How to Protect Your Company’s Valuable Trade Secrets – Part 1

I recently returned from a trip to Seoul, South Korea. Seoul is a beautiful and eclectic place. We were fortunate to stay in Hongdae, an art inspired enclave near Hongik University. In this area, people converted their garages and homes into clothing shops, coffee shops, restaurants, and bars. Hongdae was interesting. The influence of western businesses was prevalent in Seoul. Lotte World was the business that most closely paralleled an American company. Lotte World is one of Korea’s versions of Disneyland. Lotte World is nearly a carbon of Disneyland with similar rides and characters. Lotte World is a big business that is profiting from the ideas, models and processes of another.

Trade secrets and intellectual property (patents, copyrights and trademarks) are a business’s most valuable property.  America is the world’s leading business and manufacturing innovator.  Lately, however, foreign rivals such as China have begun stealing/misappropriating trade secrets from companies such as Dow Chemicals and General Motors in an effort to illicitly close this gap. For instance, on November 30, 2012, a federal jury in Detroit found Shanshan Du, a former General Motors engineer, guilty of stealing GM’s trade secrets relating to hybrid vehicle technology worth $40 million when he tried to pass it to Chinese automaker Chery Automobile Company. This case is the tip of the iceberg. According to recent statistics from the Federal Bureau of Investigation, trade secret and intellectual property theft costs American businesses well over $1 billion per year.

America has strong laws that protect trade secrets. In the United States, civil private enforcement of trade secrets is primarily a state law matter. Most states have adopted some version of the Uniform Trade Secrets Act (UTSA), which allows injunctive relief, damages, and in some instances attorney’s fees as remedies for trade secret misappropriation. In Nevada, the UTSA is codified in Nevada Revised Statute (NRS) Chapter 600A.

NRS 600A.030(5) defines a trade secret as, “a formula, pattern, compilation, program, device, method, technique, product, system, process, design, prototype, procedure, computer programming instruction or code that: derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by the public or any other persons who can obtain commercial or economic value from its disclosure or use; and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

 What Are Trade Secrets?

Trade secrets are broadly defined by NRS 600A.030(5) to protect businesses, and to spawn ingenuity. In a recent opinion, the Nevada Supreme Court ruled that what constitutes a trade secret is a question of fact that must be determined by the following factors: (1) the extent to which the information is known outside the business, (2) whether the information was confidential or secret, (3) the extent and manner in which the business guards the secrecy of the information, and (4) former employees’ knowledge of customer data and whether this information is known by the business’s competitors. Finkel v. Cashman Prof’l, Inc., 270 P.3d 1259, 1264 (Nev. 2012). The Court’s ruling suggests, pursuant to NRS 600A.030(5), that nearly any information, data, process, design, complication, etc. is a trade secret so long the business derives actual or potential economic value from the information, data, process, design, compilation, etc., and the business takes steps to ensure that it remains confidential or secret. 

 In Finkel, the Court ruled that pricing schemes, point of sale software, business plans, and customer information were all trade secrets under the facts of the case. Other courts have found that hybrid technology, computer source code, Kevlar technology, manufacturing processes for titanium dioxide, the process to develop organic pesticides, vehicle designs, mobile telecommunications technology, paint mixtures, and the designs/plans for construction projects are trade secrets.

For example, Davis|Stibor recently represented Morris-Shea Bridge Company, Inc., one of the nation’s largest deep foundation contractors, in a multimillion dollar trade secret case involving the construction of a $1 billion thermosolar power plant in Laughlin, Nevada.  The district court ruled that Morris-Shea’s foundation design for the construction of heliostat towers was a trade secret because it was proprietary, included proprietary calculation and tests, it was kept secret, and would have saved the general contractor about $7 million in construction costs (actual economic value).   

In How to Protect Your Company’s Valuable Trade Secrets – Part 2, I will discuss how your company can protect its valuable trade secrets, and legal action that can be taken against those who steal or misappropriate your trade secrets.

Disclaimer: The information contained in this website is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients of content from this site, clients or otherwise, should act or refrain from acting on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the state of Nevada.     

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