United States: The [Trade] Secret Is Out: What All Government Contractors Need To Know About Proposal Information And The Uniform Trade Secrets Act

Last Updated: October 31 2014
Article by Douglas C. Proxmire and Elizabeth A. Buehler

In a time of shrinking budgets and contracting opportunities, government contractors should be aware that the information compiled in their proposals has grown increasingly more valuable. Fortunately, the Uniform Trade Secrets Act (UTSA) is a tool contractors can use to protect their trade secrets, but they must employ basic protections by:

  • Always marking their proposal documents with restrictive legends;
  • Imposing restrictions on subcontractors' or consultants' use of trade secrets;
  • Requiring each employee to execute a nondisclosure agreement; and
  • Carefully checking to ensure former employees do not make unauthorized disclosures of trade secrets, including proposal information.

Overview of Risks of Disclosure of Trade Secret Information

Every day, hundreds of government contractors submit proposals in response to various government solicitations – the culmination of a process that may involve months, if not years, of research and planning, the expenditure of significant amounts of money, and the participation of multiple individuals. Of course, one of the risks of such a process is that a former employee may misappropriate a contractor's proposal information, either in whole or in part by, for example, refusing to return certain data when leaving the company, distributing such information without the proper permissions to his/her new employer, and/or subsequently using such information in a competitor's proposal.  In such instances, the contractor's options for legal recourse may depend upon one key issue – whether the contractor's proposal qualifies as a trade secret. Under the Uniform Trade Secrets Act, it likely does and, thus, the contractor may sue the former employee and his new employer for misappropriation of a trade secret.

Compilation of Information is a Trade Secret

The UTSA is an act that has been adopted in 47 states(Massachusetts is currently contemplating its implementation), the District of Columbia, Puerto Rico, and the U.S Virgin Islands, and while each state's/territory's version may vary slightly, the essential parameters are the same. Specifically, the UTSA defines "trade secret" as:

[I]nformation, including a formula, pattern, compilation, program, device, method, technique or process, that: (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.

As such, the UTSA recognizes that the compilation of information may be a trade secret, even if a portion of such information is known. See Enterprise Leasing Co. of Phoenix v. Ehmke, 197 Ariz. 144, 3 P.3d 1064, 1069-70 (Ariz. App. 1999) (citing Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475 (1974)) ("Although matters of general knowledge cannot be appropriated as secret, a trade secret may consist of a combination of elements even though each individual component may be a matter of common knowledge."). Indeed, courts have repeatedly recognized that compilations of business information comprised of mostly of publicly available information and limited proprietary information nonetheless qualify for trade secret protection. See AvidAir Helicopter Supply, Inc., v. Rolls-Royce Corp., 663 F.3d 966, 972-75 (8th Cir. 2011); see also Northern Elec. Co. v. Torma, 819 N.E.2d 417, 420 (Ind. Ct. App. 2004). In such instances, key considerations include whether the combination of non-secret and secret information "affords a competitive advantage and is not readily ascertainable[,]" as well as whether duplication of the information "would require a substantial investment of time, effort and energy" "as the effort of compiling useful information is, of itself, entitled to protection even if the information is otherwise known." AvidAir, 663 F.3d at 972-73 (internal citations omitted).

Proposals are Compilations of Information

Because the compilation of information may qualify as a trade secret, the key for a government contractor is demonstrating that its proposal constitutes a compilation of information within the context of the UTSA's definition of, and the courts' interpretations of, trade secret. To this end, a contractor should be prepared to outline how (1) it combined various source information into a "unique effort" that is the product of "considerable time and effort," (e.g. the proposal "contains information and elements the company has used repeatedly in previous and subsequent Proposal Documents..." (Curcio Webb v. Nat'l Benefits Programs Agency, 367 F. Supp. 2d 1194 (S.D. Ohio 2005)) and does not simply represent copying and pasting of information); (2) the proposal holds significant independent economic value from not being generally known (i.e. the proposal has a competitive advantage in the marketplace; for example, proposals of a similar or identical nature have generated significant contract revenue), and (3) the contractor pursued reasonable efforts to maintain the proposal's secrecy (e.g. included a protective legend, required employees to execute non-disclosure agreements).

Though government contractors have successfully argued that their proposals constitute trade secrets under the UTSA, contractors should be prepared to zealously litigate this issue as former employees and their new employers may argue that mere coincidence or their ability to gather information from other sources explains their use of identical content in a competitor's proposal. To resolve such arguments, courts will examine, among other factors, whether the evidence confirms that the former employee and his new employer actually copied ("cut and pasted") the contractor's proposal, whether the former employee and his new employer actually invested the resources to compile the information on their own accord or whether their proposal development efforts were essentially limited to the misappropriation effort, whether the new employer is/was aware that its employee used information taken from his/her former employer to generate proposal content, and whether the former employee and/or the new employer tried to "cover-up" his/her use of this information.

Recommendations

Pursuing a misappropriation of trade secrets lawsuit against a former employee and/or his/her subsequent employer is not the government contractor's only option. Indeed, in an effort to avoid the situation altogether or to limit the likelihood of the misappropriation, government contractors should take the following steps:

  • Always marking proposal documents that contain proprietary or confidential information with the applicable restrictive legend notifying all those with access to the proposal that their use of the data within the proposal is restricted (e.g., FAR 52.215-1(e) identifies the process that the contractors must follow to mark proposals submitted to federal agencies);
  • Requiring employees involved in the proposal preparation process to execute non-disclosure agreements that define company confidential and proprietary information, and the express limits on the use of such information;
  • As part of the departure process, requiring employees to execute certifications attesting that they returned all company property, materials and data, that they understand the constraints on their ability to use and share certain company information, particularly company proposal documents, in the future employment opportunities;
  • Requiring any and all subcontractors and/or consultants to execute non-disclosure agreements before involving them in the proposal preparation process and sharing confidential and/or proprietary information with them; and
  • Tracking the connection between a former employee and his/her new employer's pursuit of competing contracting opportunities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions