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Ensuring Your Trade Secrets Don’t Lead To Your Competitor’s Commercial Success
By Seth R. Ogden
Confidential. Proprietary. Any valuable information that is not generally known outside of your company is a trade secret. If you take measures to protect its secrecy, you can prevent trade secret misappropriation. If those measures are reasonable, then the courts will provide relief in the unfortunate event of misappropriation.
The definition is broad, but trade secrets fall into two general categories: technical information (research and development, formulas, processes) and confidential business information (customer lists, financials, vendor and supplier information). All companies have trade secrets. If unsure, a couple simple questions will identify them. Does the information provide a competitive advantage? Was significant effort or money spent developing the information? If either answer is yes, that information is a trade secret.
Trade secrets are profit drivers. The problem is that people tend to misappropriate them along with their profitability. Misappropriation is the acquisition, disclosure or use by a person who knows or has reason to know, that the information was acquired by improper means. It’s legalese for stealing, dealing in or utilizing stolen information.
Misappropriation is not generally the sophisticated espionage depicted in movies and television. Mr. Robot is not likely to hack your servers for your trade secrets. The individuals responsible are usually those who, at the beginning of the business relationship, had your best interests in mind. Through 2010, current or former employees or business partners accounted for more than 85 percent of defendants in trade secrets litigation.
Misappropriators typically have had approved access to the trade secret information. Accordingly, when courts assessed whether reasonable measures were taken to protect the information’s secrecy, the two most important factors were: (1) whether the company had confidentiality agreements in place with its employees; and (2) whether the company had confidentiality agreements in place with its business partners. Even more telling, when a corporate plaintiff had a confidentiality agreement in place with the accused misappropriator, it was over 100 times more likely to win its case.
Of course, most companies want to avoid litigation. When it comes to trade secrets, following five “easy” steps can provide substantial protection against misappropriation. If, nonetheless, a company finds itself in court, these five easy steps will aid in a positive outcome for the trade secrets owner.
1. Appoint the right people to develop a trade secrets policy and procedures.
First, appoint a trade secrets compliance officer to control the use of confidentiality agreements, track disclosures and receipts of confidential information, and oversee the implementation and enforcement of the policy and procedures. Detail-oriented individuals make the best candidates. Then appoint a policy and procedures development team. This should include a representative from each department.
2. Conduct a trade secret inventory and audit.
Identify your trade secrets, their location, and any current measures being taken to protect their secrecy. Memorialize any non-written information. Describe the value of those trade secrets to the company. The inventory will allow you to catalogue confidential assets, ensure consistent protection, reduce risks involving third-party trade secrets, and meet the burden of proof in litigation. A periodic audit plan should also be put in place. The trade secret inventory should keep pace with changes in company focus.
3. Develop and implement a trade secrets policy and procedures.
A policy is relatively short, easy to understand, and directed to all employees. It expresses the general rules, guidelines, principles, and philosophy underlying the trade secrets procedures. The procedures are the detailed rules for handling confidential information inside the company, leaving the company, and being received by the company. They should standardize physical and electronic safeguards. At their core, the procedures should restrict access to trade secrets to those who need to know. Their reasonableness is assessed on a sliding scale according to the size and sophistication of a company. What is required of a three-individual partnership differs from what is required of a multinational conglomerate.
4. Educate your employees about the trade secrets policy and procedures.
Develop programs to educate your employees about the importance of trade secrets, the policy and procedures, and the potential consequences of violating the policy and procedures. Educate them upon hiring, on a periodic basis while employed, and upon exit from employment.
5. Enforce the trade secrets policy and procedures.
The policy and procedures sets the bar for reasonableness. Consequently, the only thing worse than not having a policy and procedures, is not enforcing it.
Seeking the assistance of intellectual property counsel is recommended when developing a trade secrets policy and procedures. Experienced counsel can ensure that any gaps are filled, particularly when drafting language for the all-important confidentiality agreements discussed above.
Seth R. Ogden is a registered patent attorney focused on litigation and client counseling regarding patents, trademarks and trade secrets.