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October 27, 2020

Proving Your Trade Secret Claim in Court

Proving Your Trade Secret Claim in Court

Trade secrets are an increasingly important form of intellectual property. And they are stolen or misused far more often than you may realize. An employee might swipe your customer as he leaves for a new job. A vendor might use your business strategies to help one of your competitors. A joint venturer might exploit your technology for its own benefit.

When someone misappropriates your business’s trade secrets, it is critical that you take swift, decisive action. Though some cases can be resolved without court intervention, legal action may be needed to prevent devastating harm to the business and recover its losses.

To prevail in court, a trade secret plaintiff must first prove that the information was, in fact, a trade secret under the law. This can be more challenging that it seems. How does a company show that its information counts as a trade secret entitled to protection?

Proving the Information is Protectable as a Trade Secret

First your business will need to prove that its information is protectable. In many cases (not all) this will be the easy part. Pretty much any valuable information is eligible for trade secret protection, provided it is robust enough and has not been publicly disclosed.

The following are examples of information that might qualify as trade secrets:

  • Plans for new products and product lines
  • Engineering plans, drawings, and specifications
  • Marketing strategies and plans
  • Chemical formulas
  • Customer preferences and purchase histories
  • Software programs
  • Financial information such as revenues, profits, costs, and margins
  • Operational processes, methods, and procedures
  • Inventions and new technologies
  • Research and development information

Proving the Information Has Competitive Value

Though any type of information can qualify as a trade secret, it must have economic value. And this value must derive from its not being known or discoverable by your competition. Simply put, trade secrets are secrets that your competition could profit from knowing.

To determine whether information meets this standard, courts look at the value it has to the owner and competitors, the effort and money that went into developing it, and how difficult it would be for others to develop the same information, among other things.

Proving Your Company Took Steps to Ensure Secrecy

To qualify as a trade secret, your business must, well, keep it a secret. More specifically, an owner must prove it made reasonable efforts to protect its information from disclosure. This seemingly simple point is often hotly contested; it can make or break a trade secret case.

The measures each company takes will vary. To take a famous example, it is said that the formula for WD-40 is locked away in a bank vault that can only accessed by select individuals. Though this particular method will not be appropriate in every case, the concept is right: You need to limit access and set up barriers against disclosure.

Some measures to consider to protect your business information include the following:

  • Storing data on password-protected computer devices and systems
  • Storing physical files in locked rooms or file cabinets when not being used
  • Expressly restricting access to employees or others with a need to know
  • Clearly marking sensitive documents and files as “confidential”
  • Requiring employees, vendors, consultants, investors, or others who will review the information to sign a carefully drafted nondisclosure agreement
  • Requiring employees with access to the information to sign carefully drafted non-compete and non-solicitation agreements

Though an NDA is not the only way to protect your information, putting an NDA in place is one of the clearest and most easily enforceable ways to ensure confidentiality. An experienced trade secret attorney can craft NDAs tailored to the specifics of your business and provide guidance in putting other appropriate, enforceable measures in place.

Enforcing Your Trade Secret Rights in Court

Like most states, Michigan has adopted its own version of the Uniform Trade Secrets Act (UTSA)º, which prohibits parties from wrongfully disclosing or using the trade secrets of another. Federal law also provides a cause of action for trade secret misappropriation and includes enhanced remedies. If you believe that someone has misappropriate your business’s trade secrets, you should take immediate action. Time is of the essence.

Sometimes it’s best to start with a cease-and-desist letter demanding that the target stop using your information and return or destroy all copies in his or her possession. Other times, it will be necessary to file a lawsuit right out of the gate. Many trade secret cases begin with a motion seeking an immediate injunction to halt any further misappropriation.