FAQ - Trade Secrets

What is a trade secret?

In Plain English, a trade secret is secret business information that gives your company a competitive advantage by remaining a secret.  


A trade secret is statutorily defined in Washington state as:  "information, including a formula, pattern, compilation, program, device, method, technique, or process that: (a) 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  (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."

Perhaps the most famous trade secret is the secret recipe for Coca-Cola.  Other examples of the type of information that could be a trade secret include source code, business methods, vendor pricing, customer lists, profit margins, overhead margins, business plans, marketing strategy, information about personnel. 

 How long can trade secret  protection last?

As we see with the recipe for Coca-Cola, a trade secret can qualify for trade secret protection forever. Meaning, as long as the trade secret is kept a secret.

What causes a business to lose a trade secret protection? 

 In general, when the cat's out of the bag, trade secret protection is lost.

Can a business disclose its trade secrets to a third party and still claim trade secret status?

Provided the business first has the third party sign an appropriate Non-Disclosure Agreement, yes. Non-Disclosure Agreements are viewed as providing sufficient protection over trade secrets.  But, the third party can cause the business to lose trade secrets protection if it discloses the trade secret.

What steps should a company take to protect its trade secrets? 

Protecting trade secret status requires the company to take "reasonable steps under the circumstances" to maintain secrecy over its trade secrets.  Use of Non-Disclosure Agreements with third parties with access to trade secrets is critical.  While not 100% necessary in all cases,  other steps to employ may include keeping the trade secrets in a locked cabinet, in a restricted access file on your server, behind closed locked doors with a sign that says RESTRICTED ACCESS.        

Most companies seeking to maintain trade secrets would greatly benefit from working with a intellectual property lawyer to develop a Trade Secrets Protection Policy and Strategy, and then train employees on the policy and strategy.    

What does it mean to "misappropriate" a trade secret?

In Washington state, misappropriation of a trade secret is statutorily defined as "(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (b) Disclosure or use of a trade secret of another without express or implied consent by a person who: (i) Used improper means to acquire knowledge of the trade secret; or (ii) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was (A) derived from or through a person who had utilized improper means to acquire it, (B) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use, or (C) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (iii) Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake." 

What does it mean to "improperly obtain" a trade secret?

 The term "improper" is defined by Washington's legislature to include theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.

 What can a company do if someone "misappropriates" or "improperly" obtains its trade secret?

 First, the company whose trade secret is misappropriated or improperly obtained should quickly first evaluate whether or not the information it believes qualifies for trade secret protection actually meets the definition of a "trade secret."  This is a time where is a good idea to promptly seek legal advice.  In some cases, the trade secret will no longer qualify because the information has been let out of the bag.  

Assuming the information qualifies for trade secret protection, the company can sue the offending party for an injunction, or damages for the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation.  If the case involves a willful and malicious misappropriation, the court could also award exemplary damages in an amount not exceeding twice any actual damages and unjust enrichment award.

When can the company seek an injunction and what can an injunction do?

A company can seek an injunction for actual or threatened misappropriation of its trade secrets.  The court can order the offending party to not use or disclose the trade secret for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation. In addition, if the court determines that it would be unreasonable to prohibit future use, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time the use could have been prohibited.  Finally, the court has broad discretion in some cases to order the offending party to take steps to protect the trade secret.