Protecting Corporate Trade Secrets

A corporation’s trade secrets are its lifeblood. Indeed, it is through this information that a company generates a profit and maintains its reputation in the industry. A trade secret includes any unique information that carries value. There are both state and federal laws which pertain to trade secrets. Unfortunately, federal laws do not provide strong protections. This has weakened U.S. companies that have fallen victim to international trade secret misappropriation.  In response, since April 2014 the U.S. Senate has been considering the Defend Trade Secrets Act to provide stronger national protection for domestic corporations.  Nonetheless, companies can take steps to establish internal protections for their trade secrets.

A. Trade Secrets Status

A corporation cannot claim a trade secret if it is publicly known information. Most importantly, it must be information that is not available to competitors. For example, the recipe for Coca Cola is a trade secret. In fact, this recipe is arguably the most expensive trade secret in the world. Coca Cola could not claim its recipe as a trade secret if it was readily available to Pepsi.  Any information that a corporation freely provides to customers, trade associations, outside parties, or the general public cannot constitute a trade secret.

B. Confidentiality Agreements

There is a limited exception if a corporation provides access to its trade secrets, but first requires a confidentiality agreement.  It is important for corporations to have a legally-viable confidentiality agreement in place.  These agreements allow access to the trade secret information for purposes of ongoing business.  However, the agreement outlines the terms of access to the information and prohibits any unauthorized distribution.  So, a potential client could have access to a trade secret to discuss future projects, but the client could not discuss these secrets with a competitor or a third party. Anybody, including employees, independent contractors, and potential clients, should be required to sign this type of agreement before gaining access to trade secrets.

C. Steps To Maintain Trade Secret Status

In general, courts will often look to see whether a corporation took reasonable steps to protect the secrecy of its valuable information.  For example, it may be a good idea to include warning labels indicating that any trade secret is protected information.  Such a warning should be clear and highly visible to avoid confusion. Furthermore, physical and electronic protections can help restrict access to protected information.  This includes storing physical copies of trade secrets in a secure location—such as a locked safe with restricted access. Since information is often also stored electronically, corporations must implement network protections to protect their trade secrets. Non-compete agreements can also be very helpful in maintaining trade secrets.  However, based on state law, these agreements may not be enforceable. For example, California requires a very high burden of proof before enforcing non-compete agreements.  The argument is that such agreements prohibit the free-flow of goods and services and restrict economic growth.  Nonetheless, an agreement that is reasonable in time and scope may be enforceable.  It will help ensure that employees who access trade secrets and later leave the company do not immediately turn the information over to a competitor.

At our law firm, we help our corporate clients establish a framework to protect trade secrets. In the event of trade secret misappropriation, or theft, an experienced litigator can help explain the legal remedies.   You may contact us to discuss your legal options.