By definition, a trade secret can be almost anything that has economic value and provides a competitive advantage. A well-known example of a well-kept trade secret is the Coca-Cola formula. Since 1891, founder Asa Candler maintained strict policies to keep and protect the formula from the public.
Each state has its own laws for protecting trade secrets, but all require that an owner take “reasonable steps” to safeguard the secrecy and confidentiality of the trade secret information; otherwise, the legal protections are lost. Additionally, federal law allows a trade secret owner to bring an action in federal court for trade secret theft: Defend Trade Secrets Act of 2016 (DTSA).
The subject matter of trade secrets is broadly defined and includes recipes, formulas, technology, sales and distribution methods, consumer profiles, client and supplier lists, manufacturing processes, etc.
TRADE SECRET v. PATENT
Trade secrets may concern inventions or manufacturing processes that do not meet the patentability criteria and therefore can only be protected as trade secrets. For example, customer lists or manufacturing processes are not entitled to patent protection. However, trade secrets may concern inventions or processes that fulfill the patentability criteria, but there may be an advantage to protecting them as trade secrets.
Some notable advantages of trade secrets include:
- Patents have a finite period for protection; but, trade secrets last for as long as they are kept secret.
- Securing a patent can be resource intensive, whereas trade secrets have immediate effect and no registration costs.
- Under trade secret law, no disclosure to a government authority is required.
KEEPING TRADE SECRETS, SECRET
The key to maintaining trade secret protection is keeping the information secret, and a trade secret holder must take “reasonable steps” to protect its valuable assets. However, the law is not clear as to what steps are considered “reasonable.” Nevertheless, research into court cases reveal some key components in preserving trade secret protection.
- Non-Disclosure Agreements
Entering into non-disclosure agreements is the first line of defense in establishing the trade secret protection. Such agreements should be executed before the trade secret information/items are disclosed.
- Trade Secret Protection Plans
While the existence of and compliance with non-disclosure agreements are likely the most important factor in determining if a company took “reasonable steps” to protect its trade secrets, additional actions are necessary to build a case for legal redress in the event a trade secret is compromised.
Businesses should establish a trade secret protection plan as an official company policy, detailing internal procedures for safeguarding the organization’s trade secrets. Once the plan is established, it is the responsibility of everyone in the organization to ensure the requirements are upheld.
The main components of a comprehensive trade secret protection plan include the following:
- Creating agreements, policies, procedures and records to document protection efforts;
- Establishing physical and electronic security and confidentiality measures for all items bearing trade secret information;
- Assessing risks to identify and prioritize trade secret vulnerabilities;
- Establishing due diligence and ongoing third-party management and disclosure procedures;
- Appointing a trade secret manager who has the overall responsibility for protecting trade secrets and ensuring the trade secret protection plan is upheld;
- Providing training for employees and third parties, so everyone knows what is expected of them when handling or receiving confidential information.
- Taking rapid corrective actions in the event of a breach; and
- Conducting continuous internal reviews to improve policies and procedures.
At Evoke Law, we assist clients with developing comprehensive trade secret protection plans that are tailored to their specific needs. We want to ensure that the assets making your business unique are adequately protected, and welcome the opportunity to discuss how we may assist you in keeping your confidential information out of unauthorized hands.