Protecting Your Trade Secrets: What Your Company Needs to Know
By: Sarah Boone
Trade secrets exist as the bloodline of many companies. If The Coca-Cola® Company hadn’t sought to guard its most valuable asset—its Coca-Cola® formula—it wouldn’t exist as the famous entity serving, arguably, the most famous refreshment that we know and love today. Like The Coca-Cola® Company, entities large and small must consider the business risks associated with divulging secret information that renders their businesses successful without adequately protecting such information. Although not registered with a government agency like patents, copyrights, and trademarks, trade secrets often exist as the most valuable intellectual property assets of many companies.
Trade Secret vs. Confidential Information
A trade secret is information that derives independent economic value because it is not generally known or readily ascertainable, and it is the subject of efforts to maintain secrecy—such as formulas, customer lists, business practices, programs, methods, test data, and manufacturing processes and techniques. Although trade secrets are confidential by nature, not all confidential information constitutes a trade secret. Confidential business information such as contracts, employment agreements, non-disclosure agreements, letters of intent, purchase agreements and financial information may be highly valuable to an entity but are not trade secret protectable because they do not offer the required economic value. For example, the search algorithm owned by Google® constitutes a protectable trade secret but the marketing strategies associated with the search algorithm would likely fall under the broader category of confidential information.
Determining what confidential information constitutes a trade secret is an important step in adequately protecting it, and internal audits may serve to help companies best identify its trade secret and confidential information. Distinguishing between trade secrets and confidential information is key because companies may be able to recover monetary damages for an actual loss sustained as a result of a breach of confidentiality involving trade secrets under the Uniform Trade Secrets Act.
How To Keep Your Trade Secret
Once trade secret information is identified, companies must take reasonable efforts to prevent the trade secret from being disclosed to maintain. What efforts are “reasonable” is resolved case-by-case and involves the analysis of the facts and the nature of the trade secret being protected. Some factors courts assess to determine whether reasonable efforts have been taken include the extent to which information is known both inside and outside of the business, the extent of measures taken to maintain the secrecy of the information, the value of the information to the business its competitors the effort and money expended by the business to develop the information, and the level of difficulty for others to obtain and duplicate the trade information. The “reasonable efforts” a company has taken to protect its trade secrets often come into play when a company believes information has been misappropriated.
Although various factors are considered to determine “reasonable efforts,” there are various standard safety protocols which can aid a company in ensuring its trade secrets are properly maintained, such as monitoring where information is stored, restricting employee access, implementing non-disclosure agreements and non-compete agreements, maintaining secrecy from outside vendors via third-party confidentiality agreements, and restraining employees from working on confidential information from their home computers. In addition, the level of security necessary to ensure “reasonable” steps are taken may depend on the size and nature of the company. For example, a locked filing cabinet may be enough security for small businesses but larger companies may also need additional security such as security officers and badges to maintain reasonable security. To the extent information does not rise to the level of a trade secret, companies should still seek to protect other types of confidential information through detailed contractual agreements, company policies and procedures, implementing firewalls and/or other monitored security measures.
If you are interested in learning more about trade secret protection strategies or believe you have experienced trade secret misappropriation, please contact us for more information.