Statutes of limitations are critical in trade secret litigation, requiring plaintiffs to bring claims within a specified period after the cause of action accrues. The ability to manage and protect trade secrets effectively relies on two powerful tools:
the Subject-Format-Product (SFP) Classification system and the Existence-Ownership-Notice-Access (EONA) proofs. These tools assist in identifying, classifying, protecting, and valuing trade secret assets while streamlining litigation.
Trade Secrets: When Does the Statute of Limitations Begin to Run?
Understanding the Subject-Format-Product (SFP) Classification
Taxonomy, the process of naming and classifying things, is fundamental to trade secret management. At the heart of trade secret law lies the critical question: What exactly is the alleged trade secret? The SFP system is a structured taxonomy that identifies and classifies trade secrets using three parameters:
- Subject: The department or organizational unit that developed or uses the trade secret.
- Format: The receptacle for the trade secret, such as formulas, drawings, processes, patterns, devices, methods, techniques, designs, plans, programs, or codes.
- Product: An existing product, a prototype, or a failed product.
This classification system offers a granular framework for cataloging trade secrets. Although it may appear simplistic for complex information, it effectively organizes trade secrets into identifiable categories within a three-dimensional structure. Each trade secret fits into a specific SFP “cubby-hole,” enabling better identification and protection.
Examples of SFP Classification:
- Engineering Specifications for the Model 5750 Tractor: Here, “Engineering” is the Subject, “Specifications” is the Format, and “Model 5750 Tractor” is the Product.
- Sales Plan for Lawn Furniture: “Sales” is the Subject, “Plan” is the Format, and “Lawn Furniture” is the Product.
- Research Test Results for Non-Flammable Plastics: “Research” is the Subject, “Test Results” is the Format, and “Non-Flammable Plastics” is the Product.
The SFP classification is straightforward for employees to use because it aligns with familiar company structures and information categories. This system enhances the ability to pinpoint and catalog trade secrets accurately.
Establishing Trade Secret Status Through EONA Proofs
Legal recognition of a piece of information as a trade secret requires evidentiary proof that it meets the statutory criteria under the Uniform Trade Secrets Act (UTSA) or the Defend Trade Secrets Act (DTSA). Until a court ruling establishes trade secret status, the information remains merely an alleged trade secret.
The plaintiff bears the burden of proving the following elements, known as the EONA proofs:
- Existence: Demonstrating that the trade secret exists and meets legal standards.
- Ownership: Establishing rightful legal or equitable ownership of the trade secret.
- Notice: Proving that the defendant had actual, constructive, or implied notice of the trade secret.
- Access: Showing that the defendant had access to and improperly acquired, disclosed, or used the trade secret.
Each element is critical in substantiating a trade secret misappropriation claim.
1. Existence of a Trade Secret
Defining a trade secret is inherently challenging due to the wide range of information that may qualify. The American Law Institute’s six-factor test, established in 1939, remains a foundational tool for assessing trade secrets. This test has been widely adopted by U.S. courts and is applicable to any type of information under varying factual circumstances.
The six-factor test evaluates:
- Extent of External Knowledge: The more widely known the information outside the company, the less likely it qualifies as a trade secret.
- Internal Knowledge: The more employees and insiders who know the information, the less likely it is to be protectable.
- Protective Measures: Greater security measures increase the likelihood of trade secret protection.
- Commercial Value: Information with higher value to the company and competitors is more likely to be a trade secret.
- Development Efforts: Significant time, effort, and resources invested in developing the information strengthen its claim as a trade secret.
- Ease of Duplication: If others can easily duplicate the information, it is less likely to be protectable.
A trade secret must not be generally known in the industry or readily ascertainable through proper means. Without this proof, trade secret status cannot be established.
2. Ownership of the Trade Secret
Ownership proof is crucial for establishing legal standing in a misappropriation lawsuit. Under the DTSA, “owner” is defined as the person or entity with legal or equitable title or a license in the trade secret. There can be multiple owners of a trade secret.
To succeed in litigation, the plaintiff must prove ownership. Failure to do so means they lack standing to file a misappropriation claim. Ownership claims become moot if the information is generally known or readily ascertainable, as no exclusive rights exist.
3. Notice Requirement in Trade Secret Law
Notice involves proving that the alleged misappropriator knew or should have known about the confidential nature of the information. This is essential for imposing liability.
The trade secret must be identified with sufficient particularity to distinguish it from publicly available information. If the recipient of the information is not notified of its confidential status, the information loses trade secret protection.
Without proper notice, no liability for misappropriation can arise.
4. Access to the Trade Secret
Access is a prerequisite for proving misappropriation. Misappropriation involves acquiring a trade secret through improper means. If the defendant did not have access, the plaintiff cannot establish a cause of action.
Unlike patent holders, trade secret owners cannot prevent independent discovery or reverse engineering. Plaintiffs must prove the defendant had access and that their acquisition or use was improper.
Integrating SFP Classification and EONA Proofs
Using the SFP classification system alongside the EONA proofs provides a robust framework for managing trade secrets and pursuing misappropriation claims. The SFP system offers a clear method for identifying and organizing trade secrets, while the EONA proofs establish the evidentiary foundation needed to prevail in litigation.
Together, these tools enhance the ability to protect and enforce trade secret rights in an increasingly competitive business environment.