Government contractors should be aware that the information compiled in their proposals has grown increasingly more valuable in this time of shrinking budgets and shrinking contracting opportunities. Fortunately, often customer lists, sensitive marketing information, unpatented inventions, software, formulas and recipes, techniques, processes, and other business information that provides a company with a business edge are protected by federal and in 47 states, respective state laws . Those laws are tools contractors can use to protect their trade secrets.
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. 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 her new employer, or subsequently using such information in a competitor’s proposal.
In such instances, the contractor’s options for legal recourse usually depend upon whether the contractor’s proposal qualifies as a “trade secret”. Under the Federal 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.
New Jersey has a fairly representative state law that prohibits use of trade secrets by a company that “has reason to know” that the material constitutes a trade secret. This is known as constructive knowledge (versus actual knowledge). In other words, even if a New Jersey company was unaware it possessed purloined trade secrets; it can still be prosecuted under New Jersey law if it should have known. In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. A victim of trade secret theft can also seek financial compensation that measures the actual loss attributed to the theft or the profits (or “unjust enrichment”) acquired by the trade secret thief. In egregious situations, a New Jersey court can award punitive damages up to twice the amount of any award.
Both the federal law and most states define “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.
Indeed, courts have repeatedly recognized that compilations of business information comprised mostly of publicly available information and limited proprietary information nonetheless qualify for trade secret protection.
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 legal definition of, and the courts’ interpretations of, trade secret.
- Always mark proposal documents with restrictive legends;
- Impose restrictions on subcontractors’ or consultants’ use of trade secrets;
- Require each employee to execute a nondisclosure agreement; and
- Carefully check to ensure former employees do not make unauthorized disclosures of trade secrets, including proposal information.
Employed as senior director of Duane Morris Government Strategies, LLC, based in Trenton, New Jersey, Martin Milita advises clients on private public partnerships and all forms of government procurement. Prior to joining Duane Morris Government Strategies, LLC, in 2012, he served as managing partner of Holman Public Affairs, LLC, which he cofounded in 2001.