Safeguarding Trade Secrets
The law protects trade secrets from misappropriation, that is, the acquisition of a trade secret by improper means. “Improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a confidential relationship or duty to maintain secrecy, or espionage through electronic or other means.
A trade secret is defined as information that derives independent economic value from not being generally known or readily ascertainable through proper means by others who could benefit economically from its disclosure or use. Additionally, it is subject to reasonable efforts to maintain its secrecy.
Trade secrets can encompass a wide range of information, including manufacturing processes and techniques, technical specifications and drawings, and designs of products under development. They may also include lists of customers, suppliers, and vendors, along with contact information, preferences, purchasing history, and pricing. Financial information such as non-public pricing structures, profit margins, cost breakdowns, and financial forecasts is often considered a trade secret. Additionally, proprietary software, source codes, and encryption techniques fall under this category, as do intellectual property assets like invention disclosures and unpublished patent applications. Sales strategies, pricing models, media plans, and reports round out the kinds of valuable information businesses protect as trade secrets.
To determine whether a trade secret exists, several factors are considered significant:
- The extent to which the information is known outside the business.
- The extent to which it is known by employees and others involved in the business.
- The measures taken by the business to guard the secrecy of the information.
- The value of the information to the business and its competitors.
- The amount of effort or money expended by the business in developing the information.
- The ease or difficulty with which the information could be properly acquired or duplicated by others.
Information which is generally known or readily ascertainable through proper means is not protected as a trade secret. Information is readily ascertainable if it is available in trade journals, reference books, in a patent or contained in published materials reasonably accessible to competitors. Such information does not qualify for protection. A design or process that can easily be ascertained from an examination of a product itself and matters derivable from customary experimentation and testing also cannot be a trade secret. A unique combination of known elements may be a trade secret, the combination must differ materially from the prior art.
A business claiming trade secret rights should be prepared to provide proof of the affirmative measures that it has implemented to safeguard the secrecy of the information, such as:
- Internal and external physical security measures to limit and monitor access to areas where sensitive information is stored (e.g., fenced and locked areas, keycard access, biometric access controls, locked cabinets, surveillance cameras, alarming doors and windows, engaging guard services, security badges, sign-in and sign out logs, visitor passes and visitor escorts).
- Confidentiality agreements with employees and third parties (such as contractors distributors, sales representatives, franchisees, licensees) who may be given access to confidential information.
- Placing legends, such as “Confidential and Proprietary,” on confidential materials.
- Tracking and accounting for confidential materials by the use of bar codes, RF labels, holograms and GPS devices and establishing unique identifications for each copy of confidential information.
- Passwords and multi-step authentication to access electronic information.
- Encryption of data on mobile devices, laptops, and USB drives.
- Firewalls to block unauthorized access and VPNs to secure remote connections to the business’ network.
- New employee background checks.
- Establish and enforce clear policies for handling confidential information, including the use of personal devices and remote work protocols.
- Educate employees on recognizing phishing attempts, social engineering tactics, and the importance of protecting sensitive information.
- Assign access rights based on roles within the organization, ensuring employees only have access to the information necessary for their job functions.
- Employee entrance and exit interviews emphasizing the importance of confidentiality, and to obtain the return company devices and materials.
Key Takeaway:
Businesses must take proactive and comprehensive measures to protect their valuable trade secrets. This involves a multi-layered approach encompassing physical, digital, and human security measures. Failure to take sufficient measures to protect confidentiality can lead to the loss of trade secret rights.