Trade Secret Protection in the Healthcare Industry - Fact or Fiction?
Louisiana’s Trade Secrets law can provide valuable protection for businesses. It can prevent competitors, employees and ex-employees from utilizing trade secrets belonging to your company. As fully discussed below, Louisiana law allows a broad interpretation of what is considered a protectable trade secret. If a particular trade secret meets statutory requirements under Louisiana law, full protection is allowed. This includes stopping someone by injunction for misappropriating and improperly using your trade secrets, as well as obtaining damages for the actual loss caused by a misappropriation.
Trade secrets protection exists by operation of law. No written or oral agreement is necessary to enjoy such protection. As long as your information or product is consider a trade secret under Louisiana law, protection is provided. The key then is to fit your information into a protectable trade secret.
Do protectable trade secrets exist in the healthcare industry? Are employee and staff recruiting and retention policies protectable? What about electronic medical record systems and programs? Patient lists when a physician leaves a practice? Managed care contract rates and terms? The simple answer is yes, if you can fit your information into Louisiana’s statutory definition of a trade secret.
Louisiana law defines a trade secret at La. R.S. 51:1431 as follows:
“Trade Secret” means information including a formula, pattern, compilation, program, device, method, technique, or process that:
a) 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
b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
From the above, it is obvious that information that may be considered a trade secret under Louisiana law is broadly interpreted. In order to fit a healthcare provider’s information into the definition of a trade secret, the requirements of both paragraphs “(a)” and “(b)” listed above must be met.
La. R.S. 51:1431(a) listed above requires that the information you seek to be protected must not be generally known within that industry. When your “customers” (i.e., patients) are generally known by others within that industry, a simple customer list will in all likelihood not receive trade secret protection. However, if your customer list contains specific information, including customer contact information, cell phone numbers, previous purchase information, pricing information particularized to that customer, and other information that would not generally be known within that industry, such information may very well receive trade secret protection under Louisiana law.
Is a patient list when a physician leaves a practice generally known within that industry? If so, can a patient list contain specific information not generally known within that industry allowing trade secret protection under Louisiana law? A fact specific inquiry regarding this issue must be undertaken to determine whether a particular patient list is entitled to trade secret protection.
Wouldn’t the HIPAA Privacy Standards also prohibit the misappropriation of such patient lists? Not always. If, for example, an employed physician leaves a practice and, despite a clear provision in his/her employment agreement that the patient records belong to the employer, HIPAA would not necessarily prevent the departing physician’s attempt to take the patient demographic information with him. Louisiana’s Trade Secrets law, however, may apply and prevent this from happening.
Additionally, paragraph “(a)” above requires that the information you consider to be a trade secret must not be “readily ascertainable by proper means….” Therefore, even if your claimed trade secret is not generally known within the industry, if it can be ascertained by proper means, then Louisiana law will not offer trade secret protection. What is “proper means”? Proper means under Louisiana law includes:
1) Discovery by independent investigation;
2) Discovery by “reverse engineering”, that is by starting with a known product and working backward to find the method by which it was developed. The acquisition of the known product must of course, also be a fair and honest means, such as purchase of the item on the open market for reverse engineering to be lawful;
3) Discovery under license from the owner of the trade secret;
4) Observation of the item in public use or on public display;
5) Obtain the trade secret from published literature.
Additionally, in order for your information to be considered a trade secret, the requirements of paragraph “(b)” listed above must be met. Reasonable efforts must have been taken to maintain the secrecy of the information sought to be protected. Reasonable efforts have been held to include advising employees of the existence of a trade secret, limiting access to information considered a trade secret on a need to know basis, and controlling access to particular parts of a business. On the other hand, public disclosure of information by display, trade journal publications, advertising, or other carelessness can preclude protection. The efforts required to maintained the secrecy of information or a product are only those reasonable under the circumstances. Louisiana courts do not require that extreme and unduly expensive procedures be taken to protect trade secrets against flagrant theft.
If the information you seek to protect as a trade secret meets that above requirements, Louisiana law will protect this information from misappropriation by others. What is considered misappropriation? Misappropriation as defined by Louisiana law means:
a) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
b) disclosure or use of a trade secret of another without express or implied consent by a person who:
i) used improper means to acquire knowledge of the trade secret; or
ii) at the time of the disclosure or use, knew or had reason to know that his knowledge of the trade secret was:
(1) derived from or through a person who had utilized improper means to acquire it;
(2) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
(3) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
iii) before material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
Improper means is also defined under Louisiana law. It includes: theft, bribery, misrepresentation, breach, or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. Under Louisiana law, therefore, a business will be protected from most any type of improper use by others of information considered to be a trade secret.
If someone misappropriates a trade secret, the owner of that trade secret has three (3) years after the misappropriation is discovered, or by the exercise of reasonable diligence should have been discovered, to bring an action. Under Louisiana law, a continued misappropriation constitutes a single claim. Therefore, if a trade secret is misappropriated and used by another, the fact that the party who misappropriated the trade secret continues to use it improperly will not stop the three (3) year period for bringing an action from running. Therefore, you must act as soon as you discover a misappropriation.
In today’s competitive market place, protecting your company’s important and confidential information is critical. Louisiana’s trade secrets law provides that protection, if your information fits the definition of a trade secret, and your company has taken reasonable efforts to maintain the secrecy of that information. By doing so, your company will be in a much stronger position when an employed physician or competing healthcare provider attempts to misappropriate your confidential information as their own.