Intellectual Property

Trade Secrets

By Sherrie Bennett, Attorney

Trade secrets can be any type of information, process, idea or "know how" that is not generally known and gives the possessor an advantage in the marketplace. Trade secrets therefore include a wide range of confidential business information known as proprietary information, such as:

  • Chemical formulas
  • Industrial processes
  • Business plans
  • Customer lists

How Is a Trade Secret Protected?

In order to maintain business information as a trade secret, you must take reasonable precautions to prevent the information from becoming generally known to competitors.

Reasonable precautions could include:

  • Revealing business information to employees on a "need to know" basis.
  • Keeping sensitive documents under lock and key
  • Requiring passwords to access computer files.
  • Restricting access to certain areas of production facilities.
  • Requiring visitors to the facilities to sign in upon arrival and sign out upon departure.

Employee education is also a key part of trade secret management. Employees must be trained to be careful with proprietary information and warned about what business information is proprietary and what information is not.

Acquiring Trade Secrets

The law of trade secrecy discourages industrial espionage by punishing the efforts of competing businesses to learn one another's proprietary information by improper means.

Improper means of acquiring a trade secret might include:

  • Infiltrating a competitor's production facility
  • Stealing a competitor's documents
  • Bribing a competitor's employees

However, trade secrecy law doesn't stop a competitor from "reverse engineering" a product sold on the open market, or from independently developing the secret. These are considered legitimate means of acquiring a competitor's business information.

Trade secrecy can also be a particular concern when employees change jobs or leave a company to start their own businesses. The employee will likely know many trade secrets of the previous employer, and may consciously or unconsciously use that information in his or her new job. As an employer, you can conduct entrance and exit interviews with employees, in order to control and minimize trade secret transfer.

You can use entrance interviews to inform and educate employees about trade secrets they may encounter in their new position, and limit your own liability by warning new employees not to use proprietary knowledge gained from previous employment at their new jobs.

You can use exit interviews as an opportunity to review what you consider proprietary information and warn departing employees not to use such knowledge in their new jobs.

As an employer, you may also make confidentiality of trade secrets an express condition of your employees' employment contract. These contractual terms can be reviewed in the entrance and exit interviews.

Trade secret law is primarily state law and may vary slightly. There are also criminal penalties in some circumstances.

A little care and planning can go a long way toward making sure your employees don't trade your trade secrets.

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