The Key to Trade Secrets: How to Recognize Them and Protect Your Business

Posted by: kevensteinberg
Category: Blog, Business Law
File Folder with "Top Secret" stamp

Google’s search algorithm, the recipe for Coca-Cola, the criteria for the New York Times Bestseller List—all three are secrets that give Google, Coca-Cola, and the New York Times a competitive advantage in their respective markets. They add unique value to these three large companies, and because of this value, these secrets are heavily protected. Coca-Cola goes so far as to keep their secret formula locked in a closely guarded vault

But famous trade secrets like these represent only a fraction of what trade secrets can cover and the types of businesses that can profit from them. In fact, all types and sizes of businesses may have sensitive information that is more valuable if kept private.

What Are Trade Secrets?

The first step to protecting trade secrets is to understand what they are. The Uniform Trade Secrets Act (UTSA) in California defines a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique, or process that: (1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from it’s disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” 

Basically, a trade secret can be any piece of information or practice that gives your company an edge through being kept private. 

This definition is remarkably broad, expanding the intellectual property you can protect beyond what is protectable through copyright, trademark, or patent law. Nearly every business has one type of trade secret or another they can and should protect. But many of these potential secrets are overlooked

What Information Qualifies as a Trade Secret? 

Not every trade secret is as high-profile as the Coca-Cola recipe. Most are much more common in general business practice. Here are just a few common types of trade secrets

  • Customer Lists: A list of preferred customers including their information, needs, or preferences. 
  • Marketing Strategies and Information: A marketing plan for a new product or service before that plan is implemented. This may include the target audience for your product, specific marketing venues and opportunities, plans for publicity, and other elements of your marketing strategy. 
  • Unpatented Inventions: Any invention that is not patent protected. The invention may be one that does not qualify for patent protection or whose patent application is pending. 
  • Software: Custom software for inventory management, cost regulation, or other functions. This can include programs and apps related to your business, for example, the specific programming of a ride-share or delivery app. 
  • Formulas and Recipes: A secret recipe for a new food item, for example, the recipe for a signature coffee or other craft beverage. 
  • Techniques: A special technique or method for creating products, engaging with customers, or organizing your business.
  • Processes: A specific process for extracting materials for manufacturing, or the process for giving a product a unique characteristic. 
  • Financial Information: This may include proprietary cost and pricing information, employee compensation plans, bid specifications, and more. 
  • Negative Research: Knowledge about what does not work. This includes information about your failed efforts, the results of trial and error, and other research about what doesn’t work for your products or processes. 

It’s likely your business utilizes at least one of these types of information. Recognizing these secrets in your own business and seeing their value can help you determine the best methods for protecting them.

3 Ways to Protect Your Trade Secrets

The defining characteristic of a trade secret is that it is valuable because it is secret. And those secrets require protection to remain confidential. 

Proper security measures will help prevent your trade secrets from discovery and misappropriation. Misappropriation occurs when someone acquires a trade secret through improper means, such as through theft, bribery, corporate espionage, or breaching a nondisclosure agreement. If someone steals a trade secret, the UTSA in California allows you to take legal action against that person or company. Recently, former Uber executive Anthony Levandowski was sentenced to 18 months in prison for stealing trade secrets from Google in a monumental trade secrets case. In order to take advantage of the UTSA to protect your company’s trade secrets, as Google did in this case, you must make “reasonable” efforts to maintain their secrecy. These efforts can take various forms, but will generally fall into three categories: 

Physical Security: The Coca-Cola vault mentioned at the beginning of this article is an extreme example of physical security. Their secret formula is physically locked away, and access to that formula is severely limited. If your trade secret is composed of physical materials, you might protect it by restricting access to those materials. You may use keycards to control access to certain rooms or lock away those materials after business hours, allowing only those with a reasonable need-to-know to have access. 

Any hard copy company documents that contain trade secrets should also be protected through physical security. Like physical materials, these documents may be locked away in a secure cabinet, room, or safe when not in use. Access to these documents should be limited to key employees or to a few authorized individuals. To further protect confidential business documents you may implement sign-in/sign-out procedures, keycards, or other measures to monitor access. 

Digital or Network Security: With the vast majority of company information being stored on internal networks and the cloud, digital security measures may be some of the most important tools for protecting trade secrets. 

Digital security measures may include using password protection on files associated with a trade secret, encrypting trade secret files, restricting employee access on the network to only the files needed for their specific roles, creating rules for employee computer and internet usage, preventing employees from accessing the company network from personal computers or devices, and monitoring or restricting file-sharing methods like the use of flash drives. You may also use tracing software to monitor access to secure files and alert IT or key members of management of any unauthorized activity or intrusion.

Legal Measures: One of the “most effective ways to protect trade secrets” is through nondisclosure agreements (NDAs) and confidentiality agreements. A trade secret NDA can prevent an employee, vendor, or third party from revealing confidential information that was disclosed to them during the course of employment, during specific meetings, or other business transactions. With an NDA in place, you can ensure that proprietary information will remain secret. 

Another simple step you can take to protect trade secrets is to mark them as confidential. That way everyone who comes in contact with those secrets is aware of their status. Other legal methods you can use to protect trade secrets are training employees on how to handle confidential information and conducting exit interviews. 

The specific steps you take to protect your trade secrets will depend on the value of that secret and your business’s needs, but will likely consist of measures from more than one of these categories. 

Identifying trade secrets and protecting them is easier with confident legal counsel on your side. Keven Steinberg and his team have helped numerous small and medium-sized businesses identify their trade secrets and establish procedures to protect them.

Contact Steinberg Law today to begin safeguarding your trade secrets and protect your California business. 

Author: kevensteinberg