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Trade Secrets

Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog
Zies, Widerman & Malek
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A trade secret is defined as any valuable business information that is not generally known and is subject to reasonable efforts to preserve confidentiality. Generally speaking, a trade secret will be protected from exploitation by those who either obtain access through improper means, those who obtain the information from one who they know or should have known gained access through improper means, or those who breach a promise to keep the information confidential. While virtually every business has at least some trade secrets, they are quite fragile because they protect information and resources that are secret, which necessarily means that protection is lost if and when the secret becomes publicly known. For that reason, when other forms of intellectual property protection are available, such as copyright or patent protection, one should carefully weigh the benefits of relying on trade secret protection.

If you must disclose your invention or trade secret, particularly prior to having a patent application pending, you should absolutely use a Confidentiality Agreement. We have several free sample agreements that you can use and modify as necessary.

Virtually all states have adopted a portion of or modified version of the Uniform Trade Secrets Act, which was drafted by the National Conference of Commissioners on Uniform State Laws in 1970 and amended in 1985. According to the text of the Uniform Trade Secrets Act, a “trade secret” is:

information, including a formula, pattern, compilation, program device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from no 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 (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Trade secret misappropriation can be thought of as a type of unfair competition. According to the Uniform Trade Secrets Act, misappropriation is defined as:

(i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (ii) disclosure or use of a trade secret of another without express or implied consent by a person who (A) used improper means to acquire knowledge of the trade secret; or (B) at the time of disclosure or use knew or had reason to know that his knowledge of the trade secret was (I) derived from or through a person who has utilized improper means to acquire it; (II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (C) before a material change of his position, knew or had reason to know that it was a trade secret ad that knowledge of it had been acquired by accident or mistake.

The Uniform Trade Secrets Act defines “improper means” to include “theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means.”

Remedies for infringement of a trade secret include damages, profits, reasonable royalties, and an injunction. With respect to damages the Uniform Trade Secrets Act explains:

(a) Except to the extent that a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation renders a monetary recovery inequitable, a complainant is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret.

(b) If willful and malicious misappropriation exists, the court may award exemplary damages in the amount not exceeding twice any award made under subsection (a).

With respect to injunctive relief the Uniform Trade Secrets Act explains:

(a) Actual or threatened misappropriation may be enjoined. Upon application to the court an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.

(b) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances include, but are not limited to, a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable.

(c) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.

Attorneys fees are also available under the Uniform Trade Secret Act if the misappropriate is willful and malicious, or if a motion to terminate an injunction is made in bad faith. Some statutes also provide for enhanced damages and attorneys fees in certain circumstances.

About the Author

Eugene R. Quinn, Jr.
President & Founder of IPWatchdog, Inc.
US Patent Attorney (Reg. No. 44,294)
Zies, Widerman & Malek

B.S. in Electrical Engineering, Rutgers University
J.D., Franklin Pierce Law Center
L.L.M. in Intellectual Property, Franklin Pierce Law Center

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Gene is a US Patent Attorney and the founder of IPWatchdog.com. Known by many as “The IPWatchdog.” Gene started the widely popular intellectual property website IPWatchdog.com in 1999, and since that time the site has had millions of unique visitors.Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, CNN Money and various other newspapers and magazines worldwide. He represents individuals, small businesses and start-up corporations. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.