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TRADE SECRETS - A quick primer on Trade Secrets

Date: 
April 27, 2010

E. Logan Lo

While Trademarks, Copyrights and Patents get the all the glory, Trade Secrets are an often-overlooked area of intellectual property for many small businessmen. This can become a costly omission on many levels, least of which is loss of legal protection when parties turn to litigation.

What constitutes a trade secret?

Most broadly, whatever you deem a secret. OK, maybe that’s overstating the matter, but it’s actually not far from the truth. The Uniform Trade Secrets Act (UTSA), a model law that’s been adopted by 45 states, defines it as follows:

Information, including a formula, pattern, compilation, program device, method, technique, or process, that:

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

Now that we have the definition, let’s break that down info four components:

Information” – this is why we say, whatever you deem a secret can be a secret. It has to be some type of data or knowledge;

“Economic value” – it must be worth something to you;

“Not readily ascertainable” – this means that the public, your competitors, even those that work for and with you, don’t actually know the extent of this valuable data, or even that it exists;

“Reasonable efforts…to maintain its secrecy” – this means that you’ve tried, in some fashion, to keep this valuable data secret.

So, even though the statute is pretty clear, let’s make it even simpler: A trade secret is valuable information you’ve tried to keep secret.

How do I protect my trade secrets?

This all hinges on the last of the four elements: reasonable efforts to maintain its secrecy. And this makes sense; think about it, if you don’t treat this valuable data secret – that is to say, protect it – then why should the courts?

But I’ve got a ton of data, how do I pick which to protect?

Think of your trade secrets like a gold star; all of your data’s important but not all of them get a gold star. The data that you deem to be a trade secret has to be separated from all of your other, admittedly, important data.

By following the contours of the outlined elements, you can see how to logically do this. Let’s start with the first three elements:

  • Information - Begin by identifying which data is a trade secret. Too much data that falls into this category, and you run the risk of making it impotent; too little, and you may as well not have a policy at all.
  • Economic value – How much is this secret worth to you in terms of: Dollars? Man hours? Bragging rights? Put a number grade from one to 10 for this element where 10 is the most valuable and one is the least.
  • Not readily ascertainable – How and why is it secret? Did you devise it yourself? Pay someone an exorbitant fee to come up with it? As with economic value, assign a grade to this element as well.

Any information that you’ve got with a score of 16 or higher is a ripe candidate for being treated as a trade secret. Now that you’ve identified which information qualifies as a trade secret, let’s turn to the fourth element, reasonable efforts.

What constitutes reasonable efforts?

The fastest and most secure way of meeting reasonable efforts is via a well-drafted trade secrets policy and this is what trips up most small businessmen, which is a shame because it’s a fairly easy requirement to meet.

What should the policy be like?

Foremost is to understand the purpose of the policy, and that is to make it impossible – or at least improbable – for someone to gain access to your trade secrets that aren’t authorized to do so.

Data that you’ve identified as a trade secret should only be given to those employees that need to know. Moreover, that information must be clearly marked as “confidential” and kept in a secure location.

The problem is that most trade secrets disclosures are inadvertent – a careless employee, a discarded memo, etc. So this also means educating your employees that trade secrets are to remain secret and there should be a listing of repercussions if they are not: suspension, termination, legal action, etc. And this education must begin even before they are hired and periodically re-enforced. This means emails, meetings and regular reminders. If you don’t have an employee handbook or a company policy manual, this is a strong reason for having one and a good opportunity to roll one out.

Finally, after an employee leaves your employment, there must be an exit interview that specially reminds him or her that these trade secrets belong to the company and must remain confidential, again, with repercussions if they are not.

Conclusion

Trade secrets are an often-overlooked means to gain, or keep a business advantage. The cost and duties to identify and protect your trade secrets are minor compared to the value and security that protecting them offers.

For more information, contact your attorney or drop us a line.

 


This article is intended to provide information of general interest to the public and is not intended to offer legal advice about specific situations or problems. Mr. Lo and his firm, Woods & Lonergan, do not intend to create an attorney-client relationship by offering this information, and anyone's review of the information shall not be deemed to create such a relationship. You should consult a lawyer if you have legal matter requiring attention. © Logan Lo and Woods & Lonergan.

Mr. Lo is an attorney with Woods & Lonergan, a commercial litigation firm in New York City and can be reached via email at: loganlo@wlesq.com