Protecting Your Trade Secrets: Tennessee’s Uniform Trade Secrets Act Explained
For businesses in Nashville and across Middle Tennessee, proprietary information is often the most valuable asset on the balance sheet. Customer lists, pricing strategies, manufacturing processes, and software algorithms can represent years of investment. When that information falls into the wrong hands, the consequences can be severe. Tennessee’s Uniform Trade Secrets Act, codified at Tennessee Code Annotated Sections 47-25-1701 through 47-25-1709, provides the legal framework for protecting trade secrets and pursuing claims for trade secret misappropriation in Tennessee.
What Qualifies as a Trade Secret Under Tennessee Law
Not every piece of business information qualifies as a trade secret. Under Tennessee’s Uniform Trade Secrets Act, a trade secret is information that derives independent economic value from not being generally known to or readily ascertainable by others who could obtain economic value from its disclosure or use. The information must also be the subject of reasonable efforts to maintain its secrecy.
This definition has two critical components. First, the information must have economic value because it is secret. A recipe that is widely known in the industry is not a trade secret, but a proprietary formulation that gives a company a competitive advantage can be. Second, the business must take reasonable measures to protect the secret. Tennessee courts look at factors such as whether the information was shared only on a need-to-know basis, whether confidentiality agreements were in place, whether physical and electronic security measures were used, and whether the company had written trade secret policies.
Nashville businesses sometimes make the mistake of assuming that all internal information is automatically protected. It is not. Without affirmative steps to identify and protect trade secrets, a company may find that information it considered proprietary does not meet the statutory definition. This is why proactive trade secret protection is as important as reactive enforcement.
The Reasonable Measures Requirement
The reasonable measures requirement is where many trade secret claims succeed or fail. Tennessee courts do not require businesses to implement Fort Knox-level security, but they do expect meaningful, consistent efforts to keep the information confidential. What constitutes reasonable measures depends on the nature of the information and the size and resources of the business.
Common measures that Tennessee courts have recognized include requiring employees and contractors to sign confidentiality and non-compete agreements, limiting access to sensitive information to employees who need it for their work, using password protection and encryption for electronic files, marking documents as confidential, and conducting exit interviews when employees leave. No single measure is required, but a combination of protections demonstrates that the business took its trade secrets seriously.
The failure to implement reasonable measures can be fatal to a trade secret claim in Middle Tennessee courts. If a company allows its proprietary pricing data to sit in an unlocked filing cabinet accessible to all employees, a court may determine that the information was not adequately protected. Similarly, sharing trade secret information with third parties without confidentiality agreements can undermine a claim that the information was treated as secret.
Remedies for Trade Secret Misappropriation in Tennessee
When trade secret misappropriation occurs, Tennessee law provides several powerful remedies. Injunctive relief is often the most important. A court can issue an order prohibiting the misappropriator from using or disclosing the trade secret, which can prevent ongoing harm to the business. Tennessee courts can grant both temporary restraining orders and preliminary injunctions on an emergency basis when the threat of irreparable harm is imminent.
Damages are also available under the Tennessee Uniform Trade Secrets Act. A trade secret owner can recover the actual loss caused by the misappropriation, including lost profits. Alternatively, the owner can seek recovery of the unjust enrichment gained by the misappropriator, if that amount exceeds the owner’s actual loss. In cases of willful and malicious misappropriation, Tennessee courts may award exemplary damages of up to twice the amount of compensatory damages.
The Act also permits the recovery of reasonable attorney’s fees in cases where the misappropriation was willful and malicious or where a claim of misappropriation was made in bad faith. This fee-shifting provision gives teeth to the statute and can deter both frivolous claims and willful misconduct.
Tennessee businesses should also be aware that trade secret misappropriation can overlap with other claims, including breach of contract disputes arising from confidentiality agreements and claims under the federal Defend Trade Secrets Act, which provides an additional avenue for relief in federal court.
Steps to Protect Your Trade Secrets Now
The best time to protect your trade secrets is before a misappropriation occurs. Nashville businesses should conduct a trade secret audit to identify what proprietary information the company possesses, assess the current level of protection, and implement improvements where needed. This audit should be revisited periodically as the business grows and its information assets change.
Key steps include developing a written trade secret policy, training employees on their confidentiality obligations, implementing appropriate technical safeguards, and ensuring that all employees, contractors, and business partners with access to trade secrets have signed enforceable confidentiality agreements. When an employee departs, particularly one who had access to sensitive information, a structured exit process can help ensure that trade secrets remain with the company.
If your business is facing a trade secret misappropriation issue in Tennessee, I can help. Contact Malloy Law for a confidential consultation.