

    • A covenant not to compete is a contract clause where a person agrees not to engage in a specified business or occupation 

    • The covenant will identify the applicable time and geographic region, e.g., the employee will not leave the company's employ and work in the meat processing industry for the next two years, within the United States

    • Covenants not to compete are disfavored by the law, especially in employment contracts

    • In Arkansas, covenants not to compete will be upheld if the business has a legitimate interest to protect, and the time and geographic restrictions are reasonable.  Federated Mutual Insurance Company v. Bennett, 818 S.W.2d 596 (1991).

      • Regarding employment contracts, legitimate business interests have been found where employees were provided special training, or allowed access to trade secrets, confidential business information, or customer lists - Girard v. Rebsamen Insurance Company, 685 S.W.2d 526 (1985)

  • Examine physical and network security issues

    • Restrict access to company trade secrets

    • Utilize computer passwords, "confidential" stamps/legends, record-keeping procedures, entrance and exit interviews, etc.

• Trade secret misappropriation

  • Compare misappropriation to proper trade secret appropriation, e.g., independent discover or reverse engineering

  • Using a football analogy, it is legally permissible to discover your opponent's game plan through watching old films, or through independent analysis and guessing; it is not permissible to acquire the opponent's game plan by theft or bribery of an opposing player

This site is maintained by Jeffrey Pittman.  Please direct comments to pittman@astate.edu.