Trade secrets are often overlooked by small business owners when considering intellectual property assets. Trade secrets consist of information that your company does not want divulged because of the competitive advantage the secrets give your company. Your pricing, client lists and processes are all examples of potential trade secrets. The formula for Coca Cola is arguably the world’s most famous trade secret.
At the risk of being obvious, in order for something to qualify as a trade secret, it must be…well…a secret! So, publicly available information, or information which is generally known, cannot qualify as a trade secret. So if it has to be a secret, exactly how many people can know about it? Well, certainly you as the business owner, and as many of your employees as you believe need to know. Additionally, you can share your trade secrets with third parties, outside of your company, provided that these third parties have an obligation to keep the information secret.
That is a key point about trade secrets. Not only do they have to be secret, they also have to be treated as secret. How do you treat your trade secret as secret? There are various ways to demonstrate that trade secret information is being treated as a secret, none of which is required by any statute, but all of which, taken as a whole, show that you as the business owner, really believe this information should be treated as a trade secret. They are:
- The extent to which the information is known or available outside of the company
- The extent to which the information is known inside of the company
- The ease of obtaining the information outside of the company
- The extent to which efforts are made to keep the information secret
Unlike trademarks, service marks, copyrights and patents, there is no “application” or “approval” process for trade secret protection. Rather, trade secrets must be protected by non-disclosure, typically through non-disclosure agreements. If your company has trade secrets, you should make the effort to protect those secrets by requiring that all new employees sign a non-disclosure agreement.
Additionally, independent contractors and other third parties doing business with your company that will have access to any of your trade secrets should be required, in the agreements you sign with them, to protect the confidentiality of your trade secrets. You also should not share the secrets with people who don’t absolutely need to know them – even if they have signed the NDA – because of the risk that your secrets may be revealed. Once the secret is out, the NDA can be enforced, but you’ll still lose out by having your business secret revealed. It’s like winning a lawsuit in a personal injury case. You got paid, but you are still suffering from a bad injury.
So there you have it. Trade secret protection in a nutshell. At some point during the life of your business, you are going to need to protect your intellectual property. Failure to do so could cost you far more than it costs to protect it in the first place.