Trade secrets need to be kept secret. Obvious as this point may seem, it is often overlooked. A company with valuable information—customer data, unreleased products, engineering specifications, unique manufacturing methods, to name just a few possibilities—must treat it like the precious asset it is.
Sensible security measures will make it less likely that an employee, vendor, partner, or competitor will steal or misuse a company's trade secrets. Equally important, in the event legal action ever becomes necessary, the court will require the trade secret owner to show that it too reasonable steps to maintain the secrecy of its information. Here are five things your business can do to protect itself.
Five Ways to Protect Trade Secrets
Identify and Label Confidential Documents
The first step a business should take is to work with an attorney to inventory business and technical information eligible for trade secret protection. Once identified, key documents and files should be clearly marked as "CONFIDENTIAL" so that there can be no mistake that the company regards them as confidential. Such labeling will be more effective if the company is selective in what it designates.
Restrict Access to Information
Do all employees need to be able to review, for example, a company's pricing, cost, and margin information? If not--and in all likelihood they do not—the company should strongly consider protocols limiting access to those whose job responsibilities actually require them to access such information.
Implement Employee Confidentiality Policies
A business with valuable trade secrets should ensure that its employee handbooks and policy manuals carefully address matters of confidentiality. The company should communicate clear guidelines for when, how, and for what purposes an employee may access the company's confidential information. Written policies are invaluable for promoting confidentiality and documenting any breaches.
When many think of trade secrets, they think of the formula for Coca-Cola, KFC's 11 herbs and spices, or Google's search algorithm. But the world of trade secrets goes far beyond these famous examples. In fact, chances are good that your business, large or small, has trade secrets worth protecting.
What Is a Trade Secret?
Trade secrets enjoy strong legal protections, and the importance of trade secrets is growing. Under federal law and the laws of most states, a trade secret is competitively valuable information that:
Trade Secrets Include Customer and Business Information
Trade secrets are not the exclusive domain of tech companies. Businesses in every industry gather and use information every day that can potentially be protected under trade secret law, including:
[This post originally appeared on Patently-O.]
Last week I wrote about the doctrine of “inevitable disclosure” as it relates to the Defend Trade Secrets Act of 2016 (DTSA), the statute that created a general, private cause of action for trade secret misappropriation under federal law. Because inevitable disclosure is of continuing importance and controversy, I wanted to unpack the issues further here. As discussed below, the DTSA leaves room for trade secret plaintiffs to assert inevitable disclosure.
Trade secret plaintiffs frequently face problems of proof. Gathering evidence that a suspected individual or company has actually misappropriated trade secrets, or legitimately threatens to misappropriate trade secrets, can be a substantial hurdle to getting a lawsuit off the ground.
Take a typical scenario where an employee of company A goes to work for company B, and A alleges that the employee is using its trade secrets on behalf of B. In some cases, company A will have evidence that the employee swiped its secrets before leaving, perhaps by emailing himself a customer list or downloading technical specifications onto a flash drive. Company A might even have evidence that company B is now using the secrets, perhaps because it is soliciting A’s customers or has launched a product based on A’s specifications. In many cases, though, the activities of the employee and the new employer are a black box. The employee was exposed to trade secrets at Company A, and is now working for Company B, but Company A has not uncovered evidence of specific disclosures to Company B. Company A may have reason to believe the employee must be disclosing secrets to B, or threatens to do so, but has no way to confirm this directly prior to filing suit and obtaining discovery—a catch-22. Is company A without recourse?
When Can a Company That Hires its Competitor’s Former Employee Be Sued in Federal Court?
[This post originally appeared on Patently-O.]
The Defend Trade Secrets Act (DTSA) was enacted a year ago, on May 11, 2016. One of the most sweeping changes in intellectual property law in recent years, the statute creates a private cause of action for trade secret misappropriation under federal law.
For trade secret owners, the advantages of the DTSA include access to nationwide discovery and enhanced remedies such as ex parte seizure of property to prevent propagation of stolen trade secrets. For those accused of trade secret theft, the DTSA provides substantial protections including strict limitations on the injunctive relief available and entitlement to a hearing no later than seven days after a property seizure.
An open question has been the status of the controversial “inevitable disclosure” doctrine under the DTSA. Under state law in some jurisdictions, courts will enjoin a company’s former employee from working for a competitor if the company establishes that the employee would “inevitably” use its trade secrets in his or her new position. Trade secret owners like the doctrine of inevitable disclosure because actual misappropriation can be hard to prove. At the same time, the doctrine has been criticized as effectively allowing courts to impose a non-compete on someone who never signed a non-compete agreement.
Law and the Creative Economy is the blog of lawyer Maxwell Goss. This blog is for informational purposes only.