Protect Your Company By Understanding and Utilizing Trade Secrets - Purple Fox Legal

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Protect Your Company By Understanding and Utilizing Trade Secrets

By Purple Fox Legal

January 19, 2022

Patents and copyrights are popular, well-known ways to protect a business’ proprietary operating practices. And they do a really good job at it. Patents, copyrights, and even publicity rights are wonderful for ensuring that your business is in control of its brand and reputation. But if you don’t want the entire world to know the exact way that you conduct business, consider establishing trade secrets.

So, how do businesses stay relevant and continue selling the same product for generations?

How have Coca-Cola, WD-40, and the Krusty Krab continued to dominate their respective fields without the well-known protections of patents and copyrights?

These successful companies, and many more, have continued to thrive in secrecy thanks to the trade secret law. This article explains the ways that you can use trade secrets to protect your business. 

What is a Trade Secret?

In its most simple terms, a trade secret is the “secret sauce” of a business. It’s a secret that, if known to others, would take away the business’ competitive edge. Instead of being copyrighted or patented though, trade secrets are safeguarded and personally held by the owner to give them a competitive advantage. Courts can help enforce trade secrets by:

  1. Ordering the trade secret misappropriation to stop
  1. Protecting trade secrets from public exposure, and
  1. Ordering the seizure of a misappropriated trade secret

Are Trade Secrets Protected?

In order to best protect trade secrets, 48 U.S. states, the District of Colombia, Puerto Rico, and the U.S. Virgin Islands have all adopted the Uniform Trade Secrets Act (UTSA), with very little deviation among the states and territories. Tennessee defines trade secrets in its version of the UTSA, which provides:

“Trade secret” means information, without regard to form, including, but not limited to technical, nontechnical, or financial data, a formula, pattern, compilation, program device, method, technique, process, or plan that:

a) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and

b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

To break it down into more simple terms, a trade secret can be identified as 

  1. Information (broadly defined) that
  2. Is independently valuable from
  3. Being a secret, and 
  4. Is protected by reasonable measures to maintain its secrecy

The most classic, and well-known (undisclosed) trade secret is the Coca-Cola formula. However, trade secrets could be involved in any aspect of a business as long as all four elements are met.

The Best Way to Protect Your Trade Secrets

Owning a trade secret is important. It’s the best way to prevent people who know or have access to confidential information from disclosing it without authorization. Unauthorized disclosure usually means you have to take direct action against misappropriation. Owners of misappropriated trade secrets are then granted the ability to seek injunctive relief, a court order that requires the offender to stop further disclosure. They can also request monetary compensation due to the damage the disclosure may have caused their business. 

However, before any of these remedies can be ordered by a court, the trade secret owner must first prove that a trade secret exists, and importantly, that they have taken and are taking steps to protect its secrecy. 

It’s true that every business can’t afford a Coca-Cola quality vault. And, keeping the secret in the head of just one person is impractical. Thankfully, this is not the level of protection required for a trade secret. 

But, how do you properly protect this valuable information? The exact answer will depend on what the information actually is, but most protection measures fall into three categories. It is recommended to use all three methods in one way or another.

  • Legal Security: This is the most basic and recognized form of security. It provides a very minimal level of protection. Non-Disclosure Agreements (NDAs) are most often utilized as the go-to protection in this category. Legal security should be obtained prior to any potential for disclosure. Other common legal securities involve business operations, like marking certain documents as “Confidential” and conducting exit interviews with departing employees. 
  • Physical Security: As its name suggests, physical security is related to the tangible world. They involve the creation of a secure environment around trade secrets to limit access. The Coca-Cola vault and Mr. Krabs’ safe are examples of physical securities. Some additional methods may include: restricting access to certain areas by requiring key card access, requiring personnel to wear identification, and providing sound-leak barriers for conferences rooms, offices, or other protected areas.
  • Network Security: Though not as appreciated, network security becomes increasingly more important every day. This type of security relates to your business’s computer network and digital storage system. This is where passwords, firewalls, encryptions, and restrictions all come in handy. Providing employees with dedicated cell phones and computers is one of the first steps to protecting confidential information. Requiring passwords to be changed every few months is another option to help protect trade secrets.

Final Thoughts

When it comes to trade secrets, which are all different in their own way, there is no one way to protect them. In fact, protection measures will only be examined for their level of “reasonableness” in the context of the exact information that needs protection. That’s not to say protection isn’t important. In today’s world, business efforts lacking at least the most basic level of security procedures will likely not be found to be reasonable. 

To get started with protecting your trade secrets, consult with an attorney who has experience in trade secret law. No need to worry, your secret is always safe there.