Trade Secrets 101: If You Want To Call Something a Trade Secret, You Have To Take Steps To Protect It

December 9, 2019

Courts have long held that, in order for something to be considered a “trade secret,” a business owner has to actually make efforts to keep the supposed trade secret a secret.  It stands to reason that if no efforts are made to protect that “secret,” then how valuable can it really be?  Business owners can be in for a big surprise when they are confronted with a former employee or competitor who is now in possession of what are thought to be the “crown jewels” of the company, only to find out that the “crown jewels” are not really trade secrets at all because no reasonable steps were taken to protect them.  This basic principle of trade secret law was recently highlighted by the U.S. District Court for the Western District of Pennsylvania in Revzip, LLC v. McDonnell, 2019 U.S. Dist. LEXIS 211836 (W.D. Pa. December 9, 2019).

In Revzip, the Plaintiff – the owner of a sandwich shop in Altoona, Pennsylvania, known as Power House Subs – brought an action against a former owner and employee for violation of a non-competition agreement and stealing his special sandwich sauce recipe.  He claimed that the special sauce was a “trade secret” and sought a preliminary injunction barring the Defendant from using the sauce.

The Court in Revzip reiterated the long-standing principle that in order for something to be considered a trade secret, the owner must demonstrate (among other things) they have “taken ‘reasonable’ steps to keep [it] secret.”  In finding that Power House Subs did not take such reasonable steps, the Court noted the following:

●          With the exception of the Defendant, Power House Subs did not require any other employees with knowledge of the special sauce recipe to sign non-disclosure agreements;

●          Power House Subs had no other agreements in place with employees from leaving the company, with full knowledge of the special sauce recipe, and working for a competing company;

●          Power House Subs actually posted the special sauce recipe on the wall of its preparation room where all employees – and even non-employees (such as vendors) – could openly view it.

The Court therefore denied the request for a preliminary injunction and held that the Plaintiff did not establish that the special sauce recipe was a trade secret since there was no evidence that Power House Subs many any efforts to protect it.

Power House Subs’ failure to protect its special sauce recipe should serve as a reminder to all business owners:  If you think something is a trade secret, you need to take reasonable steps to protect it.  This includes:

●          Using non-disclosure and confidentiality agreements with employees, non-employees and vendors;

●          Limiting access among employees and non-employees to the supposed trade secrets;

●          Using password protection or other security limiting access to sensitive documents, networks and databases;

●          Labeling protected documents as “Confidential” and limit the copying of and access to such documents;

●          Creating internal policies regarding the use of and access to supposed trade secrets;

●          Educating employees about what is considered confidential information and their need to protect trade secrets;

●          Taking steps to protect your trade secret, including through litigation, when there is a disclosure or potential disclosure

And for goodness’ sake, do not post the secret sauce recipe on the wall!

For additional information contact Chris Cahillane.