Back to the Basics... What is a Trade Secret?
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While state laws vary with regard to what will constitute a trade secret, most states have adopted the Uniform Trade Secret Act (UTSA), which provides the following definition:
"'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."
Those states that have not adopted the UTSA generally apply a similar concept. In sum, a trade secret has three essential components: (1) information; (2) value; and (3) secrecy.
While this sounds simple enough, the difficulty arises when trying to apply the definition. Let's take an example. Is a customer list a trade secret? Some say yes. Some say no. Both may be right.
Certainly, a customer list is information. Indeed, it fits squarely within one of the enumerated types: a compilation.
Does it have independent economic value? Does that value come from not being generally known and not readily ascertainable by proper means? Maybe. It will depend in large part on the amount of information and the nature of the business. For example, a customer list with detailed information about each customer, including purchase history, pricing information, etc., would likely be viewed as having value. In contrast, a "naked" customer list (i.e., a customer list with just customer names and contact information, but no information about them) in an industry in which the customers are generally known or easily ascertainable would likely not be viewed as having value. There are, of course, exceptions. For example, a naked customer list that is bought and sold as a mailing list - with a confidentiality requirement attached (to protect its value) - has independent economic value. (Note that the fact that it is bought and sold, presumably demonstrates that it cannot be readily developed, which is part of the analysis of whether it has value.)
What about confidentiality? If the list is protected from disclosure, and the steps were reasonable under the circumstances, that would complete the analysis. Voilà: a trade secret. Well, two of three anyway: the detailed customer list and mailing list would likely be trade secrets, while the naked customer list used for internal purposes only very well may not be.
Of course, this analysis raises some more questions. Most significantly, what are reasonable measures? Of the three elements, only confidentiality is within the control of the possessor of the information. And, once a trade secret is publicly disclosed, it will, in most circumstances, be deemed to be lost. Accordingly, courts will focus on the possessor's efforts to maintain confidentiality.
While "heroic" measures are generally not necessary, "reasonable" measures are. What is reasonable is a highly fact intensive analysis. The quintessential example of extreme (i.e., heroic) measures is the lengths that Coca-Cola goes to protect the recipe for Coke. Those measures are, however, not necessary for most trade secrets. Instead, the nature of the of the information will influence the reasonableness of the efforts. Back to the customer list example.
Assuming the list could be protected, it may be enough to mark it confidential, keep it in a secure location, and permit access only by those with a need to know, who are themselves subject to confidentiality obligations. It may not, however. As a result, given the nature of the inquiry, it bears mention that the possessor of the information can never go wrong (as far as securing protection - as opposed to, say, corporate culture - is concerned, that is) by employing protections beyond the minimum; thus, best practice is not to hone too fine a line to what a court may consider the minimum necessary protections, but rather to err on the side of employing greater safeguards.
As this is part of our "Back to the Basics" series, we have not delved deeper into the analysis. Suffice it to say, however, that much more analysis should be undertaken with respect to any trade secret of any significant value.