Scroll down for answers to the following frequently asked questions about Minnesota trade secrets:What is an "Empty Briefcase Letter"?
What is a Trade Secret?
The State of Minnesota has adopted the Uniform Trade Secrets Act ("MUTSA" or the "Act"), codified at Minnesota Statutes Chapter 325C. The Uniform Trade Secrets Act is a model or "uniform" law. In one form or another, the Uniform Trade Secrets Act has been adopted by over 39 states and the District of Columbia. The Act was adopted in Minnesota in 1982.
While this website focuses almost exclusively on trade secrets under Minnesota law, because the Act is a uniform statute that has been adopted by numerous states, court decisions from other jurisdictions are persuasive (although not controlling) in the Minnesota courts.
Under the Act, "trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
See Minn. Stat. § 325C.01, subd. 5.
The classic example of a "trade secret" is the formula to Coca Cola. The exact formula for this soft drink is a closely guarded secret. The formula derives substantial economic value from being kept secret; if a competitor knew the formula to Coca Cola it could produce the same beverage and offer it much cheaper, thereby substantially reducing the corporation's profits. The formula is not readily ascertainable by proper means from persons who may be able to exploit the formula. Most likely, the only persons and firms that know the formula to Coca Cola are employees of the corporation and authorized bottlers of the soft drink. Almost certainly, Coca Cola has required all of these persons to sign written non-disclosure agreements prohibiting them from using or disclosing the formula. In addition to the use of non-disclosure contracts, the corporation probably employs a variety of physical and electronic security measures to protect the formula, such as gates, locks, security guards, computer firewalls, computer encryption, etc. In short, the formula is not only valuable from being known only by Coca Cola, but the formula to Coke is subject to a variety of reasonable efforts to keep the formula secret long into the future.
A trade secret may also be a formula, drawing, schematic, blueprint, list of ingredients and proportions, specialized process, manufacturing technique, customer list, quality control method, profit margin, pricing information, etc. The key is whether the information derives value from being kept secret and whether the holder of the trade secrets has taken reasonable steps to protect the secrecy of the information in question.
The type of information that can be protected under the Act is extremely broad and covers almost any information that gives a company a competitive edge over its competitors by virtue of the secrecy of the information in question.
How Long Can a Trade Secret Be Protected Under the Law?
Trade secrets are considerd a form of intellectual property. Other common types of intellectual property are patents and copyrights. The protection afforded to patents and copyrights expires after a period of time defined by statute. In contrast, protection for a trade secret is possible for so long as it is kept confidential and continues to derive economic value from being kept secret. For this reason, "trade secret status" can be very powerful . . . often more powerful than the rights afforded to patents and copyrights.
Is Trade Secret Protection Available if the Trade Secret Has Been Exposed?
Under the Act, the holder of the trade secret must take “reasonable efforts” to maintain the secrecy of the information. However, absolute secrecy is not required. Therefore, as long as the company makes “reasonable efforts” to protect the information, but the secret is somehow exposed, the Act still might afford legal protection.Once the information is freely available in the public domain, however, it will be very difficult if not impossible to protect the supposed “trade secret” as a practical matter and under applicable law. For example, if trade secret information has been misappropriated and published on the internet, and third parties have used the information not knowing of its claimed trade secrets status, and perhaps even republished the information multiple times, it is likely that the “trade secret” status of the information has been lost.
(i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
(ii) disclosure or use of a trade secret of another without express or implied consent by a person who
(A) used improper means to acquire knowledge of the trade secret; or
(B) at the time of disclosure or use, knew or had reason to know that the discloser's or user's knowledge of the trade secret was
(I) derived from or through a person who had utilized improper means to acquire it;
(II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
(III) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
(C) before a material change of the discloser's or user's position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
See Minn. Stat. § 325C.01, subd. 3.
"Improper means" includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. See Minn. Stat. § 325C.01, subd 2.
Because employees have a common law duty to maintain all of their employer's confidential information (including but not limited to "trade secrets"), improperly taking, using, or disclosing an employer's trade secrets is almost always considered to be in breach of a duty to maintain secrecy, and therefore "misappropriation" within the statutory definition. As a result, most often, trade secrets lawsuits between employers and their former employees center on whether the particular information is a trade secret to begin with.
If the Employee Develops the Trade Secret, Can the Employee Take Copies After Termination of Employment?
Often, the employee is the person who actually develops or acquires the particular trade secret in the first place. For example, if the employee is in a technical position, the employee may develop unique manufacturing methods and/or formulas that are utilized by the employer. If the employee is in a sales position, the employee may develop promotional materials, "customer lists", and/or "prospect lists" while working for the employer. The sales employee will often collect customer information such as business cards, direct dial phone numbers of key decision-makers, e-mail addresses, etc. This information may be valuable in the hands of a competitor. Even if the identity of the customer itself is well known in the industry, this level of detailed customer contact information may nonetheless by highly valuable. This is especially true if the customer has many internal departments and hundreds or thousands of employees. Simply knowing "who to call" and what number to dial, or which e-mail address will reach the decision-maker, can provide a tremendous advantage.
So . . . if the employee was the person who developed or acquired the trade secret, can the employee take copies of the information following termination of the employment relationship? After all, the employee may consider the information to be his/her personal property. As a general rule, however, trade secrets or confidential information developed by an employee in the course and scope of employment, while employed by the employer, will belong to the employer. As a result, the employer often can prohibit the employee from using, taking copies of, or disclosing to competitors a wide variety of information that the employee developed himself/herself.
The question becomes somewhat more complicated if the trade secret is subject to protection under copyright or patent laws. As a general rule, however, an employee should not assume that he/she is free to keep trade secrets merely because he/she developed the information.
How Can Trade Secrets Be Protected?
Employers can protect their trade secrets through a variety of methods, including but not limited to:
To most effectively protect its trade secrets, the employer should adopt a comprehensive written Trade Secrets Protection Plan that outlines all of the employer's steps for protecting its trade secrets. Even adoption of the plan will serve as useful evidence that the employer took reasonable steps to protect its trade secrets. More importantly, by adopting a comprehensive plan, the employer will be in the best position to utilize a variety of methods to ensure that its trade secrets are protected for many years to come. When it comes to protecting trade secrets, redundancy is critical. The employer should not rely upon one method of protection. Rather, the employer should adopt a broad range of contractual, organizational, policy, computer, and physical security measures to protect its trade secrets.
Can Employees Get in Trouble for Taking Confidential Information or Trade Secrets?
It is very dangerous for employees to use, possess, or disclose their employer's trade secrets or confidential information except as necessary to carry out their job duties, especially after the employment relationship ends. Even if the employee has not signed a written non-disclosure or non-compete agreement, the employee may have the legal duty not to use or disclose the employer's confidential information or trade secrets. If the employer concludes that the employee has misappropriated this information, the employer can sue the employee (and any third party who has acquired the trade secrets, such as the employee's new employer). Under the the Minnesota Uniform Trade Secrets Act, if the employer is successful in bringing a claim for misappropriation of trade secrets, it can recover the following:
See Minn. Stat. §§ 325C.03 and 325C.04.
How Are Damages Measured Under the Minnesota Uniform Trade Secrets Act?
Under the Minnesota Uniform Trade Secrets Act, except to the extent that a material and prejudicial change of position prior to acquiring
knowledge or reason to know of misappropriation renders a monetary recovery inequitable, a complainant is entitled to recover damages for misappropriation. Minn. Stat. 325C.03.
Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss.
The Act provides that, in lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator's unauthorized disclosure or use of a trade secret.
If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award of damages described above. This is sometimes called "double damages" or "liquidated damages."
What is "Injunctive Relief" and How Can it be Used to Protect Trade Secrets?
In addition to allowing the recovery of economic damages, the Minnesota Uniform Trade Secrets Act allows employers to obtain "injunctive relief" to protect their trade secrets. In this regard, the Act provides as follows:
(a) Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.
(b) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances include, but are not limited to, a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable.
(c) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.
See Minn. Stat. § 325C.02.
In practice, once the employer starts a lawsuit alleging misappropriation of trade secrets, it will often bring a motion for injunctive relief to obtain a court order prohibiting its former employee (and the employee's new employer) from continuing to use the trade secrets.
Who Must Pay the Attorney's Fees in a Trade Secrets Lawsuit?
If the employer prevails in the lawsuit and shows that the misappropriation of trade secrets was willful and malicious, the court may award the employer reasonable attorney's fees under the Minnesota Uniform Trade Secrets Act. See Minn. Stat. § 325C.04.
If the court finds in favor of defendants and concludes that the employer made a claim of misappropriation of trade secrets in bad faith, the court may award the defendants (typically the former employee and his/her new employer) reasonable attorney's fees.
Finally, if the court finds that a motion to terminate an injunction was made or resisted in bad faith, it may award reasonable attorney's fees to the prevailing party.
What Defenses Are Available in a Misappropriation of Trade Secrets Lawsuit?
If a lawsuit alleging misappropriation of trade secrets has been filed, the defendants have several possible arguments to defeat the claim of misappropriation. The most common defenses to a trade secrets claim are:
Are There Criminal Penalties for Misappropriating Trade Secrets?
Yes. Under the Theft of Trade Secret provisions of the Economic Espionage Act of 1996, 18 U.S.C. § 1832, criminal penalties of up to 10 years imprisonment, fines of up to $5,000,000, and criminal forfeiture are available for trade secret misappropriation.
What is the Federal Computer Fraud & Abuse Act?
Often, lawsuits alleging misappropriation of trade secrets include claims that the employee stole the employer's trade secrets by obtaining unauthorized access to the employer's computer systems, or by exceeding the scope of any authorized access. For example, the employer may allege that the employee improperly copied, downloaded, or exported trade secrets from the employer's computers. The employer may even argue that the employee improperly deleted, corrupted, altered, or damaged computerized trade secrets information.
The Federal Computer Fraud & Abuse Act, 18 U.S.C. § 1030, is a federal statute that makes it unlawful for persons to engage in several forms of computer fraud and abuse, including improper or unauthorized access to certain computer systems, exceeding the scope of authorization, causing damage to computer systems or data maintained on those systems, etc.
In some cases, employees who misappropriate trade secrets using computers may be in violation of the FCRA.
How Will My Former Employer Know That I Copied its Trade Secrets or Confidential Information?
Many employees foolishly assume that their employer will not find out if they took copies of the employer's trade secrets or confidential information (e.g., customer lists). In reality, the employer may have a variety of ways of finding out about the misappropriation. These methods of discovery include reports from co-workers or other witnesses, suspicious logs of entry into the employer's premises, security or surveillance videotapes, review of "meta data" showing access to computerized files, analysis of the former employee's computer, reports from third parties within the same industry who suspect the employee is using the employer's trade secrets, etc.
Usually, the former employer starts with merely a suspicion that the employee has misappropriated trade secrets. Soon, the employer may conduct a full-blown investigation that includes analysis of the employer's computer servers and all PC's or laptop computers assigned to the former employee. With the help of a skilled IT technician or computer forensics expert, it is often easy to uncover evidence that the employee had copied, downloaded, or e-mailed to another computer certain files under suspicious circumstances.
In addition, once the employer has a good faith belief that the employee has misappropriated its trade secrets, the employer can start a lawsuit against the employee. During the lawsuit, the employer will have an opportunity to uncover evidence that the employee has taken, copied, disclosed, used, and/or otherwise misappropriated the employer's trade secrets. This process is called "discovery." During the discovery phase of a lawsuit, the employer will have an extensive opportunity to ask questions of the employee (under oath) during a sworn deposition before a court reporter, require the employee to answer detailed written questions called "interrogatories," and turn over all data and documents that contain information relevant to the lawsuit. Of course, the employer will require the employee to provide copies of all files, data, documents, and company property that the employee retained following termination of the employment relationship.
Some employees assume that they can lie about their activities and they won't get caught. Often this is not the case. The employer often can obtain a court order requiring the employee to provide access to all computers used by the employee, including home computers, laptops, etc., so that the employer's computer forensics expert can copy the hard drive and look for any suspicious evidence. A skilled computer forensics expert can often find traces of stolen information, even if the employee attempted to delete the files. In addition, suspicious activities such as saving a large number of computer games or other "harmless files" in an attempt to cover up the hard drive can be discovered. Likewise, many computer forensics experts can determine if the employee attempted to defragment the computer or utilize commercially available software to "scrub the hard drive." In short, computers often leave a trail of evidence showing misappropriation.
In addition to the risk of discovery, employees who lie during the discovery process can be sanctioned by the court. In addition, if the employee has "spoliated evidence," the court can limit the employee's legal defenses or instruct the jury that it can make an adverse inference against the employee based on the evidence tampering. Finally, if the employee intentionally provides false testimony under oath (e.g. during a deposition or at trial), the employee could be prosecuted for perjury.
What is the "Empty Briefcase Rule"?
The "empty briefcase rule" is a commonly used phrase that means the employee leaves his/her former employer without taking any of the employer's business records or information (whether in hard copy, computerized, or digital form). In other words, the employee leaves the company with an "empty briefcase."
It is tempting for many employees to take copies of company records when leaving an employer. The employee may think, "My employer won't mind" or "I helped develop this information, so I can take it" or "It will be so much easier to copy these files instead of starting from scratch." The employee may be making a big mistake by acting on these temptations.
The best rule of thumb is for the employee to leave the employer with an "empty briefcase." This will avoid any arguments about whether the information taken by the employee constitutes a "trade secret" or "confidential information." Although the "empty briefcase rule" is not a legal rule . . . it makes good practical sense and could help the employee avoid an expensive lawsuit.
The only exceptions to the "empty briefcase rule" are that the employee can generally take copies of the following:
Despite these exceptions, the employee should be careful that the personnel records in question do not contain sensitive company information (e.g., customer names, pricing information, etc.). Sometimes, if the employee is a salesperson, his/her commission statements will show all sales made, including date, customer name, price, and sometimes profit information. It can be dangerous for the employee to take copies of these commission statements, because the employer may argue that they contain trade secrets. To help protect the employee against such an argument, it is recommended that the employee make a written request for his/her personnel record at the time of termination. As discussed below, the employee has a legal right to certain information contained in his/her personnel file. By requesting this information, it will be harder for the employer to claim that the employee cannot possess information that the employer provides in response.
Why Should Departing Employees Request a Copy of Their Personnel Files?
Under the Minnesota Personnel Records Act, Minn. Stat. § 181.961, most employees and former employees have the right to receive a copy of their "personnel record" upon written request. The phrase "personnel record" is defined by statute. See Minn. Stat. § 181.960.
After receiving a written request for the employee's personnel files, the employer must provide the information requested within the time periods set forth in the statute. Under a common sense reading of the statute, the employer will likely be required to provide all of the information described as "exceptions" to the "empty briefcase" rule described in the section above. This will include copies of all employment contracts, non-disclosure agreements, confidentiality agreements, non-competition agreements, etc. signed by the employee. This will often include copies of payroll statements, commission statements, etc. as described above.
The employee will benefit in several ways from requesting his/her personnel record after leaving an employer:
© 2009 – 2013 Trepanier MacGillis Battina P.A.
Minnesota trade secrets attorney Craig W. Trepanier of the Minnesota trade secrets law firm of Trepanier MacGillis Battina P.A. in Minneapolis, Minnesota represents employers and individual employees in the Twin Cities and Greater Minnesota area regarding Minnesota non-compete agreements, Minnesota non-competition agreements, Minnesota non-solicitation agreements, Minnesota non-disclosure agreements, Minnesota confidentiality agreements, misappropriation of Minnesota trade secrets, theft of Minnesota trade secrets, the Minnesota Uniform Trade Secrets Act, Minnesota unfair competition, Minnesota tortious interference, Minnesota temporary restraining orders (TROs), Minnesota temporary injunctions, Minnesota preliminary injunctions, Minnesota cease and desist letters, Minnesota trade secrets lawsuits, and Minnesota trade secrets litigation in Minneapolis, St. Paul, Apple Valley, Blaine, Bloomington, Brainerd, Brooklyn Park, Burnsville, Coon Rapids, Duluth, Eagan, Eden Prairie, Edina, Lakeville, Mankato, Maple Grove, Minnetonka, Moorhead, Plymouth, Richfield, Rochester, St. Cloud, Stillwater, Twin Cities, Woodbury and other cities within the State of Minnesota (MN) (Minn.).