March 22, 2022, Vol. 13
by Marc Campsen
Your Confidential Business Information May Not be a Protectable Trade Secret
Businesses often generate internal documents for marketing and operational purposes. These include budgets, pricing information, client lists, summaries of sales and revenue, profit margins, various client-based and sales agreements, and marketing strategies. This is known as internal operating information. Often businesses believe this type of information constitutes a “trade secret” and is protected by law from disclosure to third-parties. Unfortunately, that assumption is frequently incorrect – leaving the business unprotected.
A trade secret is, generally, information that is subject to reasonable efforts to maintain its secrecy and that has independent economic value from not being known or readily ascertainable by improper means by others who can use the information for their own economic gain. In other words, at its most basic level, to qualify as a trade secret, information must meet two requirements – it has economic value to others and it is generally kept secret from or not discernable by the public.
The first requirement is fairly easy to satisfy because information like pricing and customer lists can always have some “economic” value to a competitor.
However, the second requirement is much harder to satisfy. Even when a business does not publicize its internal operating information, in many industries, information like pricing, budgets, customer lists and sales volumes are easily identifiable by competitors and, generally, not unique. Moreover, this information often fluctuates due to market conditions and is quickly out-of-date. For the same reason, marketing strategies arising out of this information are not difficult to figure out. Similarly, client engagement letters, order forms and sales contracts seldom offer distinct features to distinguish them from other comparable documents used by competitors within a particular industry and available to the public in an analogous form. Businesses often believe that because a departing employee, individually, may not be able to replicate such documents or that simply because a competitor wants to know the information, the information is a trade secret but neither reason changes the not-so-secret status of the information.
The above scenarios differ from situations where information like specialized manufacturing processes, cutting-edge computer coding procedures and secret chemical compounds, to name a few, are involved. Moreover, in certain highly-competitive industries dominated by only a handful of competitors that serve a specific market, dissemination of manufacturing costs and pricing information may allow the limited competitor pool to effectively undercut their rival if such information is obtained. In this regard, even though some information your business uses may not be a trade secret in your industry, it may be in another industry but that still will not protect you.
Regardless of whether the information your business seeks to protect is a trade secret, a business is not without a first line of defense. Businesses who permit (or need) employees to know internal operating information should always require employees to enter into agreements, i.e., employment agreement, confidentiality agreement, non-compete, that specifically define what information the employer wants protected and prohibits the employee from disclosing that information to third-parties both during their employment and for a reasonable time post-employment. In the event of a breach of such an agreement, the business can seek a court order requiring specific performance of the agreement – meaning the employee must return the information. This action may prevent the improper disclosure before it even occurs. The business may also seek economic damages from an improper disclosure if the disclosure caused a loss of business or similar financial harm. The business can also seek a court order prohibiting the former employee from disclosing the protected information for the time period set forth in the parties’ agreement.
Please contact me to discuss how to best protect your business’ information.
About The Author:
Marc A. Campsen is an attorney at Wright, Constable & Skeen, LLP, where he focuses his practice primarily on litigating employment and business law matters. He is recognized as a Maryland Super Lawyer.
Read Marc’s bio | Email | Phone: 410-659-1343
DISCLAIMER: The materials available on this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to your particular issue or problem.