Endangered Species and Trade Secrets

Vol. 28 No. 3

Mr. Klein is a partner in the Austin office of Sedgwick LLP. The factual hypotheticals used in the article are totally fictional. Any resemblance to actual situations is purely unintentional and coincidental.

The purpose of this article is to provide answers and guidance on some frequently asked questions about trade secrets that arise in the practical, day-to-day world of environmental consulting in the Endangered Species Act (ESA) context. These issues will be posed as real-life Fact Scenarios, with questions posed and then answered.

In Fact Scenario No. 1, you are the CEO of an environmental consulting firm. Your firm has been hired by an alternative energy company to assist them with site location for a $500 million alternative energy project. To determine the optimal site location, the client wants your firm to assist with preconstruction risk assessments, as well as site screening and ranking (under the Land-Based Wind Energy Guidelines) to help determine whether endangered species would impact project location and, upon completion, successful operation of the project. The client informs you that confidentiality is critical, as the market for good sites is becoming increasingly competitive. To protect the data you will be compiling, the client asks you for a confidentiality clause in your engagement contract, to which you readily agree. The client also asks that you restrict internal access to the information you gather to those with a need-to-know basis and that all computer files be password protected to avoid unnecessary access to the data.

After the engagement contract is signed, your personnel go out into the field and begin collecting the necessary data. You use the latest, most expensive GPS and other available state-of-the-art equipment. Nine months later, after over 10,000 field observations throughout over 100,000 acres of rugged, isolated country, you compile your observations of numerous endangered species into a spreadsheet. Then, using complex statistical algorithms that your firm’s engineers, biometricians, and biostatisticians have developed through years of trial and error, you apply those algorithms to the data to arrive at your recommendations for siting. During the processing of this data for the client, your most experienced biostatistician, purely by chance, discovers that the k-means clustering algorithm produces far more accurate results than the k-median clustering algorithm, which your company had previously used. You decide to employ k-means clustering in your calculations and provide your client with a 200-page report about the optimal siting locations for the client’s alternative energy project. You assure your client that, because of your choice of statistical algorithms and accuracy of observations, no other consultant could have produced a report with such accurate siting recommendations. You assure the client that the $1 million price tag is worth every penny.

Question No. 1: Is the information you collected on endangered species a “trade secret”? As will be explained below, the information collected by your firm on endangered species likely would qualify as a trade secret. One court has noted that “[t]he term ‘trade secret’ is one of the most elusive and difficult concepts in the law to define.” Lear Siegler, Inc. v. Ark-Ell Springs, Inc., 569 F.2d 286, 288 (5th Cir. 1978). Another court has stated that “[i]t is not possible to state criteria for determining the existence of a trade secret.” In re Bass, 113 S.W.3d 735, 739 (Tex. 2003). Nevertheless, there are definitions and criteria. One definition of a trade secret is contained in the Uniform Trade Secrets Act (UTSA), which defines a “trade secret” as follows:

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