Defenses to Trade Secret Actions

Terms:


Employee at Will:
An employee at will is an employee who has no contract and can be fired for almost any reason, or for no reason at all. The only exceptions would be getting fired because of race, religion, gender, etc., being fired in retaliation for whistle-blowing, or certain other reasons.


Although there may be a great variety of arguments available to an attorney defending a client against a trade secret action, there are three basic defenses available.

Trade Secrets

One could argue that the information in question does not rise to the level of “trade secret.” Under the UTSA there are a number of ways something could fail to satisfy the definition of “trade secret.” One argument would be that the efforts made to maintain the secrecy of the information were less than reasonable.

EXAMPLE: “10-4 Rosey Trellis” is a major real estate company which provides services ranging from appraisals and broker services to property management. The company uses proprietary software to help its brokers and appraisers determine property values in a way which makes their lives easier and saves the company a great deal of money. The process by which this is done has not been patented, although the program itself might be protected by copyright law. Keeping this out of its competitor’s hands gives the company a competitive advantage. The software is installed on laptop computers provided to 10-4’s brokers and appraisers. Although many companies today require their employees to use a random code generator to log on to their laptops, an administrative decision was made to not use such code generators for the 10-4 laptops, as this would save the company even more money. Helene accidentally leaves her laptop on a plane. When Maggie finds the computer and turns it on to try to determine the identity of its owner, up pops this valuation program. Recognizing it for what it is, Maggie makes note of the process before finding Helene’s contact information and arranging to return the lost laptop.

In terms of making reasonable efforts to protect their secret process, 10-4 has probably failed. That means that the process is no longer a trade secret, and if divulged or used by another party, even if improperly acquired, there will be no cause of action under the UTSA. After all, only something which is an improperly acquired trade secret is protected, and the failure to take adequate security measures will be fatal to 10-4’s trade secret lawsuit.

Qualifications of a trade secret

One could argue that even if the information does constitute a trade secret it was not acquired improperly, and therefore disclosure and/or use is not protected under the UTSA. Information of the type protected by the UTSA which is adequately protected might nonetheless fall into the wrong hands quite innocently. In such a case, because there has been no misappropriation, there will be no valid trade secret claim against the user of the information.

In the example above, each of these two arguments could have been used. 10-4 failed to take reasonable measures under the circumstances to protect their property, and the person who “found” the property was not engaged in any kind of wrongful act.

EXAMPLE: Having learned its lesson from Helene’s laptop loss, 10-4 now uses cutting edge security software to allow only properly authorized persons access to their newest valuation process software. Despite these great efforts, a freak accident involving a microwave, a wireless router, a garage door opener and a new-fangled cell phone results in the process somehow being displayed on a television in the apartment adjoining Helene’s. If her neighbor makes notes of the process and uses it for his own appraisal company, or sells it to a third party, there can be no trade secret claim. He has done nothing wrong to cause this information to be made available to him, and is free to use it for commercial gain.      

Note that in this technology-fluke example some might intuitively want to protect 10-4 from second-comers because the company did everything they could do to protect their valuable intellectual property. A more realistic example might be of someone carrying secret documents down the street in a briefcase, slipping on ice, and dropping the briefcase causing it to open and scatter the documents down the street. If no copyright, trademark, or patent infringement results from someone picking up the paper and using the information to her advantage, shouldn’t we be able to use trade secret law to do so? Ultimately this is a policy decision, and depends on where we choose to strike the balance between protection of businesses and permitting the public to use intellectual property. For now, trade secret law essentially says that no, we will not protect against this innocent release of information to others. Finder’s keepers, so to say.

Contracts

If the claim is brought on the contract for a noncompete or nondisclosure agreement, the various defenses to contracts would apply. While the common defenses to contracts are covered in great depth in the Contracts course, some of the defenses most relevant here include:

  • Unconscionability: As mentioned earlier, a nondisclosure/noncompete agreement might go too far and thereby become unenforceable. Trying to prevent an employee from engaging in her profession “anywhere in the United States for a period of 10 years following termination” would be unconscionable. A court could choose to limit the scope of the agreement or refuse to enforce it entirely.
  • Duress: When someone is threatened with being fired unless she signs a nondisclosure/noncompete agreement, the agreement might be void due to economic duress placed on the employee. This is complicated somewhat when an employee at will, who could be fired for no reason, is asked to sign such an agreement.
  • Unfair surprise: Slipping terms into the final draft of a contract when those terms are not part of what the other party was led to expect might make those terms void due to unfair surprise.