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Trade Secrets
What is a Trade Secret?
A trade secret generally is "any formula, pattern, device or compilation of information which is used in one's business, and which provides an opportunity to obtain an advantage over competitors who do not know or use it." The information or idea must have present value and be likely to be used "continuously" in the claimant's business.
In other words, private information that gives the company an advantage over its competitors is called a trade secret. Some examples are customer lists, formulas, manufacturing processes, cost information, sources of supply, market studies, and compilations of financial data.
There are generally six factors for determining whether certain information or ideas constitute a trade secret. First, how widely is the information known? The information must be "substantially secret", however, the claimant need not prove that it is completely unknown to outsiders. Second, who within the claimant's company knows the secret? The claimant must exercise reasonable caution in disclosing the information, even within the company. Disclosure should be limited to those employees having a "need to know". Third, what measures has the claimant taken to preserve the secrecy of the information? The claimant should anticipate ways in which the information might be leaked and take precautions against these sources. Fourth, how valuable is the information to the claimant and to the claimant's competitors? The information must provide a commercial value giving the claimant an advantage over its competitors. Fifth, how much effort and money has the claimant expended in developing or acquiring the information? The information must be of some real value before the law will allow the claimant to prevent general access to it. Sixth, how difficult would it be for others to properly acquire or duplicate the information? If it would be easy to "reverse engineer" the information from the product, it may not qualify as a trade secret.
Establishing and Maintaining Trade Secret Rights
Unlike patent, trademark, and copyright law, state laws protect trade secrets against infringement. The trade secret owner may be able to obtain damages or an injunction if a competitor or ex-employee steals trade secrets. However, the owner must always take several steps to protect the company's trade secrets. All employees should be required to sign a non-disclosure agreement, preferably when they are hired, though they can be required to sign one later. When an employee leaves, the owner should require that all company documents containing trade secrets, such as customer lists and manuals be returned. At such time, the employee should also be reminded not to violate the confidentiality obligations in his or her non-disclosure agreement. Your lawyer can help prepare a non-disclosure agreement and advise you about establishing effective procedures for enforcing it.
Another important step during the course of business is to control access to documents containing trade secrets to prevent "leaks". A list of confidential or sensitive documents should be prepared. Both the list and the documents should be stored in locked cabinets with access limited to authorized personnel.
To protect against inadvertent disclosure to outsiders, employees should be required to obtain approval of their supervisors before publishing articles or giving speeches that might include unintended disclosure of trade secrets. Also, visitors and tours of the company offices and plants should be carefully monitored to ensure that outsiders do not obtain access to areas where trade secrets might be discovered. In addition, information provided to suppliers, customers and consultants should be protected by requiring the signing of non-disclosure agreements before releasing sensitive information.
Simply put, the trade secret owner or claimant must take reasonable steps to keep the information secret.
