Trade Secrets - What your Business Needs to Know

By Andrea Ciota, Counsel, Potomac Law

WHAT ARE TRADE SECRETS?

A trade secret is a subset of confidential information that is not generally known, has potential or actual economic value from not being generally known, and which may give a competitive advantage to its owner.   For example, the formula for Coca Cola is a very famous trade secret.

Trade secrets generally fall into two categories:  technical information (e.g., proprietary source code) and business information (e.g., customer lists).

Note that the status of confidential information as a trade secret is lost if the information is disclosed without restriction or if it becomes publicly known.

WHY ARE TRADE SECRETS IMPORTANT TO YOUR BUSINESS?

Your company’s continued success depends on its ability to develop and capitalize on your intellectual capital.  One of the best ways to accomplish this is to maintain the secrecy of your ideas and innovations.

Of course, the goal to maintain secrecy around your innovations can conflict with your efforts to market your company as an innovative thought leader in your industry.  You need to make sure to carefully consider whether disclosures of your innovations will jeopardize your ability to subsequently file for patents or protect information as a trade secret.

TYPES OF TRADE SECRETS MOST TYPICAL TO BUSINESSES:

• Source code to your company’s proprietary software

• Unpatented inventions and processes (including:   tools, interfaces, database designs, and configurations)

•  Secret processes and tools associated with your company’s development and implementation of branded solutions

• Non-public internal company business data such as organizational plans, business strategies, financial, accounting, recruiting, and legal information

WHY IS IT IMPORTANT TO DOCUMENT AND PROTECT YOUR COMPANY’s TRADE SECRETS?

Innovations/inventions/processes/formulas that are kept as trade secrets are valuable intellectual property of your company that increases its value in the marketplace.

Maintaining the secrecy of an invention increases the likelihood of success in obtaining a patent as prior disclosures may result in disqualification from patent eligibility.

Documenting use of trade secrets in sufficient detail can provide prior-use protection against certain patent infringement claims by third parties.

In the event of a dispute over a trade secret, documentation is essential in identifying the subject matter in dispute.

HOW DO YOU KNOW IF YOU HAVE A TRADE SECRET?

Ask yourself two questions:

• Is the information/invention known outside of the company?

• Does the information/invention have value from not being known outside of the company?

If the answer to #1 is no and #2 is yes, you have a potential trade secret.

HOW DO YOU KNOW IF THE INFORMATION/INVENTION HAS VALUE?

Ask yourself three questions:

• Is it a business discriminator with potential revenue generation potential?

• Is this innovation/invention/process/formula/information so unusual or creative that your competitors would wish to use it if they knew of it?

• If your company was offered a large amount of money to make it available to the public, would you take it or say no because it is worth more to the company as a secret?

If the answer to any of the above is yes, then you probably have a valuable trade secret.

OK, SO NOW WHAT DO YOU DO TO PROTECT THIS TRADE SECRET?

In order to ensure that you are taking adequate steps to protect your trade secret, you should contact your legal representative to work with your company leadership to determine the appropriate procedures to use for protecting the trade secret.  Among these will be to:

1)  Document the Trade Secret

The trade secret will need to be recorded and documented via a number of different methods (depending on the type of trade secret).  This could include providing and maintaining lab notebooks, and invention disclosure forms, as well as maintaining a change log to document any subsequent changes in or changes in use of the trade secret.  It is also wise to document the costs associated with the development and protection of the Trade Secret as well as the savings or revenue generated as a result of the existence or use of the trade secret.

2)      Properly protect the Trade Secret

Restrict access to the trade secret to company employees who are subject to an appropriate non-disclosure agreement and have  a legitimate need to know such confidential information in order to carry out their responsibilities.  Depending on the nature of the trade secret, it may be wise to maintain a list of those employees authorized to access the trade secret.

3)      Mark any documentation pertaining to the trade secret with a restrictive legend such as:

WARNING – THIS DOCUMENT CONTAINS TRADE SECRET INFORMATION OF [COMPANY].  UNAUTHORIZED DISCLOSURE IS EXPRESSLY AND STRICTLY PROHIBITED.

4)      Ensure appropriate physical and logical security of the trade secret

5)      Do not disclose the trade secret to anyone outside of your company.  If it is essential to your company that the trade secret be shared with a third party, consult with your legal representative to ensure the appropriate contractual protections (such as non-disclosure agreements) are in place.  In addition, your legal representative should review any marketing/presentation materials relating to the trade secret to ensure information that would destroy trade secret status is not inadvertently disclosed.

Taking the steps above to properly identify, document and protect your company’s trade secrets will help you to retain valuable intellectual property for your company.