Protecting the Secrecy of Trade Secrets
By Alicia Koepke
Many companies believe that there is something special or unique about what they do (or how they do it) that gives them an advantage over their competitors. Those companies would like to be able to assert that their methods, techniques, processes or other information are “trade secrets” that their employees, competitors and others are not entitled to steal. There are several requirements that must be met for information to qualify—and therefore be protected—as a “trade secret.” But, one of the requirements that often is missing should be the most obvious requirement of all: the owner of a “trade secret” must take reasonable efforts to keep the information a “secret.”
Many companies fail to adequately protect the secrecy of their information, preventing them from obtaining protection under trade secret laws. This article explains the secrecy requirement and offers advice on measures manufacturing and other companies can take to increase the likelihood that they meet the secrecy requirement and, in doing so, do not lose protections that might otherwise exist for their information under trade secret laws.
Securing State and Federal Protection
Both state and federal trade secret laws require the owner of a trade secret to take efforts to protect the secrecy of the information at issue. If the owner fails to do so, the information does not meet the definition of “trade secret” and cannot be protected as such.
At the state level, nearly all states have adopted the Uniform Trade Secrets Act (UTSA), in one form or another. The UTSA requires trade secret information to be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” At the federal level, the Defend Trade Secrets Act (DTSA) requires the owner of a trade secret to have “taken reasonable measures to keep such information secret.”
What will be considered by a court to be reasonable to protect such information will depend on the circumstances, as the UTSA language makes clear. But, there are several steps that a company can implement to increase the likelihood that it will meet its reasonable-efforts burden.
Limiting Trade Secret Access and Documenting Commitments to Secrecy
To start, companies should limit access to their trade secret information to only those employees and other persons who need to know the information for the performance of their duties. One of the best ways for companies to show that they have protected the secrecy of their information with those persons is to require all employees—and all other individuals or companies with access to their trade secret information—to sign binding, written contracts identifying the information that must be kept secret and agreeing to keep the information secret. By requiring individuals and companies to sign written agreements to maintain the secrecy of information, companies may provide themselves with protection under trade secret statutes, breach of contract principles and other laws to the extent that they are not pre-empted by the trade secret laws.
In addition to stand-alone confidentiality or non-disclosure agreements, companies can implement employment policies to reinforce employees’ obligations to keep certain company-related information confidential. Companies should consider requiring their employees to sign an acknowledgement of such policies, as proof that the employees reviewed the policies and agreed to keep the information confidential.
Physically Protecting Secrets
Documenting commitments to keep information confidential is an important first step, but companies also should take measures to physically protect their trade secret information. Companies can do this through a wide-variety of methods, including:
* Password and other technological protections for trade secret information that is stored electronically;
* Limiting access to and securing portions of manufacturing plants and other facilities that contain trade secret information; and,
* Keeping logs of individuals and companies who obtain access to the information and for what purpose.
Of course, it is helpful, from time-to-time, to remind individuals with access to trade secret information about the importance of protecting the secrecy of the information. Companies can do this by:
* Stamping or otherwise identifying information as “confidential” or “trade secrets” when the information is disclosed or communicated from one person to another;
* Reminding individuals through correspondence that information must be protected; and,
* Reinforcing in face-to-face training and other communications the necessity of protecting such information.
Protection During the Employee Exit Process
In addition to reminding employees of their obligations during the employment relationship, companies should remind departing employees of their continuing confidentiality obligations, ensure that departing employees have not removed trade secret information in anticipation of leaving and require departing employees to surrender all trade secret and other confidential information prior to departure.
Ideally, companies should conduct an exit interview with departing employees in which they obtain a renewed agreement (preferably in writing) from departing employees that the employees have complied, and will continue to comply, with their confidentiality obligations and have returned all trade secret and other confidential information. An exit interview is an ideal time to offer departing employees another copy of agreements and policies addressing trade secrets. And, it affords companies an opportunity to ask departing employees about their future career plans, which can help companies assess the risk that the employees could benefit from using the trade secrets at their next job. This also helps companies determine if departing employees’ subsequent employment may violate other agreements, such as non-compete or non-solicitation agreements.
Needless to say, companies should immediately shut off departing employees’ access to company information at the time of termination, regardless of whether the information rises to the level of trade secrets.
Of course, there are many other ways in which companies can protect their trade secrets, and the manner in which companies can (and should) protect their information will change with technological and other developments. It is important to note that companies should take protective measures for all individuals and companies given access to trade secret information—not just employees. And, companies should be particularly careful when sharing trade secret information with non-employees, such as potential investors, customers, contractors, suppliers or competitors. Most of the measures addressed above can be adapted to apply to non-employees who receive access to trade secret information.
When Secrets are Misappropriated
Last, but certainly not least, if companies determine at any time that their trade secret information is being improperly shared or used (i.e. “misappropriated”), or it appears that such information is about to be improperly disclosed or used (i.e. “threatened misappropriation”), companies should take prompt action to cure the issue.
While all of the above measures are not necessarily required to meet the reasonable-efforts burden of protecting trade secrets, by implementing these steps, companies should increase the likelihood that they will not lose protections that might otherwise be available to them under trade secret statutes.
As addressed in the UTSA, what is “reasonable” will depend on the circumstances; for example, it may depend on the type of information at issue, how and where the information is stored and with whom it is shared. What is considered “reasonable” protection may also depend on the version of the UTSA adopted in a particular jurisdiction, and the case law interpreting the trade secret laws in a particular jurisdiction. Although nearly all of the states have enacted the UTSA, many states have adopted versions of the UTSA that differ from the model version proposed by the National Conference of Commissioners on Uniform State Laws that is cited in this article. As a result, companies should consult with counsel to ensure they meet the requirements of the laws in their jurisdiction for appropriately protecting their information and to analyze if their information meets the other elements of the definition of “trade secrets.”
Finally, as mentioned above, companies should promptly consult their counsel when they suspect that their trade secret information is about to be, or has already been, misappropriated to determine what can be done about the threatened or actual misappropriation and to increase the likelihood that the information retains its protection as a trade secret.
Alicia H. Koepke is a shareholder at Trenam Law’s Tampa, Fla. office, where she focuses her practice on employment and business law and related litigation. She regularly advises companies on employee management issues, and assists companies and other clients with business and employment-related disputes before government agencies, in arbitration and mediation and in state and federal courts. She may be reached at (813) 227-7493 and firstname.lastname@example.org.