Nondisclosure Agreements as the Mean to Protect Trade Secrets

NONDISCLOSURE AGREEMENTS AS THE MEAN TO PROTECT TRADE SECRETS

Student: Emin Gurbanov

COURSE: BUL4310

Professor: STEVEN VOGEL, JD, LLM

TABLE OF CONTENTS:

1. Importance of Trade Secrets it today's business world

2. Nondisclosure Agreement as effective tool to protect Trade Secrets

3. Elements and definition of Trade Secrets

4. Requirements for qualifications of secrets and Trade Secrets

5. Legislative definitions and protections of Trade Secrets

6. Limitations of Nondisclosure Agreement

7. Protection of Trade Secrets

As the world moves rapidly toward an international marketplace, the protection of trade secrets becomes a task of high importance for industrial nations. Industrial espionage and theft of trade secrets have been known to civilization since ancient times. For example, the technique of making a silk in ancient China was a seriously kept secret. The law of the country permitted death by torture as penalty for revealing the secret of silk-making to outsiders. Today, the penalty for theft of trade secrets, if the perpetrator gets caught, is usually solely financial, though sometimes it can eventually become a subject of criminal charges. The necessity to protect business, intellectual and other tangible and intangible property led to the creation of the Nondisclosure Agreement (NDA) terminology in today's business lexicon. The FBI and American Society of Industrial Security estimate that U.S businesses lose at least $24 billion every year because of stolen trade secrets, mostly from sales by employees to competitors.

A nondisclosure agreement in most business environments is an inalienable element in the employee hiring process. Almost every business has some valuable confidential information that it wants to keep under wraps. It could be a sales plan, a list of customers, a manufacturing process or a formula for a soft drink. This confidential information is a form of property whose value would drop to zero if competitors obtain it. Trade secrets are the only kind of information that can be protected by an NDA. In order for an NDA to be effective it has to be tailored according to the legislative acts, otherwise an employee who breaches the contract could be freed of any charges, and continue to share trade secret to the satisfaction of the competitor.

The NDA is an important means to protect business' confidential information. The party who is in violation of an NDA agreement could be sued for the wrongful act and require compensating the plaintiff financially for all the damages done. In addition, the court usually issues an order that prohibits further disclosure of secrets. The NDA is not only serving as a protective tool, but it also encapsulates other benefits:

* It conveys to the party receiving the information notice that all information is sought to be treated as confidential.

* It clearly highlights what information is treated as confidential in order to avoid any misunderstanding and disputes.

* It stipulates the way of resolving disputes either by court or arbitrage.

* The jurisdiction of the dispute - the disputes can be tied up to certain geographic region or state.

* Which laws will be predominant or applicable in resolving disputes;

* The time required for a lawsuit.

The NDA is not a cure to protect just any business information - the information must qualify as a trade secret. A trade secret is created in secrecy and kept secret through the life of the information, and only those that have access to it are bound to maintaining the confidentiality

Trade secrets typically include such elements as:

* Unpublished computer code

* Product design definitions and specifications

* Product development agreements and other related agreements.

* Business plans

* Financial projections

* Marketing plans

* Sales data

* Unpublished promotional material

* Cost and pricing information

* Customer lists, and

* Pending patent applications

Information must meet certain criteria in order to be qualified as the trade secret:

1. It should not be open to the public through legal methods, or in professional terms should not be generally known or readily ascertainable through legal methods.

2. Have an economic value.

3. Handled with the reasonable secrecy efforts.

Once the information is obtainable or readily ascertainable through legal methods then it loses its privilege to be considered as a secret and is no longer subject to protection under a nondisclosure agreement. Public databases, libraries and other publicly available sources are legal methods. The following is the reference from Florida Statutes covering specifically trade secret issues:

812.081 (c)

Trade secret" means the whole or any portion or phase of any formula, pattern, device, combination of devices, or compilation of information which is for use, or is used, in the operation of a business and which provides the business an advantage, or an opportunity to obtain an advantage, over those who do not know or use it. "Trade