Trilogy of Secrets Part 1 - Can You Keep a Secret? Tips for Protecting Your Proprietary Information
March, 2007
Every company, including yours, has some proprietary information that gives it a competitive edge in the marketplace, even if it’s only a customer list. How you treat that information can be the difference between keeping and losing that competitive edge.
Customer lists are just one example of information that companies often consider proprietary. Other examples include formulas, product specifications, financial information, manufacturing methods and operating manuals. Just about any kind of information, if it is not generally known outside your company and gives you a competitive advantage, qualifies as a trade secret, and thus is protectible under trade secret law.
Trade Secrets versus Patents
Trade secret law may be thought of as an alternative to patent law as a way to protect information you and your company have developed. Both can be used to prevent others from using that information to compete against you. But that’s where the similarity ends.
In order to protect a technological innovation under patent law you must disclose the innovation to the world in your patent. In return, you are granted the ability to prevent others from making, using, selling or offering for sale articles covered by your patent for a period of twenty years.
In order to protect a technological innovation or other form of proprietary information under trade secret law you must take active steps to keep the information secret. As long as you do so there is no time limit on how long you can maintain your trade secret.
Developing and Following a Trade Secret Protection Plan
The most common mistake companies make with regard to their trade secrets is not taking the necessary steps to properly protect the secret. Courts consider multiple factors when determining whether information is a trade secret, including: (1) The extent the information is known outside the company; (2) The extent the information is known within the company; and (3) The measures taken by the company to guard the information. Simply not disclosing your proprietary information outside the company may not be enough for it to qualify for protection under trade secret law; you must take active steps to guard your trade secrets.
Failure to take the necessary steps to protect your trade secrets can result in the loss of the ability to prevent their use by your competitors. The following practices can assure that your company adequately protects its trade secrets and, if they are stolen, can successfully prosecute the responsible party.
1. Identify your trade secrets.
Only by knowing what your trade secrets are can you take the proper steps to protect them. Take some time now to review your operations to identify those formulas, specifications, processes and other information that give your company a competitive edge.
2. Label trade secret documents.
Buy or make a stamp that reads “Confidential Information.” Stamp any documents, including operating manuals, blueprints, engineering drawings, etc. that contain your proprietary information. Don’t overdue it, though, so the impact of the stamp is not diluted. Have a document handling policy that includes provisions for the destruction of all documents containing trade secret information once they are no longer needed.
3. Restrict access to your trade secrets.
Only employees with a need to know should have access to your trade secrets. Restrict public access to work areas where trade secret information can be gleaned merely by looking around. Install a security system, especially around those rooms or areas where trade secrets are kept. These precautions will have the added benefit of impressing upon your employees the importance of protecting the company’s proprietary information.
4. Notify your employees.
Inform your employees that their jobs may involve knowing and dealing with proprietary information. Include a non-disclosure clause and an invention assignment clause in your employee agreements. (The most common way to lose a trade secret is through employees.) During exit interviews remind the employee of his/her ongoing duty of confidentiality.
5. Maintain computer secrecy.
Use passwords. Lock your computers after hours if possible.
6. Screen speeches and publications.
Review planned speeches and publications for possible trade secret content. Information contained in patent applications will eventually become public information, so screen any patent applications for unnecessary disclosures.
7. Deal cautiously with third parties.
If you do have to disclose your trade secret to someone outside the company, such as a supplier, customer, consultant or contractor, tell them that it’s confidential information. Better yet, have them sign a non-disclosure agreement.
Parting is Such Sweet Sorrow: The Special Case of Departing Employees
Maintaining trade secrets that have become known to departing employees can be difficult. In general, employees are allowed to take with them the general skills and knowledge they acquired during their tenure with your company. They may not take with them confidential, particularized plans or processes developed by your company which are unknown outside the company and give you a competitive advantage. In other words, they may not take with them your trade secrets.
As already noted, the risk of having departing employees steal your trade secrets can be reduced by having all employees sign an employment agreement having a non-disclosure clause. Your employee agreement should also have a clause providing for the return of all physical and other media containing the company’s proprietary information upon departure from the company. An exit interview can be the approriate forum for the return of these materials.
Some companies include a non-compete clause in their employee agreements. Non-compete clauses need to be carefully drafted, but that is the subject for another article.
It may be worthwhile to monitor the conduct of your former key employees – in a legal manner of course. Where are they now working? Are their new companies making competitive products that require knowledge of your trade secret information?
If you suspect that a former employee, or anyone, has stolen your trade secret information, you should take immediate action. Legal remedies include temporary injunctions that can be obtained quickly and sometimes without notifying the other party until the injunction is granted. Some states provide criminal penalties for stealing trade secrets.
Conclusion
Developing and following a trade secret protection plan such as that outlined above will minimize the chances that your trade secrets will be lost or stolen. If you must go to court to protect your trade secrets, faithfully practicing the steps outlined above will greatly enhance your chances of success.
Back to CM Report: Business Practice Group Report (2007) 2007 Table of Contents
