Revisiting Iowa's Uniform Trade Secrets Act -- A Deeper Look At What Constitutes A "Trade Secret"

By harley erbe

Office

In a previous post about Iowa's Uniform Trade Secrets Act (Iowa Code Chapter 550), I noted that whether something actually constitutes a trade secret is often a heavily contested issue in such cases.  Iowa's courts have spilled a lot of ink over that question.  Let's take a look at it.

As I noted in my earlier post, a trade secret can consist of a formula, pattern, compilation of data, computer program, device, method, technique, process, or other form or embodiment of economically valuable information.  A trade secret can relate to technical matters such as the composition or design of a product, a method of manufacture, or the know-how necessary to perform a particular operation or service.  A trade secret can also relate to other aspects of business operations such as pricing and marketing techniques or the identity and requirements of customers.   Although a trade secret can consist of a patentable invention, there is no requirement that the trade secret meet the standard of inventiveness applicable under federal patent law.

The value of the information for which trade secret protection is sought must be substantial.  A trade secret must be of sufficient value in the operation of a business or other enterprise to provide an actual or potential economic advantage over others who do not possess the information.  But the advantage need not be great.  It is sufficient if the secret provides an advantage that is more than trivial.

Nondisclosure and confidentiality agreements are relevant to determining whether information constitutes a trade secret.  An agreement between the parties that characterizes specific information as a "trade secret" can be an important, although not necessarily conclusive, factor in determining whether the information qualifies for protection as a trade secret.  As a precaution against disclosure, such an agreement is evidence of the value and secrecy of the information, and can also supply or contribute to the definiteness required in delineating the trade secret.  The agreement can also be important in establishing a duty of confidence.

Trade secret claims often arise as a matter of employment law.  During employment, an employee may acquire two classes of information. First, an employee may obtain information of a general nature simply by being on the job.  An employer would have no reasonable expectation that such information would be treated as a trade secret.  An employee is free to use or disclose this type of general information.  The second class of information is that which the employer intends to keep secret by, for example, requiring confidentiality.  While the first class of information is not entitled to trade-secret protection, the second class may be entitled to it.   A trade secret need not be in writing; any secret acquired through an employee's job may be the subject of trade-secret protection.

Whether an employee is subject to a covenant not to compete is not determinative of whether the information gathered through employment constitutes a trade secret.  As a general rule, an employee who has not signed an agreement not to compete is free, upon leaving employment, to engage in competitive employment.  In so doing, the former employee may freely use general knowledge, skills, and experience acquired under his or her former employer.  But the former employee, even in the absence of an enforceable covenant not to compete, remains under a duty not to use or disclose, to the detriment of the former employer, trade secrets acquired in the course of previous employment.  When the former employee seeks to use the trade secrets of the former employer in order to obtain a competitive advantage, then competitive activity can be enjoined or result in an award of damages.

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