The Google search algorithm, the original Kentucky Fried Chicken recipe, how the New York Times defines a “Best Seller” for its New York Times Best Seller list—these are all examples of some of the most guarded secrets in American business, otherwise known as trade secrets. But, what are trade secrets? Moreover, why do they matter?
Defining a Trade Secret
A trade secret is a type of intellectual property, with a broad definition that includes many forms and types of business information, including “patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible” [1] if (A) the owner has taken reasonable measures to keep the information secret; and (B) the information derives independent economic value from not being generally known to another person who can obtain economic value from the disclosure or use of the information.
Trade secrets benefit employers and brands because they legally protect information that gives their business a competitive edge. Both federal law and Ohio law govern trade secrets simultaneously.
Confidential Information versus Trade Secrets
Not all proprietary information can be protected as a trade secret. In fact, the definition of a trade secret is likely more narrow than employers would prefer since a competitive edge is vital to surviving in an ever-changing economy. Ohio courts have identified a six-factor test to determine whether particular information is a trade secret, analyzing factors such as:
(1) the extent to which the information is known outside the business;
(2) the extent to which it is known to those inside the business, i.e., by the employees;
(3) the precautions taken by the holder of the trade secret to guard the secrecy of the information;
(4) the savings effected and the value to the holder in having the information as against competitors;
(5) the amount of effort or money expended in obtaining and developing the information; and
(6) the amount of time and expense it would take others to acquire and duplicate the information.[2]
Proprietary information that does not rise to the level of a trade secret is described as confidential information, and it is still entitled to some protection. All trade secrets are confidential information, but not all confidential information is a trade secret.
Confidential information can be protected through confidentiality agreements, non-disclosure agreements, and other similar measures. Unlike trade secrets, generally the employee’s duty to protect confidential information ends with that employee’s termination of employment, unless subject to certain restrictive covenants that expressly prohibit the employee from sharing the confidential information. Other effective protections of confidential information include copyright and patent rights.
Employer/Employee Rights Regarding Trade Secrets
Employers are entitled to protection of their trade secrets by the federal Uniform Trade Secrets Act, which has also been adopted under state law at ORC 1333.61 et seq. Employers are also afforded protection under the Defend Trade Secrets Act, codified in 2016. In the event there is an unauthorized disclosure of trade secrets by an employee, employers may seek various remedies including injunctive relief (to restrain the party from further disclosing the information), damages, exemplary damages, and attorney’s fees.
Employees are expected to protect the trade secrets of their employer in nearly all circumstances. However, the Defend Trade Secrets Act of 2016 includes immunity provisions for employees to disclose a trade secret in very limited circumstances. This provision allows employees to avoid criminal and civil liability for the disclosure of a trade secret to a governmental official or to an attorney “solely for the purpose of reporting or investigating a suspected violation of law” or for use in an anti-retaliation lawsuit. Employers must give employees, independent contractors and consultants notice of the immunity in any contract or agreement that governs the use of a trade secret or other confidential information, or alternatively, the employer can provide a cross-reference to the employer’s whistle-blower policy that contains the requisite immunity provisions.
Do you have a question regarding your rights to protect or disclose trade secrets? Please reach out to a Critchfield attorney today at one of our five office locations.
[1] https://www.law.cornell.edu/uscode/text/18/1839, retrieved April 26, 2021.
[2] Al Minor & Assocs. v. Martin, 117 Ohio St.3d 58, 2008-Ohio-292, 881 N.E.2d 850
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