Michigan’s Uniform Trade Secret Act (MUTSA) was adopted in 1998 with the goal of encouraging innovation. It was intended to give Michigan businesses a greater ability to protect their confidential information. But it is still not clear whether MUTSA offers any greater protection than was previously offered by the state. It looks like a contract is still the safest means to protect confidential information, including trade secrets.

What is a trade secret?

According to the MUTSA definition a “trade secret” means information that both “derives independent economic value, actual or potential, from not being generally known” and “...is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

Under this definition, any type of information can be a trade secret if part of its economic value stems from not being known by others who could profit from it, and the owner of the information uses reasonable means to keep it secret. Perhaps the most often-litigated type of information that fits in this category is a customer list. However, it is generally difficult to directly prove that a former employee stole a physical copy of a customer list. Customer list cases are often proved by presenting circumstantial evidence, such as a showing that the former employee accessed the list before leaving and then customers on the list switched to the new employer.

Contracts are the solution

Many of the pitfalls in protecting trade secrets and confidential information can be alleviated by having a carefully drafted agreement in place. A federal court has suggested recently that an “appropriate non-competition agreement” is a “must” for an employer seeking to restrict an employee from using knowledge about customers.

There are different levels of agreements to prevent unfair competition through the use of confidential information. Such agreements can be simple confidentiality and non-disclosure agreements, which restrict the use of information; non-solicitation agreements, which prevent a former employee from soliciting a former employer’s existing customers; or non-competes, that can prevent all competition from a former employee for a reasonable time.

The more restrictive the agreement, the more carefully it will be scrutinized by a court before it will be enforced; but courts generally find a legitimate interest in preserving confidential information and customer relationships. Once a protectible interest is found, an agreement will usually be enforced if it is reasonably limited to what is necessary to protect that interest.

In general, having such an agreement laid out in advance can be beneficial because it gives a business owner the opportunity to analyze what information needs to be protected, as well as how to protect it. Moreover, even if an agreement overlooks some eventuality, the business owner has at least taken a proactive step in supporting a claim under MUTSA by showing a court reasonable efforts were taken to maintain secrecy.

For further information regarding these matters, please contact Mr. Nixon at 248.619.2585 or click here to send an email.