Protecting Trade Secrets

Trade secrets are usually the most important intellectual property of any business. However, these are seldom as protected as they ought to be. Customer lists, proprietary software and computer systems, or marketing strategies are often crucial to winning a competitive advantage. These assets may be difficult or impractical to protect with patents, copyrights, or trademarks, but can be maintained as trade secrets.

Trade secrets are confidential information that gives rise to a competitive advantage. Unlike other forms of intellectual property such as patents, which require public disclosure of confidential information in a government filing, trade secret protection keeps vital confidential information private. Another difference is that trade secrets do not expire. The prototypical trade secret is the formula for Coke, which has been a secret for over a century, and has given the company a strong advantage over its competitors. That said, a competitor who independently conceives of the trade secret is free to use it. A company that reverse engineers the composition of Coke, for example, is free to sell it without limitation by Coca-Cola

The law protects trade secrets against misappropriation, which is the use or disclosure of a trade secret that was obtained by abusing a relationship of trust, or by theft or bribery. Competitors are free to come up with the trade secret themselves, but they are not allowed to steal it. For example, an employee may quit and take the customer list to start his own competing firm. The customer list may be a trade secret if his former employer took the necessary steps to protect it.  In that case, the employee may be liable for damages, or even criminal penalties.

A business must take affirmative steps to protect its trade secrets. It must be able to demonstrate in court that the trade secrets were in fact secrets, and that it took reasonable steps to protect them from the public. If a business did not put much effort into protecting a trade secret, a court may not, either.

Primarily, a business has to treat its trade secrets as confidential materials. This includes limiting the number of employees privy to the trade secret and marking all copies of the trade secrets confidential. (But one should not mark all documents confidential as a matter of course, without regard to whether it is confidential or not.) Businesses should also require employees, especially those likely to access the trade secret, to sign employment contracts with confidentiality and non-compete clauses. Lastly, when sharing trade secrets with an outside party, a business must enter into a non-disclosure agreement whereby the recipient recognizes that the trade secret is confidential information, and agrees to maintain the confidence.

A business whose trade secrets are misappropriated can seek monetary damages for the lost business. It may also seek injunctive relief to force the misappropriating party to stop making use of the trade secrets.

Trade secrets are a valuable asset of any business. Establishing proper protection for the most confidential material is much less expensive than being left without a remedy when trade secrets are misappropriated.