Protect your trade secrets from competitors' prying eyes

February 22, 2013

Protect your trade secrets from competitors' prying eyes

Article provided by Ansa Assuncao LLP
Visit us at http://www.ansalaw.com

Companies spend lots of money, time and human capital to develop proprietary information that sets their products apart from the competition. Unfortunately, competitors are often out to steal these trade secrets. Companies can protect their proprietary information in several effective ways.

What is a trade secret?

A trade secret is a process or practice of a company that is unknown to that company's competitors. A trade secret could be a manufacturing process, a formula for a chemical compound, pricing information, sales forecasts, recipes or business methods. A famous example of a trade secret is the formula for Coca-Cola.

To be considered a trade secret, a practice or process must give a company an economic advantage over its competitors and the company must take steps to keep the practice or process from becoming accessible to the public and contain information.

Other factors courts use to determine whether or not a practice or process can be protected as a trade secret include how new the information is, the money and effort a company has invested in developing the practice or process and keeping it secret and how difficult it is or would be to find and duplicate the information legally.

How do competitors hunt for trade secrets?

Two popular ways competitors seek trade secrets from other companies are through reverse engineering and frivolous lawsuits. Competitors may try to figure out a trade secret by working backwards from a finished product that is available to consumers. This can be time-consuming and not very fruitful, since a trade secret that contributed to a product may not be tangible, such as a manufacturing process.

Filing lawsuits against a company is another way competitors try to access trade secrets. The Uniform Trade Secrets Act allows companies to sue competitors for stealing trade secret information. Competitors may claim a company has stolen its trade secrets and sue to recover damages from this violation in an effort to discover that company's trade secrets. Suing a company will require it to produce evidence, including documents with trade secret information, to prove it did not violate the competitor's trade secrets. This can compromise the confidentiality of the company's proprietary information.

How can companies protect their trade secrets?

There are several ways that companies can protect their trade secrets from the prying eyes of competitors. One of the most powerful things companies can do is to require staff members who work on trade secrets to sign non-compete and non-disclosure agreements. These legal documents allow companies to sue former employees if they share trade secrets with their new employers in the same industry.

Beyond signing non-compete and non-disclosure agreements, staff members should receive training in how to avoid leaking trade secret information. Companies should also label documents with trade secret information as confidential and make sure any electronic information is encrypted and password-protected.

In the event of being sued by a competitor, it is still possible for companies to protect their trade secrets during court proceedings. Companies should be in the habit of recording and documenting their trade secrets so they have evidence that they possess the secret if sued by a competitor. To do so, it may be necessary to turn of the automatic deletion of electronically stored information.

Sometimes, however, the best defense is a good offense. If a company is sued for violating trade secrets a competitor claims to have developed, the company should demand its competitor prove it by providing evidence they did indeed develop the trade secret. This could cause the competitor's claims to crumble.

An experienced business attorney can help companies identify and protect their trade secrets and represent companies if they are sued by competitors. To learn more about protecting trade secrets, speak with an experienced business attorney.