Trade Secrets and Confidentiality

When we give our workshops around the state, we often mention that trade secrets can be some of the most complicated types of records to determine if they qualify as confidential records under the law. Today I will take an in depth look at the conditions that must all be met for a trade secret to be confidential. There are two General Statutes that inform our understanding of trade secrets, G.S. 132-1.2 and G.S. 66‑152.

G.S. 132-1.2 lists the four conditions that must be met:

a.         Constitutes a “trade secret” as defined in G.S. 66‑152(3).

b.         Is the property of a private “person” as defined in G.S. 66‑152(2).

c.         Is disclosed or furnished to the public agency in connection with the owner’s performance of a public contract or in connection with a bid, application, proposal, industrial development project, or in compliance with laws, regulations, rules, or ordinances of the United States, the State, or political subdivisions of the State.

d.         Is designated or indicated as “confidential” or as a “trade secret” at the time of its initial disclosure to the public agency.

Let’s take a closer look at each of these requirements.

A.         Constitutes a “trade secret” as defined in G.S. 66‑152(3).

This one is rather straight forward as the statute provides us a definition:

“Trade secret” means business or technical information, including but not limited to a formula, pattern, program, device, compilation of information, method, technique, or process that:

a.         Derives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use; and

b.         Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

According to David Lawrence, in his book, Public Records Law for North Carolina Local Government, if a legal challenge were to arise the courts will consider the “economic value to maintaining the secrecy of the information and on what steps the owner has taken to maintain that secrecy.”

B.        Is the property of a private “person” as defined in G.S. 66‑152(2).

Again we are given a definition by the statue.

“Person” means an individual, corporation, government, governmental subdivision or agency, business trust, estate, trust, partnership, association, joint venture, or any other legal or commercial entity.

Note, while G.S. 66 does include government and governmental agency in its definition, they are excluded from claiming trade secrets by G.S. 132-1.2’s requirement that the “person” be a private entity.

 C.         Is disclosed or furnished to the public agency in connection with the owner’s performance of a public contract or in connection with a bid, application, proposal, industrial development project, or in compliance with laws, regulations, rules, or ordinances of the United States, the State, or political subdivisions of the State.

This part of the statue describes the various ways that government may come into possession of trade secrets.

Finally, we have:

D.         Is designated or indicated as “confidential” or as a “trade secret” at the time of its initial disclosure to the public agency.

 David Lawrence recommends that local governments may wish to proactively notify owners of potential trade secrets of the need to make such declarations.

Again, it is important to emphasize that each of the above conditions have to be present for a trade secret record to be considered confidential. If you have any questions regarding these requirements, please don’t hesitate to contact myself or one of our other Local Records Analysts with your questions.

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