Tools for trade secret asset management

The definition of a "tool" is an instrument that you use to help you accomplish some task. If you are going to build a bookcase, you'll need the proper tools, like a saw, a drill, and a tape measure.

 

This article identifies two powerful tools used to identify, classify protect and value trade secrets assets: Subject-Format-Product (SFP) Classification and Existence-Ownership-Notice-Access (EONA) proofs.

 

Taxonomy is the process of naming and classifying things. The starting point and ending point in trade secret law posits the following question: What is "IT" that is alleged to be the trade secret? The SFP System is a taxonomy that identifies and classifies trade secrets: [Subject] [Format] for [Product].

 

The Subject corresponds to the department or other organization that developed or uses the trade secret. The Format identifies the receptacle for the trade secret: a formula, drawing, process, pattern, device, method, techniques, designs, plans, programs and codes. The Product identifies an existing product, a prototype, or a failed product.

 

Here are several examples:

 

Engineering Specifications for the Model 5750 tractor. (Engineering] is the Subject. 

 

[Specifications] is the Format. Model 5750 Tractor is the [Product].

 

Sales Plan for Lawn Furniture. [Sales] is the Subject. [Plan] is the Format. Lawn Furniture is the [Product].

 

Research Test Results for Non-Flammable Plastics. [Research] is the [Subject]. [Test Results] is the Format. Non-Flammable Plastics is the [Product].

 

The SFP classification system enables granular categorization of a larger universe of trade secret assets. At first blush, it seems too rudimentary for complex pieces of information within an organization. The opposite is true. The SFP classification system pinpoints the existence of a trade secret within a three-dimensional plane. Each trade secret lies within one SFP cubby-hole.

 

The SFP classification system is simple for employees to use. Employees are already knowledgeable about the different departments within the company, the different types of corporate information, and the different products that the company manufactures and sells.

 

Legal recognition of a piece of information as a trade secret requires litigation and proof by a preponderance of evidence that the piece of information satisfies the statutory criteria outlined in the Uniform Trade Secrets Act (UTSA) or the Defend Trade Secrets Act (DTSA).

 

Until the trial court grants the trade secret owner's motion for summary judgment that "X" is a trade secret or until the judge or jury returns a verdict that "X" is a trade secret, the piece of information remains as just an alleged trade secret. The judge or the jury could also determine that the information is not a trade secret, preventing the plaintiff from unilaterally classifying it as such.

 

A plaintiff must submit evidentiary proof of existence, ownership, notice, and access to prove that the information is a protectable trade secret. These proofs — existence, ownership, notice, and access — are called the "EONA" proofs.

 

Each of the EONA Proofs are reviewed below.

 

The existence of a "trade secret" is one of the most elusive and difficult concepts in the law to define. There is no exact definition of a trade secret due to the vast spectrum of information that could qualify as such. Additionally, the many factual circumstances that could be determinative or fatal to a piece of information's possible classification as a trade secret contributes to the malleable definition of a trade secret.

 

The key litmus test in trade secrets law is the six-factor test identified by the American Law Institute in 1939 after a review of over 100 years of case law in the 19th Century. Today, the six-factor test has been adopted by virtually every state and federal court in the United States.

 

The attraction of the six-factor test is its ability to evaluate any type of potential trade secret under any set of factual circumstances. It is extraordinarily versatile and compatible with modern statutory trade secret law.

 

The six factors are set forth below with the rationale for each factor in parentheses.

 

Factor 1: The extent to which information is known outside the company (the more extensively the information is known outside the company, the less likely that it is a protectable trade secret).

 

Factor 2: The extent to which the information is known by employees and others involved in the company (the greater the number of employees who know the information, the less likely that it is a protectable trade secret).

 

Factor 3: The extent of measures taken by the company to guard the secrecy of the information (the greater the security measures, the more likely that it is a protectable trade secret).

 

Factor 4: The value of the information to the company and competitors (the greater the value of the information to the company and its competitors, the more likely that it is a protectable trade secret).

 

Factor 5: The amount of time, effort, and money expended by the company in developing the information (the more time, effort and money expended in developing the information, the more likely that it is a protectable trade secret).

 

Factor 6: The ease or difficulty with which the information could be properly acquired or duplicated by others (the easier it is to duplicate the information, the less likely that it is a protectable trade secret).

 

The six-factor test identifies the existence and strength of the alleged trade secret and the likelihood that the alleged trade secret will be adjudicated to be a trade secret. There can be no trade secret if the information is generally known in the trade or readily ascertainable by proper means.

 

The "ownership" proof requires the holder of the trade secret to prove ownership. The existence of a trade secret precedes ownership of a trade secret. If a piece of information is generally known in the trade, or if it is readily ascertainable by proper means, then ownership becomes irrelevant because anyone can disclose or use the piece of information. The world "owns" it.

 

There is no definition of "owner" in the UTSA. However, the DTSA defines the term "owner" as the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed. There can be multiple "owners" of a trade secret.

 

Proving ownership of a trade secret is a critical task. If the evidence establishes that A is the owner of the trade secret, then A has standing to file a complaint for trade secret misappropriation. If B is the owner of the trade secret, then A does not have standing to sue B for trade secret misappropriation.

 

The trade secret owner must show that the alleged misappropriator had actual, constructive, or implied notice of the alleged trade secret. Notice requires identification of the alleged trade secret with particularity. An alleged trade secret must be described with sufficient specificity so that when a description of what is generally known in the industry is placed side-by-side with the description of the alleged trade secret, an adequate comparison can be made.

 

The "notice" requirement in trade secrets law is the linchpin for imposing liability on the alleged trade secret misappropriator. There is no liability if there is no notice of the confidential character of the disclosure.

 

It is a fundamental tenet of trade secret law that an unprotected disclosure of confidential information to the receiving party vitiates the status of the information as a trade secret. It is like a "pin pricking a balloon" — the status of the information as a protectable trade secret asset is forfeited as a matter of law.

 

Without access there can be no liability for trade secret misappropriation. Acquisition of a trade secret by improper means is wrongful. Acquisition of a trade secret by proper means is lawful. 

 

Whether by "proper" means or "improper" means there must be proof of the defendant's "access" to the trade secret. Otherwise, the trade secret owner cannot establish a cause of action for trade secret misappropriation.

 

Unlike the holder of a patent, the owner of a trade secret has no claim against another who independently discovers or reverse engineers the trade secret. Therefore, the trade secret owner must prove by a preponderance of the evidence that the defendant had access to and improperly acquired, disclosed or used the alleged trade secret.

 

The classification of trade secrets using the SFP protocol and the utilization of the EONA proofs to establish the prima facie elements of a trade secret misappropriation claim are powerful tools for streamlining trade secret assets and trade secret litigation.