9.3 VIRGINIA UNIFORM TRADE SECRETS ACT
9.301 In General. The Virginia Uniform Trade Secrets Act (the "Virginia Act") took effect on July 1, 1986. It is codified in sections 59.1-336 et seq. of the Virginia Code.
While patents, trademarks, and copyrights are regulated by federal law, the Court of Appeals for the Fourth Circuit has found that state regulation of trade secrets does not violate the supremacy clause of the United States Constitution. Developments in federal trade secret law have not obviated the enforceability of state trade secret regulations. 37 In Sears v. Gottschalk, 38 the court concluded that "the states may protect trades secrets, and we perceive no violation of the fifth amendment in federal forbearance to permit that power to be exercised." 39
9.302 Definition of "Trade Secret." Commentators to the Restatement recognized that "an exact definition of a trade secret is not possible." 40 Given this difficulty, the definitions of a trade secret in the Uniform Act and the Virginia Act are not specific. In section 59.1-336 of the Virginia Code, a trade secret is defined as "information, including but not limited to, a formula, pattern, compilation, program, device, method, technique or process." 41 This definition expands upon the definition found in the Restatement, which defined a trade secret as any "formula, pattern, device or compilation
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of information used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it." 42
Significantly, the definitions in the Virginia Act, the Uniform Act, and the Restatement canvass high-tech and "low-tech" secrets alike. Some common examples of low-tech trade secrets are (i) customer lists; 43 (ii) pricing information; 44 (iii) financial information; 45 (iv) methods of conducting business and business strategies; 46 and even (v) artwork. 47 Some courts have suggested that a trade secret can be "just about anything" under "the right set of facts." 48
These definitions are important in several other respects as well. The information need not exist in some tangible format, as is required in patent law. In fact, the information need not be more than an idea, theory, or concept. Further, these definitions do not require that the trade secret be novel—secrecy, not novelty, is the "crucial characteristic" of a trade secret. 49
In addition, the Uniform Act and the Virginia Act do not require continuous use of the trade secret in business, or even any use at all (unlike the Restatement's definition). This protects trade secrets when an owner has not yet begun business, has not yet had the opportunity or acquired the means to put the trade secret to use, has temporarily stopped use, or has determined that the secret process or method does not work and wants to protect that negative information as a trade secret. Further, trade secrets may be protected as long as their secrecy is maintained, they are not generally known, and they are not readily ascertainable. The Virginia Act sets no time limits on protection. Nor must there be a profit motive for misappropriation. 50
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The right to a trade secret, unlike a patent, need not be exclusive. As early as 1851, the English case Morison v. Moat 51 referred to the non-exclusivity of trade secrets. 52 Non-exclusivity means that two entities that concurrently but independently develop the same trade secret may both acquire rights to it. The plaintiff has the burden of proving a trade secret claim by a preponderance of the evidence; the plain language of the act does not shift the burden to the defendants to prove that a competing trade secret was independently derived once the plaintiff has presented a prima facie case. 53 At some point, however, if the secret becomes known to more and more people to the point of becoming generally known, the right to protect the secret is lost. 54
In many if not most trade secret cases, the size of the trade secret is not a factor since the trade secret at issue is specific, singular, and limited, such as a manufacturing process, 55 computer software, 56 source code, object code, 57 new technology, 58 or a customer or patient list. 59 But many trade secret owners would like to maximize the amount of information they can protect from departing and competing employees. Franchisor-franchisee trade secret cases are illustrative, as they sometimes involve large amounts of information, even whole franchise systems. For example, in Hamden v. Total Car Franchising Corp., 60 the Fourth Circuit determined that a nondisclosure clause in a franchise agreement prohibited the franchisee from "communicat[ing] directly or indirectly, divulge[ing] to or us[ing] for [his]
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benefit or the benefit of any other person or legal entity" the franchisor's proprietary and confidential trade secrets. 61
The Virginia Act defines a trade secret as any "information" and does not limit the amount of information that may be a trade secret. 62 Further, the statutory definition specifically provides that "compilations" can be trade secrets. 63 There is a great deal of case law holding that compilations and combinations of even generally known information, readily ascertainable information, or both can be a trade secret. In Q-CO Industries v. Hoffman, 64 the court stated, "[i]t is a well settled principle 'that a trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process and operation of which, in unique combination, affords a competitive advantage and is a protectable secret.'" 65
In Motor City Bagels, L.L.C. v. American Bagel Co., 66 the court found that a business plan was a trade secret even though the business plan contained some facts ascertainable from the marketplace and some public infor-mation. 67 In this case, two recent M.B.A. graduates were investigating and negotiating the purchase of a bagel franchise and prepared an extensive business plan assessing its viability. 68 The court held that while the business plan at issue did contain some public information and facts ascertainable from the marketplace, it also included personal insights and analysis brought to bear through diligent research and by marshaling a large volume of information that could qualify it as a trade secret. 69 Unfortunately, the plaintiffs failed to satisfy an essential element of a misappropriation claim in that they had not taken reasonable steps to ensure the secrecy of their plan. 70
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In BBA Nonwovens Simpsonville, Inc. v. Superior Nonwovens, LLC, 71 BBA Nonwovens and other manufacturers brought an action against a competitor, Superior Nonwovens, alleging trade secret misappropriation and patent infringement as a result of Superior's manufacture of certain spun-bond nonwoven fabric. 72 After a jury trial in which the court found in favor of the plaintiffs, the defendants appealed, arguing that because most if not all of the elements of the plaintiffs' process were in the public domain, they could not be considered a trade secret. 73 The Federal Circuit rejected that argument and instead followed the widely held rule that "'a trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design and operation of which, in unique combination, affords a competitive advantage and is a protectable trade secret.'" 74 Thus, by combining or compiling information, the amount of information that can be protected as a trade secret can be maximized.
While compilations of information may be trade secrets, combinations of numbers or letters such as passwords are not trade secrets. In State Analysis, Inc. v. American Financial Services Associates, 75 the court found that collections of numbers or letters whose only value is to access other potentially valuable information do not possess independent economic value. 76 Alternatively, there are legal arguments to challenge such a broad interpretation of the amount of information that may be considered a trade secret. It is a well-recognized public policy in Virginia and other local jurisdictions to permit the free mobility of employees. 77 Nearly 40 years ago, a federal court stated:
An employer who discloses valuable information to his employee in confidence is entitled to protection against the use of these secrets in competition with him. But the employee who possesses the employer's most valuable confidences is
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apt to be highly skilled. The public is interested in the reasonable mobility of such skilled persons from job to job in our fluid society, which is characterized by and requires mobility of technically expert persons from place to place, from job to job and upward within the industrial structure. And the employee himself must be afforded a reasonable opportunity to change jobs without abandoning the ability to practice his skills. 78
A broad interpretation of the scope of trade secret protection can effectively interfere with this public policy of free mobility of employees. If the volume of information alleged to be a protectable trade secret is large, it may mean that an employee cannot leave a job to continue to work in the same industry, since the employee will necessarily use or disclose trade secret information of the previous employer. A broad interpretation of the scope of trade secret protection can effectively interfere with the ability of employees to depart from employment and be able to make use of general knowledge and skills obtained during employment.
Such a broad interpretation can also arguably result in a constructive and an unlawful prohibition on competition. The Virginia Act does not have any geographic or temporal limit on the protection of a trade secret. But in order for a noncompete agreement to be enforceable in Virginia, it must have reasonable limitations as to the...
