When patent, copyright and trademark law is not available or not desired to protect your intellectual property and other business information, trade secret law may be all that remains between your valuable intangibles and those who would use them with impunity.  Most states, including California, have adopted the Uniform Trade Secrets Act which generally defines a trade secret to include any information that (1) derives independent economic value from not being generally known to the public and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.  Most businesses know what information has independent economic value and is proprietary to their business, but some may not be undertaking adequate steps to maintain the secrecy of that information in order to preserve trade secret status.

Trade secrets come in many different forms, so no list will be exhaustive.  More common trade secrets may include a business’s confidential information, know-how, technology, software, hardware designs, schematics, formulae, algorithms, data, processes, methods, strategies, business plans, investment plans, business relationships, marketing plans, key contacts, financial and sales information, customer and supplier information, and related materials that have been developed and used in connection with a business.  Whether information has been the subject of reasonable efforts to maintain its secrecy is fact specific and thus depends to some extent on the nature of the business and trade secret at issue.  However, the extensive case law that has developed regarding trade secret definition and preservation reveals that the following types of protections will likely assist in preserving trade secret status:

  • Nondisclosure agreements with employees, contractors, vendors, and customers that restrict disclosure through the life of the trade secrets and which reasonably identify the types of information that are confidential without being over-inclusive to include information that can be found in the public domain
  • Restricted accessibility and disclosure of trade secrets on a need-to-know basis
  • Restrict physical access within a business premises and monitor entry and egress
  • Dynamic password protection for computers and computer networks
  • Implement role-based and rule-based access to areas where trade secrets reside
  • Utilize state of the art security software (e.g., firewalls, FTP’s, intrusion detection)
  • Marking materials as confidential in all formats including within code and designs
  • Notifying parties before meeting that confidential information will be presented
  • Training, instructions and regular reminders to all company personnel
  • Inventorying trade secrets and knowing how trade secrets conform to the law

Since the determination of whether protection is reasonable depends on the circumstances of each case, the nature and extent of protection required will depend on a variety of factors including the type and size of the business, the number of personnel and third parties involved, and the nature of the market and competition in which the business operates.  For example, larger businesses with many personnel and attrition in a competitive industry should be more vigorous about protection than smaller businesses with low turnover in a less competitive industry.  There is no bright line standard.  What is reasonable may also depend on the extent of a business’s resources.  The greater a business’s resources, the more it may be expected to expend to protect its trade secrets.  Finally, in determining which protections to implement, consider the importance of each trade secret, the relative risk of loss of each trade secret, and how each type of protection will help protect the trade secret.

Trade secrets are often the most valuable information that can be found in a business.  They can be so valuable that a business may elect not to seek registerable protection (e.g., patent or copyright) even where it may be available.  Given the importance of trade secrets to a business’s success, it is critical that every business know what its trade secrets are and institute proper measures to preserve and protect their value.