By Frederick J. Steimling, Esq.
Trade secrets are crucial to businesses across industries, safeguarding sensitive information that provides their competitive edge. Recent federal court cases highlight key principles and trade secret litigation. These cases also suggest that the law is developing in a way that is more friendly to trade secret owners.
A preliminary question is, does a protected trade secret exist? A “trade secret” exists if: (1) the information is non-public; (2) reasonable measures have been taken to protect that information; and (3) that information derives independent economic value from not being publicly known. Very generally speaking, “misappropriation” occurs when a person improperly acquires, discloses, or uses another’s trade secret, knowing or having reason to know it was obtained through improper means, received under a duty of secrecy, or acquired by accident or mistake before a material change in position. The Defend Trade Secrets Act (DTSA) only applies to trade secrets used in “interstate or foreign commerce.” The Colorado Uniform Trade Secrets Act (§ 7-74-101, et seq., C.R.S.) (CUTSA) provides similar protections to Colorado businesses.
Some recent 2024 federal court cases are worth highlighting:
Courts have also reiterated that reasonable security measures are essential for trade secret protection. Cashman Dredging & Marine Contracting Co., LLC v. Belesimo (D. Mass. 2024) demonstrated that the absence of nondisclosure agreements often weakens claims, and Freedom Cap. Grp. LLC v. Blue Metric Grp., LLC (M.D. Tenn. 2024) demonstrated that failure to inform independent contractors of confidentiality can undermine arguments that reasonable security measures were in effect.
Still, federal courts have consistently declined to impose a high bar for what constitutes a “reasonable” measure. Here, in the Seventh District, for example, in EIS Ultimate Holding, LP v. Huset (D. Colo. 2024), the court emphasized that confidentiality measures for general proprietary information can suffice for trade secret protection. Similarly, courts do not generally impose a high bar to find “misappropriation.” In Compulife Software, Inc. v. Newman (11th Cir. 2024), the court found that a competitor’s acquisition and use of secret data for its own gain resulted in liability under DTSA, even when the trade secret owner could not pinpoint how the competitor acquired the data.
Recent rulings highlight the necessity of precise trade secret identification in litigation. In Double Eagle Alloys, Inc. v. Hooper (N.D. Okla. 2024), the court granted summary judgment against the plaintiff for failing to specify which documents were trade secrets versus publicly disclosed information.
Though these cases pertain to DTSA, there is no reason to believe that the same reasoning in these cases could not be applied to CUTSA. Given these recent developments, Colorado businesses should review their trade secret policies to reflect current security standards given these judicial interpretations. If you have questions about protecting your intellectual property, you should contact an experienced business attorney.
