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II. Agreements Not To Disclose: Trade-Secrets and the "CDA"

A. Background: Trade Secrets

As a general principle of trade-secret law, a trade secret can be any piece of information that (1) is exclusively known by the party claiming it (i.e., it is truly a secret), (2) is protected by measures that are reasonable under the circumstances, and (3) is of some economic value -- either because owner of the secret experiences a direct and tangible economic benefit (say, a cheaper way of making a formulation) or because the competitors of the owner would have to expend considerable resources to discover the secret through lawful means (say, by reverse- engineering). ¹⁷X

See, e.g., RESTATEMENT (2D) TORTS § 757 comment b; Roger Milgrim, Milgrim on Trade Secrets § 101 (discussing the Uniform Trade Secret Act); cf. Economic Espionage Act of 1996, 18 U.S.C. § 1839(4) (1997) (definitions). Each State in the United States has its own trade-secret law. In addition, the Federal Government recently enacted the Economic Espionage Act, which is intended to complement existing State laws without preempting them. As a result, there are many overlapping definitions and rules concerning trade secrets. Specific matters should be addressed by attorneys who have particular familiarity with the laws of the jurisdiction in question.

If the basic criteria are met, the owner of a trade secret has grounds to ask a court to protect that secret against "misappropriation," by assessing money damages and sometimes by imposing an injunction. ¹⁸X

Milgrim, § 16.01[7].

The difficulty in trade-secret litigation, typically, lies in proving that all the initial criteria are met. For example, assuming your confidante wrongly disclosed your secret, how do you prove that your information was actually a secret before it was disclosed to the confidante? Were the steps you took to keep your information secret "reasonable" (and will a randomly selected jury agree)? Was it still a secret at the moment when the confidante publicly disclosed your information? These are difficult facts to prove, even in the best of conditions. Moreover, as a purely practical matter, the likelihood is low that an injured party will recover through the legal process the value of what was lost when the secret was revealed, even if misappropriation has been proved.

Nevertheless, using some form of confidential disclosure agreement is a good idea for all concerned, for several reasons. First, a signed agreement often has the psychological effect of making those involved treat the terms of the written agreement more seriously than they would a mere handshake. Second, clear terms can help avoid disagreements and ill-will by putting each other on notice about which information should be treated as confidential, as well as what acts are or are not appropriate. Third, a written agreement reduces the risk that a patent office will deem a pre-filing disclosure of an invention to be a bar against patenting. Finally, even if there is a breaching disclosure, if it is a minor disclosure, the party owning the trade secret still has a chance of getting legal protection for the information in the future, because the party can point to the agreement as evidence that the party took every reasonable step under the circumstances.

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