What creates the nooks and crannies in Thomas’ English Muffins? What is the recipe for Coca-Cola? What algorithm makes Google the number-one search engine? The answers to these questions are closely guarded trade secrets.
Almost all businesses have trade secrets. In simple terms, a trade secret is anything of commercial value you don’t want the competition to know. It may include advertising strategy, business plans, supplier and client lists, sales and distribution methods or a recipe or formula—any information that makes your business unique and gives it a competitive edge.
Trade secrets are a valuable asset. They may be protected by law if they meet certain criteria and you take steps to safeguard them properly. These need-to-know guidelines will help you meet the requirements of the law.
Know Your Small Business Legal Rights
Unlike other forms of intellectual property, such as patents, copyrights and trademarks, trade secrets cannot be secured by registering them with the government. However, most states offer protection from trade secret theft under the Uniform Trade Secrets Act, provided your secrets meet these four basic criteria:
- They include information such as a formula, pattern, compilation, program, device, method, technique or process.
- They provide economic value because they are secret and not known to others.
- They are not generally known by the public or other businesses in your industry.
- You take reasonable steps to protect your trade secrets. This is where many businesses fall short, but you can create an effective protection plan by following the steps below.
If someone uses your confidential business information without authorization, the act provides for limiting or recovering the loss, including cease-and-desist orders, damages, punitive damages and attorney’s fees. If your business is named in a lawsuit, business insurance—or more specifically, the business liability portion of your policy—may offer protection. However, most coverage is limited to copyright, trademark and patent infringement.
Identify and Label Your Trade Secrets
Evaluate your business information, and inventory anything that meets the definition of a trade secret that you want to protect. Label all written materials containing trade secret information as “secret” or “confidential” on the cover of the document, within the header or footer or with a rubber stamp.
Secure Your Secrets
It’s said that the original formula for Coca-Cola is written on a sheet of paper and stored in a bank vault and is known by only a handful of people. Your secrets warrant similar safekeeping.
Limit access to your trade secrets to only those who need to know. Keep printed trade secret material in a locked filing cabinet with limited key access. Secure online access to trade secret material with strong passwords. When disposing of trade secret information, use a shredder and wipe hard drives clean of all information.
Require Signed Agreements
Non-disclosure agreements are your first line of defense should you need to make a case for trade secret violation in a court of law. These agreements are legal contracts that bar the signer from sharing confidential information and are designed to provide you with recourse should a secret leak. Be sure your agreements identify the issues related to confidentiality and trade secrets, and outline the policies and procedures the signer is expected to follow to keep your confidential information secure.
Have everyone with whom you voluntarily share trade secret information sign a non-disclosure agreement in advance of your mutual engagement, including employees and third parties such as business partners, consultants, suppliers and distributors.
Require both employees and third parties to attend training to ensure they know how to handle your trade secret information. Training is an essential part of a trade secret security program and will demonstrate your full commitment to maintaining secrecy should you need to present a case of theft in a court of law — it falls under the fourth step mentioned above, about taking reasonable precautions to protect secrets. Training should be offered for all new hires and third parties, and also annually.
Conduct Exit Interviews
Employees and business partners are responsible for more than 90 percent of trade secret theft , according to A Statistical Analysis of Trade Secret Litigation in Federal Courts. Exit interviews present an opportunity to determine if the employee will be working for a competitor and to remind departing employees of their non-disclosure obligations.
These general guidelines can help you protect the trade secrets that allow your business to thrive. An attorney with experience in intellectual property law and local state laws can provide more specific recommendations for your business.