Are Your Trade Secrets Really Safe? 4 Steps To Safeguard Your Competitive Edge

October 2, 2019

A trade secret is a piece of information which is confidential, can be legally protected, and gives your company a competitive edge. In Texas, trade secrets are defined as follows:

“Trade secret” means all forms and types of information, including business, scientific, technical, economic, or engineering information, and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, or list of actual or potential customers or suppliers, whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:

(A) the owner of the trade secret has taken reasonable measures under the circumstances to keep the information secret; and

(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.

Many of the most famous trade secret examples involve recipes, such as the formula for Coca Cola, McDonald’s Big Mac “secret sauce,” or Mrs. Field’s chocolate chip cookie recipe. But you don’t need to be a food purveyor or a mega-company to have a unique approach that sets you apart from your competition—and if you can legally keep it a secret, you should.

Here are four steps you can take to keep trade secrets safe:

  1. Make a list: The first step in protecting trade secrets is knowing that you have them.  Look across your business and think about any types of information you possess that are both confidential and critical to your success.  Trade secrets could be product designs, customer lists, marketing plans, sales forecasts, or processes.  For software developers, proprietary code obviously needs protection (which could also be protectable under copyright law), and for restaurants and food stores, it’s the secret recipe.  Conduct a trade secret audit to identify the information you have a legal right to keep private and wouldn’t want your competitors to find out.
  2. Stake your claim: Once you know what your trade secrets are, it’s essential to treat them like secrets. Stamp or watermark “confidential” on sensitive documents, and keep confidential information in password protected, encrypted databases that are accessible only by those who have a need to know the information to perform their job functions.  Get confidentiality and non-disclosure agreements in place with employees and vendors prior to disclosing any confidential information or trade secrets.  These documents put the people who learn your secrets on notice not to usurp them and lay the basis for a legal claim if necessary.
  3. Lock it up:  Take whatever steps are reasonably available to you to secure your trade secrets from access.  Digital files and systems should be encrypted and password protected. Physical files should be kept locked.  Establish rules around access to sensitive files.  If possible, use a badge system to control access to your facility and posted signs to designate areas where access is controlled.
  4. Train your employees:  Many disclosures of trade secrets are inadvertent slips by an employee who simply did not know better.  That may make it easier to forgive, but the negative impacts on your business are still there. Prevent this with good training and education for your employees on what your company considers confidential and what employees’ obligations are. Back the training up with strong written policies. And when an employee leaves, take steps to shut down their access to your files and systems right away to ensure that your secrets don’t leave with them.

Whether your trade secret is a treasured family recipe, a brilliant string of code, or a closely-guarded customer list, it won’t be a secret for long unless you are careful.  Taking the steps above is a great first step toward a solid trade secret strategy.  For even further assurances of security, consider retaining counsel for a professional security audit. Business attorneys like us can be great partners in protecting your trade secrets and your business.