Trade secrets are unlike other areas of intellectual property. There is no registration process, no applications to fill out, no government agency that administers them. Trade secrets – or more accurately, maintaining trade secrets – wholly rely upon the holder (i.e., you) taking reasonable steps as part of your business. That is why it is important to understand how to keep trade secrets a secret.
What Are Trade Secrets?
Generally speaking, a trade secret is information that (1) is not generally known to all, (2) has some actual or potential independent commercial value, i.e., there’s commercial value in the information because it is secret, and (3) is protected through reasonable efforts. Because trade secrets do not require registration or any kind of application, they are arguably an inexpensive form of intellectual property. This makes it an attractive form of intellectual property for entrepreneurs or startups that are strapped for cash.
What are “reasonable efforts,” and how much effort is enough?
With trade secrets, the key question is whether you have taken “reasonable efforts” to protect the information. I’m often asked to explain exactly what steps businesses need to take. Unfortunately, I have to give you a lawyer’s answer and say it depends. Like many things, what is reasonable varies on a case-by-case basis. This makes sense because, for example, it is much easier to keep a recipe secret than it is to keep a manufacturing process secret. The key is to understand that courts would analyze your efforts based on company practice, industry practice, and other factors.
One aspect of your trade secret program should be to make confidentiality and/or non-disclosure agreements a routine part of your business. These agreements require those who may have access to your trade secrets to keep that information confidential. You should have these agreements in place with employees and independent contractors (either as part of their overall agreements or as stand alone documents). Every business should also use confidentiality agreements before sharing sensitive information with suppliers, manufacturers, or distributors.
Entrepreneurs often ask me whether they should use “non-compete” agreements for their employees. Although these agreements are another layer of protection that might help protect trade secrets, they are rather dicey. Non-compete agreements are controversial because they limit the ability of former employees to continue to work in their chosen field (or at least in the same industry) for a period of time. Because they restrain people from pursuing their interests, courts tend not to like them. In California, for example, you can have all the non-compete agreements you want, but the courts will refuse to enforce them. Non-compete agreements also have business disadvantages, as they can make it harder for you to recruit the best talent. Before deciding to use non-compete agreements with employees, I strongly urge companies to consult with an employment lawyer.
Outside the realm of contracts, there are other ways to keep your trade secrets secret. One easy way is to limit the people who have access to the information. The Coca-Cola Company limits its secret Coke recipe to only a couple of executives. You can also physically limit people from accessing your information. Kentucky Fried Chicken apparently locks its secret original recipe up in a safe that is buried under feet of concrete. Others make sure that, although their manufacturers produce their needed parts, no one manufacturer knows what the other manufacturers are producing or what end product such parts are being built for.
In the more typical context of a small business or startup, limiting access to confidential information will typically take the form of keeping sensitive information in locked drawers and limiting computer access to those with a need to know. This isn’t rocket science, it’s just a matter of taking some common-sense steps to protect your valuable information.
In addition to the methods above, consider marking your documents as confidential, keeping a log of who has access to the trade secret, setting up a security camera, buying a vault, etc. Again, depending on what type of trade secret you have and what industry you are in, the types of protection that is right for others may not be right for you. Keep in mind how your trade secret might be leaked and try to fill the gaps.
Overall, creating and maintaining safeguards to your company’s trade secrets are important aspects of your intellectual property strategy. Examine how you are keeping your trade secrets secret during your intellectual property audit and form a trade secret strategy as part of your intellectual property management plan.