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How to Protect Your Business’s Trade Secrets

Regardless of your chosen business type, chances are your business has secrets you want to protect. These secrets can be anything from a distributor or an account, to a secret formula used in your manufacturing process, to new product designs that are still in the development phase but not yet ready for sale. These types of secrets are often called trade secrets, generally defined as confidential or specialized information that unique to a particular business—and often one of the keys to its profitability. Given the importance of trade secrets to a business, it’s no wonder state laws provide numerous protections for businesses’ trade secrets.

But just because something is important to your business, or is considered secret by you and your staff, doesn’t mean the law defines it as a trade secret. While it varies somewhat state to state, trade secrets are generally defined as a business secret the business uses reasonable efforts to protect, that confers an economic benefit from remaining unknown to the public. Some of the most commonly cited examples of trade secrets are the secret recipes for Coca-Cola soda and KFC’s secret recipe.

On a very general level, trade secrets are fairly similar to patents, in that both work to protect a design, formula, or other “invention” of a business from being used by the public at large. However, the difference lies in the way these protections work. For a patent to provide protection, the business must register the patent with the USPTO, whereby it gains protection from use by anyone else at the expense of limiting that protection to a set term of years. And you give up the secrecy of the patented item, since you have to publish the patent for all the world to see. A trade secret, on the other hand, stays protected indefinitely as long as it stays secret—so don’t go around sharing your business’s secrets, lest your legal protection for those secrets be terminated.

Now that you know the importance of protecting a trade secret, you need to come up with a way to keep your secret a secret. One of the most common ways for a business to protect its trade secrets is to ensure employees don’t take divulge the secret to anyone, or take it with them when they move on to a new position at a new company. Typically, employers require their employees, and even their contractors, sign a non-disclosure agreement, preserving the confidentiality of the trade secret. It varies from state to state what the penalties for violation of such an agreement would be, but generally an employee who is found to violate a valid non-disclouse agreement will be faced with financial penalties.

Non-diclosure agreements can help a business protect its trade secrets, but what if that secret gets out into the wild—or worse, solely into the hands of a competitor. Well, if a trade secret is stolen or violated in another way, the business may be able to bring a state law claim against the offender. The remedies available to a company who had its trade secret misappropriated are state specific, and would be beyond the scope of this general overview of trade secrets. However, common to most jurisdictions are financial damages and injunctive relief, including compensation for the economic harm and possible punitive damages.

We hope you found our primer on trade secrets to be useful. Remember to keep your business’s secrets safe under all circumstances, and they will be protected for years to come.

Photo courtesy: mugley

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