Protecting Your Trade Secrets

by Jospeh "Trey" L. Wood, III

George Strait once wisely stated, "You've got to have an ace in the hole, a little secret that nobody knows." No one is more aware of this fact than business owners and managers. In the cutthroat competition that exists, the most valuable possession business owners and managers own is not reflected on their books, but in the insight they have developed into how to successfully operate their businesses. This is what sets successful businesses apart from the competition. Unfortunately, this insight, or "ace in the hole" must often be shared with new employees or independent contractors because a manager or business owner clearly cannot run the business by him or herself. This often causes managers to face difficult questions: who can be trusted with this information? What information is worth protecting? Who owns the rights to the information, or "ace in the hole?"

Fortunately, the law recognizes the rights of business owners and managers to protect their valuable information and knowledge. Essentially, there are two ways managers can protect this information. First, they can treat the information as a trade secret. Second, managers can have employees sign confidentiality agreements. This article discusses how managers can apply trade secret and confidentiality laws to protect their business, and not show their cards to the competition, but keep their "ace in the hole."

Protecting Your Ace Through Trade Secret Law
The first way to protect information is through trade secret law. Unlike patents or copyrights, there is no specific procedure to apply for trade secret protection; a person must only seek to keep their information secret, and out of the hands of competitors. Trade secret protection can, in principle, extend indefinitely. This is what sets it apart from a patent. The best example of a trade secret, and the value of trade secret protection, is the formula for Coca Cola-which has been effectively protected through trade secret law for many more years than it would have if it were patented. On the other hand, if a Court was ever to determine that Coca Cola has not sought to keep its formula secret, then the company would lose its trade secret protection.

Trade secrets are not limited to secret formulas, and in fact have a very broad definition and can include any of the following:

• Customer and client lists, billing information, customer and client preference information, contact lists
• Information on manufacturing processes, including machines, designs, blue prints, specifications and scientific data
• Pricing information, marketing plans, and pricing policies
• Computer programs and data compilations
• Employee "know-how"

The precise language by which a trade secret is defined varies by state as do the particular types of information that are subject to trade secret protection. However, there are three factors that (while subject to differing interpretations) are common to all such definitions. A trade secret is some sort of information that: 1) is not generally known to the public; 2) confers some sort of economic benefit on its holder; and 3) is the subject of reasonable efforts to maintain its secrecy. The first and third factors are the main focus for courts. These factors can be summarized by the following question: how secret is the trade secret a business is trying to protect? In order to keep trade secrets secret, the following practical recommendations should be applied:

• Create confidentiality policies
• Educate employees about the confidentially policies
• Restrict access to trade secrets
• Label valuable documents as confidential
• Store trade secrets in secure areas
• Shred documents
• Use exit interviews

Through implementation of these steps and the use of confidentiality agreements, which are discussed below, businesses will be more able to receive trade secret protection from the courts and keep a leg up on the competition by keeping their aces in the hole.

Confidentiality Agreements
Another way to keep trade secrets protected is through confidentiality agreements. A confidentiality agreement is a legal contract between an employee and the company which outlines the confidential information the parties wish to share for certain purposes, but restricts it from other uses. Often, these confidentiality agreements are signed at the time of hiring. Normally, these agreements must define what is to be considered confidential and state the consideration upon which the contract was made. However, the requirements for confidentiality agreements are varied according to the state in which the company operates. Moreover, the requirements are often technical, so consultation with an attorney should be involved in the creation of a confidentiality agreement.

With implementation of these principles, it will be much easier for businesses to protect their trade secrets, and keep a leg up on the competition by keeping their "ace in the hole."