Insights into Trade Secrets
By Randy Kazmierski
If you run a business, chances are you possess trade secrets – intellectual property in the form of financial data, engineering techniques, designs, formulas, business strategies and other proprietary information.
In today’s highly mobile workforce, when employees change jobs with increasing frequency, it can be a challenge to keep those trade secrets from literally walking out the door. So, how do you protect your assets?
Intellectual property protection comes in several guises – patents, trademarks, copyrights and trade secrets.
Unlike other types of IP, you don’t need to file applications with the U.S. Patent and Trademark Office to secure a trade secret.
Trade secretes offer other advantages. Patents, for example, require you to fully disclose your intellectual property, which becomes a matter of public record. Your competition can review your patent portfolio to find workarounds or develop a better product. There also are filing and maintenance fees associated with utility patents, which can expire after 20 years.
Trade secrets remain confidential for as long as you’re able to prevent disclosure. There is no fee associated with trade secrets. And they have legal protection under the federal Economic Espionage Act of 1996, the Federal Uniform Trade Secret Act and spin-off state statutes.
Under the Espionage Act, penalties can include up to 10 years in prison and a fine of up to $250,000. However, to prevail in a trade secret case, you must demonstrate you took reasonable measures to protect confidential property.
Coca-Cola is famous for the trade secrets on its soft drink recipes and other aspects of its business – and the ferocity in which it protects those assets.
In 2007, two former Coca-Cola employees were sentenced to serve federal prison terms for conspiring to steal and sell trade secrets to rival Pepsi.
Pepsi tipped off Coca-Cola that it was being offered inside information. After an FBI sting investigation, one former employee received an eight-year prison term; the other got a five-year term. Both were ordered to pay $40,000 in restitution.
Technology has made it harder to keep a lid on trade secrets. Laptops, email, USB thumbdrives, smartphones and the like offer easy ways to pass information. And once a trade secret becomes known, you can’t un-ring the bell. You may be able to win a lawsuit against someone who pilfered your trade secret, but you won’t be able to prevent the world from knowing about it.
One way to help protect your trade secrets is to have clear, iron-clad employment agreements.
If your company has trade secrets, it pays to develop an atmosphere of understanding and caution. Your employees will not make an attempt to protect trade secrets if they do not understand the magnitude and effects that disclosure could initiate. Proper training for all employees is critical to establish a culture of security.
Many organizations believe they have security systems in place that protect their trade secrets. Yet often this system is merely a signed form that few people have read.
How strong is your employment document? What does it say?
Take the time to carefully explain the employment agreement, which can include non-compete clauses, and spell out in detail the consequences of violating it. These agreements also can codify policies about laptop computer and email use, as well as what types of storage or recording devices can be allowed on the premises. In any case, it’s important that employees fully understand the employment agreement before signing it.
Likewise, be aware of where visitors are allowed and what they’re likely to see. You don’t want to lead them into your “war room,” only to have them see a whiteboard filled with charts, graphs, designs, prints, pictures or details of your business plan.
When it comes to visitors, it’s essential to prohibit access to areas containing valuable proprietary information.
Many, if not most, cell phones have cameras these days. You may want to consider imposing a no-phone zone and require guests to leave their phones with the receptionist or in a safe place of your choosing.
Of course, before discussing any proprietary information with someone from the outside, review with them and have them sign a non-disclosure agreement.
Finally, many trade secrets can slip through the cracks just by being careless. Trash, for instance, when placed at the curb or in some public Dumpster, is fair game for would-be secret stealers.
If your business traffics in a lot of documents that contain sensitive information, do yourself a favor and buy – and use! – a paper shredder.
What Are Trade Secrets?
Confidential information that gives a company a competitive edge.
Most countries have trade secret laws to protect against unfair competition.
Trade secrets include manufacturing processes, distribution methods, advertising strategies, sales methods, consumer profiles, and lists of suppliers and clients.
Trade secrets can be protected indefinitely under these general guidelines:
- The information must be secret and not generally known among, or readily accessible to, circles that normally deal with the kind of information in question.
- The information must have commercial value because it is a secret.
- The information must have been subject to reasonable steps to keep it secret, such as through confidentiality agreements.
Advantages:
- Can last indefinitely – patents generally last for up to 20 years.
- No application/registration/maintenance fees.
- Protection is immediately effective – patents can take years to issue.
Disadvantages:
- Trade secrets do not give secret holder the right to exclude others from making commercial use of the secret if it becomes discovered through legal means – only patents provide this type of protection.
- Once a trade secret is made public, anyone can use it.
- Trade secrets are harder to enforce than patents; level of protection provided by trade secrets is considered weaker.
- Your trade secret may be patented by someone who developed the subject matter by legitimate means.
Editor’s note: This article appears in the January 2011 print edition.
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