Trade Secrets Trade Secrets Introduction Lets begin our

Trade Secrets

Trade Secrets Introduction Let’s begin our discussion of trade secrets with the following video and article (Video) “Shh! Food trade secrets you'll never know” (Article) “Closely Guarded Secrets” Legal Environment of Business - Jeffrey Pittman 2

Famous Trade Secrets Kentucky Fried Chicken (KFC) - “Famous trade secret comes home to beefed-up security” Notice steps taken to protect security of secret Lockheed – “The Cost of Misconduct” Notice lack of diligence regarding trade secret Coca-Cola – “World’s most famous trade secret revealed? ” and “Original Recipe” Legal Environment of Business - Jeffrey Pittman 3

Famous Trade Secrets Listerine – “Trade Secret Licensing: The "Listerine" Formula Case” Legal Environment of Business - Jeffrey Pittman 4

Trade Secret Definition A trade secret is secret information owned or developed by a business that gives it a competitive advantage Legal Environment of Business - Jeffrey Pittman 5

Sources of Trade Secret Laws In the United States, trade secret protections come from a combination of state and federal laws Legal Environment of Business - Jeffrey Pittman 6

Trade Secret Subject Matter Under United States law, trade secret law protects information, including a formula, pattern, compilation, program, device, method, technique, or process, that: Derives independent economic value from not being generally known or readily ascertainable by proper means by other persons, and Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy Legal Environment of Business - Jeffrey Pittman 7

Maintaining Trade Secrets Companies should consider the following methods to protect trade secrets: Review all company operations and proprietary information to determine where trade secrets exist Use nondisclosure (confidentiality) agreements with all individuals having access to the trade secrets, including employees, officers, bankers, vendors, etc. Legal Environment of Business - Jeffrey Pittman 8

Maintaining Trade Secrets Consider use of noncompetition agreements (covenants not to compete) A covenant not to compete is a contract clause where a person agrees not to engage in a specified business or occupation The covenant will identify the applicable time and geographic region, e. g. , the employee will not leave the company's employ and work in the meat processing industry for the next two years, within the United States Legal Environment of Business - Jeffrey Pittman 9

Maintaining Trade Secrets Examine physical and network security issues: Restrict access to company trade secrets Utilize computer passwords, "confidential" stamps/legends, record-keeping procedures, entrance and exit interviews, etc. Legal Environment of Business - Jeffrey Pittman 10

Covenants not to Compete Covenants not to compete in employment contracts are disfavored by the law in many countries, such as the United States In the United States, employment covenants not to compete usually will be upheld only where the employer has a legitimate business interest to protect, and the time and geographic employment restrictions are reasonable Legal Environment of Business - Jeffrey Pittman 11

Covenants not to Compete Regarding employment contracts, legitimate business interests have been found where employees were provided special training, or allowed access to trade secrets, confidential business information, or confidential customer lists Legal Environment of Business - Jeffrey Pittman 12

Proper Means Trade secrets may be legally discovered by the following proper means: Independent invention “Reverse engineering", that is, starting with the known product and working backward to find the method by which it was developed (assuming the reverse engineering is not prohibited by contract) Observing the item in public use or on public display Obtaining the trade secret from published literature Legal Environment of Business - Jeffrey Pittman 13

Improper Means A partial list of improper means includes theft, bribery, misrepresentation, breach, or inducement of a breach of a duty to maintain secrecy or espionage through electronic or other means Legal Environment of Business - Jeffrey Pittman 14