The Ins and Outs of Trade Secret Protection: A Guide for Business Owners

May 18, 2023
min read

The Ins and Outs of Trade Secret Protection: A Guide for Business Owners

J. Greg Tinch

I. Introduction

Does your business leverage proprietary information that is not eligible for patent, trademark or copyright?  Trade secret protection may be right for your business!

II. What is a Trade Secret?

Trade secret protection refers to the legal mechanism that allows businesses to protect their confidential information and proprietary knowledge from being disclosed or used by competitors or unauthorized parties. A trade secret is any confidential proprietary information that gives its owner a commercial advantage. Examples of trade secrets are customer lists, formulas, and processes. Trade secret owners do not apply for a title document or submit to a rigorous examination process. The rigor of trade secret protection is keeping the secret, well, secret! Trade secret owners have a right to sue bad actors for misappropriation (read "theft") in federal court under the Uniform Defend Trade Secrets Act.


III. Protecting trade secret under the Uniform Defend Trade Secrets Act

The Uniform Defend Trade Secrets Act (DTSA) provides a federal remedy for trade secret theft. The DTSA was signed into law in 2016 and extends trade secret protection to all businesses, regardless of size or location. The DTSA defines trade secrets in the same way as the Economic Espionage Act of 1996, which criminalizes trade secret theft under two circumstances: 1) economic espionage; and 2) trade secret theft. Economic espionage is defined as "the theft of a trade secret to benefit a foreign government, instrumentality, or agent," while theft of trade secrets is defined as "the theft of a trade secret related to a product or service used in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that said theft will injure the owner(s) of that trade secret.

The DTSA provides a civil cause of action in federal court for trade secret theft. A plaintiff may seek relief in the form of an injunction to stop the misappropriation, damages for actual loss, damages for unjust enrichment, and in some cases, exemplary damages and attorney fees. The DTSA also allows for ex parte seizure orders in extraordinary circumstances -- if a court finds that the defendant is likely to destroy, move, or hide the trade secret, the court may order the seizure of the trade secret without providing notice to the defendant.


IV. Protecting trade secret under Maryland law/common law in MD courts

In addition to the federal protections available under DTSA, trade secrets may also be protected under state law. In Maryland, the Uniform Trade Secrets Act (UTSA) provides a statutory framework for trade secret protection. The UTSA defines a trade secret as information that:

  • Derives independent economic value from not being generally known to, or readily ascertainable by, other persons who can obtain economic value from its disclosure or use; and
  • Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Under the UTSA, trade secret owners can bring a civil action against individuals or entities that misappropriate their trade secrets. Remedies available to a trade secret owner include injunctive relief, damages, and attorney's fees.

Maryland courts also recognize common law claims for trade secret misappropriation. To succeed on a common law claim, a plaintiff must show i) that they possessed a trade secret, ii) that the defendant acquired the trade secret through improper means, and iii) that the defendant used or disclosed the trade secret for their own benefit or for the benefit of a third party. Unlike the UTSA, common law claims for trade secret misappropriation may not require that the trade secret be actively protected, but the plaintiff must still demonstrate that the information had commercial value and was subject to reasonable efforts to maintain its secrecy.

It's important to note that state trade secret laws can vary, so it's essential to consult with an experienced trade secret attorney who understands the specific laws and regulations of your state, and to develop a sound strategy for protecting and managing the trade secret.

V. Best Practices for Protecting Trade Secrets

To reiterate, protecting the secrecy of your trade secret is crucial to maintaining its legal protection. Here are some best practices for safeguarding your trade secrets:

  1. Data protection measures: Consider implementing security measures like password protection, encryption, and gating access to sensitive information. These can help prevent unauthorized access and ensure that only authorized individuals have access to your trade secrets.
  2. Non-disclosure agreements (NDAs): NDAs can help protect your trade secrets by legally binding employees, contractors, and others to keep your confidential information confidential. By requiring NDAs as part of your employment agreements or contracts, you can show that you are taking reasonable measures to maintain the secrecy of your trade secrets.
  3. Limit access to trade secrets: Limiting access to your trade secrets to only those individuals who need to know can help minimize the risk of unauthorized disclosure. Consider implementing access controls and monitoring systems to ensure that only authorized individuals can access your trade secrets.
  4. Mark trade secrets as "confidential": Clearly mark any documents or other materials containing trade secrets as confidential. This can help ensure that those who come into contact with your trade secrets understand their sensitive nature and are more likely to take steps to protect them.

By implementing these best practices and taking other steps to protect the secrecy of your trade secrets, you can help ensure that your trade secrets remain legally protected and continue to provide your business with a competitive advantage.

VI. Conclusion

In conclusion, trade secret protection is a valuable tool for businesses that have confidential information that is not eligible for patent, trademark, or copyright protection. It is important to identify and protect trade secrets through appropriate measures, such as implementing data protection measures and entering into non-disclosure agreements with employees, vendors, and stakeholders. Moreover, businesses should be aware of the legal framework surrounding trade secret protection, including both federal and state laws. Ultimately, trade secret protection is an effective means of safeguarding confidential information and preserving your business's competitive edge. By taking proactive steps to protect trade secrets, businesses can minimize the risk of misappropriation and ensure that their proprietary information remains a valuable asset.

J. Greg Tinch

J. Greg Tinch - Founder and Principal of Tinch Law Firm, P.C. - is a patent attorney helping clients realize wealth and legacy in their ideas. Greg has counseled clients from early-stage startups to the federal government on patents, trademarks, copyrights, and transactional and entity formation aspects of business law. Greg's intellectual property practice is informed by his interest in public policy, experience working in Congress and litigating civil cases in Maryland.