You’ve spent the time and money to perfect your grow process and develop the genetically perfect plant. Or maybe, you’ve developed a new method of creating a cannabis extract or a fantastic customer list or whatever it is that gives you a competitive advantage.
The Budding Trends bard opened last night at Madison Square Garden singing about his big secret and how it would get him ahead. If it’s good enough for Trey, it’s good enough for us. You do not want to be left wondering what happens if you can’t get ahead because your business partner or employee walked out the door with your confidential investment. As the cannabis industry grows – and grows more competitive – how do you keep your secrets secret?
Is your secret a “trade secret”?
Let’s start, as we often do, with a simple question: Is your secret a “trade secret” entitled to legal protection?
With the exception of North Carolina and New York, every state, as well as D.C., Puerto Rico, and the U.S. Virgin Islands, has adopted some version of the Uniform Trade Secret Act. The UTSA defines what a trade secret is: It’s a “formula, pattern, compilation, program, device, method, technique, or process, that: (i) 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 (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” That’s legalese for two requirements. First, the information must have value and not be publicly known. Second, the information has to be the subject of efforts to keep the information secret.
Does the secret have value?
If you’ve read this far, you almost certainly believe that whatever information you’re trying to protect is unique, valuable, and not known to the general public. But will a court agree? Courts routinely find that customer and client lists may constitute a trade secret. We think courts would do the same in the cannabis space(see Siva Enterprises v. Ott, 2018 WL 6844714 (C.D. Cal. Nov. 5, 2018)). But there’s still the question of what courts will do with information unique to the cannabis industry. Earlier this summer, a Washington appellate court found there was at least a genuine issue of whether the cannabis cultivars and grow processes of a licensed commercial cannabis producer could constitute a trade secret (Biochron, Inc. v. Blue Roots, LLC, 529 P.3d 464, 475 (Wash Ct. App. 2023)). We think the Washington Court got it right, and we think it’s likely a court will find that grow processes, information about a particular plant strain, or methodologies for creating cannabis extracts may constitute a trade secret. You don’t have to look further than federal patent law to find a basis to argue that information about a cannabis plant is protectable (see 35 U.S.C. § 161; “Whoever invents or discovers and asexually reproduces any distinct and new variety of plant … may obtain a patent therefor”). And we think this is the right result even when a court is faced with an argument that the information cannot constitute a trade secret under the law because the business trying to protect its secrets is engaged in a business in violation of federal law. While there is precedent to support our view (see, e.g., Siva Enterprises v. Ott, 2018 WL 6844714 (C.D. Cal. Nov. 5, 2018)), a determination on this argument will likely turn on the particular facts of the case and a detailed analysis of the exact activities you are engaged in.
Ensuring the information is kept secret
Even if you can establish the information you are trying to protect is sufficiently valuable and unknown, a court’s decision will very likely turn on the question of whether you are doing enough to keep the information secret. Oftentimes, making a successful trade secret claim turns on the efforts the company took to maintain the secrecy of the information it’s trying to protect.
What is enough? You probably need to do more than you think. At minimum, you should mark any documents containing your secrets as confidential. Likewise, you should limit the access to the information to only those who really need it. Don’t send emails to large groups containing your “secret” information. Don’t save the information on servers that are readily accessible to anyone. And make sure those with access to the information understand and appreciate that the information is secret. You should have your employees and those with access to the information sign ethics policies about trade secret information. This could come in the form of a handbook, code of conduct, or a specific document related to confidentiality. You should have your employees enter into confidentiality agreements. Having password-protected servers may not be enough. You should consider specifically password protecting the information and documents themselves.
These efforts don’t require very much on the front end and are relatively inexpensive, but they may mean the difference between keeping your secret information out of the hands of your competitors or being able to recover financially if the information does get in the wrong hands.
It is often said that there are no secrets to success. And that may be true, despite the title of this blog. But there are things you can do to protect that success. We hope you’ll find this guide useful as you protect your successful and growing business.