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How To Protect Your Business's Trade Secrets
A Guide to Trade Secret Protection
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Operations & Success
Sustainable Businesses
Business Law & Taxes
What Are Trade Secrets?
How to Protect Your Trade Secrets
Trade Secret Laws
What If Trade Secrets Are Stolen?
What is the most common type of theft of trade secrets?
Jean Murray
Jean Murray, MBA, Ph.D., is an experienced business writer and teacher. She has taught at business and professional schools for over 35 years.
Any bit of information that lends your business a competitive advantage can broadly be defined as a trade secret. Every business has trade secrets, and it's important to protect them from being used without your knowledge.
This article discusses trade secrets, how to protect them, and what to do if they are stolen.
According to law, a trade secret is defined as:
Confidential, commercially value information
Something that is secret because it has economic value (the term often used is "proprietary," having exclusive ownership rights)
Something that your business is making a reasonable effort to keep a secret
That last part of the definition is the most important. If you don't make the effort to keep your business's proprietary information secret, you can't complain because someone else has stolen it. It's like leaving your car unlocked and then complaining when your valuables inside are stolen.
Here are some examples of trade secrets:
Formulas: A secret formula for a new food product (like Coca-Cola's famously secret formula)
Patterns: A special pattern for making running shoes
Programs and apps: An app for determining the market value of your products
Devices: A device for capturing images in a new way
Methods: The method the New York Times Book Review uses to determine its best-seller list
Processes: A new process of making ice cream that gives it a different consistency from other ice creams
What Qualifies as a Trade Secret?
Juries look at several factors in assessing whether something is a trade secret, including:
How much is known about the information outside the company
How much is known by employees and others involved in the company
What measures were taken by the company to guard the secrecy of the information
How valuable the information is to the company and its competitors
How much effort or money the company spent on developing the information
How easy or difficult would it be for the information to be properly acquired or duplicated by others
Protecting trade secrets isn't just a one-time fix but a continuing process that you set in place in your business and maintain. Constant vigilance is the best protection.
Here are seven steps you should take to protect your business's trade secrets:
Identify trade secrets in your company.
Provide physical security by setting up protocols for visitors, restricting access, and using video surveillance and security monitoring.
Provide cybersecurity by limiting computer access, monitoring emails and remote access, and keeping computer event logs.
Know insider threats, learning how thieves, competitors, and adversaries work.
Provide training for executives, employees, and contractors.
Appoint someone to be in charge of your overall plan.
Have a plan for responding to incidents to minimize the damage and deal with law enforcement.
Get legal help to set up and maintain trade secret protection. Find an attorney who is familiar with trade secret law to craft your key documents and give you advice on policies and procedures.
Confidentiality Agreements/NDAs
One way to keep key employees and others from stealing your trade secrets is to have them sign a confidentiality agreement, sometimes called a non-disclosure agreement or NDA. The agreement is a legally binding contract between your company and an employee, vendor, or contract worker. The contract should state what specific trade secrets must not be disclosed, and there should be a time period when the agreement is in effect.
Describe the information you want kept secret as completely as possible so there's no misunderstanding about what's being protected. Also, specify the time period during which the information is to be kept secret; don't leave it open-ended.
Trade Secrets vs. Copyrights and Patents
Another way to protect your trade secrets is to copyright or patent them. Trademarks aren't usually considered trade secrets because they are visible to all, like logos and website graphics. The protection of a copyright or patent is different from the protection you would give a trade secret because copyrighting or patenting the trade secret makes it known to the public.
For example, if you develop an app that evaluates potential customers in a new way, you could keep it within your company as a trade secret or you could patent it and sell it. There's no time limit on keeping a trade secret, except that it might be stolen. Patenting the app helps you to make your case in filing a lawsuit against someone you think has stolen it.
Trade Secret Copyright or Patent
Internal/external protection Internal External
Internal processes and system Business processes and systems Registration
Protection term Indefinite Limited
Proving protection Must first prove that it's a trade secret Registration makes it easier to take to court
Federal and State Trade Secret Laws
The Uniform Trade Secrets Act (UTSA) created a uniform law that all states could use to counteract misappropriation (theft, embezzlement, swindling) of trade secrets by improper means. These improper means include theft, bribery, misrepresentation, breach of contract (of a confidentiality agreement, for example), or espionage.
To date, 47 U.S. states have adopted the UTSA, but some states have slightly different laws. Learn the law in your state to make sure you understand your protections.
The Economic Espionage Act of 1996 protects trade secrets that can be used to benefit a foreign power. Violations of this act may be tried in federal court.
A more recent law, the Defend Trade Secrets Act of 2016 creates a federal, private, civil case for theft of a trade secret. Before this law was passed, trade secret cases were tried in state courts, where protections were different for each state.
You have several ways to fight back if you think your trade secret has been stolen
The first thing you should do if you think a trade secret has been stolen is to get the help of an attorney to get you an injunction. An injunction is a court order for someone to stop doing something, like using your trade secret for profit. This is called "injunctive relief" because it relieves or minimizes the injury to your business from the theft. An injunction may be temporary while the legal process is going forward, or it might be permanent, depending on the circumstances.
Once you have limited the damage with an injunction, you and your attorney can start to take legal action against the theft.
You will need to act quickly; the quicker you file a lawsuit, the more weight the court gives to your seriousness in protecting your trade secrets.
How can I get compensated for the theft of my trade secret?
You must take someone to court for theft of your trade secret. If the court finds in your favor, you can collect damages, including lost revenue, attorney fees, and possibly punitive damages. Keeping good records of costs and income can give you an advantage when it comes time to determine the damages.
How long can a trade secret be protected?
There's no limit to the length of time your company can keep a trade secret. For most types of patents, the patent is granted for 20 years. If you copyright your secret, the copyright lasts for the life of the author plus 70 years. If the work is made for hire (by an employee for your company, for example), the term is 95 years from first publication or 120 years from creation, whichever expires first.
What is not a trade secret?
It's not a violation of trade secret law for someone to:
Independently develop the information in a trade secret
Analyze publicly available products or information to discover secret information, or
To reverse engineer a product by working backward to figure out how it was made.
Many trade secrets are stolen by employees, but some are thefts by competitors. Here are a few examples:
A former employee of Susquehanna International Group was charged with a misdemeanor for attempting to access a protected computer with the intent to steal proprietary computer codes. The court's decision required him to pay restitution to the company.
An engineer at Dura-Bar, a cast-iron manufacturer, spent his last day at the company downloading over 1,900 documents to his personal hard drive. He was stopped while trying to escape. A jury found him guilty for the theft of some of the documents, but others were not considered trade secrets.