Your company works hard to develop a competitive advantage in the marketplace. Your competitive advantage is due in large part to the unique business practices that set your company apart from its competitors. Protecting your competitive advantage is critical to your continued success. To protect your competitive advantage, you must be aware of what constitutes protected trade secrets of your business, and the steps you should take to safeguard them.
A trade secret is generally defined as any type of valuable information used in your business that is not generally known to the public or your competitors. Trade secrets give your company a competitive advantage in the marketplace because your competitors do not know nor use the trade secret information. In particular, a trade secret must actually be kept a secret by your business. The trade secret information must be sufficiently protected such that a competitor would have great difficulty acquiring it except through improper or illegal means. Your company must take basic precautions to protect its trade secrets to ensure that a court will protect them should your competitors improperly use this valuable information. Owners of a valid trade secret have the right to prevent other competitors from using their valuable information and in some cases, collect money damages for improper use.
The first step in protecting your company's trade secrets is identifying the actual trade secrets your company possesses. Obvious examples of trade secrets include unique product designs, proprietary software, inventions, and manufacturing processes. However, trade secrets can also include information that a company has expended a great deal of time and effort to develop. Potential examples include customer lists, strategic business or marketing plans, or proprietary development and/or production methods specific to your company.
Once you have identified your company's trade secrets, you must develop a program to protect them from improper use by your competitors. In short, you must take measures to ensure that your trade secrets remain secrets. When developing your company's trade secret protection plan consider the following steps given the nature of your business and the information you want to protect.
* Designate documents containing trade secrets as confidential. This is the simplest and cheapest way to provide some protection of trade secrets contained in document form. Mark all trade secret documents with a clearly noticeable confidential stamp. However, be discriminatory with your confidential markings. Mark only those documents which actually contain protected trade secret information. If you simply mark every document with a confidential stamp, the documents actually containing trade secret information could lose protection from a court because of indiscriminate confidential markings.
* Create physical and/or technological barriers to trade secret disclosures. Another simple method to protect your trade secret information is to physically block access to it. Separate your trade secret information from your other non-proprietary information by storing the trade secret information in a locked file cabinet. In the likely event that the trade secret information is stored on your company's computers, password protect the trade secrets so they can only be accessed by selected individuals.
* Limit disclosure of your company's trade secret to employees who need to know such information. Identify which employees need to have access to your trade secret information to do their jobs. Determine whether such employees should have full or partial access to information like customer lists, product prototypes, or strategic business plans. Keep track of all trade secret documents distributed to these employees, and require the information to be returned by the employees after they are finished using it.
* Educate your employees on the importance of protecting trade secrets. Most improper use of trade secrets is perpetrated by current or former employees. It is imperative that you educate your employees about your company's trade secret policy. Develop a written policy with respect to your trade secrets and distribute the policy to your employees. The policy should address the proper (and improper) use of trade secret information, prohibited transfer or disclosure of trade secret information outside of the company, and penalties for improper trade secret use or disclosure by employees. Require that employees sign the policy to indicate that they have read and understand it, and strictly enforce the policy.
* Use confidentiality and non-disclosure agreements with key employees, consultants, independent contractors, and potential business partners that have access to trade secret information. A confidentiality and/or non-disclosure agreement should not only prohibit disclosure and use of your protected trade secrets, but should also prohibit your employees from obtaining and/or using your competitors' trade secrets. Should an employee with access to trade secrets leave your business, always conduct an exit interview reminding the employee of their continuing confidentiality and non-disclosure obligations.
* Monitor your competitors for improper use of your trade secrets. In order to tell if your trade secrets are being improperly used, you must actively monitor competitors in the marketplace to determine if your trade secrets have been disclosed and exploited. In particular, monitor competitors who have recently hired your former employees who may have had access to your trade secret information.
The unique processes and practices of your company are one of your primary assets. Protecting these assets requires a carefully considered trade secret policy, strict adherence to that policy, and vigilance in enforcing the policy. Protect your company's competitive advantage by implementing these measures to ensure that the trade secrets you spend significant time and money developing do not unnecessarily leak to your competitors.
Zach Wadle is an associate in the Reno office of the Nevada-based law firm McDonald Carano Wilson and works primarily in the areas of commercial and civil litigation.
