Everyone has secrets, but the most valuable to business owners is the trade secret. Do you have a trade secret?
A trade secret is a type of intellectual property. It’s technical or business information that can take the form of:
- Information or data
- A device
- A formula
- A method, pattern or program
- A process or technique
It must also have commercial value, and it must be:
“…the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” - Small Business Administration
A trade secret can even include what does NOT work.
Now do you know whether you have one or more trade secrets? If so, you will want to protect them. Here’s how.
IDENTIFY AND CATALOG YOUR TRADE SECRETS
Inventory everything you believe to be a trade secret and compare your list to the list of trade secrets held by your key employees, executives, and legal team. Exclude patents and trademarks, which are already protected under law.
Perform an audit that identifies all trade secrets including how and where the information is being stored, who has access to it, and if there are potential weak spots in your protection.
Don’t forget to develop a system to identify newly created material requiring trade secret protection.
KEEP TRADE SECRETS A SECRET
You can’t just call something a trade secret and expect it to be protected. A business must “…affirmatively behave in a way that proves it wishes to keep that information confidential.” --NOLO.com
Courts expect you to take reasonable precautions, such as:
- Marking documents and folders “Confidential” and keeping them out of public view
- Reminding meeting attendees of their obligations before meetings involving confidential information
- Disposing of any confidential materials after the meeting unless needed by attendees
IMPLEMENT AGREEMENTS AND POLICIES
Develop, along with HR, the policies and agreements to put into place to protect your trade secrets from making a visit to your competitors. The courts will want to see you have these types of agreements in place when they are analyzing whether you took the proper steps to maintain confidentiality.
Keep your policies and agreements updated. The world moves pretty fast; it can be easy to forget that less than 20 years ago the information highway was more of a walking path. Now, it’s much too easy to put information out on the internet or to carry it off in some form of portable electronic storage, from a flash drive to a laptop.
Enforceability of these agreements, especially non-compete agreements, varies broadly across jurisdictions. Work with an attorney to fine tune yours to the local legal landscape.
EDUCATE AND TRAIN YOUR STAFF
Your goal is to have a company culture that understands and embraces confidentiality and trade secret protection.
When hiring, have new employees sign a non-disclosure agreement; it can be incorporated into the general employment contract. Periodically send out reminders to all staff about the need for confidentiality via email and other communication methods. Require they acknowledge receipt and understanding of the content of the reminder.
Provide training annually to all and upon hiring. Include:
- Examples of things your company holds to be trade secrets
- Conduct for all employees regarding trade secrets
Training can be done online, as a webcast, and as live training with members of your legal department available to answer questions. Anytime someone does not follow the procedure for trade secrets, remind him or her of the policy. It is up to you whether repeated failure to do so constitutes a firing offense.
NOTICE RED FLAGS
Some situations bear constant monitoring because they are ripe for trade secret abuse. One of the biggest risks is unhappy employees, especially those who:
- Received layoff notices
- Were passed over for promotion
- Refused to give an exit interview
- Are on performance improvement plans
Other red flags, according to the FBI, include a variety of behaviors by employees:
- Taking proprietary material home without need or authorization
- Showing an interest in matters outside the scope of their duties
- Disregarding company policy on installing or downloading material on their computers
- Works odd hours without authorization
- Take unreported trips overseas
- Leaves traps to detect searches of their areas or computers
Watch the movie Breach about FBI agent Robert Hanssen who sold secrets to the Soviet Union to see someone who exhibits some of these red flags in action.
MAKE PLANS IN CASE OF VIOLATION
Know ahead of time what you will do if a trade secret is found to have been breached. Include the HR, Information Security, and Internal Audit functions if you have them.
Put in writing what you will do, who is responsible for doing it, who should be notified and of what, and who will terminate access by the person responsible for the breach.
TAKE RAPID LEGAL ACTION
Most trade secret violations are considered civil actions (as opposed to criminal actions). Violators may be ordered to:
- Cease and desist from using the illegally obtained information (called injunctive relief)
- Pay monetary damages, typically all profits from using the trade secret
- Pay attorney fees for the injured party (your company)
You must make a prompt response for the trade secret claim to be upheld.
Trade secrets are your biggest assets. Take all possible precautions when protecting them and move rapidly in the case of a breach. Retain experienced legal counsel to help you develop your trade secret policies and prosecute violators appropriately in court, if a violation occurs despite all your efforts.