TRADE SECRETS
Copyright © 2010 by Jeffrey Pittman
WHAT IS A TRADE SECRET?
Secret information owned or developed by a
business that gives it a competitive advantage
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APPLICABLE LAW – TRADE SECRETS
Federal Law - the Economic Espionage Act
 State Law - the Uniform Trade Secret Act
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TRADE SECRET SUBJECT MATTER
Trade secret law protects information, including
a formula, pattern, compilation, program, device,
method, technique, or process, that:
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Derives independent economic value from not being
generally known or readily ascertainable by proper
means by other persons, and
 Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy
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TRADE SECRET SUBJECT MATTER
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Arkansas courts use a six-factor analysis in
determining whether information qualifies as a
trade secret:
(1) the extent to which the information is known
outside the business
(2) the extent to which the information is known by
employees and others involved in the business
(3) the extent of measures taken by the company to
guard the secrecy of the information
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TRADE SECRET SUBJECT MATTER
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Arkansas courts six-factor analysis (cont.):
(4) the value of the information to the company and
to its competitors;
(5) the amount of effort or money expended by the
business in developing the information; and
(6) the ease or difficulty with which the information
could be properly acquired or duplicated by others
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MAINTAINING TRADE SECRETS
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Companies should consider the following methods
to protect trade secrets:
 Review all company operations and proprietary
information to determine where trade secrets exist
 Use nondisclosure (confidentiality) agreements
with all individuals having access to the trade
secrets, including employees, officers, bankers,
vendors, etc.
Note the possible “inevitable disclosure” doctrine
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MAINTAINING TRADE SECRETS
Use noncompetition agreements (covenants not
to compete)
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A covenant not to compete is a contract clause where
a person agrees not to engage in a specified business
or occupation
 The covenant will identify the applicable time and
geographic region, e.g., the employee will not leave
the company's employ and work in the meat
processing industry for the next two years, within the
United States
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MAINTAINING TRADE SECRETS
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Examine physical and network security issues:
Restrict access to company trade secrets
Utilize computer passwords, "confidential"
stamps/legends, record-keeping procedures, entrance
and exit interviews, etc.
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COVENANTS NOT TO COMPETE
Covenants not to compete are disfavored by the
law, especially in employment contracts
 In Arkansas, covenants not to compete will be
upheld if the business has a legitimate interest to
protect, and the time and geographic restrictions
are reasonable (Federated Mutual Insurance
Company v. Bennett, 818 S.W.2d 596 (1991))
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COVENANTS NOT TO COMPETE
Regarding employment contracts, legitimate
business interests have been found where
employees were provided special training, or
allowed access to trade secrets, confidential
business information, or customer lists (Girard v.
Rebsamen Insurance Company, 685 S.W.2d 526
(1985))
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“PROPER MEANS”
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Trade secrets may be legally discovered by the
following proper means:
 Independent invention
 “Reverse engineering", that is, starting with the
known product and working backward to find the
method by which it was developed (assuming the
reverse engineering is not prohibited by contract)
 Discovery under a license from the owner of the
trade secret
 Observing the item in public use or on public
display
 Obtaining the trade secret from published
literature
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"IMPROPER MEANS"
A partial list of improper means includes theft,
bribery, misrepresentation, breach, or inducement
of a breach of a duty to maintain secrecy or
espionage through electronic or other means
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PROPER VERSUS IMPROPER MEANS
Using a football analogy, it is legally permissible
to discover your opponent's game plan through
watching old films, or through independent
analysis and guessing
 It is not permissible to acquire the opponent's
game plan by theft or bribery of an opposing player
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