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5 Steps for Protecting Your Trade Secrets

5 Steps for Protecting Your Trade Secrets

By BarbaraWeltman, Guest Blogger
Published: September 10, 2015 Updated: September 10, 2015

The Coca Cola formula and KFC recipe are two of the most valuable, closely-guarded trade secrets around. But you don’t have to be a large corporation to have highly valuable trade secrets. Information that your business has created in order to function may be trade secrets. Examples of trade secrets include customer lists, supplier lists, pricing and margins, formulas, and other methods of operation. This type of intellectual property (IP) is valuable to you only as long as you keep it secret. Here are some ways that you can protect this highly-valued property.

1. Identify Your Trade Secrets

The definition of a trade secret is very broad, encompassing business or technical information such as a compilation of information, device, formula, method, pattern, program, process, technique, or process that has commercial value and which is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Are your assets trade secrets?

For most small businesses, customer and pricing lists are valuable trade secrets in need of protection. If you’re a restaurant, bakery, or microbrewery, your recipes are clearly trade secrets. But you may have some less obvious, but just as valuable, trade secrets. Think about your operations and if competitors knew what you were doing, would they be compromised. Then create a list of your company’s trade secrets.

2. Keep Trade Secrets Confidential

Identification is only step one; reasonable efforts for protection are step two. You don’t have to keep your secrets in Fort Knox to protect them; marking them “confidential” and keeping them out of the public eye is sufficient because it is reasonable under the circumstances. But merely stamping “confidential” on a piece of paper won’t protect a trade secret if you don’t treat the paper like a secret worth keeping.

  • For trade secrets on paper: keep them stored in a locked file cabinet
  • For trade secrets on computer: limit access to the electronic files

3. Educate Staff About Protection

Employees may not understand what trade secrets mean for your business. It’s up to an owner to point out information deemed confidential.

When an employee is hired, have him/her sign a nondisclosure agreement barring the sharing of any of the company’s confidential information while employed with the company and thereafter. You don’t want an employee leaving the company and taking the customer list in order to start a competing firm. The nondisclosure agreement can be incorporated in a general employment agreement.

It’s also helpful to remind employees from time to time about the company’s trade secrets and the need for confidentiality.

4. Understand Law Protections

Unlike other types of intellectual property—patents, trademarks, and copyrights—the law does not provide for any registration in order to obtain legal protections for trade secrets. Nonetheless, most states have laws prohibiting theft or disclosure of trade secrets. The laws in most of these states are derived from the Uniform Trade Secrets Act, and courts in many states have adopted the principles in this Act. Find a list of states that have adopted such laws here. *

5. Take Civil Actions for Violations

Usually, violations of trade secret laws are civil actions for which violators can be ordered to cease and desist from using the illegally obtained information (injunctive relief) and to pay monetary damages, which usually are all profits derived from the trade secrets; they may also have to pay attorneys’ fees for the party owning the trade secrets. Some intentional thefts, such as corporate espionage, may be criminal, resulting in more severe monetary penalties and even incarceration.

When you discover that a competitor is using your trade secrets, act quickly to stop this action. Your prompt response is an indication of your viewing the information as a trade secret of commercial importance to your business.

Unfortunately, you can’t protect yourself against inevitable discovery, where someone independently derives the same information that you consider to be your trade secret. Competitors may “reverse engineer” your secrets, and you’re just out of luck.

Conclusion

As with all intellectual property, it’s advisable to work with an IP attorney who can guide you on the actions to take for maximizing your protection. A good read on the subject is Harvesting Intellectual Assets by Andrew J. Sherman, which tells you how to uncover hidden revenue in your company’s IP.

*links to non-governmental website

About the Author:

BarbaraWeltman
Barbara Weltman

Guest Blogger

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BarbaraWeltman.