Trade secrets are information you want to be kept confidential because they’re important to your business. Their loss could be a serious setback if they’re openly published or used by a competitor. As our friends at Focus Law LA explain, depending on what they are and how you handle them, you may have legal rights to prevent their release or seek compensation against someone who illegally stole or distributed them.
They are intellectual property rights on confidential information that you could sell or license. Generally, to be a trade secret the information must be:
- Commercially valuable because it’s secret
- Known to a limited number of people
- Be kept secure through reasonable steps taken by the information’s rightful owner to keep it secret, including using confidentiality agreements for business partners and employees
It’s confidential business information providing a business a competitive edge and is unknown to others. A trade secret may be a combination of things that separately may be public information, but the secret combination provides a competitive advantage.
It includes:
- Technical information: Information about manufacturing processes, product test data, product designs, and drawings
- Commercial information: Distribution methods, supplier and client lists, marketing and advertising strategies
Trade secrets could be formulas, financial information, recipes, or source codes.
What Legal Protections Do Trade Secrets Get?
Depending on the jurisdiction, business secrets fall under the legal protection against unfair competition or can be based on statutes or case law covering the protection of confidential information. Whether something is a trade secret depends on the individual situation.
The unauthorized acquisition, disclosure, or use of trade secrets by others in a way that’s against honest commercial practices is considered an unfair practice and violates trade secret protection. Unfair practices concerning trade secrets include:
- Industrial or commercial espionage
- Breach of contract
- Breach of confidence
A trade secret owner can’t prevent others from using the same technical or commercial information, if another party acquired or developed such it independently through their own marketing analysis, research and development, or reverse engineering.
How Can Trade Secrets Be Protected?
To get the legal protection that comes with the designation of something as a “trade secret,” you must actively secure it. If you don’t treat it as a secret, a court won’t consider it a secret. You should proactively take steps to prevent theft or misappropriation, including:
- Employees and business partners should sign non-disclosure agreements (NDAs) that prohibit the disclosure of your company’s confidential information
- Employers should ask contractors, consultants, and employees with access to trade secrets to sign a non-compete agreement to prevent or limit them from starting a competing company when their employment or service ends
- Comprehensive IT security infrastructure should be used to prevent hacking, theft, or unintentional release of trade secrets
- You must control physical access to important documents
Although you don’t need a system or process that makes the release of information impossible, you must show you made good-faith efforts to maintain your trade secrets’ confidentiality.
Given the damage your company could suffer after trade secrets are stolen or published, talk to your trade secret litigation lawyer about what you should do to secure this information and come up with a plan in case this happens.