About Trade Secrets and Unfair Competition

Unfair competition encompasses a broad array of legal rights existing under federal and state laws that serve to protect intellectual property. Generally, the law of unfair competition is directed to torts which cause an economic injury to a business, through deceptive or otherwise unfair acts.

Unfair competition law has a statutory basis in both federal and state law, as well as in the common law. Article 1, Section 8, Clause 3 of the U.S. Constitution, known as the "Commerce Clause" provides the basis for Congress' regulation of unfair competition.

www.law.cornell.edu/constitution/constitution.articlei.html#section8.

For example, section 43(a) of the Lanham Act, 15 U.S.C. §1125, is a federal statute that provides a civil remedy for false advertising.

www.law.cornell.edu/uscode/15/1125.html.

The Federal Trade Commission (FTC) also regulates trade to protect consumers from deceptive trade practices that injure consumers. The FTC regulations concerning unfair competition are found in various parts of title 16 of the Code of Federal Regulations.

www.law.cornell.edu/cfr/16cfr.htm#start.

States retain current jurisdiction to regulate unfair competition under the Tenth Amendment to the Constitution. Examples of unfair competition include trade secret misappropriation, counterfeiting and gray market goods, palming off, invasion of privacy, trade dress infringement and misrepresentation.

Though trade secrets evolved from the common law, the majority of states including Maryland have now adopted the Uniform Trade Secret Act, codified at Md Code Ann., Commercial Law Art. § 11-1201 et seq. (1989).

mlis.state.md.us/cgi-win/web_statutes.exe.

Trade secret laws generally protect confidential material which has competitive value. Under the Maryland Act, "trade secret" means information including a formula, pattern, compilation, program, device, method, technique, or process, which: 1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and 2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. This includes customer lists, recipes, secret methods and processes, etc.

To qualify as a trade secret, the confidential material must not be readily ascertainable by the public, and the owner must take reasonable efforts to maintain confidentiality. Under the Maryland Act, almost any information can be preserved as a trade secret so long as it is not generally known to or ascertainable by the public and is the subject of reasonable efforts to maintain secrecy. Unfortunately, some secrets are difficult to preserve for long. This is the case whenever an invention is readily ascertainable (can be understood or reverse engineered) by the public once it is sold in the form of a product or service. Past that point a patent is necessary. Nevertheless, until a patent issues all proper precautions should be taken to preserve trade secret rights. This should entail: (1) proprietary notices placed on all sensitive printed material given out; (2) strict confidentiality provisions written into all consulting, manufacturing and/or employment agreements; and (3) restricted access (on a "need to know" basis) to any sensitive information such as source code or documentation. True secrecy imposes a substantial burden, and companies often invest heavily in keeping their secrets. A few companies have even elected to rely on trade secret protection instead of a patent. In these cases, the benefit outweighed the risk (the benefit being that trade secrets potentially last forever, whereas patents only last 20 years). The best candidates are industrial processes which take place entirely behind closed doors. The formula for Coca-Cola is a famous example. Coca Cola long ago made a conscious decision to keep their formula for Coke secret rather than patenting the same. They have taken all possible precautions, indeed, no one person is allowed to know every step in the production of Coke. As a result it remains a legally enforceable trade secret whereas a patent would have expired many years ago.

Secret State and common law rights in trade secret include the right to prevent the use and/or dissemination of the trade secret by others, and to obtain damages.

Ober|Kaler offers a full range of services which address the protection of trade secrets, trade secret misappropriation, and trade dress protection, and unfair competition in general.