All successful businesses use novel ideas for products or services to gain a competitive edge. While you may not have a patentable product or process you probably do have recipes, processes, customer information, or ways of conducting your business that have cost you time, money, and sweat equity to develop.
Kentucky law protects such so-called “trade secrets” from misappropriation, or theft, by others. All types of technical, financial, and business information (including client lists, formulas, techniques, methods, patterns, programs or processes) may be the subject of trade secret protection.
To be considered a trade secret, the information must have commercial value derived from the fact that it is generally not known or readily ascertainable, by either independent development or reverse engineering, by others who can obtain an economic benefit from its disclosure or use. You may be surprised to learn that a trade secret can be protected even though the very same information also has been developed or used by others.
What Constitutes Misappropriation of Trade Secrets?
The Kentucky Uniform Trade Secrets Act ,KRS 365.880 et seq., defines misappropriation as unauthorized acquisition, use, or disclosure of known trade secrets.
- Acquisition: Types of improper acquisition include copying electronic files, removing documents, obtaining access to trade secrets by misrepresentation, or inducing a breach of a duty to maintain secrecy. The most important factor is the use of improper means to obtain the trade secret.
- Use: Examples of use or disclosure include contacting customers identified on a customer list or using someone’s formula to replicate a product. Notably, a plaintiff does not need establish that the defendant’s product was identical to the product it sold or that all of the defendants’ customers were once customers of the plaintiff. If the stolen formula accelerated the development process of the defendant or assisted the defendant in becoming a formidable competitor in a relatively short period of time, the plaintiff will likely prevail on its claims.
- Disclosure: Disclosure of a trade secret may be by intentional or accidental means. Since the Kentucky Uniform Trade Secret statute does not require a specific intent, an inadvertent disclosure can result in liability.
“Misappropriation” simply requires that the trade secret was acquired, disclosed, or used by someone who received or took it from you or your business without your consent. Your competitors may be entitled to acquire the same information by independent development or reverse engineering, or from someone else who has the right to disclose it, but will not be entitled to get it from someone to whom you have entrusted it for your benefit. This is so even though you may not have a non-disclosure agreement with the person who wrongfully disclosed or acquired the information.
The Duty to Protect Your Trade Secrets
Importantly, to actually protect a trade secret, you or your business, as the “owner” of the trade secret, must be able to prove that reasonable steps under the circumstances were taken to identify the trade secret and maintain its secrecy.
This means you or your business must take the time to identify sensitive trade secrets beforehand and make their confidential nature known to your employees, agents, contractors, or anyone else to whom you confide. Otherwise, others, including an employee who leaves your business to work for a competitor, may not realize that you expected confidentiality, or even that you regarded the information as valuable.
Identifying the information that makes your products and services unique and desirable, or that simply gives you a competitive advantage in the marketplace, only begins the process of its protection. You must take additional steps to ensure that the information remains confidential and that those entrusted with the information understand that you expect it to remain so.
Statute of Limitations for Trade Secrets
Under Kentucky law, the statute of limitations is three years from the date on which the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. Time is of the essence. If you or your business has been the victim of trade secret misappropriation you may be entitled to injunctive relief, compensatory damages, and reasonable attorneys’ fees for willful and malicious misappropriation.
Most trade secret cases are brought against departing employees. It is critical that employers set appropriate protective measures in contracts with employees, consultants and contractors. We regularly assist clients with reviewing their agreements (including but not limited to employment, confidentiality, nondisclosure, contractor engagements, and severance/separation agreements) as well as internal policies and written procedures – to ensure full protection of their trade secrets. With a plan in place, and expectations made clear, valuable business information can be protected as a trade secret.
Handling Trade Secret Misappropriation Claims in Kentucky
If you are involved in a dispute concerning misappropriation of trade secrets, it is vital to have experienced business litigation attorneys on your side. We work aggressively to defend our clients’ trade secrets because we understand the potential damage and costs when trade secret infringement occurs.
Contact Gaddis & Matthews, PLLC online or call (502) 805-2303 to schedule your initial consultation with an experienced Kentucky trade secret litigation lawyer.