Trade Secrets

First Steps: What are trade secrets and how to protect them? (Colorado law)

Trade secrets are protected by state statute and these statutes are different from state-to-state in the U.S. As of today, there is no federal trade secret statute.  Of note, legislation was recently passed in the U.S. Senate entitled “Defend Trade Secrets Act of 2015” and is now pending in the House for action. An identical bill is pending in the House (H.R. 3326). Until passage of this legislation (which is far from certain), one must look to state law for an analysis of trade secrets. 

Under Colorado statute, a trade secret is defined as:

The whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, improvement, confidential business or financial information, listing of names, addresses, or telephone numbers, or other information relating to any business or profession which is secret and of value. To be a “trade secret” the owner thereof must have taken measures to prevent the secret from becoming available to persons other than those selected by the owner to have access thereto for limited purposes. C.R.S. Sec. 7-74-102(4) (2015).

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Examples of information that might be a trade secret are:

• Personnel files
• Unpatented inventions
• Computer software code or script
• Customer and vendor lists
• Manufacturing processes or methods

In order for any of the above-information to be considered a trade secret, the owner must take stops to maintain the secrecy of this information.

Measures to Maintain Trade Secrets

Once a company decides that it has information it wishes to maintain as secret, it must institute measures to prevent the secret from becoming known to others. Examples of steps that can be taken are:

• Employee Agreements & Noncompete covenants (requiring confidentiality of specific information)
•  Limited Access (to those with a ‘need to know’)
•  Mark documentation as “Confidential” and/or “Trade Secret”
•  Maintain a log of all access
•  Signage (disallow visitors or employees from access to areas with trade secret information)
•  Remind terminated employees of obligations
•  Disallow social media & non-work-related Internet access
•  Locked areas or file cabinets
• Coat windows to areas containing confidential information
• Password protect computer access points with confidential information
• Create a Trade Secret Policy and inform all employees of it

Registration

Trade secrets are not registered. The only way to protect them is to keep them secret.

Exceptions

Information is not a trade secret if

• It was rightfully in a recipient's possession prior to the date of initial disclosure,
• At the time of disclosure (or later) it is published or becomes part of the public domain,
• It came into possession from a third party,
• It was independently developed.

Actions for Misappropriation

If trade secrets are misappropriated, a court action can be instituted to request:

•  Injunction or Restraining Order
• Damages (actual losses and profits of misappropriator) or a reasonable royalty
• If misappropriation is accompanied by fraud, malice or willful disregard of the owner’s rights, punitive damages made be recovered (equal to damage award)
• An action for misappropriation of trade secrets in Colorado must be brought within 3 years after the misappropriation is discovered or should have been discovered.

• Theft of a trade secret may also be a criminal act – a class 1 misdemeanor for the first offense; a 2^nd offense committed within 5 years of a prior conviction is a class 5 felony.
•  Class 1 misdemeanor: 6 to 18 months in jail; $500 to $5000 fine or both
•  Class 5 felony: 1-3 years imprisonment; $1000 to $100,000 fine or both

Please note that this material should not be considered legal advice and is for informational purposes only. If you have specific legal questions, you should consult a qualified legal professional skilled in the area of trademark law. If you would like more information about this topic, please contact Judith A. Keene, Esq. at (720) 684-5375 or by email at jkeene@holzeriplaw.com.