By John R. Gasele

Imagine what would happen if a key employee of your business left to work for your closest competitor. Now, consider how much worse that situation would be if the employee took sensitive information, such as budgets, product sales rates and costs, expense reports or key business plans with them. Your business could suffer irreparable harm.

That was exactly the situation faced by the St. Paul Pioneer Press in 2007 when its publisher, Par Ridder, left to work for the Minneapolis Star Tribune. A lawsuit was filed almost immediately. Within months, a judge had barred Ridder from working at the Star Tribune, allowed the Pioneer Press to search numerous Star Tribune computers to determine what confidential information had been moved to Ridder’s new employer, and ordered the Star Tribune to pay the legal fees incurred by the Pioneer Press. Those fees were estimated to be about $5 million. This was not a good situation for either business.

The documents involved in that case were trade secrets. Trade secrets are important to all businesses, and if you look around, you will find that your business probably keeps a trade secret or two.

Trade secrets are frequently the focus of lawsuits between competitors in the marketplace, and regularly involve information being taken by an employee that is either starting a new business or moving to a rival. This type of legal claim is called misappropriation. Misappropriation, in general, happens when someone gains, uses or discloses a trade secret through what the law calls “improper means.” Improper means include theft, misrepresentation, violating a duty to maintain confidentiality, espionage, bribery or other sneaky and illegal methods.

What is a trade secret?

Minnesota is one of many states that have adopted the Uniform Trade Secrets Act. It defines a trade secret as information that:

• Derives independent economic value from not being generally known to, and not readily ascertainable through proper means, by other people who can obtain economic value from disclosure or use of the information; and

• Is the subject of efforts that are reasonable under the circumstances to keep the information secret.

Information is very broadly defined by the Act, and can consist of a pattern, formula, program, compilation, method, technique, process or a device. That definition is pretty wide-open, allowing many different kinds of proprietary information to be trade secrets.

Courts interpreting the Act have also applied some common-law (law that comes for judicial decisions over time instead of from statutes) requirements that existed prior to adoption of the Act. According to Minnesota courts, a trade secret must also:

• Be developed in the ordinary course of business;

• Have some level of novelty or uniqueness; and

• Be the subject of adequate notice to anyone receiving the information that it actually is a trade secret and is confidential.

Some of the criteria are worth examining in more detail. The first factor, whether the alleged trade secret was generally known or readily ascertainable, is a question of fact that has to be resolved in each case. There are no hard and fast rules. Fortunately, some guidance can be found from court decisions. Information that can easily be found on the Internet, in a textbook or in some other readily-available manner is probably not a trade secret. Reverse engineering, a common way of finding out more about a competitor’s product, may or may not be misappropriation. It depends on a court’s determination of how easy it was to accomplish the reverse engineering.

A frequently-litigated question is whether a customer list is a trade secret. Most businesses place tremendous value on the identity and loyalty of their customers, but the list isn’t necessarily a trade secret. Customers may be a certain kind of business or members of the general public interested in a business’s specific services. That information is available, but the real question is whether it is readily available. If a court determines that it was, it will not be a trade secret. As you can imagine, this is very fact-dependent and will vary from case to case. A customer list, like all trade secrets, must also meet the other two main factors.

Second, the information must get some economic value from being a trade secret. This factor is normally met if a competitor can gain an economic advantage from learning the information. Potential economic value qualifies, so you don’t have to wait to suffer actual economic harm before taking action.

The third factor, whether reasonable efforts were taken to maintain secrecy, is often the key to a successful lawsuit. The owner of a trade secret must show that it was treated as confidential during the normal, every-day course of business. The law doesn’t require absolute secrecy, and business owners don’t have to engage in spy-novel tactics to hide information. The law does, however, require reasonable efforts to maintain the secrecy.

Protecting trade secrets

Fortunately, there are quite a few steps that you can take to protect your business’s trade secrets. The first step is to determine what confidential information you have that should be protected.

Next, make sure that people with access to the trade secrets know that the information is confidential. You can do this in several ways, such as adding a section to your employee manual, conducting training, discussing it in an exit interview and labeling the information itself. Adding a watermark or a header to a document to inform the reader that it is confidential is an easy operation in most word processors.

After you have identified the trade secrets and adopted policies about them, make sure that your physical security arrangements are in order. You need to evaluate the threat your business would face if your trade secrets were exposed, and then create an appropriate security level. This can range from an expensive, high-tech alarm system to a low-tech plan to make sure that the trade secret stays out of public areas and is secured from people that don’t need access.

Check your electronic security, too. Computers that can access trade secret information should be protected by passwords, and your anti-virus and network security equipment should be up to date. Depending on the size of your computer system, you could consider setting specific permissions attached to usernames. If a user doesn’t have the required access, they can’t see your trade secrets. Some businesses remove CD burners and prohibit employees from using USB drives. If you use an IT consultant, talk to them about other possible security arrangements.

This article is not intended to be and should not be taken as legal advice or a full review of legal issues created by trade secrets. Instead, this is meant to get you thinking about the issue and perhaps examining your own business practices. Consult an attorney if you have specific questions about your situation.

John R. Gasele is an attorney at Fryberger, Buchanan, Smith & Frederick, P.A., practicing in the areas of Internet, trademark, copyright, business and administrative law. You can reach him at the firm’s Duluth office at (218) 722-0861.