Trade Secrets

Is law like craps?“Trade secrets” may be one of the most intentionally misunderstood concept in the laws; company’s will make claims that all sorts of information are trade secrets in an effort to shut down a competing business or prevent a former employee from working.  Under the South Carolina Trade Secrets Act § 39-8-20(5)(a) (2012) defines “trade secret”  to mean:

Information, including, but not limited to, a formula, pattern, compilation, program, device, method, technique, product, system, or process, design, prototype, procedure, or code that:

  1. derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by the public or any other person who can obtain economic value from its disclosure or use, and
  2. is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

The law prohibits an person from using or disclosing or acquiring (“misappropriation”) the trade secrets of another.  A person found to have misappropriated the trade secrets of another can be held liable for two times actual damages and attorneys’ fees.  However, a company that makes a claim for misappropriation of trade secrets in bad faith can be required to pay the attorneys’ fees of the defendant.

In Carolina Chem. Equip. Co. v. Muckenfuss, 322 S.C. 289, 295, 471 S.E.2d 721, 724 (Ct. App. 1996) the court considered the definition of a trade secret:

The threshold issue in any trade secrets case is not whether there was a confidential relationship or a breach of contract or some other kind of misappropriation, but whether there was a trade secret to be misappropriated….In determining whether something is a trade secret, one must consider the extent to which the information is known outside of his business and the ease or difficulty with which the information could be properly acquired or duplicated by others. . . . When an employee leaves a job, he is entitled to take the skills and general knowledge he has either acquired or increased during his employment with him. . . . In determining whether something is a trade secret, one must consider the extent to which the information is known outside of his business and the ease or difficulty with which the information could be properly acquired or duplicated by others. . . . Trade secret protection is limited. For instance, even matters that can be disclosed by reverse engineering may not be protected as trade secrets.

Also,  Atwood Agency v. Black, 374 S.C. 68, 72, 646 S.E.2d 882, 883 (2007) found that “[b]ecause the information Atwood seeks to protect is available through other proper means, it is not protected as a trade secret.” Information that can be discovered through reverse engineering is not a trade secret.

On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA), which will provide an additional federal claim to those alleging trade secrets claims.  The law will not pre-empt state laws, although claims asserted under the DTSA will have its own federal common law.  There are no reported cases interpreting the DTSA yet, however, we will be on the look out so we can update you here.

This is just the beginning of the law of trade secrets, but it should be helpful in making some initial judgments.  And,  now you know, what you don’t know.

 

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