While California has adopted the Uniform Trade Secrets Act, there is no state or federal registration process for trade secrets like there is for safeguarding other intellectual property. However, companies can and should protect themselves by identifying, valuing and guarding their trade secrets. This allows them to seek remedies under the act if a closely held secret is misappropriated.
Smart Business spoke with Tom Speiss, shareholder and intellectual property attorney at Stradling Yocca Carlson & Rauth, about establishing a trade secret team and conducting an intellectual property audit to determine and protect valuable proprietary information.
What protection does the act offer?
Trade secrets garner special protection based on that state’s adaptation of the Uniform Trade Secrets Act. In California, to qualify as a trade secret, a secret has to derive independent economic value, whether actual or potential; must not be generally known to the public or to other persons who can obtain economic value from its disclosure or use; and must be the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Companies should not file patent or copyright applications for subject matter it considers to be secret because, for patents, the subject matter of the patent application is made public 18 months after filing and, for copyrights, the subject matter is immediately made public. The law offers remedies if subject matter that qualifies as a trade secret is misappropriated.
Who is responsible if a trade secret is misappropriated?
The individual and, potentially, his or her new employer are both potentially liable for trade secret misappropriation. A company has a responsibility to ensure it’s not using another entity’s trade secrets, and can be liable for doing so whether it actually knows it has taken a trade secret or not — because the standard is lower: it is ‘reasonably should have known’ rather than ‘actually knew.’ Companies should conduct entrance interviews to determine the nature of the person they’re hiring. For instance, if the new hire brings with him or her a recipe or construction blueprints from a prior employer, it’s up to the hiring company to ask if that’s a trade secret.
Similarly, an exit interview can protect a company when an employee leaves. An exiting employee can be asked to sign an affidavit saying he or she is not taking anything. That puts the former employee on the hook whether they sign or refuse to sign, because they have either attested to their honesty, or, by refusing to sign, appear dishonest, raising suspicion.
In a recent case, an individual took a cookie recipe that was subject to reasonable efforts of protection to a rival company, which replicated it. In another instance, a group took construction blueprints it developed while working for a former employer. In both instances, suits were filed against the individuals as well as against the companies that were the recipients of the trade secrets.
Who should be part of a company’s trade secret team and what should they do?
While implementation varies by company and circumstance, the team should comprise a key person from each department within the company. That team member should pull together things they consider important to that department. Trade secrets aren’t always obvious, so you need to mine for them. The key questions in the search are: Why are we successful? What information, if in the hands of a competitor, would harm the business?
Next, determine the economic value of each item identified and rank them. The higher the value the more important it is.
Then develop a protection scheme for each level of value. For those items that have the highest economic value, set up protections adequate for their importance.
Lastly, once the list is created, review and update it on a regular basis.
How can a company know whether its trade secrets are trade secrets within its industry?
If you think your company has developed something unique, research your industry. You’ll have a good sense of what could be a trade secret based on your knowledge of your industry, and your evaluation of what makes your company a market leader.
Then, seek to protect your ‘special sauce’ — that is, your trade secrets. ●
Tom Speiss is a shareholder at Stradling Yocca Carlson & Rauth. Reach him at (424) 214-7042 or [email protected].
Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth
