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
Similar Articles
Relevancy Powered by MondaqAI
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Ogletree, Deakins, Nash, Smoak & Stewart
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Ogletree, Deakins, Nash, Smoak & Stewart
Related Articles
 
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 (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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