Friday, August 25, 2017

Trade Secrets: Tips for Protecting the “Other” IP Right

Ask an entrepreneur what type of intellectual property protections are most used by businesses to help create competitive advantages and they’ll probably answer with some combination of patents, copyright, and/or trademarks. But they would be wrong. The most common form of protection used by businesses is actually secrecy.

Until recently, trade secrets received less attention than other forms of IP. The recent passage of the Defend Trade Secrets Act (“DTSA”) in 2016 has more companies thinking about trade secrets as a tool to protect intellectual property. Although the DTSA created more robust trade secret protections, businesses must still take active measures to protect and prevent the unwanted spread of their trade secrets. 

The answer to what constitutes a trade secret, like a lot of other legal matters, is “it depends.”  The definition of “trade secret” differs from one jurisdiction to another.  Generally, it refers to information that: (1) is secret (i.e. is not generally known among, or readily accessible to, circles that normally deal with the kind of information in question; (2) has independent economic value from being confidential; and (3) is the subject of reasonable efforts to maintain its secrecy. Trade secrets include things like sales or distribution methods, consumer profiles, advertising strategies, lists of suppliers and customers, and manufacturing processes.  Ultimately, what information constitutes a trade secret will rest on the circumstances of each individual business.

While there is no clear answer to what exactly constitutes “reasonable efforts” to maintain the secrecy of confidential information, companies  generally use measures such as company policies and nondisclosure and confidentiality agreements with third parties and employees. In the digital age, companies must also implement network security measures and limit access to digitally stored information. 

The following steps can help ensure that your sensitive information is protected from misappropriation:

1. Develop a Clear Corporate Policy.  

Building a strong corporate trade secrets policy not only provides clear guidance for your employees, but also helps demonstrate that your company has adopted thoughtful measures to protect its confidential information. This policy should lay out your company’s  general guidelines and principles concerning trade secret protection and inform employees of their affirmative obligation to protect this type of information. 

2. Create a Dedicated Trade Secrets Team.  

Due to the speed at which confidential information can travel if it falls into the wrong hands, it is essential to form a dedicated team of knowledgeable people that can act as a first line of response in the event of a breach. This team can also act proactively to prevent security breaches by maintaining an inventory of trade secrets, continually updating trade secret protection policies, and training employees on best practices for protecting confidential information. The most effective teams are cross-functional, incorporating employees from divisions such as IT, HR, training, records management, security, technical, and, of course, legal. 

3. Establish Comprehensive Procedures for Information Security.  

Institute a set of comprehensive procedures that can be followed consistently. Start by categorizing information and determining the security measures necessary to protect each category. 

  • For electronic information, consider practices such as confidentiality designations in file names, requiring strong passwords with frequent updates, and restricting the ability to attach confidential information to external emails. 
  • Consider implementing detailed confidentiality and/or nondisclosure agreements with both employees and third parties. 
  • Develop a clear set of procedures for handling sensitive information when an employee leaves the company.

4. Proactively Monitor the Marketplace.  

Consistently monitoring the marketplace in which you operate so you can more readily detect any theft or breach as soon as possible. Keep an eye out for the introduction of new products or features in an unusually short time frame. The more quickly your trade secrets team becomes aware of a potential information security breach, the more likely it is that they will be able to prevent or, at the very least, minimize the unwanted dissemination of trade secrets. 

Of course, these are only general suggestions. You need to find the individualized formula that makes sense for protecting your trade secrets. With the right processes and procedures in place, trade secrets can be a legitimate tool for businesses of all sizes to protect the information that gives them a competitive advantage. 

1 comment :

  1. This is a spot-on quick reference guide to an invaluable IP right. I'd add that it's worth a company's time to create and continually update a detailed list of information/processes/documents that it regards as trade secrets and to designate those items as such so that employees and partners are aware of the claim.