Aggressive & Experienced Representation Focused On You SCHEDULE A FREE CONSULTATION

What Qualifies as a Trade Secret in Tennessee? 

McCarter | East PLLC April 26, 2024

Man taking photo of classified documentTrade secrets are strategic assets for businesses. They embody a broad spectrum of confidential information and provide a competitive edge in the marketplace.

The economic vitality of these secrets is undeniable; they allow businesses to foster innovation, drive growth, and maintain financial health.  

Tennessee law recognizes the significance of trade secrets and offers legal protections to safeguard them against misappropriation and unauthorized disclosure. Understanding what qualifies as a trade secret and the protections available under Tennessee law is vital for any business looking to secure its valuable information in today's fast-paced economic landscape. 

At McCarter | East PLLC, our team is experienced in handling trade secret cases, and we can provide legal guidance to help you protect your valuable business assets. We proudly serve clients in Murfreesboro and Woodbury, Tennessee. 

What Is a Trade Secret?

The Uniform Trade Secrets Act (UTSA) defines a trade secret as "information including a formula, pattern, compilation, program, device, method, technique, or process that derives independent economic value, actual or potential" and that is not known or accessible to others "who can obtain economic value from its disclosure or use." 

Under Tennessee law, for information to be considered a trade secret, it must fulfill three primary criteria: 

  • Secrecy: The information must not be generally known or readily ascertainable by others who could profit from it. 

  • Economic Value: The information must possess independent economic value due to its confidential nature. 

  • Reasonable Measures to Maintain Secrecy: The owner of the information must have taken reasonable measures to safeguard its secrecy. 

These elements are critical for distinguishing everyday knowledge from trade secrets, which give businesses a unique marketplace advantage. Trade secrets can vary widely across different industries, from proprietary customer lists to innovative manufacturing processes, but commonly include the following: 

  • Formulas (e.g., chemical formulas for products, recipes for food and beverages) 

  • Designs and Patterns (e.g., designs for machinery or clothing patterns) 

  • Compilations of Information (e.g., client lists, supplier lists) 

  • Software Programs (e.g., source codes, algorithms, and development processes) 

  • Business Strategies and Methods (e.g., advertising strategies, distribution methods, and operational procedures) 

  • Technological Innovations (e.g., manufacturing processes, new inventions before patent application) 

Protecting these elements is crucial for businesses to maintain their competitive advantage and ensure sustained growth. Hence, businesses must demonstrate rigorous efforts to protect this confidentiality to improve both the trade secret's legal protection and its practical invulnerability to competitor misappropriation. 

Trade Secrets vs. Other Forms of Intellectual Property

Trade secrets are distinct from other forms of intellectual property (IP) such as patents, copyrights, and trademarks.

Unlike these other IP types, trade secrets don't need to be registered for protection and can remain protected indefinitely, so long as their secrecy is preserved.  

This indefinite duration of protection offers a significant advantage over patents, which have a limited term.

However, this comes with its risks, notably the potential for independent discovery or reverse engineering by others, which doesn't infringe upon the trade secret rights. Thus, the choice between patent protection and trade secret protection often hinges on these considerations. 

How to Protect Your Trade Secret

To effectively protect trade secrets, businesses should employ a combination of legal, technological, and procedural strategies. Proper implementation of these safeguards is essential to prevent unauthorized access, disclosure, or theft of valuable trade secret information. Here are some recommended strategies: 

  • Confidentiality Agreements: Have employees, contractors, and business partners sign confidentiality agreements that legally bind them to maintain the secrecy of your proprietary information. 

  • Access Control: Limit access to trade secret information on a need-to-know basis within your organization to minimize exposure. 

  • Physical Security Measures: Use locks, security cards, and surveillance cameras to secure any premises where trade secret information is stored. 

  • Digital Security Practices: Implement strong cybersecurity measures, including firewalls, encryption, and secure passwords, to protect electronic databases containing trade secret information. 

  • Employee Training: Regularly train employees on the importance of trade secrets, the company’s policy for protecting them, and the consequences of unauthorized disclosure. 

  • Non-Compete Clauses: Where legally permissible, use non-compete clauses for key employees that could pose a threat to the confidentiality of trade secrets upon leaving the company. 

  • Document Handling Procedures: Establish protocols for handling sensitive documents, including marking confidential documents, controlling copies of sensitive files, and securely disposing of irrelevant documents. 

Implementing these strategies can help maintain the confidentiality of trade secrets, thereby preserving their value and competitive advantage for the business. 

Tennessee Trade Secret Law

The Tennessee Uniform Trade Secrets Act (TUTSA) provides a legal overview of the qualification, regulation, protection, and enforcement of trade secrets in the state. Under this statute, a trade secret owner may pursue legal action for the misappropriation of trade secrets.  

Misappropriation occurs in the event of the unauthorized acquisition, use, or disclosure of a protected trade secret. In Tennessee, businesses typically have a three-year window from the date of discovery of the misappropriation to file a lawsuit. In cases where trade secret misappropriation is found to be willful and malicious, the court may award exemplary damages up to twice the amount of any actual damages awarded.  

Tennessee law emphasizes the importance of confidentiality and the proactive measures businesses must take to protect their intellectual assets. Understanding the specifics of the TUTSA is crucial for businesses operating in Tennessee to make sure their innovations and competitive advantages are legally protected against unauthorized use or disclosure. 

Seek Experienced Legal Counsel

Whether through drafting ironclad NDAs, establishing comprehensive security protocols, or educating your employees on the importance of confidentiality, taking proactive steps is key to safeguarding your competitive advantage. 

At McCarter | East PLLC, located in the heart of Murfreesboro, just blocks from the courthouse, we understand Tennessee's trade secret laws and the vital role they play in securing your business's future. Contact us today to request a consultation.