Trade secret protection is one of the powerful legal tools available to protect Intellectual Property. Yet in some industries the use of trade secrets remains one of the best kept, well, secrets.
Trade secret protection is governed by state law as opposed to federal patent law and there are significant divergences among the states in their treatment of trade secrets. However, forty-four states have adopted the Uniform Trade Secrets Act (UTSA) as a mechanism for trade secret protection. Other states have drafted their own statutes or continue to provide protection under the state’s common law. The UTSA defines a trade secret as information, including a formula, pattern, compilation, program, device, method, technique, or process, that (a) derives independent economic value from not being generally known or readily ascertainable by proper means by other persons and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The scope of what can be protected as a trade secret is thus very broad, and the shield of trade secret protection can be as important as the more well known weapons in the intellectual property arsenal.
Recent events in the news highlight some of the more important issues to consider in protecting confidential information and trade secrets. This will be the first in a series of articles looking at some of these news items and the lessons to be learned from them.
It almost goes without saying that one of the best kept and most highly guarded trade secrets ever is the formula for Coca-Cola. The Coca-Cola formula has been around for over 100 years, yet has maintained its trade secret stature for that entire time.
In July 2006, three people were accused of stealing trade secrets from Coca-Cola and attempting to sell the information to Pepsi. The stolen information included several documents, including a new Coca-Cola formula, and a sample of a potential new product. One of the accused was a Coca-Cola employee. Rather than taking advantage of this information, Pepsi respected Coca-Cola’s trade secret and contacted Coca-Cola. The FBI became involved and, through a sting operation, apprehended the people responsible. Two of the suspects have since pled guilty, while the third, the now former Coca-Cola employee, is set to stand trial.
through files, placing documents in a bag, and taking a container that appeared to be a product sample. An undercover FBI agent was given about 14 pages of documents in exchange for $30,000 and promises of more money after the product was tested and additional documents were delivered. According to Coca-Cola officials, the recipe for Coca- Cola itself was not among the documents.
The potential loss of the trade secrets is bad enough in and of itself, but the pre-trial legal maneuvers are even more threatening. For example, counsel for the former employee has:
- Asked that the court allow direct contact with non-managerial staff, without first telling Coca-Cola’s counsel (corporate counsel had previously denied access);
- Asked for permission to contact managers to see if they were amenable to interviews;
- Subpoenaed documents related to products that were developed but not launched; and
- Subpoenaed materials related to confidential unused marketing strategies
Obviously, Coca-Cola is doing all it can to oppose the potentially detrimental disclosure of any of this information, much of which is itself trade secret information; and government prosecutors are likewise trying to take steps necessary to prevent further disclosure of confidential and trade secret information. Complications occur in obtaining protection, because this is not a civil trial, but a criminal prosecution before a jury. Thus, additional protective measures are not straightforward. For example, in order to prevent disclosure of information that has become known to the jury, prosecutors have relied on the Classified Information Procedures Act, which was enacted to protect sensitive national defense information, as setting a precedent for limiting the information the jury is allowed to share. Prosecutors have also asked that exhibits containing Coca-Cola trade secrets be sealed. These requests have created some tension as they give the appearance that prosecutors are trying to restrict the public’s access to the trial. The defendant’s counsel has been aggressive, and Coca-Cola and the prosecutors are worried about public disclosure of confidential information.
The lesson from this case is obvious: Take the necessary steps to maintain the security of trade secrets and confidential information. Not only is Coca-Cola experiencing direct consequences from the breach of this security, but there has been a domino effect that could lead to disclosure of additional valuable trade secret information.
The trouble that Coca-Cola is having can be avoided or at least minimized by integrating trade secret protection into an intellectual property protection program. There are several aspects to a successful trade secret program, but most do's and don'ts boil down to the use of common sense. They include:
- Keep secrets physically secure. Designate secured folders, drawers, and rooms in which trade secret information is to be kept, and establish firm procedures to ensure that secrets stay there;
- Give notice of confidentiality. Apply prominent notices of confidentiality restrictions on trade secret information, including notices on documents, drawers, and rooms that contain the information;
- Place limits on sharing. Designate responsible employees who need to know the trade secrets. Share the information only with those employees and with outsiders on a need to know basis, and then only after confidentiality agreements have been signed;
- Remind employees and others of obligations. Remind employees, vendors, and others of the importance of confidentiality, send reminders upon termination of employment or contract, and send reminders to former employees shortly after they have begun new jobs; and
- Secure electronic copies. Avoid wholesale electronic security breaches such as may occur when laptops containing information are stolen, or where security against hacking is unreasonably deficient. After the breach of security became known, a surveillance video was set up and recorded the former employee looking
One last lesson can be learned from these events. Once Pepsi recognized that the information offered was the confidential trade secret information of Coca-Cola, it took the high road by not utilizing the information and taking the proper steps to prevent disclosure. Of course this is not just the moral high ground but the safe legal path as well. Potential liability for trade secret infringement occurs: (1) when the infringer learns the trade secret through "improper means," (2) when the infringer discloses or uses the trade secret despite a promise not to do so, (3) when the infringer learned the trade secret from a third person with notice of the facts that it was a trade secret and that the third person's disclosure of it was unauthorized, or (4) when the infringer learned the trade secret with notice of the facts that it was a trade secret and that its disclosure was made to him by mistake. Paragraph 757 of 4 Restatement of Torts (1938). When you have reason to believe that trade secrets of another may have come into your hands, exercise due diligence. You should consult with counsel to assure that proper steps are taken to protect yourself from liability.