business builder intellectual property
Trade secrets add economic value, if they’re guarded
by Terri Kimker and Kari Hainey
It’s two o’clock in the morning. Do you know where your trade secrets are?
Small businesses commonly overlook or follow poor procedures when it comes to their trade secrets, igniting a chain reaction that can culminate in the loss of valuable company assets.
Trade secrets are the everyday tools of your business, ranging from formulae and source code to strategic plans and business contacts. By establishing and following strict internal controls relating to protection and distribution of confidential information, your company can shield itself from the misuse, theft, or destruction of valuable intellectual assets.
Trade secrets include all types of confidential business information. Unlike other forms of intellectual property, a trade secret need not be highly technical, unique or complex. Rather, a trade secret includes any information that adds economic value to your business and that you protect as a secret asset. Common trade secrets include business plans, financial plans, customer identities and preferences, and more.
To show that confidential business information is a trade secret, you must show the information is not generally known or readily ascertainable, the information derives independent economic value from its secrecy, and you have maintained reasonable efforts to preserve secrecy.
Not generally known
The first step to protecting a trade secret is to know one when you see it.
To qualify as a trade secret, the information need not be novel or original, which is required for other intellectual property such as patents and copyrights. Rather, “distinctiveness” is a primary requirement of a trade secret. That means that the information cannot be commonly known in your industry.
However, that does not mean that no one outside the company can know about the information. In fact, more than one competing company can claim trade secret rights in the same information independent of one another. To make matters more complex, a unique combination of generally known information can constitute a trade secret.
In addition to not being generally known, the information cannot be easily discoverable from other sources. Factors such as complexity and detail of data, as well as the time it would take a competitor to develop an identical product, are factors considered in determining whether information is readily ascertainable.
If the information is available in trade journals, reference books, published materials, or through advertising, it is readily ascertainable and therefore cannot be considered a trade secret. For example, the identity of your customers and key contacts is not a trade secret if a competitor can compile the list through publicly available information.
Independent economic value
Business leaders must be able to correlate maintaining information secrecy to independent economic value, which equates to a competitive advantage in the market. If a competitor could use the information to gain a valuable share of the market without a substantial development expense, the information has economic value.
In this way, wealth-creating information such as customer lists or customer preferences, as well as wealth-preserving information such as formalized best practices that educate co-workers about costly mistakes to avoid, are especially important and should be closely guarded as secrets.
Once you have identified what your trade secrets are, you need to closely protect them. Trade secret protection can endure indefinitely — but it also can be easily destroyed. To ensure that the trade secret protection is not inadvertently lost, you must make a “reasonable effort under the circumstances” to maintain secrecy.
Confidentiality measures are sufficient if an employee (or another person allowed access to the information) knows the business owner intends to maintain the secrecy of the information. So you should identify exactly what information is confidential and notify those with access to the information that it is to remain secret.
Examples of practices that have destroyed the valuable protection afforded by trade secrets include:
• Writing but failing to implement a formal policy regarding confidentiality.
• Storing vital information in unlocked facilities.
• Failing to designate documents as confidential.
• Providing facility tours without confidentially restrictions.
[contact]
Terri Kimker and Kari Hainey are intellectual property lawyers at Halleland Lewis Nilan Sipkins & Johnson in Minneapolis: 612.338.1838; tkimker@halleland.com or khainey@halleland.com; www.halleland.com.
