Any bit of information that lends your business a competitive advantage can broadly be defined as a trade secret. Every business has trade secrets, and it’s important to protect them from being used without your knowledge.
What are Trade Secrets?
Trade secret law defines a trade secret as:
- Some type of information
- That has economic value because is secret (the term often used is “proprietary,” having exclusive ownership rights), and
- That your business is making a reasonable effort to keep secret.
That last part of the definition is the most important. If you don’t make the effort to keep your business proprietary information secret, you can’t complain because someone else stole it. It’s like leaving your car unlocked then complaining when your valuables inside are stolen.
Here are some examples of trade secrets:
- Formulas. A secret formula for a new food product (like Coca-Cola’s famously secret formula for Coke).
- Patterns. A special pattern for making running shoes.
- Programs and apps. An app for determining the market value of your products.
- Devices. A device for capturing images in a new way.
- Methods. The method the New York Times Book Review uses to determine its best-seller list.
- Processes. A new process of making ice cream that gives it a different consistency from other ice creams.
Trade Secrets vs. Copyrights, Trademarks, and Patents
Trade secrets are not known outside of a company. If a company wanted to patent something, the company would have to make it known, and then it wouldn’t be a secret. Certainly, you need to protect anything your business can patent, trademark, or copyright, but this protection is different from the protection you would give to a trade secret.
For example, if you develop a new app that evaluates customers in a new way, you could keep it within your company (as a trade secret) or you could patent it and sell it. Your business has the option of keeping something a secret with no time limitation, except that it might be stolen. Or you can make it public and protect it through an intellectual property lawsuit.
Federal and State Trade Secret Laws
The Uniform Trade Secrets Act (UTSA) created a uniform law that all states could use to counteract misappropriation (theft, embezzlement, swindling) of trade secrets by improper means. These improper means include theft, bribery, misrepresentation, breach of contract (of a confidentiality agreement, for example), or espionage.
To date, 47 U.S. states have adopted the UTSA, but some states have slightly different laws. Learn the law in your state to make sure you understand your protections.
The Economic Espionage Act of 1996 protects trade secrets that can be used to benefit a foreign power. Violations of this act may be tried in criminal court as well as a civil court.
Unfortunately, trade secret laws don’t usually cover reverse engineering (taking your product apart and putting it back together then copying it).
The Process of Protecting Your Trade Secrets
The way you protect trade secrets isn’t just a one-time fix but a continuing process that you set in place in your business and maintain. Constant vigilance is the best protection.
Here are eight steps you should take to protect your business’s trade secrets:
- Identify trade secrets in your company.
- Mark them as “confidential.” You may have several levels of confidentiality.
- Make a list of key positions (not individual people) and the types of secrets they may have knowledge of.
- Control access to these secrets.
- Get agreements from key people. Get them to sign a confidentiality agreement or non-disclosure agreement (explained below).
- Train all employees on how to deal with your company’s trade secrets to keep them safe.
- Know what to do when something is stolen. Have a notification and security process in place.
Get legal help. Find an attorney who is familiar with trade secret law to craft your key documents and give you advice on policies and procedures.
Create a confidentiality agreement, sometimes called a non-disclosure agreement or NDA and get all key people to sign it. The agreement is a legally binding contract between your company and an employer. The contract should state what specific trade secrets must not be disclosed, and there should be a time period when the agreement is in effect.
Because trade secrets don’t expire, they tend to create perpetual monopolies. Like non-compete agreements, an employee or former employee may contest the agreement it appears to unfairly restrict trade over an unreasonably long period of time.
What If Trade Secrets are Stolen?
You have several ways to fight back, before, during, and after a lawsuit.
Injunctive Relief. The first thing you should do if you think a trade secret has been stolen is to get the help of an attorney to get you an injunction. An injunction is a court order for someone to stop doing something. This is called “injunctive relief,” because it relieves or minimizes the injury to your business from the theft. An injunction may be temporary while the legal process is going forward, or it might be permanent, depending on the circumstances.
Litigation. Once you have limited the damage with an injunction, you and your attorney can start to take legal action against the theft.
You will need to act quickly; the quicker you file a lawsuit, the more weight the court gives to your seriousness in protecting your trade secret.
Damages. If the court finds in your favor, you can collect damages, including lost revenue, attorneys fees, and possibly punitive damages. Keeping good records of costs and income can give you an advantage when it comes time to determine the amount of damages.