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Examples of Information Protected by NDAs

HANDS ON SAFENDAs can protect a variety of confidential information. Here are some examples of protectible trade secrets.

Processes

Chemical, mechanical and manufacturing processes are commonly protected under nondisclosure agreements. Examples include processes for manufacturing chocolate powder, chicken pox vaccine or marble picture frames.

Business Strategies and Methods

Business strategies such as marketing schemes, advertising campaigns, business plans and new product announcements can be protected as trade secrets. For example courts have held that marketing strategies for the sale of propane gas and a business plan for a new franchise are trade secrets. A business method—a manner of conducting business or a way of doing business—is also a protectible trade secret. Examples of business methods include a system for analyzing mortgage rates or a process for instructing employees.

Designs, Blueprints and Specifications

Designs for products, machines and structures, or other manufacturing specifications, can be protected as trade secrets. Examples include the design for a photo-processing machine, the blueprint for a casino or specifications for a paint roller.

Formulas

Formulas are an obvious choice for trade secret protection—the most well-known is the secret combination of flavoring oils and other ingredients that give Coca-Cola its distinctive taste (referred to by the company as “Merchandise 7X”). Other formulas that could be protected as trade secrets include pharmaceutical, chemical and cosmetic compounds.

Physical Devices and Articles

Physical devices such as machines, devices or objects can be subject to trade secret protection. Usually, trade secret protection is lost once the device is made public, but protection may enable you to protect it before obtaining a patent or while attempting to sell or license the product.

Computer Software

Computer software is commonly protected under trade secret law because the underlying software code is not readily ascertainable or generally known. A computer program often qualifies for trade secret status during its development and testing stage. (It may also qualify for protection under copyright or patent law.)

Customer Lists

Companies are often very eager to protect their customer lists with NDAs, particularly when a former employee might use a customer list to contact clients. If a dispute over a customer list ends up in court, a judge generally considers the following elements to decide whether or not a customer list qualifies as a trade secret:

  • Is the information in the list ascertainable by other means? A list that is readily ascertainable cannot be protected.

  • Does the list include more than names and addresses? For example, a customer list that includes pricing and special needs is more likely to be protected because this information adds value.

  • Did it take a lot of effort to assemble the list? A customer list that requires more effort is more likely to be protected under an NDA.

  • Did the departing employee contribute to the list? If the departing employee helped create it or had personal contact with the customers, it is less likely to be protected under an NDA.

  • Is the customer list personal, long-standing or exclusive? If a business can prove that a customer list is special to its business and has been used for a long time, the list is more likely to be protected.

EXAMPLE 1: A salesman worked for an insurance company selling credit life insurance to automobile dealers. When he switched jobs to work for a competing insurance company he took his customer list and contacted the customers at his new job. A court ruled that the customer list was not a trade secret because the names of the automobile dealers were easily ascertain-able by other means and because the salesman had contributed to the creation of the list. Lincoln Towers Ins. Agency v. Farrell, 99 Ill. App. 3d 353, 425 N.E.2d 1034 (1981).

EXAMPLE 2: Former employees took the client list of a temporary employee service. The former employees argued that the list could not be a trade secret since the information could be obtained through other means. A court disagreed and prevented the ex-employees from using the list because it could not be shown, using public information, which companies were likely to use temporary employees and because the list also included such information as the volume of the customer’s business, specific customer requirements, key managerial customer contacts and billing rates. Courtesy Temporary Serv., Inc. v. Camacho, 222 Cal. App. 3d 1278 (1990).

Wholesalers’ lists of retail concerns are often hard to protect as trade secrets. Retailers are usually easy to identify through trade directories and other sources, and a list of them ordinarily does not confer a competitive advantage. But there are exceptions—for instance, a list of bookstores that order certain types of technical books and pay their bills promptly may be very valuable to a wholesale book distributor. But if the information is readily ascertain-able through trade publications or other industry sources, it is not classified as a trade secret.

In a California case, a court determined that employees who left a business could use their former employer’s mailing list to send out an announcement of their change of employment to former clients. The former employer’s mailing list was not a trade secret because: (1) the clients became known to the ex-employees through personal contacts; and (2) the use of the customer list simply saved the ex-employees the minor inconvenience of looking up the client addresses and phone numbers. In other words, the information was easy to ascertain. Moss, Adams & Co. v. Shilling, 179 Cal. App. 3d 124 (1984).

Collections of Data

A database—information of any type organized in a manner to facilitate its retrieval—is often protected as a trade secret. For example, a court ruled that a database for inventorying and cost economies on wholesale sandwich production for fast-food retailers was a protectible trade secret. One Stop Deli, Inc. v. Franco’s, Inc., 1994-1 CCH Trade Cas. P 70,507 (W.D. Va. 1993). A collection of data that is readily ascertainable, however, is not a trade secret.

Databases may also be protected under copyright law if the method of compiling or arranging the data is sufficiently creative.

lightbulbWeb & Software Development by Attorney Stephen Fishman (Nolo) explains how databases can be protected.

Know-How

Know-how does not always refer to secret information. Sometimes it means a particular kind of technical knowledge that may not be confidential but that is needed to accomplish a task. For example, an employee’s know-how may be necessary to train other employees in how to make or use an invention. Although know-how is a combination of secret and nonsecret information, we suggest that you treat it as a protectible trade secret. If you disclose know-how to employees or contractors, use a nondisclosure agreement.

Miscellaneous Business Information

Costs, pricing, new product names, information regarding new business opportunities, personnel performance, sales information, books and records of business are among the myriad types of business information that are also considered trade secrets.

>When Trade Secrets Cannot Be Protected By an NDA > Back to NDA Index

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