Don't Bet the Business

Anyone who owns or runs a business, large or small, knows, or at least believes, that their business information is secret and should be protected by the law as such. 

As business ownership interests change, and as employees come and go, the assumption of legal protection of important business information often is tested.  So here are 10 things to know about Michigan trade secret law that you may not know.

1. Not all confidential business information is protected as a trade secret.

Merely because you feel your business information is confidential does not make that information a protectable “trade secret.”  Michigan has adopted the Michigan Uniform Trade Secrets Act (MUTSA).  Under MUTSA, a “trade secret” is “information, including a formula, pattern, compilation, program, device, method, technique, or process, that is both of the following:”

(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.

What this means is that while a lot of your business information is certainly “confidential,” not all of it, or any of it for that matter, will meet the legal requirements to qualify for trade secret protection.

2. Trade secrets may be protected under state and federal law.

In addition to MUTSA, trade secrets are protected under federal law through the Defend Trade Secrets Act (DTSA). To state a claim under MUTSA, the plaintiff must show the existence of a trade secret and misappropriation. DTSA defines trades secrets and misappropriation in ways similar to MUTSA.

3. What are the elements of a trade secret claim?

To plead a claim for wrongful misappropriation of a trade secret under MUTSA and DTSA, the requirements largely are the same. It is the plaintiff’s burden to plead sufficient facts to show: (1) the existence of a trade secret; (2) the defendant’s acquisition of the trade secret in confidence; and (3) the defendant’s unauthorized use of the trade secret. 

4. While all trade secrets are confidential, not all confidential information is a trade secret.

In Michigan, the courts typically will review a number of factors to determine whether confidential information constitutes a trade secret under MUTSA. Those factors can include, but are not limited to:

• the extent to which the information is publicly known;
• the extent to which the information is known by employees and others involved in the business;
• the extent of the measures taken to guard secrecy of the information;
• the value of the information to owners and competitors;
• the amount of effort and money expended in developing the information; and
• the ease or difficulty with which the information could be properly acquired or duplicated by others.

Plainly, each of these factors can be viewed subjectively, and each will be deemed fact specific in a particular case.

5. Demonstrating a trade secret can be challenging.

In Michigan, the courts will require a plaintiff seeking trade secret protection by a wrongful misappropriation to identify the trade secret with particularity. In other words, if information is truly secret, it should be readily identifiable as such. One claiming trade secret protection under MUTSA must establish, at a minimum, that the information constitutes a “trade secret” and that the alleged misappropriator had neither express nor implied consent to use the information.

In Michigan, trade secrets protection will depend on the secrecy afforded to the protected information. Simply, there must be proof that sufficient steps were taken to guard the secrecy of the information and to preserve its confidentiality. Moreover, to be protected, the guarded information must provide the owner a competitive advantage in the marketplace.  The courts typically recognize as trade secrets customer lists and information, cost information, internal weaknesses, marketing and strategic plans, diagrams, survey data, pricing strategy and similar information. Indeed, no one questions that the formula for a certain cola beverage is a trade secret.

6. So how does one show they have taken reasonable measures to protect a trade secret?

To show that reasonable measures were taken to protect a trade secret the Michigan courts may consider several factors, including:

• storage of information with locked, limited access;
• need-to-know information access;
• electronic key access to rooms/information;
• clear marking of confidential information;
• limited access of computer-stored information;
• visitor restrictions, and other means of avoiding unnecessary disclosures, such as scrutiny of brochures and websites to prevent release of secrets;
• employee policies on confidential information, or confidentiality, non-solicitation, (employee) anti-raiding, or non-compete agreements;
• routine verification of confidentiality procedures;
• routine employee reminders of confidentiality policy;
• pursuit of departing employees with access to confidential information;
• prohibiting removal of confidential information from company premises;
• restricting copying of confidential information (numbering copies, etc.); and
• conducting exit interviews.

This is by no means an exhaustive list, and every factor need not be present to establish a trade secret. Using a common-sense approach to trade secret protection will be a good barometer. If you have not taken reasonable precautions, don’t look to the courts for protection after the fact.

7. If my employee possesses secret information and goes to work for someone else, won’t that mean my secret will inevitably be used against me?

In short, no. Some states have adopted what is sometimes referred to as the “inevitable disclosure” doctrine, but Michigan is not one of them. Under the “inevitable disclosure” doctrine a plaintiff may prove a trade secret misappropriation merely by demonstrating that a former employee’s new employment will inevitably lead to disclosure and use of the plaintiff's trade secret. Michigan has not adopted this doctrine, so a plaintiff cannot rely upon “inevitable disclosure” to prove an actionable misappropriation.

8. So, what about secret information that might be “reasonably ascertainable?”

The courts in Michigan have concluded that there can be no trade secret protection where the claimed secret is readily ascertainable from the public domain without undue difficulty or hardship. For example, but not by way of limitation, claimed trade secret information is considered “readily ascertainable” if the information is available in trade journals, reference books or published materials.  What is ascertainable without undue difficulty or hardship is open to debate.

9. How does Michigan trade secret law interact with other potential claims relating to misuse of confidential information?

The law permits lawyers to plead claims in the alternative, and different legal theories may fit a particular set of facts. In other words, a particular wrongful act may be actionable under a variety of contract, tort or equitable theories, and misappropriation lawsuits often include them all. However, the MUTSA has a preemption provision. Specifically, MUTSA preempts tort claims that are based on a trade secret misappropriation. Based on this preemption, tort claims that are based on a trade secret misappropriation typically will be dismissed. 

However, if a tort claim can be shown to be based on wrongful conduct that is independent of the misappropriation, the courts may allow such claims to proceed, even if the tort claim is related to a MUTSA claim. Of course, MUTSA preemption does not apply to contract or criminal remedies.

10. What if I am still confused about how MUTSA may apply?

Trade secret law under MUTSA can seem, at first blush, to be common sensical and clear. In application, however, particularly when the reality of a lawsuit is bearing down, it can get confusing very quickly. Confronting these questions before a trade secret claim is put to the legal test is a very sound approach.