Just days ago, Uber agreed to a $245 million-equivalent settlement with Waymo (both California companies), ending an ongoing dispute over an alleged theft by Uber; a theft not of money or other tangible things, but of secrets—information that Waymo had developed and kept internally involving self-driving cars. Only last week, Chinese tech giant Huawei was revealed as a focus of federal investigators for theft of T-Mobile US’s secrets surrounding their phone testing robot “Tappy.” Although the proceedings against Huawei are criminal rather than civil, much of the same analysis will apply—did T-Mobile generate an actionable trade secret regarding its robot? Did Huawei acquire the information about “Tappy” unlawfully?
In both cases, the actions and policies that Waymo and T-Mobile undertook regarding some of their most crucial assets—their ideas—are or will be scrutinized to determine whether the companies appropriately developed and maintained a right to protection through the theory of trade secrets. Many of the best practices and strategies employed by Waymo and T-Mobile are applicable to small and medium-sized businesses as well, if those businesses have an interest in maintaining a competitive advantage through their ideas.
Since the passage of the Defend Trade Secrets Act (DTSA) in 2016, trade secret litigation has been on the rise. In fact, California businesses might need to be especially vigilant with their practices—the United States District Court for the Central District of California has already seen more litigation regarding trade secret misappropriation than any other federal district court in the country over the past decade.
Thus, while parties will likely want to do their best to avoid costly trade secret litigation (through strategies designed to ensure that valuable ideas do not escape their companies), they will also want to take steps to ensure that if trade secrets do get out and it makes sense for them to bring their misappropriation claims to court, the facts will be on their side. This article will discuss some of the basics of trade secrets, as well as best practices for businesses regarding how to maintain and protect their ideas through a trade secret strategy.
Trade Secret Basics
As growing and innovating industries mature, it’s easily conceivable that the strength of a particular business might be in its information. Maybe it’s a beverage company’s delicious recipe for a drink product. Maybe it’s a cannabis company’s unique growing technique that allows for more efficient production. Maybe it’s a curated client list for a marketing firm. If any of these ideas have value from being in the hands of their innovators and out of the hands of the rest of the market, they might be trade secrets if they are kept confidential.
Trade secrets are at their core a relatively simple concept: (a) information, which is (b) economically valuable because it is unknown (secret!) to others, and (c) which the owner of the information has reasonably tried to keep secret. Liability in trade secret litigation comes from misappropriating another’s trade secrets which in California, like many other states, involves unlawfully acquiring, disclosing, or using “information that is a trade secret.”
This simplicity means that trade secrets have at least one advantage for businesses looking for protection of their ideas since, unlike patents, trade secrets do not automatically expire over time and do not require filing or a regulated process of registration. However, because secrecy is in the very definition of trade secrets, this kind of protection can sometimes be difficult to maintain: organizations of any size can struggle to prevent information from leaking outside the company through digital data breaches, inadvertent disclosures, or simply word-of-mouth.
Best Practices for Businesses
Keeping things confidential is often the biggest key for trade secret owners. Some good news on this front is that airtight secrecy is not necessarily required. In California, “reasonable” efforts to keep the secret are required, and this reasonableness is a fact-specific inquiry that a court will address during litigation. For example, in trade secret litigation where allegations are that a former employee took information from one company to another, the first company might want to be able to show that the employee was made to sign a confidentiality agreement, and that that the employee was made abundantly aware that the information was not to be shared outside the company. If the company took only limited steps to protect the information, and the information was obviously crucial to the business (perhaps like a unique recipe for a bestselling cannabis edible product, when the business only sells that one product), it might be more likely that a court would say the steps taken weren’t reasonable enough.
Plaintiffs with trade secret misappropriation claims should ensure that they took all reasonable precautions to ensure that secret information remains confidential, but probably don’t need to spend $1 million on a two-ton Looney Tunes-style safe to keep a recipe in (although if they did do this, it certainly wouldn’t hurt their case). There are some possibly counterintuitive protections that businesses can take as well, for instance: actually writing secret information down (instead of just memorizing it) and then securing the writing might help if the secret ever gets out—this might minimize the times that the secret is transcribed in the future and would also provide proof of the scope of the secret (something a court will inquire about at trial).
Facts that might assist a plaintiff at trial in a trade secret case can vary, but they include things like where the information is physically stored, when and how employees have access to the information, and what steps are taken to prevent those employees from leaking the information. Some actions that can be taken to ensure trade secret security and actionability are detailed below.
Confidentiality Agreements & Other Contractual Relationships
Step one for businesses looking to protect their trade secrets is often to require that new employees sign confidentiality agreements. These serve a couple of purposes: first, they mark the trade secret information as important and secret, thus encouraging the employee to treat the information with care. Second, they show that the business is taking some reasonable steps to protect the secret, which is important for the reasons discussed above. Finally, depending on the wording of the confidentiality agreement, the agreement might provide the scope of the trade secret for purposes of trial, if a dispute arises.
Care might need to be taken with such agreements, however. While all states recognize confidentiality agreements as potentially valid, only some states allow for non-compete agreements between employees and businesses. Beyond agreements with employees, companies should work with legal counsel to carefully structure their agreements with those they do business with: suppliers, customers, partners, etc. If the other company has any access to trade secrets, similar contract language to that included in employee confidentiality agreements should be used, and indemnification clauses benefiting the trade secret owner should be in place to help remedy wrongful breaches of secrecy.
Physical security, as mentioned above, is also a key to keeping trade secrets private. It’s surely not reasonable to have numerous printed copies of trade secret information lying around a workplace, where anyone could access it and remove it from the company. Businesses with trade secrets will want to password protect that information on computers and limit password access to fewer individuals, limit hard copies (with the caveats expressed above) and keep any hard copies locked away with limited access, and may want to do things like not provide the entire secret to one person/employee at one time—this way the trade secret as a valuable whole is not exposed to potential loss through one source.
Dedication to the Strategy
Finally, it’s important for trade secret owners to be ready to pursue those who misappropriate a trade secret. Just like with other forms of intellectual property, failure to take action regarding rights can mean that those rights are waived—if there is even a partial disclosure and the trade secret owner doesn’t respond, a court might find that the trade secret is invalid for reasons of abandonment or waiver. Also, of course, immediate response when a misappropriation happens has a strong practical implication: the fewer competitors that know about the secret, the better for business!