Trade Secrets

When asked if a company has protected their IP many automatically answer “no” without realizing that not all protection requires formal means such as registration and working with attorneys. Many businesses have trade secrets, and if they follow certain steps these secrets are protected. A trade secret means any information, including a formula, pattern, compilation, program, device, method, technique, or process that: 1) provides independent economic value, actual or potential, because it is not generally known or cannot be easily discovered by others, and 2) is the subject of reasonable efforts to maintain its secrecy. So, now let’s break that definition down into understandable terms.

In order for something to be considered a trade secret it must meet four requirements. First, the trade secret needs to be something that is of economic value to its owner. Generally, this is not hard to show since the point for having a secret in a business is typically for economic purposes (keeping your office coffee budget secret wouldn’t qualify). This could be as simple as a list of your customers or suppliers, but it could be a list of step-by-step instructions for a vast, complex process needed for creating a product or a particular analytical method your business uses to outperform its competitors.

Second, the secret has to be, well, a secret.  Basically, it cannot be something that is generally known by people or businesses in your line of work. It doesn’t have to be a complete secret; if someone else knows the same information that does not mean it is not a secret, but if too many business or individuals outside of your company have the same information it ceases to be a secret. This means the company must be extremely careful about disclosures of this information, and should have confidentiality agreements signed whenever possible. Non-confidential disclosure does not destroy secrecy if it is to a limited extent and a substantial element of secrecy still exists. However, it is always better to stay on the safe side by using confidentiality agreements.

The third requirement is that the company must make reasonable efforts to keep the secret a secret. This is determined by weighing the costs of increasing efforts against the value of the trade secret. These reasonable efforts need to be more than just a plan and the company needs to truly implement the plan. Even if the secret has not become generally known, if steps are not taken to keep it that way a trade secret is not established.

The last step is that the trade secret is not readily ascertainable by proper means. If a secret can be readily reverse-engineered, then it does not qualify as a trade secret because this is considered proper means. However, if it would require too much effort to reverse then it is ascertainable but not by proper means so there is still trade secret protection. Additionally, independent invention is always considered proper means because your secret was never taken.

Once these four requirements have been met, a trade secret has automatically been established. A trade secret can be misappropriated when someone discloses the secret to a third party without authorization, or if a third party uses the trade secret without proper authorization. It is important to make sure you are taking steps to keep your trade secrets protected so that you have options should someone attempt to take you business’s secrets!

If someone else acquires your secret information they are not necessarily at fault, or liable for any damages.  Trade secrets only protect against misappropriation, which essentially means that someone used improper means to acquire the information.  If someone hacks into your office network or cracks into the safe where your Secret Formula is stored that would be misappropriation. Paying an employee to divulge the secret would also be improper.  Picking up a sheet of paper that details the Secret Formula that you left on the table at Starbucks?  Not improper.

So remember, just because you haven’t patented your idea (or maybe it isn’t something you can patent), copyrighted it, or used another method to protect your business’ valuable information it doesn’t mean that you don’t have protection. Your trade secrets may be your company’s greatest asset, but you do need to take some steps to keep the secret in order to maintain the protection provided by law.

© 2016 John V. Robinson, P.C.