Every business has information it doesn’t want competitors or others to know, such as customer lists, marketing and strategic plans, training manuals and other valuable proprietary information. Protecting these "trade secrets" can often mean the success or failure of a business. If a business properly protects its trade secrets, it can stop others from using this valuable information and recover compensation for such misuse. Here is information about trade secrets and how to protect those belonging to your company.
What Is A Trade Secret?
Most states have adopted the Uniform Trade Secrets Act. This law defines a trade secret as "information, including a formula, pattern, compilation, program, device, method, technique or process that:
1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."
The first part of this definition addresses whether the information has value from its not being known to other businesses that could profit by it. Generally, information readily known to the public likely won't be deemed a trade secret. For example, many trade secret disputes involve the misuse of customer lists. If the customer list contains names that are readily available, such as in business directories, and is of people that most others would recognize as being potential customers, it may be harder to protect the list as a trade secret. But if the list has more detailed information that indicates a potential customer's characteristics or buying preferences, it has a better chance of receiving trade secret protection. Generally, the more time, effort and resources a business puts into compiling a customer list, and the harder it is to obtain, the more likely it will receive trade secret protection.
The second part of the definition addresses the owner's efforts to keep the information secret. The more the owner tries to keep the information secret, the more likely it will receive trade secret protection.
Penalties for Misusing Trade Secrets
The Uniform Trade Secrets Act prohibits the misappropriation of trade secrets. Misappropriation can occur in several ways. One way occurs when someone acquires a trade secret by improper means, such as by theft, bribery, espionage or breach of a duty to keep the information secret. Misappropriation also occurs when a third party (like a business) uses a trade secret obtained from someone that it knows or should know used improper means to acquire it.
In the event of misappropriation of a trade secret, the owner of the trade secret can ask a court to stop the use of it. A court can also award the owner monetary damages for any misuse, including any monetary gain achieved by the wrongdoer.
Tips For Protecting Trade Secrets
As the above shows, trade secret protection is not automatic. To get a court’s help, your business must have taken steps to protect its secrets. Here are some easy ways to protect your company’s secrets, and to show a court you have done so.
• Require workers to sign an agreement with the company promising to protect confidential information (commonly called a "Non-Disclosure Agreement" or "Confidentiality Agreement"). These agreements are extremely valuable for business owners. They state the types of secret information the employee will learn and require the employee to use this information only in the course of his or her work. They also state the company can get an injunction stopping the misuse of trade secrets (a company can get an injunction without a confidentiality agreement, but it is usually easier to get with one).
All new employees should be asked to sign confidentiality agreements. It is also wise to have existing employees sign them. To help get them to sign and make the agreement enforceable, you may want to offer a bonus or other inducement.
• When hiring employees, advise them of the types of information the company considers confidential.
• Have an employee manual that also reminds workers which information the company does not want disclosed.
• Clearly mark secret documents “CONFIDENTIAL” and "not to be shown to or discussed with any unauthorized person." Limit the number of copies made of such documents and keep them in locked drawers or cabinets in folders that say “do not remove from company premises.” Restrict access so only employees who need the information to perform their duties for the company can access it. Do not routinely mark all documents as confidential or a court may not be able to protect those that are truly secret.
• When discarding confidential papers, shred them.
• Follow up diligently on reports of unauthorized use or disclosure of company information.
• Regularly remind employees, orally and in writing, of their duty to maintain confidentiality of company information.
• Counsel departing employees about maintaining confidentiality of the company's trade secrets.
• Counsel new employees to assure that they do not repeat or misuse secrets of their former employer. A new employer can be liable for such misuse.
By following these steps, your business can help protect its confidential information. This will significantly improve the chances of getting a court’s help if it ever becomes necessary to enforce trade secret rights.
Contact an attorney at Triscaro & Associates today. Please call us for all your legal needs. We offer a full range of legal services to individuals, families and businesses, including personal injury, estate planning, real estate, family law and business matters. We are dedicated to providing the highest quality legal services at a reasonable cost.