Protecting Trade Secrets Under The
Illinois Trade Secrets Act
By Eric S. Freibrun, Esq.
What do the formula for Coca-Cola and the
source code to Microsoft Word have in common?
They’re both trade secrets,
immensely valuable to their owners because they’re kept secret and unavailable to
their competitors. Consider whether Coke would be the best-selling cola and Word the
top-selling PC word processor if one could download the Word source code from the
Internet, or read the recipe to Coke at the Chicago Public Library.
How does the law define a trade secret?
In Illinois, very broadly. The Illinois Trade Secrets Act (P.A. 85-366, effective Jan. 1,
1988) provides sweeping protection to confidential trade secret information that gives
businesses competitive advantage. Under the statute, a trade secret is any:
information, including but not limited
to, technical or non-technical data, a formula, pattern, compilation, program, device,
method, technique, drawing, process, financial data, or list of actual or potential
customers or suppliers, that:
(1) is sufficiently secret to derive
economic value, actual or potential, from not being generally known to other persons who
can obtain economic value from its disclosure or use; and
(2) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy or confidentiality. [Emphasis
added.]
With respect to software, a trade secret
can be as expansive as the program’s source code itself and its underlying
architecture, or a particular component of its architecture that determines functionality,
such as statistical assumptions for computing investments. The key to "trade secret
status" is that the claimed trade secret provide its owner a competitive advantage by
not being generally known to others, and the owner takes reasonable steps to prevent the
trade secret from becoming generally known.
Unlike patents and copyrights, trade
secrets cannot be "infringed." But they can be lost or stolen. They’re
potentially lost when their owners fail to take, as required by the statute, reasonable
steps to maintain their secrecy or confidentiality. Insufficient efforts at maintaining
secrecy might include a software company allowing visitors who have not signed
confidentiality agreements to stroll through its development lab where next generation
product plans are within plain view. Or where employees have not been required to follow
procedures for protecting confidential information and copies of source code without
confidentiality notices are scattered throughout its offices. In these circumstances, a
court might choose not to protect the claimed trade secret when its owner seeks legal
relief against someone who has allegedly "misappropriated" it.
Illinois law, however, tilts the balance
in favor of protecting trade secrets and confidential information. The Illinois Trade
Secrets Act broadly defines what constitutes trade secret misappropriation. Under the
statute, "misappropriation" means:
(1) acquisition of a trade secret of a
person by another person who knows or has reason to know that the trade secret was
acquired by improper means ["improper means" includes "theft, bribery,
misrepresentation, breach or inducement of a breach of a confidential relationship or
other duty to maintain secrecy or limit use, or espionage through electronic or other
means," but not reverse engineering or independent development]; or
(2) disclosure or use of a trade secret
of a person without express or implied consent by another person who:
(A) used improper means to acquire
knowledge of the trade secret; or
(B) at the time of disclosure or use,
knew or had reason to know that knowledge of the trade secret was:
(I) derived from or through a person who
utilized improper means to acquire it;
(II) acquired under circumstances giving
rise to a duty to maintain its secrecy or limit its use: or
(III) derived from or through a person
who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
(C) before a material change of position,
knew or had reason to know that it was a trade secret and that knowledge of it had been
acquired by accident or mistake. [Emphasis added.]
The statute prohibits both active and
passive conduct resulting in unfair use of another’s trade secret information. Apart
from the prohibitions one would expect against theft, fraud and breach of a duty of
confidentiality, the Act also prohibits the use of another’s trade secrets which are
obtained inadvertently through accident or mistake. If your competitor unintentionally
leaves its appropriately marked confidential strategic plan in your potential
client’s conference room after a presentation, you should think twice before sneaking
a peek. If you use or further disclose that information, you are potentially liable under
the Act for trade secret misappropriation. Your competitor can sue you to get an
injunction against your use and disclosure of its trade secrets. In addition, you may be
required to pay your competitor monetary damages for its actual loss and your unjust
enrichment from the misappropriation. A court can also force you to pay royalties to your
competitor. And if it believes your misappropriation was willful and malicious, you can be
slapped with punitive damages up to twice the amount of compensatory damages, as well as
forced to pay your competitor’s legal fees.
Unlike a patent, which lasts
20 years, a
trade secret can potentially last forever. That is, so long as its owner takes reasonable
steps to keep it secret and someone else doesn’t independently create,
"discover," or develop it using "improper means" as defined above.
Under the Act, reverse engineering is specifically excluded from the definition of
"improper means" making this method of discerning a competitor’s trade
secrets available. Other concerns come into play in the process of reverse engineering
software, such as avoiding infringing your competitor’s copyrights, and that is the
subject of another article.
Attorney Eric Freibrun specializes in
Computer law and Intellectual Property protection, providing legal services to information
technology vendors and users. Tel.: 847-562-0099; Fax: 847-562-0033; E-mail: eric@freibrun.com.
Copyright © Eric S. Freibrun, Esq., Law Offices of Eric S. Freibrun, Ltd. All rights
reserved.
