Most entrepreneurs are surprised to find that trade secrets are protected like other forms of intellectual property. Moreover, trade secret protection lasts as long as the information is kept a secret. Think Coca-Cola. They managed to keep the recipe for Coca-Cola a secret for as long as the company has been in existence. Other famous secrets include the recipes for Kentucky Fried Chicken and Famous Amos cookies.
Your business does not need to have a famous secret to get the benefit of trade secret protection. Moreover, under the recently enacted “America Invents Act”, there are certain advantages to keeping business trade secrets.
What is a Trade Secret?
A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, that gives a business an economic advantage. This is a pretty broad protection. As such, trade secrets can be found anywhere in your business because they can be as simple as a practice or process that you put in place, or information that you’ve collected to help you do a better job for your business.
In theory, this means that everyone in your company could be practicing or in possession of some form of trade secret. For example, your selling organization may have trade secrets in the form of customer lists, pricing policies and selling strategies. Your accounting department may have a way of billing that really benefits people in your industry. Your manufacturing or engineering group may have trade secrets in the form of suppliers, materials or construction processes. Or an employee in your manufacturing area may have found a clever way to get more efficient production if it is the type of information that cannot easily be reverse engineered, it may be a good candidate for trade secret protection.
Trade Secrets in your Business
Not everything your business does is a valuable trade secret, of course, but effective managers will want to be kept apprised of the things that add value to the company, so these can be protected. Notably, trade secrets are most often held by the employees and are completely unknown to senior management because they are skills and tricks developed by the employees to do their specific jobs. This means managers will need to take a little extra effort to uncover what might possibly be a trade secret and determine the value of that trade secret. One test for a trade secret is to ask yourself how you would feel if the employee left and took the practice or information to a competitor. Of course, employees are allowed to keep an acquired skill, but some information they acquire may belong to you as the employer.
Trade Secret Protection is Affordable
One of the best things about trade secrets is that they are relatively affordable to protect. There is nothing to file, but your business must take some steps to make people aware the information is a secret and to actively prevent that information from being disseminated. These steps include informing your employees about what information is considered a trade secret so they will know what to keep secret and how to do it, and adopting company policies and procedures which require employees to exercise reasonable efforts to maintain the secret. For instance, require your employees to keep the secret locked up; to mark any documents discussing it as confidential; and to not disclose any secret when dealing with outside vendors unless absolutely necessary, in which case these outside parties must be required to sign a nondisclosure agreement before the secret can be revealed to them.
Trade secret protection is not perfect, but it can still be very effective. For example, your competitors may try to discover trade secrets through lawful methods like reverse engineering. Unfortunately, if they successfully reverse engineer your trade secret, the law will not help you. However, if they use any improper means to discover the secret, such as industrial espionage or employee theft, they may be stopped and as a result, the secret may be deemed misappropriated and you may recover damages and stop them from practicing the trade secret.
Moreover, under the America Invents Act, a company that develops and keeps a trade secret may have an affirmative defense against accusations of patent infringement.
Trade secret law can also be very helpful for a startup company in its infant stages, when cash is always in short supply. The proper use of nondisclosure agreements can make discussing business plans with potential partners and employees a lot less expensive. Not every idea for a young company is actually a trade secret, of course, but the “big idea” that kickstarted your company and the ways to implement that idea are worth the time and effort to create a nondisclosure agreement.
Indeed, a company gets a lot of protection for just a little bit of effort. The trick is to identify what is a trade secret and to take a reasonable effort to keep it an actual secret. In this regard, it would be smart to consult an intellectual property lawyer to design a strategy to protect what may be your company’s most valuable assets.
Mr. Pete Tormey heads the Intellectual Property Group for Antero & Tormey LLP. He has a J.D., an MBA in marketing and a BS in electronic engineering. He is licensed to practice in California and before the US Patent and Trademark Office. He can be reached at pt@AnTLegal.com or at (925) 352-9842 in San Francisco, Walnut Creek, Silicon Valley and other Bay Area locations.
The advice included in this article is for education purposes only; consult a patent professional for specific information about your invention.