Shh, I Have A Secret

Shh

Ongoing disputes between Fitbit and Jawbone claimsthat Fitbit hired Jawbone employees, who in turn took Jawbone trade secrets and brought them to be used at Fitbit.  Last week, a U.S. International Trade Commission judge ruled that Fitbit did not steal any of Jawbone’s trade secrets.  Earlier, I wrote about protecting a trade secret, but what is a trade secret?

As I said earlier, one way to lookat it is that a trade secret is something that gives a company a competitive advantage because others in the industry do not know the same thing.  It could be a recipe, a formula, a compilation of data, an algorithm, computer code, and more. It is whatever can be used to gain an edge over competitors by being the sole possessor of the information.

However, that isn’t the standards the courts use.   No, they needed to complicate things way more than that.  First of all, the exact definition depends on whether or not you are using a state’s laws or the federal law.  They each vary a bit, but there are clear similarities.

First, it is information.  Trade secrets aren’t tangible things that you can hold in your hands.  The trade secret might be embodied in a thing, such a part in a machine, specific code, or a fitness tracker on your wrist, but it is the know-how behind the thing that is the trade secret.  That is why Jawbones and Fitbits can look completely different, and yet still have a trade secret dispute.  They are extremely portable.

Second, the owner has taken reasonable steps to keep it secret.  If you don’t treat it like a secret, why should anyone else?  Third, it gives value to the owner.  The photo on my desktop may be a secret, but no one cares.  It adds no value; therefore, it is not a trade secret.  Fourth, and this is the tricky bit, it actually has to be a secret!   Crazy, I know.  So if you don’t have a secret, no trade secret.  Have one, but don’t act like? Nope, not a trade secret.  No value – no trade secret.

If the information is easily discovered, reverse engineered, or researched, it is not a good candidate for a trade secret.   If people can see the secret by walking by or clicking “Inspect” or “View Source,” again, not a trade secret.  But if your competitors are at a disadvantage because they don’t know something that you do, and you can keep it that way by putting proper procedures into place – ding, ding! – you have a trade secret on your hands.

Want the dirty details?  In Wisconsin, a “trade secret means information, including a formula, pattern, compilation, program, device, method, technique or process to which all of the following apply:

  1. The information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.
  2. The information is the subject of efforts to maintain its secrecy that are reasonable under the circumstances.”

Wisconsin, like many states, bases the definition on the Uniform Trade Secret Act (the “UTSA”).  The UTSA is a model act that was created to help states enact statutes that are similar to each other so people and business don’t have to learn 50 different laws.  Good intentions that don’t always work for all the model laws because each state always puts its own stamp on the legislation, but it is often pretty darned close in the case of the UTSA for the 48 states that enacted it.

The federal government took yet another twist on the definition, and says the term “trade secret means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—

  • the owner thereof has taken reasonable measures to keep such information secret; and
  • the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”

So close, but not exactly the same with many saying the federal law approach is broader than the UTSA.  Why do they differ?  Ask your congress person.  But, in general, they all stick to the same concept: Keep your valuable secrets known only to those that need to know.

Leave a Comment

DISCLAIMER: The information provided is for general informational purposes only. Posts and other information may not be updated to account for changes in the law and should not be considered tax or legal advice. None of the articles or posts on this website are intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.