Subject Matter

 
 

.

To qualify as a trade secret, information must have independent economic value and it must be the subject of efforts to keep it secret.  This is according to the federal Defend Trade Secrets Act of 2016 (DTSA) and the Uniform Trade Secret Act (UTSA).

“Not generally known” does not mean that the information must be new, novel, or unique, in the same way that patent law requires.  Rather, the information must possess “a modicum of originality which will separate it from everyday knowledge."

Not Generally Known

For information to be valuable as a trade secret, it must provide its holder an economic advantage over its competitor who lacks the information.  The information need not be complicated; it may be very simple.  Importantly, the value must derive, at least in part, from the fact that the information is either not generally known or not readily ascertainable.

Independent Economic Value
Not Readily Ascertainable

Information is readily ascertainable if someone could discover it with minimal effort. 

To maintain trade-secret protection, a trade-secret owner must make reasonable efforts to protect secrecy.  What are “reasonable efforts”?  This question raises a factual issue, evaluated on a case-by-case basis.  The characteristics of the owner (e.g., large and sophisticated or small and simple), the type of business, and the use of the trade secret may all be relevant in deciding the issue.

Efforts at Secrecy
Not Every Conceivable Precaution

An owner need not take every conceivable step possible to maintain secrecy.  Practical circumstances often require use of a trade secret that could potentially disclose its content.  Disclosure, however, is not necessarily fatal to trade-secret protection.  An owner need not take every conceivable precaution to ensure secrecy.

An owner must affirmatively act to maintain secrecy.  Locks, alarms, passwords, proprietary labels, and the like all help to demonstrate affirmative actions to ensure secrecy.  Whether these actions suffice will depend on whether a factfinder views them as reasonableness under the circumstances.

Affirmative Acts

Answer to Question 3

Likely  not.  Lois arguably has failed to make efforts at maintaining the secrecy of the recipe.  Although Lois certainly can tell Bob without inhibiting trade-secrecy proteciton, she does not appear to have taken any affirmative steps to maintain the secrecy.  There is no indication even that she asked Bob to keep the information confidential.  Lois likely lacks a trade secret for failure to make any effort to maintain the secrecy.

Practice Problems

Question 1

Louise has carved an ornate wooden sculpture.  She sells it on the open market.  Mike copies the sculpture by manufacturing thousands of them; he sells them without Louise’s permission.  Louise sues for misappropriation of her trade secret.

Question: Will Louise prevail on her suit for trade-secret misappropriation?

Question 2

Spencer discovers an underground cave that is full of diamonds.  The cave is located in a wilderness area that is difficult to traverse.  Spencer makes plans to purchase the cave from the state.  Although Spencer tells no one of his plan, he does write down the location of the cave in his personal journal, a brief account of the diamonds that he discovered there, along with his plans to purchase it.  He keeps his journal private, placing it in his home safe. 


Question: Does Spencer hold a trade secret?

Question 3

Lois has created a recipe for cookies.  The cookies sell extremely well in her pastry shop.  After a while, Lois develops such a large following that she outsources the baking of the cookies to The Baking Co.  She tells the recipe to the president of The Baking Co., Bob.  Other than Lois and Bob, no one knows the recipe of the cookies.

Question: Does Lois hold a trade secret in the cookie recipe?

Question 4

John owns a sandwich shop.  He advertises a new peanut-butter-and-jelly (PB&J) sandwich that he will be selling on Wednesdays.  John claims in his advertisement that he uses a secret and innovative technique to make the PB&J sandwich.  In truth, John simply puts peanut butter on one slice of bread and jelly on another slice of bread, and then he puts the two slices together.  Hence, there’s nothing innovative about his technique for making the PB&J sandwich.  Nevertheless, his new PB&J sandwiches are a smashing success.  Everyone loves them, and everyone swears that they taste so much better than any other PB&J sandwich they have ever had.  Many customers plead with John, even offer him large sums of money, to disclose to them the secret means for creating the PB&J sandwich.  In great humility, John refuses.  He will not disclose his secret technique for making the PB&J.

Question: Based on thse facts does John hold a trade secret?

Answers

Answer to Question 2

Yes.  The location of the diamonds and plans to purchase the cave constitute valuable information.  The value derives from the fact that the information is not generally known and not readily ascertainable.  He makes reasonable efforts to keep this information secret by not telling anyone and by placing the journal in the safe. 

Answer to Question 1

No. Louise’s wooden sculpture is not a trade secret.  It does not constitute information that is valuable.  Rather, the sculpture has value for its aesthetic appeal, which is not relevant in the trade-secret analysis.

Answer to Question 4

Perhaps.  On the one hand, John does not hold a trade secret in the information regarding how to make a PB&J sandwich.  That information is generally known.  The fact that John keeps secret that information does not give the information economic value. 

On the other hand, John may hold a trade secret in the fact that there is no secret recipe for making the sandwich.  That fact apparently is neither readily ascertainable nor is it generally known.  His claim for a trade secret will depend on whether he has made reasonable efforts to keep it a secret.