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Protecting Trade Secrets

Pssst! Companies trying to protect trade secrets have some work to do.

Many businesses owe their success to a trade secret - whether it's Grandma's recipe for biscotti, a special part that goes into a widget, or even a proprietary method for making a certain part or product. Protecting that secret and keeping it out of the hands of competitors can be vital to the continued success of the business.

In the United States, there are laws to protect intangible assets, including trade secrets. But the company and all of its employees must do their part as well.

Most states have adopted some form of the Uniform Trade Secrets Act, which defines and protects trade secrets. While the legal definition varies slightly from state to state, a general definition would be: "a piece of information that has independent economic value by not being generally known and can reasonably be maintained a secret." The act is fairly broad and protects almost any information that gives a business a competitive edge. But as the wording suggests, a company is expected to take reasonable precautions to help secure the information's secrecy.

The following tips are for businesses that wish to protect their trade secrets:

  • Identify What Needs Protection
    Identify each piece of information that you wish to protect and create a system of identifying newly created material that requires secrecy. When selecting, try not to be too inclusive because this might trivialize protection of trade secrets.
  • Label Documents That Contain Protected Information
    Documents that contain or reflect trade secret information should be labeled "confidential." Limit copies and circulation of these documents and, when necessary, number copies and require the documents be checked in and out.
  • Monitor Where Information is Stored
    Conduct an information audit to determine where vital information is stored and who has access to it. Include all hard copies, desktop and laptop computers, and diskettes. Look for potential weak spots.
  • Secure Computers
    Require passwords for access to computers containing sensitive information. You'd be amazed how many laptop computers are stolen each year. Visa International even had a desktop computer stolen that contained confidential information on thousands of credit card accounts.
  • Maintain Secrecy With Outside Vendors
    In contracts with outside entities, include a strict confidentiality provision regarding the trade secrets. When outsourcing production of any of your products, try to choose different vendors for different parts. Do not disclose the final product or the relationship between the pieces.

  • Provide Adequate Security
    For a smaller business, perhaps a locked filing cabinet is enough security. Bigger companies might need security officers, secure zones and badges.
  • Limit Public Access to the Company
    Curb public tours and require that all visitors sign in.
  • Use Caution Internationally
    Understand that not all countries respect U.S. policies protecting trade secrets. If you are conducting business internationally, be very careful to whom you disclose information.
  • Set Up Employee Training and Policies
    Require that all employees who will be working with trade secrets take training and sign a non-disclosure agreement and a company policy regarding protection and proper handling. Provide refresher courses. If information is mishandled, let the employee know and take disciplinary action if needed. Hold exit audits with employees leaving the company requiring them to return any trade secret materials and reminding them of their non-disclosure agreement. It is important to be careful when dealing with employee policies, as there are strict laws governing confidentiality and non-compete agreements. It's a good idea to have a lawyer review the wording of such clauses, or have a lawyer write them.

Taking responsible actions can not only help prevent trade secrets from falling into the wrong hands, but should a trade secret ever be misappropriated, a court of law may be more sympathetic to your case.

Next Steps
Contact a qualified business attorney to help you identify
how to best protect your business' intellectual property.
(e.g., Chicago, IL or 60611)

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