Hart: Trade secret protection requires customized measures

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By Kathleen Hart

A trade secret is a statutorily created form of intellectual property that exists only when its owner takes “reasonable” measures to protect it from exposure. The definition of reasonableness varies depending on a multitude of factors applicable to the sophistication level of the owner’s business. Because there is “no one size fits all” analysis to determine whether something qualifies as a trade secret — including whether its owner took reasonable measures to protect it — a lawyer tasked with protecting a client’s trade secrets must be intimately familiar with the client’s protectable interests. This article outlines the factors that should be considered to best protect a client’s trade secrets under Indiana’s trade secret laws.

First, the attorney must understand how a trade secret exists in the first place. In 1982, Indiana joined other states and adopted the Uniform Trade Secrets Act (“UTSA”), codifying it at Indiana Code §24-2-3-1 et seq. In 2016, a separate federal law entitled the “Defend Trade Secrets Act” was derived from the UTSA.

Indiana Code §24-2-3-2 defines a “trade secret” as any information having two distinct parts: (1) it derives independent economic value (actual or potential) from not being generally known or readily ascertainable by persons who would benefit from its disclosure or use, and; (2) it is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. In layman’s terms, the information constituting a trade secret is valuable because competitors cannot readily find or obtain it (without extensive time, effort or expense) and because the owner has done all things reasonable to protect it. Both prongs are often disputed when trade secret claims are litigated, but the lawyer’s role usually has played a part long before the owner’s claims can be addressed by a court. If the lawyer’s advice or protective documentation falls short such that a court finds that the measures employed were insufficient, the information is not deemed a trade secret.

Second, the attorney must know the available tools, and which ones to utilize, in order to maintain the protected status of a trade secret. Protective measures that are “reasonable under the circumstances” will vary depending upon the size or sophistication of the owner. It makes sense that a small family-owned business will not have to match the levels of protection employed by public companies with legal and human resources departments to protect their secrets. But no matter the company’s size, a court must nevertheless find that the protective measures taken were reasonable. The variety of available tools to protect trade secrets is broad, but Indiana courts have not suggested a hierarchy or singular standard that will automatically deem any particular steps as reasonable.

Examples of protective measures found in Indiana cases include: (1) access to the secret information restricted to those with a need to know it to perform their tasks for the owner; (2) physical marking of the secret information as proprietary property of the company; (3) storage of the secret information in locked/secured locations and password-restricted on computer systems; (4) policies/practices for the regular return and destruction of confidential information; (5) confidentiality and non-disclosure policies/agreements; (6) non-competition agreements; (7) policies/practices such as prohibition of storage devices or cameras at work and limiting privacy rights to permit searches for violations, and; (8) practices to ensure compliance such as exit interviews, post-termination reminders of ongoing obligations, investigations of possible violations and enforcement of rights when violations occur. Attorneys are wise to include protective measures as to anyone with access to proprietary information, such as third-party contractors, vendors and suppliers; even plant tours contributed to trade secret status being denied in one case (Zemco Mfg., Inc. v. Navistar Int’l Transp. Corp., 759 N.E.2d 239 (Ind. Ct. App. 2001).) Therefore, be sure to determine the extent of the client’s disclosures in employing protective measures.

Third, the attorney must be a skilled draftsman in implementing the tools necessary to best protect the client’s trade secrets. This is where a lot of attorneys go on “automatic pilot” and fail to meet their client’s needs. In utilizing forms that are not customized for their client’s particular business, attorneys may leave proprietary client information unprotected. The litmus test is typically whether the policy/provision expressly identifies the information that is considered a secret and how it is to be protected. Indeed, where restrictive provisions are so complex that employees cannot decipher them, courts will refuse to enforce them. (See Clark’s Sales & Serv., Inc. v. Smith, 4 N.E.3d 772 (Ind. Ct. App. 2014).) While ample seminars and materials abound to teach attorneys the best ways to draft necessary policies and restrictive agreements, the need for competency in the subject area and customization to match the client’s true protectable interests (including their identity/scope, life cycle, breadth of goodwill and persons/activities subject to the necessary measures) cannot be understated.

Fourth, the attorney must educate the client about best practices in maintaining and updating protection of trade secrets. Clients must understand that proactive employment of the drafted policies/agreements is critical to protect trade secrets. When clients simply put the documents on a shelf such that only some of the persons accessing secret information have duties to keep it confidential, then the protective measures erode until the trade secret status is lost. Similarly, as clients develop new or different levels of proprietary information, their counsel should audit and update their protective measures to satisfy the reasonableness standard. Clients should be informed that their own failure to follow counsel’s advice can mean that they will have no trade secrets for protection. Companies that regularly remind everyone of their confidentiality obligations will be prepared to refute defense claims of having no knowledge of their obligations respecting the information. Equally important, clients must stay alert to possible misappropriation of trade secrets and prosecute them; if they fail, their secret information is diluted and no longer a trade secret.

The attorney who best serves a client in this area of the law first learns the client’s business to identify potential trade secrets and the scope of their use/disclosure in order to customize the client’s policies and practices to protect them. Do not fall prey to all of the available forms and lists without understanding how much is really necessary. If a client’s only trade secret is its customer list, be bold enough to focus the drafting energy there.•

Kathleen Hart [email protected] — is a partner with Riley Bennett Egloff LLP who regularly consults, drafts, and litigates trade secret protection and noncompetition disputes. Opinions expressed are those of the author.

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