What Constitutes a Trade Secret?

The question of what constitutes a trade secret is a frequently asked question with no easy answer. Both employers and employees are confronted with this question when an employee leaves his or her employment, whether voluntarily or involuntarily, and seeks to compete against his or her former employer. The employer frequently believes all information gained in the course of employment is confidential, proprietary and constitutes a trade secret. The employee, on the other hand, believes that he or she should be able to exploit his or her natural talents. An employee may be prevented from such competition, with or without a valid non-compete or non-solicitation agreement, depending on the answer.

Unfortunately, the answer is not always clear cut. While some types of information are clearly trade secrets, such as the secret formula for coca cola, other types of information fall into a gray area. The gray area frequently concerns customer lists, supplier lists, vendor lists, and the like.

A trade secret generally includes any information, including the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique, or improvement, or any business information or plans, financial information, or listing of names, addresses, or telephone numbers, which satisfy two tests.

First, the information must derive 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 it. The extent to which the information is known inside and outside the business, the amount of effort or money expended in obtaining and developing the information, and the amount of time and expense it would take for others to acquire or duplicate the information, are key questions to ask when considering the first test.

Second, the information must be the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Reasonable efforts to maintain secrecy frequently include maintaining controlled access areas, limiting access to key employees, prohibiting copying of key documents and/or numbering the copies authorized to be made, marking or stamping confidential on documents, maintaining password protected documents on company computers, locking file cabinets, and maintaining document check out systems.

While an employee should never take any documents or paper work belonging to his or her employer, it is important to note that information which constitutes a trade secret is protected by Ohio law regardless of the manner, mode, or form in which it is stored-whether on paper, in a computer, in any other medium, or even in one's memory.

This does not mean, however, that the use of memorized information claimed to be a trade secret is necessarily prohibited. Every employee will of course have memories casually retained from the ordinary course of employment. The use of this type of memorized information is not prohibited unless it constitutes a trade secret.

If you require representation in a business, shareholder or employment dispute, please contact David M. Cuppage or Scott D. Simpkins (216) 621-8484.