How to Guard Your Trade Secrets (and Why You Must)

In the connected world that is 2009, almost every company has a trade secret that it wants to keep. Between BlackBerrys, home e-mail accounts, and USB ports that can write gigs of data to a flash drive, it's only getting harder to protect your trade secrets. If you aren't careful, your trade secrets can walk right out the door--and without a well-written contract, you may have little legal recourse.

If you are a start-up, your hoped-for million dollar valuation is tied to your trade secrets. If you are an established business, you may have and continue to develop trade secrets, which likewise may be quite valuable to you. For any business, maintaining trade secrets requires a combination of common sense and good lawyering.

Exactly What Is a Trade Secret?

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In the connected world that is 2009, almost every company has a trade secret that it wants to keep. Between BlackBerrys, home e-mail accounts, and USB ports that can write gigs of data to a flash drive, it's only getting harder to protect your trade secrets. If you aren't careful, your trade secrets can walk right out the door--and without a well-written contract, you may have little legal recourse.

If you are a start-up, your hoped-for million dollar valuation is tied to your trade secrets. If you are an established business, you may have and continue to develop trade secrets, which likewise may be quite valuable to you. For any business, maintaining trade secrets requires a combination of common sense and good lawyering.

Exactly What Is a Trade Secret?

There's no single precise legal definition of a trade secret. Each state has its own unique take on this area of the law. One generally accepted definition comes from the Uniform Trade Secret Act. "Trade secret means information, including a formula, pattern, compilation, program, device, method, technique or process, that:

1. derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

2. is the subject of efforts that are reasonable under the circumstance to maintain its secrecy."

If you think you have a trade secret, a court will look at many factors in determining whether it agrees with you. For example, how widely known is the information outside of your business. How many people know your secret? What security measures have you used to maintain secrecy? How valuable is the information to you and your competitors? How much effort and money have you used to develop the secret? How hard would it be for a competitor to duplicate your information using proper methods?

Sloppy Contracts

Once a trade secret is generally known, you can't claim it as a trade secret ever again. You just can't put the cat back in the bag. Having said that, you usually need to tell at least some people your secret so that they can use it for your benefit. When you do reveal your trade secret to someone, it's essential that you have an appropriate non-disclosure agreement in place before you do so.

Often, a provision requiring that a person not reveal trade secrets is part of a larger agreement. Typically, these agreements include non-competition provisions and provisions about maintaining the confidentiality of proprietary information, which may not be a true trade secret.

Therefore, what you have are three related, but different concepts in these agreements. They are non-disclosure of trade secrets, non-disclosure of proprietary information that doesn't have trade secret status, and non-competition. It can be dangerous to mix them together. It's a stew that may not work.

On the one hand, you have trade secrets. The law is clear. If you give someone implicit or explicit permission to reveal your trade secret, you lose your ability to protect your trade secret. The agreement not to reveal your trade secrets must explicitly be an obligation that lasts forever.