Is A Confidentiality Agreement A Prerequisite to a Trade Secrets Act Claim?

Last week, I published a post that asked whether confidential information that is not a trade secret can be misappropriated. In response, several people commented on LinkedIn and on the blog that if a plaintiff did not have its employees sign a confidentiality agreement, the company would not succeed on a Uniform Trade Secrets Act claim. Essentially, these commentators argue that if a company does not have those with access to its proprietary information sign a confidentiality agreement, it has not reasonably protected this information as required by the UTSA.

I disagree, at least to a point. If a UTSA claim could only be brought where the company and the defendant had a written contract, there would essentially be no need for the UTSA; the plaintiff could just sue for breach of contract or specific performance. Also, a company could still take a number of other steps to protect its proprietary information, which could rise to the level of reasonable protections. For example, if a company implemented password protections, clearly informed its employees of their obligation to keep certain info confidential, and limited sharing of confidential information to those employees who need access, a court could find that the company acted reasonably. Absent these types of protections, however, the lack of a confidentiality agreement would likely be fatal to a UTSA claim.

Of course, having a confidentiality agreement makes bringing a UTSA claim much easier. And I highly recommend that all companies have their employees and vendors execute such an agreement. But all hope is not lost without one.

Any other opinions? Feel free to share below.

6 responses

  1. I agree with Eric. In fact, my experience has been that companies fail at least as often in the execution of keeping stuff secret as in having the “right” policies or contracts. And that’s kind of the point: does the employer take reasonable steps to actually (not theoretically)protect the confidentiality of the material. Sure, making people sign a contract can be a reasonable step, both because the employee agrees that something is secret and because he admits to knowing about the policy. However, a giant safe with a crabby old owner who never gives anyone else the combination works even better.

    • > giant safe with a crabby old owner who never gives anyone else the combination

      until said owner gets hit by truck necessitating calling in professionals to break into safe. The point is that a secret can be kept indefinitely by one person, but it may not have much economic value much like an artist keeping works locked up. A limited edition or stuff which has utility with artificial scarcity needs to be shared if only to establish a value for not having such information.

      The advantage of trade secret law is that it sets up a prior relationship and can to some degree, negate anti-competition public policies.

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