Portland's Tilson Tech knows how to keep trade secrets secret
Photo / Tim Greenway
Joshua Broder, president and CEO of Tilson Technology Management, says questions often arise just about what qualifies as a trade secret.
Tilson Technology Management, a fast-growing information technology professional services and network construction company, knows how to keep a secret.
Trade secrets, that is — an essential consideration for a company whose clients range from companies of all sizes to the U.S. Department of Defense, with client information ranging from confidential to highly classified.
“We have a rigorous process for marking and classifying secret information,” says President and CEO Joshua Broder. “Our company participates in classified projects for the federal government and we in turn have clearances from the federal government, so many policies and procedures we're required to follow on classified projects were in turn more rigorous anyway. And we found that handling classified information in the federal context allowed us to improve our handling of commercial information as well.”
The subject of trade secrets received a bounce in May with the enactment of the Defend Trade Secrets Act, which creates federal jurisdiction for trade secret litigation. Previously, lawsuits regarding misappropriated trade secrets could be taken to state courts. State laws on the subject follow guidance of the Uniform Trade Secrets Act, published in 1979 by the National Conference of Commissioners on Uniform State Laws. But the state laws are not uniform across state lines. The new federal law, also mirroring the UTSA, provides a universal cause of action and also incorporates new provisions designed to better protect employees. Litigants can now sue either at the state or federal level.
What qualifies as a trade secret
Tilson deals with trade secrets in two contexts, says Broder. One is development of software products for commercial and government clients.
“We feel strongly that secrets need to be protected to have a healthy economy,” says Broder. “So we're happy to see laws strengthened that help our customers protect their secrets.”
The other context involves the fast-growing company's hiring of people from other companies. That's where DTSA is a mixed bag. Sometimes, Broder says, new hires at Tilson have been threatened with lawsuits by former employers who say they have violated non-competition agreements. Tilson provides counsel to the new employees so they can focus on their work, and no claim has ever gone to court.
But the DTSA's federal venue makes that prospect more intimidating. Conversely, the DTSA also prohibits former employers from trying to enjoin former employees from working for another company.
The reality, says Broder, is there are far fewer trade secrets than the lay public might think. Although information technology might evoke a trade-secret-rich image, Tilson has few such secrets.
“Very few things are actually trade secrets,” Broder says. “Yes, if you're Coca-Cola, the recipe is a trade secret. But in telecom, if I put out a bid, my pricing isn't secret, because I just shared it with the federal government. Is the way we do construction a secret? No, it's know-how. Is the way we develop software a secret? No, that's know-how.”
Trade secret cases could have higher profile
Whatever the bandwidth, access to the federal court system is likely to expedite trade secret cases because the federal courts typically have more resources to devote to complex matters than the state courts do, says Bernstein Shur attorney Ned Sackman, an expert in trade secret law.
Trade secrets are “the lifeblood” of manufacturing, technology and other growth sectors, anything from secret recipes to unique manufacturing techniques, Sackman says.
Primary kinds of intellectual property include patents, copyrights, trademarks and trade secrets. The first three were already protected under federal law and alleged violations could be taken up in federal court.
“Up until May 11, 2016, you could not do that for trade secrets,” says Sackman. “Part of the impetus for this law was to put trade secrets on equal footing with the other three.”
However, trade secrets were protected by state laws and continue to enjoy state protection. So why does the new federal law matter? Federal courts are simply less inundated than state courts, and have better resources to investigate trade secret lawsuits, which are often complicated.
“For example, if you have a case involving software and you have to spend significant time explaining what the software is and why it's important and how you believe the secrets have been misappropriated, the conventional wisdom is you're better off doing that in federal court because it has more time and resources to devote to a complex inquiry,” Sackman says.
In addition, there's a benefit to having a uniform federal law.
“Even though almost every state has its own trade secret law, there are differences, and sometimes those differences are significant depending on the specifics of the lawsuit,” he says. “For example, businesses in Maine that have commercial relationships with businesses in Massachusetts, Connecticut and Rhode Island might have to litigate under another state's act rather than the Maine act. With a uniform law, you can go to federal court anywhere, and the same law applies in all of those courts. It gives everyone a better ability to assess the litigation and make appropriate business decisions about how to proceed.”
Watch out for customer lists
“Customer lists can be trade secrets when they're more than simply a list of names and numbers,” Sackman says. “Someone accused of theft can say, 'Wait a minute, I can just Google the name of this person and find their address and phone number. There's nothing secret about that.' But it becomes commercially valuable when you have a list that includes additional information such as customer preferences. For example, consider the customer list of a financial advisory company. The list is likely to include individual customer investment philosophies, their net worth, their tolerance for risk, and be organized in way that, when the company has a new product, they pull up the list and see if their customer might like it. A list like that is probably a valid trade secret.”
In general, he says, “A trade secret is an idea or process or concept not generally known to the public, provides some form of economic benefit to the person or company that has that idea, and has been subject to reasonable measures to keep it secret.”
For small businesses, Sackman says, it might not make economic sense to keep trade secrets.
“If you have a farm stand and sell homemade jams, do you worry about your trade secrets? Probably not,” he says. “But if you're a company of some size and have come up with certain formulas to brew your beer, then perhaps it makes sense.”
Digital technology makes trade secrets more vulnerable than in the past.
“It used to be that something like a customer list existed in a spreadsheet or notebook, locked in a cabinet in a locked office in the brick-and-mortar business,” Sackman says. “Now data is infinitely more mobile. You see people emailing information to themselves.”
Thumb drives are another popular way to steal secrets. “Plug into the company's internal network, download key information, throw the thumb drive in your pocket and off you go.”
Theft can result in huge financial losses, the scale depending on the size of the company. It can also be an existential threat.
“Even if you're not talking about giant corporations, you might find it's important to pursue this kind of litigation, if a new company is trading on your information and goodwill, and competing in the same space,” he says.
Be aware of DTSA provisions
Sackman advises clients to educate themselves on DTSA, whose provisions include:
- A whistle-blower notification requires businesses with nondisclosure agreements to notify employees that employees involved in an investigation of illegal or improper activity are allowed to disclose information, otherwise protected as a trade secret, to the investigating agency. However, the penalty for lack of notification isn't severe. With notification, successful litigation can recover attorney fees plus double damages. Without notification, employers can still litigate and recover actual damages.
- Employers must notify employees that employees involved in a lawsuit may disclose trade secrets under seal. The notification helps employees who have signed nondisclosure agreements with their company.
- An “ex parte seizure” provision allows companies to obtain a court order to have law enforcement seize trade secret-infringing items without notifying the alleged perpetrator. This is an “extraordinary remedy” and will likely rarely be used, says Sackman.
“I think employers would be wise to look at the act, as part of updating their corporate documents or routine reviews of employee contracts, and certainly as they're hiring new people,” says Sackman. “If you're a business that relies on certain information that's secret, you might want to understand what this is. It's a new form of protection companies can consider drawing upon, assuming they've taken reasonable measures to keep that information secret.”
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