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Trade Secrets: An Inexpensive Alternative to Patent Protection

 

Trade Secret Pic

There are several ways in which start-up companies may protect their intellectual property, including patents, trademarks, copyright, and trade secrets.  Trade secret protection may be particularly attractive to start up companies given the longevity of trade secret protection and the relative ease in which protection can be afforded.

A trade secret can be anything of value to your company that is unique and not known to persons outside your company.  Common examples include processes, practices, formulas, or information that gives your business a competitive advantage.  While patents can confer similar protection as trade secrets, they oftentimes come with a large price tag, whereas trade secrets can be inexpensive to acquire.  Another advantage offered by trade secrets is that they can be immediately effective, whereas patent prosecution may take several years to secure legally enforceable rights. One final advantage of trade secrets is their longevity. Patent protection expires after a limited amount of time, whereas trade secret protection can go on indefinitely.  For example, had COCA-COLA obtained patent protection on its formulation for COKE, chances are that patent would have expired by now, and the information would be freely available to competitors.  Instead, COCA-COLA protects this information as a trade secret and thus competitors are still unable to access the formulation.

Here are some tips as to how to go about protecting your trade secret.

1.  Identify Your Trade Secrets. Trade secrets are only valuable so long as they are kept secret.  The first step in protecting your trade secrets is to identify them. When trying to identify your trade secrets, you should ask yourself “is this information that would allow competitors to gain a business advantage if it became public?” If the answer is yes, this information is likely to be a trade secret.  You need to make sure that everyone involved in your company is aware of which information you consider to be a trade secret and require them to keep this information confidential.

2.  Keep Trade Secrets Secret.  When interacting with third parties, be sure not to disclose your trade secrets unless appropriate protective measures are in place.  If it becomes necessary to share your trade secrets at some point in time with others, for example, make sure that appropriate confidentiality and non-disclosure agreements are in place. Similarly, remind your employees not to discuss trade secrets outside of work, especially not on online social media forums!

3.  Restrict Access.  If you are ever trying to prove misappropriation of trade secrets by your competitor in court one day, to be successful you will need to show that you took reasonable precautions in protecting your trade secrets.  Locking files containing trade secret information in filing cabinets with limited access may be sufficient.  Other good practices involve the use of passwords on computers containing valuable information and insisting that employees not remove work documents from the workplace.  If you no longer need to keep certain documents that contain trade secret information you should have a policy in place requiring these documents are destroyed to avoid the inadvertent disclosure of your trade secrets.

4.  Have Exit Interviews.  When an employee leaves your business to pursue other goals or another job, it is important that you meet with them prior to their departure to remind them of their commitment to you to refrain from disclosing your trade secrets.  It is good practice at this point in time to remind them what you consider to be a trade secret, and assuming the appropriate contracts are in place, the potential liability they may face in the event they disclose this information.  You may also want to ensure that they are not leaving with documents or electronic materials that contain trade secret information.

5.  Diligently Follow Your Trade Secret Policy.  A trade secret is only legally protectable when you diligently follow the guidelines you have established for protecting your secret.   While having a written policy regarding trade secrets in the employee handbook is a step in the right direction, it will be insufficient in proving misappropriation if your company does not practice what it preaches.  Companies should remind their employees of their policies on a regular basis, and continue to update and inform employees of what they consider to be trade secrets.  A good way to put employees on notice that information they are viewing is considered a trade secret is to mark documents as CONFIDENTIAL or as containing CONFIDENTIAL TRADE SECRET INFORMATION. If you don’t protect your trade secrets, neither will the courts!

Trade secrets can be a robust, yet inexpensive way in which companies can protect the processes, practices, formulas and other proprietary information that gives them a competitive advantage in the marketplace.  However, the law will not protect trade secrets unless the company itself takes reasonable measures to protect its trade secrets.  Good practices for companies include establishing trade secret policies for employees and enforcing the policies diligently.

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