Colorado Business Trade Secrets Agreements: What to Know

In today's ultra-competitive business world, your company's trade secrets may be among its most valuable assets. Whether it's a proprietary manufacturing process, a customer list, a software algorithm, or a unique business method, protecting those secrets is critical for maintaining your edge in the market.

Are your trade secrets adequately protected under Colorado law? Schedule a free consultation with our knowledgeable trade attorneys to find out.

Understanding Trade Secrets in Colorado

Trade secrets are confidential business information that provides a company with a competitive advantage. Unlike patents or trademarks, trade secrets don't require registration with a government agency. However, they do require diligent protection from the business owner.

In Colorado, trade secrets are primarily governed by the Colorado Uniform Trade Secrets Act (CUTSA), which provides the legal framework for how businesses can protect their valuable information and what remedies are available when trade secrets are misappropriated.

The Colorado Uniform Trade Secrets Act (CUTSA)

The Colorado Uniform Trade Secrets Act (C.R.S. § 7-74-101 through 7-74-110) defines trade secrets and establishes protections for businesses in the state.

Under CUTSA, a trade secret is defined as "the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, improvement, confidential business or financial information, listing of names, addresses, or telephone numbers, or other information relating to any business or profession which is secret and of value”.

This definition is important because not all confidential information qualifies as a trade secret under the law. To receive protection, the information must have economic value from being kept secret and be subject to reasonable measures to maintain secrecy.

Key Provisions of CUTSA

The Colorado Uniform Trade Secrets Act provides several important protections and remedies, including the following:

Definition of Misappropriation

CUTSA defines “misappropriation” as the acquisition of a trade secret by improper means or the disclosure or use of a trade secret without consent.

Available Remedies

If a trade secret is misappropriated, CUTSA allows the affected business to seek:

• Injunctive relief to prevent further use or disclosure
• Damages for actual losses
• Damages for unjust enrichment
• Reasonable royalties in appropriate cases

Attorney's fees may also be recoverable in cases of willful and malicious misappropriation.

Statute of Limitations

Actions under CUTSA must be brought within three years after the misappropriation is discovered or should have been discovered through reasonable diligence.

Confidentiality Agreements in Colorado

One of the most effective ways to protect trade secrets in Colorado is through well-drafted confidentiality agreements (also called non-disclosure agreements or NDAs). These agreements create contractual obligations to maintain secrecy and provide legal recourse if those obligations are breached.

Elements of an Effective Confidentiality Agreement

To maximize your protection under Colorado law, your confidentiality agreements should include:

• Clear definition of confidential information: Define what constitutes confidential information; make sure the definition is broad enough to encompass all valuable assets.
• Specific obligations: Detail the recipient's obligations regarding the use, disclosure, and protection of the confidential information.
• Permitted disclosures: Outline any circumstances under which disclosure is allowed, such as to employees on a need-to-know basis or when required by law.
• Duration: Specify how long the obligations will last. Colorado courts generally enforce reasonable time limits, though some information may warrant indefinite protection.
• Return of information: Include provisions requiring the return or destruction of confidential information upon request or termination of the relationship.
• Remedies: Enumerate the remedies available in case of a breach, including injunctive relief and damages.
• Colorado law provision: Include a provision stating that Colorado law governs the agreement.

A qualified business attorney can help you draft confidentiality agreements that provide airtight protection against breaches and other misuses of information that could negatively impact your organization.

Best Practices for Protecting Trade Secrets in Colorado

Beyond having proper agreements in place, Colorado businesses should implement comprehensive protection strategies. The courts consistently look for evidence of these measures when determining whether information qualifies for trade secret protection.

Identify Your Trade Secrets

Conduct a thorough audit to identify all potential trade secrets within your organization. This crucial first step is often overlooked, but Colorado courts expect businesses to know exactly what they're protecting.

Here are some tips for conducting an effective trade secret audit:

• Form a cross-functional team that includes legal, IT, R&D, and business leadership.
• Review all departments systematically, looking for proprietary information of value.
• Document each potential trade secret and why it qualifies (using CUTSA criteria).
• Categorize secrets by sensitivity level to implement appropriate protection measures.
• Maintain and regularly update a confidential trade secret registry.
• Reevaluate your registry annually as business operations evolve.

Implement Physical Security Measures

Physical protection is a key component of the "reasonable efforts" mentioned in CUTSA. Colorado courts have consistently held that inadequate physical security can undermine trade secret status.

Effective physical security measures include:

• Access restrictions: Employ key card systems that create access logs and limit entry to areas where trade secrets are used or stored.
• Visitor management: Create a formal visitor policy requiring registration, badges, non-disclosure agreements, and employee escorts at all times.
• Document security: Establish a document classification system with appropriate handling procedures for each level (e.g., confidential, highly confidential).
• Physical barriers: Install appropriate locks, security systems, cameras, and physical barriers around sensitive areas.
• Clear marking: Prominently mark documents containing trade secrets as "Confidential" or "Proprietary" and provide specific handling instructions.
• Clean desk policy: Require employees to secure sensitive documents when they’re not in use.
• Secure disposal: Implement shredding protocols for physical documents and secure disposal of electronic media.
• Inventory control: Maintain a strict inventory of prototypes, samples, or physical embodiments of trade secrets.

Use the Right Digital Security Measures

In today's increasingly online environment, robust cybersecurity is vital for safeguarding trade secrets. The courts closely scrutinize the sophistication of digital protection measures when evaluating trade secret claims.

Comprehensive digital security should involve:

• Access controls: Implement role-based access privileges on a strict need-to-know basis, with regular access reviews and adjustments.
• Authentication protocols: Require strong passwords, multi-factor authentication, and regular password changes.
• Encryption: Encrypt sensitive data both at rest and in transit using industry-standard protocols.
• Network security: Deploy firewalls, intrusion detection systems, and network monitoring tools.
• Remote work policies: Create specific guidelines for remote access to trade secrets, including VPN requirements and prohibited public Wi-Fi usage.
• BYOD policies: If you allow the use of personal devices, employ mobile device management (MDM) solutions with remote wipe capabilities.
• Email protection: Use data loss prevention (DLP) tools to monitor outgoing communications for sensitive information.
• Regular audits: Conduct periodic security audits and penetration testing.
• Incident response plan: Develop a clear response protocol for potential data breaches.
• Cloud security: Implement appropriate controls for any cloud storage containing trade secrets.
• Software updates: Maintain regular patching schedules for all systems.

Develop and Enforce Comprehensive Policies

Clear policies regarding trade secrets are pivotal evidence of "reasonable measures" under CUTSA. Businesses with well-documented and consistently enforced policies tend to see favorable rulings when facing claims.

Effective trade secret policies should include:

• Employee handbook provisions: Detailed confidentiality sections explaining obligations and the importance of trade secret protection.
• Onboarding procedures: Specific trade secret training for new employees with signed acknowledgments.
• Ongoing training: Regular refresher training on trade secret policies, with documentation of attendance.
• Specific handling procedures: Clear guidelines for how different categories of information should be handled, stored, and transmitted.
• Third-party disclosure protocols: Approval processes for sharing confidential information with vendors, partners, or customers.
• Social media guidelines: Clear rules about what company information can and cannot be shared on social platforms.
• Enforcement protocols: Consistent consequences for policy violations, regardless of employee level.
• Documentation practices: Systems for tracking policy compliance throughout employment.

Use Appropriate Agreements

Strategic use of well-drafted agreements is fundamental to trade secret protection. Colorado courts often look to these agreements as evidence of reasonable protection measures.

Here are a few non-negotiable agreements for ensuring comprehensive protection:

Employee Confidentiality Agreements

• Must clearly define confidential information and trade secrets
• Must specify ongoing obligations after employment ends
• Should acknowledge the competitive value of the information
• Should be signed before access is granted to any sensitive information
• Should be periodically renewed or acknowledged

Non-Compete and Non-Solicitation Agreements

• Must comply with Colorado's recent statutory limitations (§ 8-2-113)
• Must be narrowly tailored to protect legitimate business interests
• Must be reasonable in geographic scope and duration
• Should be customized based on employee role and access level

Invention Assignment Agreements

• Must comply with Colorado employment law
• Must address both work done on company time and using company resources
• Should clearly define the "scope of employment"
• Should include assignment of all associated rights

Vendor and Contractor Agreements

• Must limit use of disclosed information
• Must include robust confidentiality provisions
• Must address potential subcontractor disclosure
• Should outline return or destruction requirements
• Should lay out appropriate audit rights

Business Partner Agreements

• Must include detailed confidentiality provisions
• Must address ownership of jointly developed information
• Must include term limits on information use
• Should specify permitted uses of shared information
• Should require notification of any disclosure requests

When Trade Secrets Are Misappropriated: Legal Options in Colorado

If you discover that one or more of your trade secrets have been misappropriated, Colorado law provides several potential remedies.

Cease and Desist Letters

Generally, the first step is sending a formal demand to stop the unauthorized use and return any misappropriated information. This may resolve the issue without litigation.

Temporary Restraining Orders and Preliminary Injunctions

In cases where immediate action is needed, you can seek emergency court orders to prevent further disclosure or use of the trade secret, preserve evidence, and avoid irreparable harm while the case proceeds.

Civil Litigation

Under CUTSA, you can file a lawsuit seeking:

• Permanent injunctions
• Damages for actual loss
• Damages for unjust enrichment
• Reasonable royalties instead of other damages
• Attorney's fees

For your litigation efforts to be successful, you should be prepared to provide clear, compelling evidence of the disclosure or misappropriation and the various security measures your organization had in place.

Criminal Prosecution

In certain egregious cases, trade secret theft may violate criminal laws, including the Economic Espionage Act and miscellaneous theft and/or computer fraud statutes.

Recent Developments in Colorado Trade Secret Law

Colorado courts continue to refine the interpretation of the Colorado Uniform Trade Secrets Act through case law. Here are some recent trends worth noting:

Increased Scrutiny of Non-Compete Agreements

While not directly part of CUTSA, these agreements often work in tandem with confidentiality provisions. The state has recently enacted stricter limitations on non-compete agreements, making proper protection of trade secrets even more critical.

Expanded Definition of "Reasonable Measures"

Courts have begun looking at the totality of security measures in place rather than focusing on any single protective step when issuing rulings.

Emphasis on Actual Secrecy

The courts are also carefully examining whether information truly qualifies as a trade secret, particularly in cases involving customer lists or business methods.

Defend What’s Yours

Protecting your company's trade secrets requires a multifaceted approach that combines detailed legal agreements, extensive security measures, and clear company policies. The Colorado Uniform Trade Secrets Act provides robust protection, but only for information that qualifies as a trade secret and has been subject to reasonable protection efforts.

By implementing comprehensive protection strategies and working with experienced legal counsel to draft appropriate agreements, Colorado business leaders can safeguard their intellectual assets and maintain their competitive advantage. Contact Sequoia Legal today to learn more about our trade secret-related legal services.