PROTECTING A COMPANY'S TRADE SECRETS


By Michael J. Norton and Jennifer M. Osgood

Protection of "trade secrets" is often important to the economic success of a Colorado company. Companies often choose not to protect "trade secrets" with patents simply to keep the process a secret. The formula for Coca-Cola is probably the most famous example of an unpatented, trade secret. In Colorado, companies may seek to protect trade secrets, (ranging from specialized, technical processes to customer lists) from disclosure or use by others by, among other measures, injunctive relief barring disclosure or use of a trade secret. Successful use of Colorado's Uniform Trade Secrets Act ("Act") can stop the improper disclosure of trade secrets.

The Act defines "trade secret" as any scientific or technical information, design, process, procedure, formula or improvement. Factors a court looks at in determining whether the matter is a trade secret are:

  1. The extent to which the information is known outside the business.

  2. The extent to which the information is known to those inside the business.

  3. The precautions taken by the holder of the trade secret to guard the secrecy of the information.

  4. The savings effected and the value to the holder in having the information as against competitors.

  5. The amount of effort or money expended in obtaining and developing the information.

  6. The amount of time and expense it would take for others to acquire and duplicate the information.

Courts hold that the company claiming something to be a trade secret should have: advised employees of the existence of the trade secret; limited access to the trade secret to a need-to-know basis; and controlled access to locations where the information about the claimed trade secret may be learned. In addition, these measures must be more than normal business procedures.

A trade secret can include a system where the elements are in the public domain, i.e., is not "secret," but an effective, successful, and valuable integration of the public domain elements and claimed trade secret result in a competitive advantage to the company that is protected from misappropriation as a trade secret. A company need not have actually used or commercially implemented or sold a misappropriated trade secret for a claim for injunctive relief or damages to accrue. Misappropriation consists only of the improper disclosure or acquisition of a trade secret.

As with any injunction, the key to success in obtaining injunctive relief is whether the company can show irreparable injury. This means that the company must show a substantial threat of harm to the company that cannot be compensated for by money.

More importantly, however, a company should have solid employment agreements in place with key employees, particularly those who have access to a company's trade secrets or other confidential information. These employment agreements should contain enforceable non-competition agreements and prohibitions against disclosure of a company's trade secrets or other confidential information.

Michael J. Norton
For more information, please contact Michael J. Norton at (303)796-2626 or . Mr. Norton is a senior member of the firm. His practice areas include complex civil litigation and white collar criminal defense, real estate law, including real estate broker and licensing law, and wills, trusts, and estate planning.

Jennifer M. Osgood
For more information, please contact Jennifer M. Osgood at (303)796-2626 or . Ms. Osgood is an associate with the firm. Her practice focuses primarily on commercial litigation and business law.