When Secrets May Not Be Trade Secrets

In many trade secret disputes, the parties are focused on fighting over whether the information was adequately protected

In many trade secret disputes, the parties are focused on fighting over whether the information was adequately protected.  Or they are concentrating on whether the information could be found on Google or in science journals.  As a result, the parties overlook whether the information actually has value.  Because if confidential valuation is worthless, then no damages can be recovered due to its wrongful release to the public.

 

A trade secret is generally defined as (1) information not known or discoverable in the public domain; (2) information its owner protects to maintain its confidentiality; and (3) information with commercial value or creates a competitive advantage because it is kept confidential.   All three prongs must be met for a trade secret to exist.  It is important to note that any use–let alone continued use–of the trade secret is not always required to maintain protection.

 

But if a trade secret owner used the trade secret and then abandoned its commercial efforts to sell and to manufacture a product for a lengthy period of time, then the trade secret can be deemed “abandoned”.  This is particularly true if the trade secret owner leaves an entire sector or industry.   This creates a compelling argument to defeat a trade secrets claim.  Rhetorically, if Mrs. Fields stopped selling cookies for ten years to focus on selling footwear, then do the protected recipes still have any value to Mrs. Fields?    

 

Obsolete or stale information can also lose its trade secret status.   Market developments can transform information that once held great value into valueless information.  Likewise, confidential information about general market conditions loses its value with time.  After all, should Nike care about the value of the sneaker market in 2018?  It is important to note with sales and product development cycles decreasing, confidential information might become valueless sooner than in the past. 

 

Finally, confidential information to engage in illegal activity is arguably valueless because it cannot be used.  Or cannot be used in theory.   At present, this issue undoubtedly affects the cannabis industry where the federal government’s supremacy overrides each state’s “legalization” of marijuana.   State and federal courts ruling on trade secret issues might push greater issues related to “legalization” to the U.S. Supreme Court.  Until there is greater clarity, companies should be hesitant to assume much of their confidential information can be protected by trade secret laws.

 

Key Takeaway: protection of confidential information does not guaranty trade secret protection.

 

David Seidman is the principal and founder of Seidman Law Group, LLC.  He serves as outside general counsel for companies, which requires him to consider a diverse range of corporate, dispute resolution and avoidance, contract drafting and negotiation, real estate, and other issues.  He can be reached at david@seidmanlawgroup.com or 312-399-7390.

This blog post is not legal advice.  Please consult an experienced attorney to assist with your legal issues.

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