Trade Secrets Recognized As Intangible Assets

Michael D. Moberly     May 30, 2008

The use of correctly protected trade secret information by a former employee, who had memorized it,during the course of her employment and used-applied the trade secreted information  did violated the state’s trade secret law. Ohio Supreme Court ruled (February, 2008, Al Minor & Assoc., Inc. v. Martin, Slip Opinion No. 2008-Ohio-292). t hat

At a time when 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth and sustainability evolve directly from intangible assets, it’s prudent for management teams and boards should be very clear about the…

  • decision process to declare particular information assets as trade secrets
  • six requisites of trade secrecy that must be maintained and monitored, and
  • designation of particular information assets as trade secrets,
  • constitutes a strategic business decision, not solely a tactical legal process.

It’s important to recognize that an organization’s trade secrets and proprietary information are intangible assets, plain and simple! They provide both objective and subjective value.
Objective value in the sense that they are directly related to the continuity of a company, i.e., how trade secrets and/or proprietary information contributes to a particular process, procedure, and/or operation, and
Subjective value in the sense that their value follows-flows from its nature, i.e., the ability to retain the information assets in a secret and/or proprietary state.

Six requisites to trade secrecy

The Court held that the use of trade secret information does not lose its character as a trade secret (under USTA) merely because a former employee memorized it rather than writing it down or copying it in some some tangible medium.

For practitioners charged with responsibility to safeguard and monitor trade secrets and their proprietary status, this ruling draws attention to multiple  issues, three of which are:

1. Elevates the necessity for literally unraveling the origins and ownership of ideas and initiatives as part of due diligence, especially mergers and acquisitions, venture capital investments in early stage companies, corporate-university research alliances, etc., in which intangible assets, intellectual property, proprietary know how and competitive advantages are always in play and part of the deal.

2. Elevates the importance of conducting thorough employee exit interviews, especially for employees who have access to and/or hold proprietary – competitive advantage information (trade secrets).

3. Elevates the importance of (credence given to) non-disclosure agreements and non-compete clauses in employment contracts insofar as ensuring those agreements are routinely reviewed and updtated with specific ‘follow-up’ procedures.

In summary, the Ohio Supreme Court said it is the information that is protected by the USTA, regardless of the manner, mode, or form in which it is stored – whether on paper, in a computer, in one’s memory, or in any other medium.

To be sure, this ruling will have significant impact on how we set about to ‘protect, preserve, and monitor the use and value of (valuable) proprietary information.

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