Trade Secrets: How to Protect Your Proprietary Business Information
What Are Trade Secrets?
Trade secrets essentially cover any confidential business information that provides a company (or sole proprietor) with a competitive edge in the marketplace. This can include secret formulas, recipes, customer lists, supplier lists, consumer profiles, manufacturing methods, advertising strategies, as well as discoveries that may or may not be eligible for patent protection. Oftentimes, innovative products or methods can be protected with patents or as trade secrets, and a company will have to weigh the pros and cons of each. Two big benefits of trade secret protection include, for example, (1) the low upfront costs associated with trade secret protection, and (2) the potentially indefinite period of protection for trade secrets.
U.S. Trade Secret Protection:
Until recently, trade secrets were governed by state law only. However, in 2016, President Obama signed into law the Defend Trade Secrets Act (the "DTSA")—codified at 18 U.S.C. § 1836, et seq.—which created a federal cause of action for trade secret misappropriation. "Misappropriation" refers to the acquisition of a trade secret by improper means. Under the DTSA, improper means include: theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means." DTSA, 18 U.S.C. § 1839. To be eligible for trade secret protection under state or federal law:
- The information must have commercial value;
- The information must actually be a secret (commonly or publicly known information doesn't count); and
- You must take reasonable steps to keep it a secret. We'll discuss some of these steps below.
Quick Tips on Maintaining Secrecy:
Unlike the other main types of intellectual property (i.e., patents, trademarks, and copyrights), you cannot register a trade secret. Instead of applying for protection with your state or federal government, the key to protecting your company's proprietary information is straightforward: you have to keep it a secret. While this may seem simple in concept, maintaining the confidentiality of a trade secret can be difficult in practice—particularly as your company's number of employees or independent contractors grow. We've compiled the following non-exhaustive list of steps your company can take to keep its trade secrets secret:
1. Identify Your Confidential Information. The first step to protecting your trade secrets is to identify your trade secrets. Determine which kinds of information you’d like to designate as “CONFIDENTIAL,” then create and implement a written policy on how to identify and label that confidential information. You'll also need to ensure that your employees and independent contractors are aware of and understand the policy, such as by providing ongoing training.
2. Use Confidentiality or Non-Disclosure Agreements. Confidentiality or non-disclosure agreements ("NDAs") can be extremely useful in the realm of maintaining protection for both trade secrets and pre-patent discoveries. For example, if you were to bring state and federal claims of trade secret misappropriation against a defendant, having a signed NDA from that defendant will show the court that you took at least one reasonable step to keep your trade secret a secret. Of course, the more steps you take to maintain secrecy, the better.
3. Physically Protect Your Confidential Information. You can also restrict physical access to your trade secrets by using key cards and other security measures, such as locked rooms, cabinets, and safes. For added protection, you can require signed NDAs from all entities who will access the physically stowed-away secrets, and maintain a log of who accessed them and when.
4. Digitally Protect Your Confidential Information. You can restrict digital access to your trade secrets by designating authorized users, requiring logins and passwords for computer access, requiring that passwords be updated every two (or however many) months, and encrypting data where necessary. You should also have a written policy on how to prevent unauthorized disclosures and what to do in the case of inadvertent disclosures, such as data breaches.
5. Require the Return of Company Property. It may be a good idea to require in writing that all your employees and contractors return company property upon ending their work. Company property includes any physical devices like computers and tablets, as well as company data such as files, emails, notes, and memos—whether digital or hard copy. You can include this requirement in employee contracts, employee handbooks, independent contractor agreements, or a separate confidentiality agreement.
The above tips are only intended to give you a head start on protecting your valuable trade secrets. There is no one-size-fits-all solution, and the reasonable precautions that your company takes to protect its confidential information may ultimately depend on the size of your company, the type of work you do, and the nature of its trade secrets. Additionally, you may find that your secret discoveries will be better protected by one or more patents instead. If you need help identifying your intellectual property and the best method for protecting it, you should consult an intellectual property attorney in your area.
At Res Nova Law, our experienced intellectual property and business attorneys can help you assess the pros and cons of maintaining trade secret protection or patenting your invention, walk you through each step of the process, help you enforce your intellectual property rights against others, and resolve your intellectual property and business disputes. Get in touch with us today for a free initial consultation.