Page 24 - Intellectual Property Disputes

Nature of Trade Secrets

Under the UTSA, a trade secret consists of a formula, pattern, physical device, idea, process, or
compilation of information that (a) provides the owner of the information with a competitive advantage
in the marketplace and (b) is treated in a way that can reasonably be expected to prevent the public or
competitors from learning about it, absent improper acquisition or theft. fn 39 Trade secret law can protect
valuable technical information, such as the formula for Coca-Cola, which could otherwise be in the
public domain.

The UTSA was intended to codify the basic principles of common law trade secret protection. Although
the definition of a trade secret varies from jurisdiction to jurisdiction, the majority have adopted a hybrid
of the following definition in the UTSA:

Trade secret" means information, including a formula, pattern, compilation, program, device,
method, technique, or process, that: (i) derives independent economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of
efforts that are reasonable under the circumstances to maintain its secrecy. fn 40

The DTSA defines a trade secret as "all forms and types of financial, business, scientific, technical,
economic, or engineering information, including patterns, plans, compilations, program devices,
formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether
tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically,
graphically, photographically, or in writing if

• the owner thereof has taken reasonable measures to keep such information secret, and

• 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." (18 USC § 1839)

In the states that have not substantially adopted the UTSA, namely New York and, debatably Alabama
and North Carolina, the Restatement of Torts, Restatement of Unfair Competition, or both, remain
influential. In general, the legal principles articulated in the restatements are mirrored by the UTSA.

Another statute relevant to trade secrets is the Computer Fraud and Abuse Act (CFAA, 18 USC 1030)
Case law has expanded the protection of trade secrets under the CFAA. In Shurgard Storage Centers,
Inc. v. Safeguard Self Storage, Inc., an employer alleged that former employees had the employer’s trade
secrets stored on their computers and had given them to a competitor. The court held that (a) for
purposes of stating a claim under the CFAA, the former employees had lost access to their computers
when they allegedly became agents of the competitor; (b) the CFAA was not limited to situations in
which the national economy was affected; (c) the fraud provision of the CFAA did not require showing
of common law fraud elements; (d) the provision penalizing infliction of damage on protected

fn 39 UTSA with 1985 Amendments, 9.

fn 40 Section 1(4) of the UTSA.

20 © 2020, Association of International Certified Professional Accountants