Updated: Jun 25
Your intellectual property (IP) can come in many forms: patents, copyrights, trade secrets and trademarks among others. This post will focus on trade secrets and how you can protect this valuable form of IP.
What is a trade secret?
A trade secret is any formula, method or information that gives you a competitive advantage. It is anything that takes time, money and/or effort to develop and that you do NOT want your competitors to know about.
Interestingly, a breach of confidentiality is rarely conducted by a determined adversary. To the contrary, most losses of confidential information are completely inadvertent.
Establishing priorities and procedures
What is considered a “trade secret” depends on the business. Examples of trade secrets are customer lists, business plans, financial statements, sales projections and in particular, your “secret sauce,” your competitive advantage, that which differentiates you from every other competitor in your market space. Even “negative know-how” – a process or procedure, product design, etc. that DIDN’T work – should be protected so that a competitor cannot benefit from your trial and error expense and time.
Trade secrets are protected by law under certain circumstances. In accordance with the Uniform Trade Secrets Act: “The owner has made efforts that are reasonable under the circumstances to maintain its secrecy.” You must clearly show that you have recognized it in advance as a trade secret:
STEP 1: Prioritize your proprietary information and categorize the results.
STEP 2: Identify proprietary material with a CONFIDENTIAL stamp.
STEP 3: Keep it secret! Limit the people who need to know, and make it inaccessible to others. For example, keep hard copy in a safe, or computer files with password protection. If it’s a process or formula, some companies fragment the process so that no one employee knows it from beginning to end (e.g. KFC’s “11 herbs and spices” are separately mixed at two different plant locations).
Get your employees on board
NOTE: receiving trade secrets from an employee’s former company can put your company in jeopardy!
Educate your entire staff by including your company policy in the Employee Handbook:
· Why it is important to safeguard proprietary information, and the consequences when secrecy is breached
· How the company determines what is confidential information and the procedures to protect it
· What the employee’s role is in the process
· Follow-up with periodic reminders, e-mails and refresher training
· Have employees sign a Confidentiality Agreement or Non-Disclosure Agreement (NDA).
· Include a non-compete clause. This may be unenforceable in some states, but if you set generous terms the employee will understand the reasoning behind it (e.g. keep the subject matter and geographic restrictions narrow and specific)
Protecting yourself in a deal
In a licensing agreement, include an NDA and a provision that asks for all copies of confidential information to be returned to you at the end of the deal. If your counterpart refuses to sign, proceed cautiously! Before you attend your first meeting:
· Document your intentions with an e-mail or letter
· State that your confidential information can be used only for the intended purpose of the deal
· Put CONFIDENTIALstamps on all documents indication the information is confidential. If nothing comes back denying this, a court will generally agree that the meeting is confidential