A trade secret is any confidential business information which provides an enterprise a competitive edge.
Are you doing enough to protect them?
Trade secrets are an integral part of nearly every business operation. However, even though trade secrets are pervasive in modern commercial enterprises, many business owners and managers may not fully appreciate the scope of information that may be protected as a trade secret. Furthermore, it may not be readily apparent as to what steps, if any, must or should be taken to protect confidential business information as a trade secret.
Today, there are a variety of ways to infringe trade secrets. Employees of various rank often have access to different levels of trade secrets. If an enterprise is lax in the compliance management of its trade secrets, it is highly susceptible to the risk of its trade secrets being leaked.
The term “trade secret” means technical or business information that is not known to the public. It can be protected indefinitely as long as the secret is commercially valuable. Its value derives from the fact that it is secret, and the owner take reasonable precautions to maintain its secrecy.
The loss of trade secrets and other confidential information costs businesses billions each year. Protecting that information requires establishing sound practices, procedures, and policies to maintain confidentiality and reduce the prospect of misappropriation. It also requires being prepared to address breaches that occur, and to respond to claims by competitors.
To be a winner in this fiercely competitive situation, companies should be fully prepared to not only protect their innovative properties, but also avoid unintentional encroachment on the trade secrets of other companies. Companies should be armed with finely tuned equipment - a holistic compliance risk management system.
Identify your company’s valuable trade secrets.
The first step in protecting your company’s trade secrets is to identify them. In determining whether information should be regarded as a trade secret, consider the following factors:
Is the information known outside of your company?
Is the information widely known by employees and others involved with your company? Have measures been taken to guard the secrecy of the information?
What is the value of the information to your company? What is the potential value to your company’s competitors?
How much effort and/or money was expended by your company to develop the information?
How difficult would it be for others to acquire or duplicate the information?
After your company’s trade secrets have been identified, you can implement protection mechanisms that are appropriate to the nature and value of those secrets.
Require that all employees sign confidentiality and nondisclosure agreements as a condition for employment: In addition to requiring that key employees sign confidentiality and nondisclosure agreements, you should also extend that policy to prospective investors, marketing representatives, and any other individual who may have access to your trade secrets.
Create and appoint a Compliance Officer: It does not do much good to have a comprehensive plan in place to protect your trade secrets, unless you have someone responsible for implementing the plan and enforcing the provisions of the plan. Some of the duties the compliance officer will assume as part of the procedure for protecting trade secrets is performing detailed record keeping, ensuring all agreements are executed correctly, collecting all protected materials when an employee leaves, and conducting exit interviews. If questions arise about trade secret protection, the compliance officer would be the person in charge of answering the question or developing an answer if necessary.
Educate all employees on trade secret protection procedures: All employees need to understand if they accidentally access restricted files or information related to trade secrets to notify the compliance officer immediately. If an employee witnesses unauthorised access, copying, or distribution of trade secrets, the employee must contact the compliance officer immediately.
Limit copies of confidential materials: Employees and others should be prohibited from copying confidential information, in any format. If an employee or other person requires a copy of the confidential information, this request should go through the Compliance Officer.
Restricting access to trade secrets: Access to trade secrets must be limited to individuals who must have access to this information to perform their job duties. Remember, if an employee only needs some of the information related to the trade secret to perform his or her job duties, limit access to necessary information only instead of all information about the trade secret. Do not forget to use physical safeguards too. Keep trade secret information behind locked doors with restricted access. Group employees with access to trade secrets in specific, restricted areas. If documents are to be kept at desks or in file cabinets, all desks and cabinets should have state-of-the-art security locks, in addition to the doors to the area having high-tech security.
Maintain computer security: Some companies neglect to ensure that trade secret information is secure on company computers and networks. All trade secrets files should have limited access. Employees and others must use a unique login and password to access restricted files so that the compliance officer can track access to these files.
All documents must have a trade secret designation clearly visible on the document and file: As part of your trade secret protection plan, you need a uniform system for identifying and marking documents related to trade secrets. Ensure that everyone with access to this information understands how to mark confidential items and recognize confidential items that should be treated with the highest level of security.
What remedies are available for unlawful use of confidential information or trade secrets?
There are a range of remedies applicable where a company's confidential information or trade secrets have been unlawfully obtained, used or disclosed. A wronged party may apply to the court for to name few:
an injunction – an injunction may be granted preventing a party from using the information, and may also require the infringer to take certain other actions, such as to recall or destroy infringing goods;
compensation - a wronged party may be granted compensation which will usually be awarded with reference to the amount of royalties or fees the infringer would have needed to pay to use the information;
damages – damages may be awarded to cover any reasonably foreseeable negative economic impact of the infringers actions; or
an account of profits – instead of damages a wronged party may seek to claim the profits generated by the infringers use of the information.
When bringing a claim certain steps can be taken to prevent protected information from being disclosed in open court. This can include sealing the court file, having hearings in private and implementing a confidentiality club between the parties. These measures will usually be necessary to prevent the trade secrets or confidential information being disclosed to the world during proceedings, which would undermine the purpose of bringing the claim.
Courts and confidentiality
While a confidentiality agreement is a useful measure for protecting trade secrets and other confidential information, it is not a guarantee of trade secret protection.
Courts may weigh many factors in determining whether to grant trade secret protection. A court may not look kindly at a trade secret owner who signed confidentiality agreement with the defendant, but did not treat the secret information any differently than other company information. Consequently, trade secret owners should not rely exclusively on confidentiality agreements, but also put in place other appropriate measures to protect their trade secrets.
These measures should extend beyond standard business practices for protecting internal information. Wherever and whenever it is practical to do so, trade secret owners should put recipients on notice of the confidential nature of specific information, as well as providing enhanced physical and IT security. If all of the company’s information is protected in the same manner, there is a risk that a court could find that all company information is of equal value and refuse to grant trade secret protection to the misappropriated information.
Accordingly, companies should take additional measures to protect trade secrets based on their higher value. If trade secrets are stolen or otherwise misappropriated, action must be taken quickly, particularly if a court injunction is to be pursued.
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