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Protecting Trade Secrets

There are four types of intellectual property rights:

Many business owners, startups, and entrepreneurs owe their success to a trade secret. A trade secret is confidential business information that provides commercial value. These secrets give companies a competitive advantage against competitors.

Some of the most well-known trade secrets are Coca-Cola's drink formula and Raising Cane's secret sauce. Another example is a unique part that goes into a widget to make it function. Proprietary information about making a specific part or product is another trade secret.

Protecting that secret and keeping it out of the hands of competitors is vital to the business's continued success. The United States has legal protections for intangible assets, including trade secrets. But the company and its employees must also do their parts to keep that protection. The following information will help you understand trade secret laws and the practical steps companies must take to protect them.

The Uniform Trade Secrets Act (UTSA): Overview

Most states have adopted some form of the Uniform Trade Secrets Act, which defines and protects trade secrets. The legal definition varies slightly from state to state. The general definition is: "A piece of information that has independent economic value by not being generally known and can reasonably be maintained a secret."

The Act is fairly broad and protects almost any information that gives a business a competitive edge. But as the wording suggests, the Act expects a company to take reasonable precautions to help secure the information's secrecy.

The Defend Trade Secrets Act (DTSA): Overview

The Defend Trade Secret Act became law in 2016. The DTSA is a U.S. federal law providing a civil remedy for trade secret misappropriation. Before the DTSA, state law mainly protected trade secrets. The DTSA allows trade secret owners the legal right to file civil lawsuits in federal court to defend their rights. The DTSA also provides U.S. companies the strength to combat theft of trade secrets from foreign countries.

The following tips are for small businesses that wish to protect their trade secrets:

1. Identify What Needs Trade Secret Protection

Trade secrets can protect processes and business ideas. Identify each piece of information you wish to protect. Create a system of identifying newly developed material that requires secrecy. When selecting, don't be too inclusive because this can trivialize the protection of trade secrets. The types of information that need trade secret protection include:

  • Secret formulas
  • Customer lists
  • Manufacturing processes
  • Compilation of data
  • Software algorithms
  • Programs
  • Devices
  • Methods
  • Patterns
  • Techniques

2. Label Documents That Contain Protected Information

A "confidential" label on documents that contain or reflect trade secret information is important. Limit copies and circulation of these documents. When necessary, number these copies and require users to check the documents in and out.

3. Monitor Information Storage

Conduct an information audit to determine the storage location of vital information. You should also know who has access to it. Include all hard copies, desktop and laptop computers, USBs, drives, electronic folders, and disks. Look for potential weak spots.

4. Secure Computers

Require passwords and multifactor authentication for access to computers containing sensitive information. You'd be amazed how many laptop computers are stolen each year. Visa International had a desktop computer that contained confidential information on thousands of credit card accounts stolen. Even federal agencies have trade secrets to protect.

5. Maintain Secrecy With Outside Vendors

Contracts with outside entities include a strict confidentiality provision about trade secrets. When outsourcing the production of any of your products, try to choose different vendors for different parts. Do not disclose the final product or the relationship between the pieces.

6. Provide Adequate Security

For a smaller business, a locked filing cabinet is enough security. In today's day and age, you should also password-protect electronic files. You may also need to encrypt your documents. More prominent companies need security officers, secure zones, and badges.

7. Limit Public Access to the Company

Curb public tours, and require all visitors to sign in.

8. Use Caution Internationally

Understand that not all countries respect U.S. policies protecting trade secrets. If you conduct business internationally, be very careful to whom you disclose information.

9. Set Up Employee Training and Policies

All employees working with trade secrets must take training on the protection and proper handling of confidential documents. Employees should sign a non-disclosure agreement (NDA) as well. Your company should give refresher courses annually.

Mishandled information needs addressing quickly. Inform the employee and take disciplinary action if needed. Hold exit audits with employees leaving the company. During this exit, require them to return any trade secret materials. Remind them of their non-disclosure agreement.

Be careful when dealing with employee policies, as strict laws govern confidentiality agreements and non-compete agreements. It's a good idea to have a lawyer review the wording of such clauses or have a lawyer write them.

Famous Examples of Trade Secrets

  • The formula for Listerine mouthwash
  • Apple's product designs: iPhone, iPad, and Macbook
  • Coca-Cola formula
  • Chanel No.5 Perfume formula
  • Pantene's Pro-V formula
  • Hershey's chocolate manufacturing process
  • Bush's Baked Beans recipe
  • Rolls-Royce's jet engine technology
  • Levi's denim fading techniques.
  • Gillette's razor blade technology

Find an Attorney To Help You Protect Trade Secrets

Responsible actions can help prevent trade secrets from falling into the wrong hands. Still, a court may be more sympathetic to your case if there is a misappropriated trade secret. If you believe someone compromised your trade secrets in any way, contact an intellectual property attorney today.

See FindLaw's intellectual property section for related articles.

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