What Every Business Owner Should Know About the Defend Trade Secrets Act – Part 2

The need to review your systems for maintaining secrecy.


In part I, we discussed the need to update your employment agreements to contain the required notice of immunity to employees who disclose trade secrets as part of whistle blowing activity.

The next course of action is to review and update your company’s processes and systems for maintaining trade secrets.

The Act allows ex parte seizure orders of stolen trade secrets, but only upon a showing that the owner of trade secrets has “taken reasonable measures to keep such information secret.” In addition, the owner must show that “the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by another person who can obtain economic value from the disclosure or use of the information.” So what are “reasonable measures” to keep information secret and how does information derive “independent economic value?” The new Act is silent on these questions, but there are factors that courts in numerous jurisdictions consider when pondering these questions.

As to the question of reasonable measures, they include:

  • Are documents and computer files labeled as confidential or marked with confidentiality warnings?
  • Is access to confidential information restricted to only those persons within the organization with a “need to know?”
  • Is the information securely stored? This could include storage in a physically restricted area or data storage accessible only with proper electronic credentials.
  • Were employees instructed to maintain confidentiality of the information? Is this reflected in signed confidentiality or nondisclosure agreements?
  • What other measures are taken to protect the information from disclosure?

In regard to whether information has independent economic value, factors include:

  • The amount of time, money or labor expended in developing the information;
  • The amount of time, money, or labor that is saved or would be saved by a competitor who used the information;
  • The extent to which the owner obtained or could obtain economic value from maintaining the secrecy of the information; and
  • The extent to which others could obtain economic value from the information it is were not secret.

As these factors show, maintaining accurate business records relating to the efforts to maintain secrecy and the economic value of the information is key to protecting your rights under the Act. The onus will be on you and your organization to prove that information is, in fact, a trade secret.

Take steps now to protect your valuable trade secrets, and develop a process of regular review of your systems and plans used to protect the confidentiality of your trade secrets.

Comments are closed.