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The Pennsylvania Trade Secrets Act
Virtually every American jurisdiction has developed trade secrets laws to protect against the use of improper means to learn or take advantage of another’s business secrets. By doing so, the states encourage invention through the maintenance of standards of business ethics. Through most of Pennsylvania’s history, the law of trade secrets was developed by the courts as they decided individual cases. Many of these decisions served as precedent in later cases, and these precedents collectively became Pennsylvania’s vast common law of trade secrets. Like most areas of common law, the law of trade secrets was plagued by seemingly conflicting precedents. Further, it is the very nature of common law that it is derived from a multitude of scattered cases, and is not fully or authoritatively codified in any one place. For these reasons and others, the National Conference on Uniform State Laws drafted the Uniform Trade Secrets Act to codify and effectively replace the common law. Effective April 19, 2004, Pennsylvania joined the growing number of States which have adopted the Uniform Trade Secrets Act.
One of the most difficult questions in trade secrets law is whether a given piece of information is in fact a “trade secret” entitled to legal protection. Generally speaking, if a given piece of information is readily known or can be easily obtained by others, it is not a trade secret. If it is not readily known or ascertainable and if a business has done what it can to keep the information secret (think McDonald’s “special sauce,” the Colonel’s “secret recipe” and the “formula” for Coca-Cola), then it generally is a trade secret. The Uniform Trade Secrets Act, codified in Pennsylvania at 12 P.S. § 5302, defines a “trade secret” as “information, including a formula, drawing, pattern, compilation including a customer list, program, device, method, technique or process that: (1) derives 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 its disclosure or use”, and (2) “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Thus, the Uniform Trade Secrets Act preserves the notion that a trade secret must be unknown to and not readily ascertainable by others, and must also be a piece of information that the holder of the secret goes to efforts to protect.
One of the most common issues in trade secret litigation is whether a company’s customer list is a trade secret entitling the company to prevent a former employee from taking and using that list in her new employment. Under Pennsylvania law, both before and after the enactment of the Uniform Trade Secrets Act, a customer list is generally afforded trade secret status if that list took some time and effort to compile and is not readily available to competitors through legitimate means. On the other hand, if the customer list is already widely known or could be readily compiled by a competitor through other means, such as trade show directories or the Internet, that list generally will not be afforded trade secret status.
In any suit involving trade secrets, one of the questions will be whether or not another party has obtained those trade secrets through improper means. Under the Uniform Trade Secrets Law “improper means” includes, but is not limited to “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy or espionage through electronic or other means.”
Before an owner of a trade secret is entitled to a legal or equitable remedy for another’s use of that trade secret, the owner must prove that the trade secret was “misappropriated.” Under the Uniform Trade Secrets Act, a trade secret is “misappropriated” if it is acquired “by a person who knows or has reason to know that the trade secret was acquired by improper means” or if a trade secret is disclosed without permission by a person who acquired by improper means or derived it from another who acquired it by improper means, or by a person who had a “duty to maintain its secrecy or limit its use.” Thus, although an employee may acquire a trade secret properly in the course of his employment, that employee “misappropriates” that trade secret in violation of the Uniform Trade Secrets Act if he later discloses or uses the secret in violation of an agreement to maintain its confidence.
Once the “misappropriation” of a “trade secret” is established to the satisfaction of the court, the Uniform Trade Secrets Act permits the courts to enjoin both “actual and threatened misappropriation.” Even after the trade secret has ceased to exist (typically due to it having been made public and therefore no longer a secret), the court may extend the injunction for an additional period of time to prevent a competitor from obtaining any commercial advantage that otherwise would be derived from the misappropriation. Further, in exceptional circumstances, such as where the user sustains a material and prejudicial change of position prior to learning that the information in question was a misappropriated trade secret, the Uniform Trade Secrets Act permits the court to enter an injunction order conditioning the future use of the trade secret upon payment of a reasonable royalty.
In addition to injunctive relief, the Uniform Trade Secrets Act permits the award of any monetary damages sustained due to a misappropriation. Damages can be measured on the basis of any actual loss to the owner or any unjust enrichment received by the user, or on the basis of what a reasonable royalty might be. Further, if the misappropriation was willful and malicious, the court can award exemplary or punitive damages in an amount not exceeding twice any award of actual damages. Under certain circumstances, the Uniform Trade Secrets Act also allows for the award of reasonable attorney fees.
In Pennsylvania, any employee or contractor with the thought of leaving one company to take commercial advantage of a customer list or secret formula elsewhere should think twice or, better yet, consult with an attorney. Likewise, any business that believes one of its trade secrets has been misappropriated or is about to be misappropriated should also consult with legal counsel quickly, and preferably before that valuable trade secret becomes general public knowledge.
Bruce L. Baldwin, Esquire is a partner in the law firm of Wolf, Baldwin and Associates, P.C. of Pottstown, and has represented consumers and businesses for over 15 years. He may be reached at [email protected].