Inevitably, when someone gets into a discussion of the proper governance and management of trade secrets, they fall down the proverbial rabbit hole of identification. Meaning, should a company try to identify all of its trade secrets as part of its ordinary course of business? Or should a detailed identification wait until misappropriation and enforcement? In my view, neither of these extremes are satisfactory—and both grossly oversimplify the options.

Let's start with some basics. As many know, trade secrets traditionally have fallen within the purview of state law, which for most states is some variation of the Uniform Trade Secrets Act (a notable nearby exception is New York, which applies common law). In 2016, the first federal trade secrets law—the Defend Trade Secrets Act—was also enacted. Regardless of the exact legal authority in question, trade secrets legislation is intended to protect anything of commercial value that is kept secret. Typical trade secrets include business information like customer lists, pricing, marketing strategies and the like, as well as more traditional IP-style trade secrets such as processes, methods of manufacture, formulas, recipes, algorithms (many of the things that cannot be subject to a patent, as well as many inventions prior to patenting). Trade secrets can also include research and development information including what worked and what did not (negative trade secrets) as well as business insights like sources of supply or key raw materials. Every business has trade secrets, whether they realize it or not, and various sources have shown that trade secrets are often a business's most valuable form of intellectual property, which is especially important given that 84% of the value of S&P 500 companies is shown to come from its IP and other intangible assets.

In order to have an enforceable trade secret, a trade secret owner has to demonstrate that they took "reasonable measures" to keep the information secret. What is reasonable depends on the circumstances—there is no one-size-fits-all criteria—but basic items like confidentiality agreements, "need to know" sharing, password protection, common cybersecurity measures, labeling documents confidential and the like are usually required. From a risk management perspective, it is also important to use "reasonable measures" to protect trade secrets—after all, the desired goal is to avoid loss in the first place, not to have an "opportunity" for enforcement.

All of this leads to the inevitable discussion around what trade secrets need to be protected and how can one know what to protect if you haven't identified it? On the one hand, what I'll call "identification purists," staunchly contend that every trade secret should be identified in detail and logged, so that everyone knows what they are. This approach is perhaps feasible for a new or small company that does not have many trade secrets. However, for a large, well-established company, this would be a task of Herculean proportions. In some cases, the sheer cost of identification could far exceed the cost caused by potential trade secret loss. Plus, for many companies, trade secrets are constantly changing and evolving, or defuse throughout the business, which makes meaningful identification challenging, at best. Some in-house lawyers also worry that a trade secret inventory will miss something important (which seems unlikely), while some litigators prefer to address the description of a trade secret at the time of litigation.

As one continues to fall down the identification rabbit hole, at some point you start to wonder— has there ever been a case that requires pre-litigation identification of trade secrets as part of reasonable measures? Surprisingly, the answer is no. We know that many courts require detailed identification of the trade secrets during litigation—some as early as at the complaint stage (like in California), others at least at the start of discovery, and others a bit down the road in the discovery process. Regardless of the timing, once trade secret litigation commences, identification is usually required because the court is trying to frame the issues in dispute and thus the scope of discovery in the case, not because there is any legal requirement to identify as part of the element claim.

So what about as part of the claim itself? There have been a number of cases in which courts require that the trade secret owner put the defendant on notice that what was being disclosed to them was a trade secret in order for it to be enforced. For example, in Big Vision Private v. E.I. DuPont de Nemours, 1 F. Supp.3d 224 (S.D.N.Y. 2014), aff'd 610 Fed. Appx. 69 (2nd Cir. 2015), the U.S. District Court for the Southern District of New York granted summary judgment for DuPont, the party that had been accused of trade secret misappropriation. As the district court stated: "the legal point here is not complicated. In order to avail itself of trade secret protection, Big Vision must have, at the absolute minimum, notified DuPont of its trade secret. It need not have said the words 'trade secret,' or put forth the same degree of detail as would be appropriate in litigation, but it must have done something." As the court explained, part of doing something was providing a sufficient description or identification of the trade secret as it was being shared so that the recipient knew it was receiving a trade secret and what generally it was. Trade secret identification was especially important in this case as DuPont is an innovator in the same technical field as Big Vision. Thus, at a minimum, a good practice (reasonable measure) is that if you are sharing your trade secrets, you should have a clear idea of what they are and alert the recipient to this if you want to be able to defend them later.

Recently, this point hit home again in Scentsational Technologies v. Pepsico, 13-cv-8645 (KBF),(S.D.N.Y. May 23, 2018), aff'd 777 Fed. Appx 607 (Fed. Cir. 2019), in which the U.S. District Court for the Southern District of New York entered judgment in favor of Pepsico, the party accused of trade secret misappropriation. In Scentsational, an inventor shared information he contended was a trade secret with Pepsico, who eventually filed for patents on the invention. Accordingly, the inventor sued Pepsico, seeking to be added as a joint inventor on the patent and also for trade secret misappropriation. Most of the court's opinion focused on the issue of causation and damages, without discussing whether there were trade secrets or whether misappropriation had occurred. However, the court did address the correction of inventorship claim in a manner that is instructive on the trade secrets claim. The court granted summary judgment for Pepsico on the inventorship claim, observing that the description of the trade secret (which was the basis for the joint inventorship claim), was only crafted during litigation and thus after Pepsico had applied for the patents, which meant that there was no contemporaneous documentary evidence of the creation of the trade secret prior to the Pepsico relationship. The finding suggests that having detailed records of your trade secrets (identification and description) can be material to their enforceability later, whether as part of a trade secrets claim or in a bid to claim inventorship on a patent. Given this common fact pattern—Party A creates an invention that it holds as a trade secret, shares it with Party B pursuant to a joint venture of some kind, Party B files a patent application on the invention—thus both stealing the invention and making it public, the importance of trade secrets records cannot be overstated.

Regardless of where you end up on the identification debate, the practical reality is that everyday people are making decisions about what is and what is not a trade secret at their organizations. When employees and managers are making decisions about what information to keep internally and what can be shared publicly, whether or not to patent something (because if the decision is to patent something, inherently one has decided not to keep it a trade secret), what should be labeled confidential or not, etc., they are making decisions about what is and is not a trade secret, even if they do not specifically identify them as such. Oftentimes, the people making these decisions are not only nonlawyers, but they also have no training on trade secrets. Thus, given the importance of trade secrets, it behooves companies to make an effort to identify at least their most important trade secrets as part of the ordinary course of business, and to provide training to employees on trade secrets generally so that they can make informed decisions about when and under what circumstances to share trade secrets both within and outside of the company.

Nicole D. Galli is the founder and managing partner of the Law Offices of N.D. Galli, a boutique law firm with offices in Philadelphia and New York that protects businesses' key strategic assets through corporate transactions and governance measures, intellectual property counseling and commercial litigation. She is also the founder and president of Women Owned Law (WOL), the first national networking organization dedicated to empowering and supporting women entrepreneurs in the law. Galli can be reached at [email protected] or 215-525-9583.