How to Protect Trade Secrets

Guest post by Dave Owens, an attorney who lives in the San Francisco Bay Area.

In the business world, the information you possess can give you a great economic advantage over your competitors. Certain information is protected as a trade secret. So it is necessary to know what information you can protect and how you can protect it.

Here is what you need to know about trade secrets.

Definition of a Trade Secret

Trade secrets are recognized as a form of intellectual property. Most states have adopted the Uniform Trade Secrets Act (“UTSA”), but may also have additional laws concerning trade secrets. To sufficiently protect your intellectual property you should be aware of the UTSA, any state statutes, and common law (court decisions). Under any standard, you need to meet the following criteria to obtain a trade secret:

  • Information: Information can include formulas, patterns, compilations, programs, devices, methods, techniques, or processes.
  • Secrecy: The information must not be generally known. So it cannot be considered secret if the information is known within your industry or if you have published the information on your website.
  • Economic Value: The information has to give you an economic advantage over your competitors.
  • Reasonable Efforts: You must take reasonable efforts to protect your information (more on this later).

Examples of Trade Secrets

Trade secrets may sound like an intimidating area of law. The very name “trade secrets” almost sounds like something out of Inception. But the truth is we purchase products or use services every day that are protected as trade secrets.

Recipes are a common example (Coca-Cola, Kentucky Fried Chicken, Krispy Kreme Doughnuts). Courts have also found the following information to be a trade secret: advanced minicomputer design, plans for drilling equipment, a process for treating metal, and a process to manufacture fiberglass. Some courts have even found customer lists to be a trade secret.

Misappropriation

So what happens if someone uses your information? You have to establish that the person misappropriated your trade secret. Misappropriation is the wrongful acquisition, use, or disclosure of a trade secret.

Misappropriation occurs if someone obtains the information by improper means or if a third party receives the information and knows or should know that the information is a trade secret. The most common example is when a former employee takes the information and goes to work for a competitor.

Reverse Engineering

It is not misappropriation if the person obtained the information through reverse engineering. Reverse engineering is a general process of analyzing the information to see how it was designed.

So, for example, Kentucky Fried Chicken cannot sue you for misappropriating their trade secret if you figured out their recipe for fried chicken on your own. This is why you can find websites instructing you how to make Krispy Kreme Doughnuts.

Find Out Your Legal Remedies

Civil Remedies

You can bring a civil action against the individual who misappropriated your trade secret. Generally you can receive an injunction (stopping the individual from using the information), monetary damages, punitive damages (if defendant acted willfully and maliciously), and/or attorney fees.

Criminal Remedies

The Economic Espionage Act of 1996 criminalizes the theft of trade secrets. An individual can be fined up to $250,000 ($5 million for corporations) and receive up to ten years in prison.

But your federal prosecutor (acting according to the U.S. Attorney’s Manual) or your state’s district attorney has to take up the case. It is unlikely either will file criminal charges unless the defendant’s conduct was extreme.

Find Out How to Protect Your Trade Secret

Ways to Protect Your Trade Secrets

In order to have a trade secret, you must show that you took reasonable efforts to maintain secrecy. Here are a few ways that you can protect your trade secret:

  • Nondisclosure Agreement:  Make sure any employee, independent contractor, or vendor signs a non-disclosure agreement, in which they acknowledge that your information is a trade secret and disclosing such information will be a breach of contract.
  • Non-Compete Agreement: You may still fear that employees will ignore the nondisclosure agreement and share the information with a new competitor. You can also have them sign a non-compete agreement, which prevents them from working for a competitor. But make sure your non-compete agreement is binding under state law. A non-compete agreement must have a proper time, place, and scope restriction to be binding.
  • Educate Your Employees: Educate your employees, as well as vendors and independent contractors, about what a trade secret is and their obligation not to disclose it. This information should be included in an employee handbook and discussed during training sessions.
  • Passwords/Locks: Make it difficult for anyone to access the information. Keep the information in a secure safe. If the information can be accessed on a computer, make sure that you need to enter a strong password before you can access the information.
  • Limited Disclosure: Remember it’s not a secret if everyone knows about it. Limit the amount of people who can access the information. Many companies restrict the information to high-ranking employees. No one should have access to a trade secret unless it is absolutely necessary. The less people who have access, the better.

Dave Owens is an attorney based in the San Francisco Bay Area.  He can be reached at dao1282@gmail.com.

Photo credit: Flickr/SeeMidTN.com (aka Brent)

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