So often in business litigation we see disputes regarding the use or disclosure of so called “confidential and/or proprietary” information or “trade secrets.” In a typical scenario, a former employee, officer or partner leaves his or her old company “ABC Electronics” and forms a new competing venture, “XYZ Electronics.” Sometimes though, it may be a potential business partner who received information in confidence and is now using it to compete.
Claims arising from such conduct typically have three potential labels. There may be a contract or confidentiality agreement among the parties such that the conduct is potentially a breach of contract. A statutory claim that may exist known as misappropriation of trade secrets. In Minnesota, the relevant statute is found at Minn. Stat. § 325C.01 et seq. Finally, there is also a common law claim very similar to the statute governing trade secrets known as misappropriation of confidential and/or proprietary information. For most purposes, the common law and statutory misappropriation counts are virtually the same, so we discuss the topic in the context of Minnesota's trade secret statute.
A trade secret is any information that derives economic value from not being generally known to or readily ascertainable by other persons; and is the subject of efforts which are reasonable under the circumstances to maintain its secrecy.
For something to be considered a trade secret, three conditions must be met. First, the information must not be generally known or reasonably ascertainable. Second, the information must derive independent economic value from its secrecy. Finally, the person claiming misappropriation must have made reasonable efforts to maintain the information's secrecy.
Some examples of information which may constitute a trade secret include: cosmetic formulas; food recipes; business methods; plans and negotiations; source codes and software programs; and customer lists and customer information.
Misappropriation of a trade secret occurs when a party is able to show three things: first, that a trade secret has been used; second, that the party took reasonable steps to ensure the trade secret's secrecy; and lastly, that another party misappropriated the trade secret or used improper means to acquire the trade secret.
In a claim arising from a contract, the express contract language governs, however, when the contract arose out of an employment relationship, the claim may require further proof by the employer that there was a legitimate business purpose for the contract and that the contract is not overbroad in scope. This is because courts consider employment agreements as one-sided and try to limit the extent to which employers can control the conduct of former employees.
Potential remedies for misappropriation are broad but may include injunctive relief and any form of damages including lost profits, royalties and punitive damages. Given the serious potential consequences and relatively subjective elements of proof, it is important to have competent legal counsel when dealing with trade secret issues and agreements.