Trade secrets: You may have more than you think

You can build intellectual property value by documenting your company’s proprietary information

All businesses, large and small, are well-advised to critically assess their intellectual property on an ongoing basis. Patent, trademark or copyright law may not adequately protect valuable business information like strategic plans, customer lists, compiled information, useful techniques and unsuccessful ventures. Yet companies can protect information that contributes to an economic advantage as a trade secret — a recognized form of IP — by actively preventing its disclosure outside the company.

The key algorithm, the special sauce, the original recipe — certainly these obvious sources of trade secrets should be included in the overall IP strategy. But other information should not be ignored. Almost any information can be kept as a trade secret, except general knowledge in the field, general ideas and concepts, and information about how a something in the public works. With such a broad definition, it’s safe to presume that almost all companies in operation are in possession of some information that could be protectable as a trade secret given this broad definition.

Criminal and civil laws protect against misappropriation of information held as a trade secret. In general, courts will grant relief to a trade secret owner against a party with unauthorized access to the trade secret provided it can prove the three basic elements of a trade secret misappropriation claim:

  • The information must derive its value because it is a genuine secret — it is not generally known to others, and economic harm would result to its owner if it is disclosed
  • The owner must take reasonable precautions to limit access to the information to maintain its secrecy
  • An unauthorized party received the information wrongfully, for example, through breach of a contractual or implied duty, using the information without license, or through outright theft or other unlawful activity

Adequate trade secret protection and the strength of a legal claim in the event of theft or misappropriation of the information will depend on how a company navigates two interdependent points of flexibility: identifying the trade secret in the first place, and then determining those reasonable steps needed to protect it.

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Secrecy is the starting point — secrecy creates information that confers a special economic advantage or benefit to the owner’s business because others do not know it. Almost by definition, generally-known information cannot specifically contribute to the success of a business relative to its competitors. But secret information, and the active steps required to ensure its secrecy, may create a protectable business interest that adds to the overall value of a commercial enterprise.

Once identified, it is important to take active steps to safeguard the trade secret by limiting its internal access. There are no specifics for these steps, but in general, more valuable information must be afforded more precaution. Part of proving the wrongfulness of the unauthorized party’s acquisition of a trade secret will consider the reasonableness of the steps taken to circumvent those security measures in place to prevent the unauthorized disclosure.

Identification means that the trade secret information is clear and distinct from other information. Personnel with access to and knowledge of trade secret information should recognize the need to handle it securely according to a specific protocol. Courts will not automatically presume that your employees will recognize what information is a trade secret and understand their obligation to maintain secrecy.

Documenting the variety of trade secrets and security measures in place to protect them is essential, as this documentation will form the foundation of any court case later brought to enforce rights. In fact, in a few states, a plaintiff in a trade secret misappropriation claim must specifically identify the trade secrets at issue as a condition to obtaining relief. And the relief available to remedy trade secret misappropriation can be considerable depending on the value of the asset at issue or the level of misconduct involved in obtaining it: from economic damages to injunctive relief to fines and jail time in parallel criminal cases the government may pursue. Given the potential liabilities at stake, a robust trade secrets program may deter competitors’ ambitions to gain access to a company’s confidential information by any means.

Every business must determine the resources necessary to create and protect valuable IP assets as part of its long-term risk minimization strategy. The flexibility of trade secret protection is a potential source of considerable value if a company takes the time to assess protectable information that it could maintain as a trade secret. It’s certainly true that for this particular IP asset, you may have more than you think.

Contributing Author

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Matthew McFarlane

Matthew McFarlane is a trial attorney at Robins, Kaplan, Miller & Ciresi L.L.P. who represents clients in a variety of intellectual property matters....

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