While it may not be a super-secret recipe like Coca-Cola, which has been kept secret by the Coca-Cola Company since 1891, most businesses have valuable information that they want to safeguard from their competition. Examples include proprietary computer code, manufacturing processes, databases, and customer lists.
Trade secrets represent one of the most commonly misappropriated types of intellectual property because the information can often be so easily and quietly taken. Technology has also made it easier to steal trade secrets, with employees, contractors, vendors and other third-parties able to download, copy and transfer confidential information electronically.
What Is a Trade Secret?
In basic terms, a trade secret is proprietary information that is not generally known and provides a business with an economic advantage over competitors or customers. In order to obtain legal remedies, trade secret owners must also be able to demonstrate that they have taken reasonable measures to keep the information a secret. Unfortunately, state laws and the federal Defend Trade Secrets Act (DTSA) do not expressly define what types of reasonable measures a company must take.
Reasonable Steps to Protect Your Trade Secret
The DTSA provides a wide range of legal remedies for companies that suffer trade secret theft. However, in order to prevail in a trade secret misappropriation case, one must be able to demonstrate that the stolen information satisfies the definition of a trade secret. That includes being able to show that one has taken sufficient measures to keep the information a secret.
While it may seem obvious, the failure to take any overt action to safeguard a purported trade secret will lead to dismissal of a trade secret lawsuit. It is also important to be able to show that a company treats its trade secrets with greater care than its general company information.
While courts will always examine the unique facts of each case, the following factors will often be taken into account:
- Requiring non-disclosure agreements: NDAs are an important protective measure when sharing proprietary information with employees, contractors, vendors, business partners, etc. When properly drafted and executed, such agreements make it clear that a company considers specific information to constitute a trade secret, requires the other party to maintain the secrecy of the information, and will take steps to pursue any misappropriation.
- Cataloging and monitoring trade secrets: Keeping an inventory of one’s company’s trade secrets, how they are protected and with whom they are shared can go a long way in demonstrating to the court that one is serious about trade secret protection.
- Training employees: Employees must know what information is considered proprietary and what steps they should be taking to protect it. This may involve including a trade secret policy statement in employee handbooks, marking documents as trade secrets, and requiring workers to sign NDAs.
- Restricting physical/electronic access: Companies should limit access to proprietary information to only those who “need to know” by implementing security controls. Examples include physical locks, password protection, and restricting public access to facilities.
- Establishing procedures for departing employees: Because trade secrets often walk out the door when employees leave the company, it is advisable to have policies in place that immediately discontinue access to documents, databases and cloud storage systems as well as request that all company-owned devices are immediately returned.
It is important to note that taking some of the above steps does not guarantee that the court will view your information as a trade secret. In addition, there is no one-size-fits-all approach to trade secret protection. What is “reasonable” will vary based on the size of the company, the nature of the information, its value to the company, and other factors.
Companies must be proactive in safeguarding their trade secrets. If a company fails to do so, it may be unable to pursue legal remedies, even if valuable information is stolen. For assistance, we encourage you to consult with a member of the Scarinci Hollenbeck Intellectual Property Law Group.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, David Einhorn, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.