When is a Trade Secret Entitled to Common Law Protection in New Jersey?

When Is A Trade Secret Entitled To Common Law Protection In New Jersey?

In New Jersey the definition of a trade secret provided by our Supreme Court in Sun Dial Corp. v. Rideout, 16 N.J. 252 (1954) is stated as follows:

“A trade secret is a formula, pattern, device or compilation of information which is used in one’s business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. (Citation omitted). A trade secret must have a substantial element of secrecy. While it need not be patentable, it must contain elements which are unique and not generally known or used in the trade. And its possession must give its possessor an economic advantage over competitors.”

The must fundamental aspect of a trade secret is that it is not a matter of general knowledge or general aptitude. It must be a secret. Sun Dial, supra ; National Tile Board Corp.v. Panel Board Mfg. Co., 27 N.J. Super. 348 (Ch. Div. 1953) (“. . . matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret.”).

Factors which the courts consider with respect to a trade secret claim include:

  1. The extent to which the information is known outside of the plaintiff’s business;
  2. The extent to which it is known by employees and others involved in plaintiff’s business;
  3. The extent of measures taken to guard the secrecy of the information;
  4. The value of the information to the plaintiff and to its competitors;
  5. The amount of effort or money expended by plaintiff in developing the information; and
  6. The ease or difficulty with which the information could be properly acquired or duplicated by others. Midland-Ross Corp. v. Yokana, 18 F.Supp. 594 (D.N.J. 1960), aff’d 293 F.2d 411 (3 rdCir. 1961); Sun Dial Corp., supra .

Midland-Ross Corp. ,involved plastic extrusion machinery. The employer assembled plastic extrusion machinery from components manufactured by a number of different suppliers. The employee who was an executive of the company, had possession of his employer’s blue prints, drawings and written specifications at his home, as well as at his place of business. The employee voluntarily resigned his employment, retained copies of the employer’s blue prints and other documents, and immediately formed a competitive business assembling exact copies of the employer’s machine and ordering the same parts, using the same specifications, from the same suppliers, as his former employer.

Notwithstanding the fact that the employee was found to have engaged in misconduct, the court refused to grant injunctive relief except to require the return of the stolen documents and blue prints. The reason that injunctive relief was withheld, was that the Court found that plastic extrusion machinery was commonly and widely used, and that blue prints concerning such machinery could not constitute a trade secret. Furthermore, the Court relied upon the fact that the employer published information through its own advertising and brochures which clearly delineated the nature of its machines and all of their component parts. Thus, the court concluded: “As far as the form and method of functioning of the plaintiff’s machines are concerned, I find nothing secret about them.

Proper protection of the interests of the employer are fostered by preparation and use of an appropriate trade secret agreement, which identifies applicable trade secrets specifically and clearly, and which contains a reasonable prohibition against the use or disclosure of those secrets by an employee.

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