How Does A Company Identify And Protect Its Trade Secrets?

T. Randolph Catanese, Esq. © 2000. All Rights Reserved.

The first two articles in this series discussed what constitutes intellectual property, how intellectual property may be protected and how infringement of intellectual property normally occurs. This article will discuss what constitutes a “trade secret” and will identify what internal action should be taken by a company to protect its trade secrets.

In its simplest form, a trade secret is something specially developed by the company and which is not known to the outside world.  And, something which would require a great deal of effort, time and expertise to develop by a third party, if they could even develop it at all.

Case law and statutes which have discussed trade secrets and how they are protected often times look to one single element in determining whether something is a trade secret or not – and that is how did the owner of the trade secret act and treat the same internally.  Meaning, what did the owner of the proprietary information do at its own level to identify the information or process as trade secret and what was due to maintain it as such.

One of the things the courts will look to determine if something is trade secret is to determine whether it was identified as such by the company.  For example, was the information kept in a locked cabinet and was it marked “trade secret” or “confidential.”  Was the information generally accessible to all corporate employees or was it only accessible to the highest level executive?  Was the information publicly disseminated or was it kept private and confidential?  This is the type of questioning and analysis the court will look to in determining whether a trade secret is actually a trade secret.

Several steps a company can take to maintain information as trade secret are the following.  First, anything that is determined to be a trade secret should be marked as such – documents should be marked trade secret or confidential.  Second, this information should be kept in a secure and safe location.  If it is a trade secret it should be kept in a cabinet and should be locked with access only to key employees.  Third, if the information is on a computer system, it should be subject to a password with security code.  If backups of the information are made the backups should be placed in a locked cabinet and not generally accessible.  Fourth, if customer lists or key vendors are deemed trade secret, then the employees interfacing with these customers and vendors should be notified that they are deemed trade secret by the company and non-disclosure agreements should be obtained by these employees acknowledging the same as trade secret.  Fifth, if an employee is terminated for any reason or voluntarily discharged, any information the employee has which was proprietary and used by the employee in the performance of their services should be immediately returned to the company.  Although these measures will not guaranty a finding by the court that the information or process is deemed a trade secret, any business dispute lawyer would agree that it will go a long way in convincing a judge that the information is, in fact, a trade secret of the company.

When these steps are taken not only is the proprietary information better protected from a competitor since it is unlikely it would be leaked out as easily as if there were no actions taken to protect the information, but these actions should show any potential investor that the company is serious about protecting its intellectual property and preserving the value it adds to the company.

In conclusion, any company which owns proprietary information and which is to maintain the intellectual property rights without infringement by another should first take advantage of any statutory rights available for trademark, service mark, copyright and patent, but secondly exercise appropriate internal controls to identify and maintain proprietary information as trade secret.

The next and final installment in this series on protecting intellectual rights will focus on several case studies and examples of these concepts in action.

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