Protecting Your Company’s Trade Secrets

PROTECTING YOUR COMPANY’S TRADE SECRETS

As a business owner, you have a lot to worry about. With all that needs to be done, sometimes the non-physical aspects can be neglected. That’s where we come in.

So you came up with the perfect logo for your business. How can you ensure that it isn’t misused or stolen? Businesses protect their intellectual property (i.e. inventions, written materials, logos, trademarks, and even names) from misuse by registering them with the appropriate federal and state agencies.  Once the registration is accepted and the patent, copyright or right to exclusive use is granted, specific remedies (i.e. legal actions) become available in the event that another person or business misuses your company’s intellectual property. Thereby your registered “creations” become protected assets.

DEFINING TRADE SECRETS

Many business owners fail to properly protect another valuable asset; their own “trade secrets.” Almost all businesses have trade secrets and many businesses have trade secrets that they don’t even realize are legally protectable and don’t know how to get that protection. In a nutshell, trade secrets are what makes a business unique and helps distinguish it from the competition. They can be anything that you have developed that gives you a competitive edge and that you don’t necessarily want your competitors to know about.  Your trade secrets might be a recipe or formula, a color scheme or design, manufacturing techniques, product you are developing, even your software!

Trade secrets may consist of types of information or property that are NOT subject to patents, copyright, trade name or trademark registration. Trade secrets may not even relate directly to your products or services or business methods. They may be made up of general company information from such documents as financial statements, business plan, projections, customer lists, pricing information, or vendor lists.  Even “negative know-how” such as business methods or failed products can be trade secrets. In other words, trade secrets may consist of virtually anything.

ARE YOUR TRADE SECRETS LEGALLY PROTECTED?

Many businesses owners don’t understand that these types of information can also receive the protection of the law of the proper methods for preserving them are observed. Fortunately, those secrets can easily be protected by following a few important steps.

New Mexico has adopted the Uniform Trade Secrets Act, as have most states.  The New Mexico Act says in Section 57-3A-2 that:

(D) “trade secret” means 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 and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and
2. is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

This establishes four (4) basic criteria for a trade secret –

1. It must be “information;”
2. It must derive economic value from the fact that it is secret and not known to others;
3. It cannot be generally known by the public or other businesses in your industry; and
4. You have to treat the information as a secret.

LEGAL OPTIONS IF YOUR TRADE SECRET IS LEAKED

Many businesses lose the protection of the law for their trade secrets by failing to treat their secrets as such. In spite of the popularity of media depictions of corporate espionage or intentional theft by disgruntled employees, most trade secrets are leaked by accident. In other words, it’s far more likely to be a chain of accidents like “Burn After Reading” rather than a slick heist like “Inception”. Therefore, keeping up “reasonable efforts to maintain secrecy” not only gives you legal remedies if they are misappropriated by someone, but will in fact prevent many possible leaks.

If your secret is stolen, meets the legal definition of “trade secret” and you have made the required “reasonable efforts” to protect it, the law provides various methods for limiting or recovering your loss, including injunctive relief (a court-order to do something or stop doing something), actual damages, punitive damages and attorney’s fees.

PROTECTING YOUR TRADE SECRETS WITH POLICY

In spite of the legal options, you should take steps to prevent theft in the first place. Here are some simple steps to ensure that your information is protected with efforts “that are reasonable under the circumstances to maintain its secrecy.”

1. Identify and Label Trade Secrets on a Regular Basis– First, figure out what information you consider to be a trade secret. Regularly list the items that you consider confidential to your business. Divide them into categories depending upon the type of assets they are. Where you can, you should stamp or label written materials as “secret.” You should also be sure that all of your employees are aware of the items on your list.  The list itself may be a trade secret.
2. Set Clear Policies with Employees and Get Their Written Agreement – Once you have your secrets clearly listed, set down in writing how they are to be protected. The more sensitive the information is, the more steps you should take to protect it. Require that all employees sign an agreement acknowledging your trade secrets and agreeing to treat them as confidential and to follow the policies. Make sure that all of these procedures and protection systems are included in a policy statement that is distributed to all employees.
3. Be Diligent in Securing Your Trade Secrets and Limiting Their Exposure to Others– You wouldn’t give someone access to your bank account without knowing what they were going to do and watching closely. Neither should you give someone access to your secrets without limits. Remember, once you have let someone else in on your secret without their written agreement not to disclose it, it is no longer a secret!  Make sure that what can be locked up is locked up.  Establish meaningful password protocols for computers. Don’t leave sensitive information in public view.  If you have to disclose a secret to a third party in the course of business, make sure that they sign a non-disclosure agreement.

The lawyers at Law 4 Small Business are very experienced in these areas and can help you complete the proper filings and registrations for your intangible assets that meet the patent, copyright, trademark or trade name requirements.  Moreover, we are happy to advise you and to provide expert assistance in identifying and protecting all of the other trade secrets of your company.  Let us help you to assure that the competitive edge that you worked so hard to establish is not lost through your own inattention to or lack of experience in safeguarding your trade secrets.

Feel free to contact us.