Fourth Circuit Provides Guidance on Trade Secret Protection for Combinations of Public Information

Trade secret information is defined under federal and state laws as information: (a) neither known to, nor readily ascertainable by, another person who can obtain economic value from the disclosure or use of the information; and (b) which is subject to reasonable measures to maintain its secrecy. In light of this secrecy requirement, one might think that public information could never qualify for trade secret protection – but one would be wrong. In fact, many trade secret misappropriation cases involve alleged “combination” or “compilation” trade secrets comprised of information in the public domain.

Late last month, the US Court of Appeals for the Fourth Circuit issued a published opinion providing helpful guidance on how publicly available information can be combined to form protectable trade secrets. In AirFacts, Inc. v. De Amezaga, AirFacts sued a former employee claiming that several flowcharts he created during the course of his employment, and which he provided to a new employer with his job application, were trade secrets. The flowcharts contained publicly available information that was not owned by AirFacts, but De Amezaga had spent approximately four months creating the flowcharts to display the information in a systematic way making it easier for AirFacts’ employees to use to conduct ticket price audits. The trial court had held that the flowcharts “are not trade secrets because they are simply an ‘overview’ of publicly available” information, but the Fourth Circuit had little difficulty concluding that the flowcharts constituted combination trade secrets. Several factors were key to this finding: (1) De Amezaga’s “painstaking, expert arrangement” of the public data made the flowcharts “inherently valuable separate and apart from the publicly available contents”; (2) De Amezaga added value by incorporating his prior knowledge and experience in a way that established the flowcharts “as unique items of economic value” in AirFacts’ business; and (3) the flowcharts would be economically useful to any AirFacts competitor because they “succinctly display vast amounts of [public] data” required for ticket price audits. Finally, the Fourth Circuit held that AirFacts’ efforts to maintain the secrecy of the flowcharts, which included the use of confidentiality agreements, monitoring software on employee computers, and restricting access to select employees, were reasonable under the circumstances.

The key takeaway from the Fourth Circuit’s opinion is that if a company expends valuable resources (in the form of employee time) to compile publicly available information in a unique and useful format that provides an economic advantage over competitors, the compilation may be entitled to trade secret protection if the company takes reasonable steps to maintain its secrecy. Companies creating combination trade secrets should document the efforts and resources expended in creating compilations of publicly available information, and should take care to safeguard the secrecy of the compilations, in case they find themselves in the position of having to protect those trade secrets from misappropriation.

Arent Fox’s Trade Secret group incorporates a multi-disciplinary approach drawing upon the strengths of our Complex Litigation, Intellectual Property, Labor & Employment, White Collar & Investigations, Government Relations, and Privacy practices. We routinely counsel our clients regarding the drafting and updating of trade secret protection policies, and investigate and litigate trade secret misappropriation matters when the need arises.