How to Protect Trade Secrets
State laws afford legal protection for a company’s trade secrets, but there is a requirement you must meet to receive the protection – you have to make reasonable efforts to keep the secret from being discovered.
Trade secrets are also referred to as confidential information. In the event your confidential information is obtained illegally and you sue for damages, part of your case will hinge on how much effort you expended in protecting the confidential information. The greater that effort, the more likely the court is to agree that the purloined info was indeed confidential. And because of your great effort to keep it secret, the court is also likely to agree that the information was valuable and you are owed damages for it being illegally acquired.
If you’re intent on preserving the value of your confidential information and keeping it out of the hands of company outsiders, following are some of the steps you can take. The effort you expend in guarding confidential information needs to be only in proportion to its value, so not every safeguard is required in all cases.
Internal Controls
Employment Policies
Customer lists and records are one of the most common types of company confidential information. Misappropriation of that data by an employee going to work for a competitor is a frequent subject of trade secret lawsuits. Therefore an employee non-disclosure agreement (”NDA”) is an essential minimum safeguard and it must be signed as a condition of hire without exception.
A signed NDA confers two benefits. First, it alerts the employee to the existence of information you consider confidential and spells out how that information is to be treated. Second, when a signed NDA exists, a court is more likely to agree with your claim of trade secret infringement. If the court finds in your favor, it can prohibit the employee and new employer from contacting your customers and award you damages if warranted.
Additional safeguards include creating a written policy on handling and protecting confidential information. Distribute this to all employees and obtain a written acknowledgment they received it, and understand they must read and follow it. Also include the name and phone number of the person they should speak to if they have any questions concerning the policy, and to whom they should report any mishandling or unauthorized disclosure of confidential information.
To make your safeguards even stronger, hold meetings at least once per year to review and discuss the policy. Document any cases of mishandling and the corrective action taken to prevent recurrence.
Information Handling
At a minimum, any information you want to be treated as confidential must be labeled as such. For electronic documents, insert “Confidential” in the header or footer so it prints on every page. For drawings or other information not in electronic format, obtain a stamp to mark the materials “Confidential.”
Your policies should specify that employees never leave confidential information lying in plain sight if they are not physically present to control access to it. Also specify that any confidential materials being discarded must be shredded.
If appropriate, you may want to establish additional classes of confidentiality, such as “Extremely Confidential” and/or “Company Secret.” Your policies may establish that ordinary confidential information must be kept in a drawer or filing cabinet when not in actual use, whereas materials bearing a higher classification must be kept under lock and key when not in actual use.
Access to sensitive documents on computer networks should also be limited to authorized users with authentication appropriate to the level of security desired.
External Controls
In business it is often necessary to share with another company information you consider confidential. This is always done after having the other company sign an NDA. Most ethical companies respect NDAs, but there are a few things you can do to help ensure your confidential information is not disclosed unintentionally.
- Be sure the right person signs the right NDA. An individual NDA obligates the signer not to reveal your confidential information to anyone not authorized to receive it. A company NDA obligates all of the employees of the signer’s company not to inappropriately disclose your confidential information. A company NDA signed by someone not having the authority to bind the company may not have legal validity.
- Always explicitly identify confidential information before sharing it. They can’t keep it confidential if they don’t know it’s confidential.
- Minimize your risks and never share more than is absolutely needed.
- Don’t allow the other party to keep copies of your confidential information unless it’s necessary. When the other party no longer needs the copies, request those and any subsequent copies be returned to you, or at a minimum obtain written verification all copies have been securely destroyed.
The Best Kept Secret in the World
As an example of extreme measures, consider the best kept trade secret in the world, the Coca Cola formula. Invented in 1886, it has been a trade secret for over 120 years. When the government of India required them to disclose the formula as a condition of doing business there, Coca Cola decided not to enter that market. And when a judge ordered the formula be turned over to a plaintiff during the discovery phase of a lawsuit, Coca Cola was penalized for refusing to obey the judge’s order.
Only one written copy of the formula exists and it is stored in a bank vault in Atlanta, Georgia. The vault can only be opened by a written resolution of the board of directors. Two employees who oversee preparation of the formula are the only people in the company who know it. They are never identified and are not allowed to travel on the same airplane.
Related Articles
- Key Provisions of the Uniform Trade Secrets Act
- Guide to Non-Disclosure Agreements
- Trade Secrets - Fast FAQs
- Choosing Between Patent and Trade Secret Protection
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