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Avoiding Trade Secret Losses During Corporate Collaboration
Effective corporate collaborations — whether close customer relationships, supplier partnerships or formal joint ventures — demand that sensitive information be shared. Without proper agreements and well-defined boundaries, however, those corporate collaborations can lead to loss of trade secret protection and entangle the parties in litigation.
Protect Trade Secrets Through Controlled Sharing Subject to Confidentiality Agreements
Generally, to be a trade secret, information must: 1) be secret, not generally known or readily ascertainable; 2) have value arising from the fact that it is secret; and 3) have been subject to reasonable steps to ensure that it remains secret. Therefore, when trade secret information is shared outside a company, including with customers, appropriate safeguards must be put in place to maintain that information as a trade secret. As the cases discussed below illustrate, it is fundamental that there be a well-scoped confidentiality agreement or non-disclosure agreement (NDA) in place before trade secrets are shared with collaborators and potential collaborators.
In Madison Oslin v. Interstate Res., No. MJG-12-3041, 2015 U.S. Dist. LEXIS 37587 (D. Md. Mar. 25, 2015), the court found the alleged trade secrets were not trade secrets in part because they had been shared with prospective and current customers without the protection of a confidentiality agreement. Similarly, in Prostar Wireless Group v. Domino's Pizza, 360 F. Supp. 3d 994 (N.D. Cal. 2018), the court found that the alleged trade secrets relating to the architecture of Prostar's pizza delivery tracking system were not secret, where Prostar had shared conceptual design overviews and technical specifications for its system with pizza and IT companies without nondisclosure agreements in place.
In Broker Genius v. Zalta, 280 F. Supp. 3d 495 (S.D.N.Y. 2017), Broker Genius did take some steps to safeguard the alleged trade secrets reflected in its software before sharing that software with its long-term customers. Broker Genius required them to sign a Services Agreement acknowledging that "source code and underlying structure and algorithms of the Software are the property and proprietary trade secrets of BROKER GENIUS or its licensors." However, the narrowness of this trade secret identification undercut Broker Genius' broader claim in litigation that the software's architecture, user interface and scalability solution all were trade secrets. More problematic and, ultimately, fatal to Broker Genius' trade secret claims, however, was that Broker Genius failed to consistently require all customers to sign the same agreement. Some customers had only signed a Terms of Use, which did not include a trade secret acknowledgment or confidentiality provision. To effectively protect trade secrets, disclosure must always be subject to a confidentiality agreement.
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