Arizona has adopted the Uniform Trade Secrets Act. This Act defines a trade secret, what constitutes its misappropriation, and the relief a party may request if there is a misappropriation of trade secrets. The application of the Uniform Trade Secret Act does not require that the employer and employee have a restrictive covenant agreement in place. The Act is applicable to all employer-employer relationships. Under the Act, a trade secret is any information that can be used in the operation of a business or other enterprise that is “sufficiently valuable and secret to afford an actual potential economic benefit over others.” A trade secret does not, however, include information that is readily available to the public at large. Under the Act, a trade secret is (1) information, including a formula, patent, compilation, program, devise, method, technique, or process that one derives independent economic value from not being known to the public or competitors and (2) that is the subject of efforts that are reasonable under the circumstances to maintain the secrecy. One of the typical defenses to a claim of trade secret misappropriation is that the information acquired is not truly secret. An employer can defeat this defense by showing that it takes precautions in keeping it secret by doing such things as restricting access by requiring a password for computer access. Another way is by clearly identifying on the face of the documents that they are confidential and thereafter limit its distribution to only key employees. When someone leaves the company, making efforts to collect all the information in their possession that the employer deems confidential can also be helpful in establishing that the information is indeed secret. There are limitations to the application of the Act to the employer-employee relationship. For example, information that the employee acquires and just keeps “in his memory” is not deemed to be a misappropriation. An employer cannot prohibit his former employees from using the knowledge he only “keeps in his memory” when used on behalf of a competing entity. It is in these instances where a non-compete agreement may have value and should be prepared by the employer, and signed by the employee, to guard against the transfer of key information. The most common dispute between a company and its former employees typically revolves around the misappropriation of customer lists. Customer lists can be deemed to be trade secrets if the customer list contains information of special benefit to the employer. By way of illustration, a simple list identifying potential customers is rarely deemed to be a trade secret. But a list which contains key information about key individuals at the customer’s place of business, including telephone numbers, email addresses, the customer’s buying habits, pricing information, and similar information which would be valuable to any of their competitors may be deemed a trade secret. Since such a determination can be fact intensive and ultimately left to the whim of a jury, it is strongly suggested that all employers utilize covenants not- to- compete and not rely exclusively on the Uniform Trade Secrets Act if concerned about protecting information the loss of which would be detrimental to its business relationships.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Misappropriation of Trade Secrets, or any other personal injury, please feel free to contact Employment Law Attorney Brad Gardner at 480.461.5300, log on to udallshumway.com, or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.