For small businesses, the protection of trade secrets is critical.
Trade secrets may be the most lucrative asset possessed by a small business. According to the U.S. Small Business Administration, small businesses—defined as employing fewer than 500 employees—comprised 99.6 percent of Illinois businesses, employing 45.5 percent of all employees in the state. With 1.2 million small businesses within Illinois, competition is fierce and any economic advantage must be utilized.
Small businesses tend to depend on a few large clients that return for their product on an ongoing basis. After a long business relationship, the real value is no longer in the physical product. The real source of a small business’s profits lies within the information and data they have collected about their clients and their clients’ employees. The service provided has changed from one of a physical product to a service of satisfying preferences.
The information and data a small business has collected is their property. Where does it store this information? Traditionally, paper files might have been utilized, or perhaps one manager would be dedicated to the client. With the latest technologies, however, all this data can be easily compiled and saved where any employee can use it. But as with all property, it must be protected.
This data is not eligible for patent protection, as patents are reserved for inventions. Trademarks are for items such as logos and company names, which help identify your business amongst the millions in Illinois. Copyright is for written materials, and information kept on computers is eligible—but copyright almost naturally involves publishing or sharing the writing, which is exactly what you do not want to do. What is left? Trade secrets.
Eligibility and Protection
Historically, trade secrets have been protected according to state common law or state statutory protection. They have not been considered to be included in the more traditional, constitutionally-protected intellectual property group of copyrights, trademarks and patents. Determination of what constitutes a trade secret is highly fact-dependent. There is no cookie-cutter definition of a trade secret, although there are recognized genres and types of trade secrets. Relevant facts include what the information actually is, how readily obtainable it is, how easily it can be found in the public domain, why it is kept secret, what protections are in place, whether or not it is known by employees/other accessors, and how people are prevented from obtaining or divulging the information.
Customer data and preferences, pricing data, analyses of market and sales trends, production techniques, software, vendor analyses, and many other tangible and non-tangible properties are potentially eligible for protection under trade secret statutes. And protection is an increasingly difficult proposition in today’s interconnected world. Employees have access to cell phones, whether personal or employer-provided, and computers are necessary in the vast majority of positions and businesses. The increasing use of cloud computing for storage also makes it more difficult to keep trade secrets secure.
Trade secrets are protected due to their economic power, which is derived from the value of the secret itself. As long as the information is secret, it provides value. Once that information stops being secret, it loses its value; everybody knows the information and anybody can use it. The protection of trade secrets is extremely important. Using passwords for computers and documents, locks and keys for filing cabinets and offices, confidentiality agreements within employee contracts, and other protective measures are required.
The Illinois’ Trade Secrets Act (ITSA), 765 ILCS 1065/1, is based on the Uniform Trade Secrets Act, similar to the vast majority of states. It allows a civil suit to be filed to prevent the disclosure of trade secrets and recover damages for any unauthorized disclosures. In Illinois, a trade secret is, in a very general sense, information that has economic value, at least partially from being secret, that a business attempts to keep secret. This information may contain processes or mechanical designs that would be eligible for a patent; however, applying for a patent necessarily publishes the information, defeating the secrecy of the information.
Civil Seizure and Restraining Orders
Recognizing the rise in technological economic espionage and in an effort to unify disparate trade secret laws, the federal government passed the Defend Trade Secrets Act (DTSA), 18 U.S.C. 1836, in 2016, giving Illinois businesses the ability to file claims in federal court utilizing a federal statute in addition to their state claims. Federal district courts appear to be interpreting the DTSA in similar fashion to the state trade secret laws, rather than as a law with new definitions and requirements. However, there is one remedy within the DTSA that is generally not included within state law: possible civil seizure of property involved in the claims.
A plaintiff can file a verified complaint or affidavit to obtain an ex parte (one-party) hearing in front of the judge asking for seizure of any property necessary to prevent further dissemination of the claimed trade secret. This is a powerful tool, with strict requirements imposed upon the plaintiff and judge in order to utilize it. Federal judges have been reluctant to utilize civil seizure power, opting to use the more traditional temporary restraining order power instead, such as in Magnesita Refractories Co. v. Mishra. The court in Magnesita held a hearing for both a civil seizure and a temporary restraining order and determined that a temporary restraining order would be sufficient to prevent further use or dissemination of the alleged trade secrets. A New York court granted a seizure request in Mission Capital Advisors, LLC v. Romaka, but only after the defendant violated a prior issued temporary restraining order.
The requirements for a temporary restraining order are:
- A showing of some likelihood of success of the underlying suit based upon the merit of the allegations;
- There is no adequate remedy at law; and
- That irreparable injury will occur without the temporary restraining order.
Restraining orders are seen as a drastic resort and are not granted without clear, convincing evidence. Because they are difficult to achieve, the simplest and most cost-effective method to prevent unauthorized access or use is to protect the trade secret adequately. Passwords, locked safes, minimal access and similar measures are among the best protections. Each trade secret may have need of specialized protection. A recipe, for example, that is written on a 3x5 notecard obviously has no use for a password; a locked safe might be more appropriate.
In contrast, a program developed by a business to analyze specific sets of data to obtain market predictions would not be protected by a locked safe due to its digital nature. Password protection might be necessary—and perhaps more protection as well. The DTSA does not specify what protection is acceptable for what type of secret, nor does it define what is considered “protection.”
The DTSA does not provide additional protection; it merely provides additional possible remedies and the ability to use the federal court system to obtain a remedy for an alleged misappropriation of a trade secret. The traditional requirements concerning trade secrets are still applicable and must still be considered by small businesses. If you are unsure about your protection, consult a lawyer to ensure that your business is protected. iBi
Robert Tenney is an attorney in Heyl Royster’s Peoria office. He is a member of the firm’s Intellectual Property Practice and a 2011 graduate of the Dayton School of Law.