Trade Secret Protection - Simple but critical

 Trade secret protection is the simplest intellectual property protection to obtain. Whereas patents, copyrights and trademarks require federal registration in order to enjoy strong protection, trade secret protection does not. Trade secret protection is also capable of protecting a larger amount and broader variety of “assets” than the other intellectual property protections.  The protective period for a trade secret can be perpetual (think of the Coca Cola recipe). Also, unlike the other intellectual property protections which are protected under federal statutes, trade secrets are protected under state law, and most states have adopted the Uniform Trade Secrets Act (UTSA). All that said, you still have to get it right in order for trade secret protection to be effective.

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Generally, for information to quality as a trade secret, it must (i) have commercial value, (ii) not be generally known or be easily discoverable, and (iii) be subject to reasonable efforts to maintain the secrecy of such information. Trade secrets can include any information, such as customer lists, technology functionality and specifications, processes, formulas, and development road maps, so long as such information is kept secret and provides a commercial advantage over competitors.

Of the factors listed above, the most important for a business to be aware of is that the information must be subject to reasonable efforts to maintain the secrecy of such information. If such efforts were not maintained, then a court would rightfully determine that the information was not valued as secret by the business. For instance, if information is presented at a conference, or released on a blog or public research paper, then the company cannot later claim trade secret protection.

What are reasonable efforts to maintain confidentiality? The most critical is entering into a confidentiality agreement with recipients. Others include employee education, marking documents and presentations as “confidential”, implementation of physical/computer security systems, and monitoring and responding to security breaches.

Confidentiality agreements should be used routinely with all employees and whenever material business discussions are conducted with third parties. Confidentiality agreements should be carefully prepared to address the intended disclosures. For instance, when source code is disclosed, more restrictive provisions will need to be included than for more ordinary disclosures. Even though we stated that confidentiality restrictions can continue indefinitely, the provisions of a confidentiality agreement can also limit the term of the protection.

Remedies for misappropriation of trade secrets include injunctive relief and monetary damages. Most confidentiality agreements do not limit liability or exclude consequential damages, so damages can be quite high. Also, under the UTSA, the prevailing party may recover attorneys’ fees, which can be substantial.

Bottom Line: Every business should vigilantly protect its trade secrets and periodically review its procedures so that trade secret protection continues to be available for valuable information.

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William Galkin manages GalkinLaw. Mr. Galkin has dedicated his legal practice to representing Internet, e-commerce, computer technology and new media businesses across the U.S. and around the world. He serves as a trusted adviser to both startup and multinational corporations on their core commercial transactions.

  
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