TRADE SECRETS

   Provided by: Judge Ruth B. Kraft

 

The Uniform Trade Secrets Act, which has been adopted by most states, defines a trade secret as information, including a formula, drawing, pattern, compilation including a customer list, program, device, method, technique or process which derives independent economic value from not being generally known or available, and is subject to reasonable efforts to maintain its secrecy.  Information is considered a trade secret if it provides competitive value to its owner and the owner takes substantial steps to keep it secret.

 
Do you have trade secrets?  Absolutely!  If you have a customer list, a special method for performing a task or a process for making a product, then you have a trade secret. It doesn’t have to be anything as carefully guarded as the formula for Coca-Cola!  But, for information to be considered a trade secret, you must treat it as such.
 
The first step in protecting trade secrets is including a confidentiality policy in your employee handbook that sets forth the employees’ obligations.  The policy should state that trade secret information should never be communicated to a third party without authorization.  It is also prudent to couple a confidentiality agreement with a non-competition agreement.  States differ as to the temporal period and geographic scope of non-compete agreements. A covenant not to compete, as a contractual agreement, requires some form of consideration.  Agreeing to sign in consideration of an employment offer constitutes valid consideration.  After the hire date, some consideration must be offered.  This is why it is imperative for employers to be represented by counsel such that they have legally appropriate confidentiality/non-compete policies and understand the correct methods and timing of their implementation.
 
Additionally, it is extremely important that employees have access to information on a need to know basis only. Any documents or other information stored electronically should require a password.  Password protection will limit the number of people with access and, if information is stolen or misused, can help to identify the person who last accessed the information.  When an employee leaves the company, a valuable “best practice” is to take a snapshot of their computer activity leading up to the date of departure. 
 
How much protection does your company need?  It will vary depending on the type of trade secret, its usage, the size of your business and the downside risk but, regardless, it is wise to develop or update your confidentiality policy with the assistance of counsel.