What Should We Do To Protect Our Trade Secrets?

Trade Secret Protection

The states have trade secret laws, and recently the federal government passed a trade secret law.  This Primer will discuss the federal law, since it is rather broad.  Under that law, a trade secret is defined to cover information in the form of “financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored,1 compiled, or memorialized physically, electronically, graphically, photographically, or in writing.”

For such information to qualify as a trade secret under the law, however, it must derive actual or potential independent economic value from not being generally known to, and not readily ascertainable through proper means by, others who could obtain economic value from knowing or using the information.  In that vein, the owner must have taken reasonable measures to keep the information secret.  The rest of this Primer discusses some of the measures that may be reasonable and appropriate in a business setting.  Bear in mind that this Primer just covers some key points, and it also does not delve into overlapping matters such as hiring persons who may possess third party trade secret information, implementing non-compete policies, and various other issues.

Preferably the first measure to be taken is cataloguing the company’s complete range of trade secret information.  All personnel, independent contractors, and other parties who are given confidential access to any part of that information should be advised of a duty to maintain the secrecy of such information.  Each form and part of the information that may be encountered by the personnel, contractor, or other party should be identified to them as secret, as clearly as possible for every instance of such contact.  For example, on printed materials, prominent legends should indicate the secret nature of the information therein, preferably on each page.  Information conveyed electronically should be flagged as well, which may include means such as a pop-up screen that requires an affirmative acknowledgment and agreement by the recipient on each instance of receiving or viewing trade secret information.

For personnel and contractors, strong confidentiality agreements should be obtained, a written policy outlining mandatory secrecy measures should be adopted, and training sessions should be given upon joining the company and at regular intervals (e.g., annually).  For other parties such as vendors or customers who might receive trade secret information, strong confidentiality agreements should be obtained, preferably as standalone agreements or in provisions included in master purchase or sale agreements that would not be superseded in relevant part by individual sale orders or the like.  Any party that may receive or take secret information outside the company should also be required to agree to implement a policy (based on the company’s policy) imposing trade secret treatment measures at such locations.

Policies for treatment of trade secret information should include maximum practical isolation of the information to locations that are protected by lock and key, password, key card, biometrics, guards, badges, sign-in sheets, air-gap, and/or other measures.  There should be a reasoned limitation of who receives what parts of trade secret information based on their need to know it, with a list of those persons and the corresponding information clearances.  The list should be updated in real-time to exclude those who no longer need to know information and to add persons who are newly-allowed access, and should be promulgated in a way that ensures it is always followed.

The types and intensiveness of such measures that are reasonable depends on factors such as the size and resources of the company, the nature of the trade secrets, and the type of interactions and need for internal and external disclosure the company has.  Trade secrets or parts thereof that are of core value to the company should preferably receive more than the minimum required reasonable measures.  If the secrets are valuable to you, it is always advisable to err on side of caution by going beyond what might be the minimum required to satisfy the trade secret law’s “reasonable measures” requirement.  Meeting that requirement allows one to sue for misappropriation of a trade secret, but it is preferable to do whatever is necessary to keep a secret from being misappropriated in the first place rather than suing after the cat’s out of the bag.

An experienced IP attorney should be enlisted to help craft secrecy policies and draft and negotiate any confidentiality agreement or set of provisions intended to cover trade secrets. As with licensing agreements, there are numerous potential pitfalls.

  1. This definition may extend to information that is only kept in a person’s memory.