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What are trade secrets and what makes them so important? As an organization, when you identify a piece of information as a trade secret you should take steps to protect it and keep it from being disclosed.
Creativity and innovation give businesses a competitive edge. Some innovations are kept as secrets by companies, and because they’re of great value to those companies, they take steps to ensure the information is protected. A trade secret is a type of intellectual property, and it’s often the key to competitive differentiation. For example, Coca-Cola has safely guarded its formula for years — and that trade secret is what makes Coca-Cola’s taste unique.
To be classified as a trade secret, a piece of information must have these qualities:
• The company takes enough steps to make sure the information stays secret.
• It is commercially viable and leaking this information could be harmful to the organization.
• It is known to only a small set of people.
The disclosure of trade secrets is regarded as unfair and is a violation of the company’s legal rights.
What Makes Trade Secrets So Important?
A company can develop and generate revenue from its intellectual properties. While you might want to demonstrate the benefits of your innovation, the inner processes might be kept a secret so they cannot be exploited by your competitors.
Here are some most common types of trade secrets:
- Programming code of your company’s software
- Database designs, blueprints, configurations, etc. of your inventions
- Secret tools or processes used by your company to arrive at the final product
- Organizational plans, business strategies, and legal information
How to Protect Your Company’s Trade Secrets
When you identify a piece of information as your trade secret, your company should take reasonable steps to keep it undisclosed. These “reasonable steps” differ from one company to another. For instance, for a small company, locking up a file in a file cabinet might be enough to keep something a secret. But a large corporation might have to employ security officers to ensure their secrets are kept secure.
For example, the search algorithm of Google is a well-kept secret. They upgrade their algorithm regularly to make it perform better, and experts are often left researching and guessing how the new algorithm works.
As a company, here are the steps you need to take to protect your trade secrets:
Identify Your Trade Secrets
You need to recognize the pieces of information that need to be kept in secrecy.
Isolate the Documents That Contain the Secret
Find the documents in which the said piece of information occurs. All these documents or files must be labeled as confidential and kept protected.
Conduct an Audit
Conduct an audit to see where the confidential documents are stored. This includes hard copies as well as soft copies. Find out possible weak spots.
Find Where This Information is Exchanged
Find out where these documents or parts of these documents need to be shared with other parties such as employees, vendors, etc. Try to limit the exchange of this data to the extent possible.
Setup Employee Training
All employees that work with confidential files must sign a non-disclosure agreement (NDA) to ensure that the company’s secrets are not leaked.
What are the Rights Associated with Trade Secrets?
Trade secrets give the owner the right to protect their information from being disclosed. The extent to which a company takes steps to keep its information protected depends on its individual circumstances.
If a company’s trade secret is acquired by someone who legitimately got that information, it is not considered illegal. For example, if a competitor purchases your product and conducts reverse engineering on it to find the secret in it, it is not considered a violation of trade secrets.
What Kind of Preventive Measures Can You Take to Protect Your Trade Secrets?
Here are some steps you can take to protect your trade secrets:
- Prepare an NDA: Employees, vendors, consultants, and other parties that get to access confidential documents should sign a non-disclosure agreement.
- Prepare an NCA: A non-compete agreement will prevent your employees, vendors, consultants, and other parties from becoming your competitors when their service/employment ends.
- Create a company culture that values trade secret protection: Treat trade secret protection as a compliance issue so there is a culture of trade secret protection in the company.
- Limit access to trade secrets: Grant limited rights to your employees so only a small set of them can access confidential documents and only those documents they require access to in order to perform their tasks.
- Hire a trade secrets officer: It’s a good idea to designate an employee for identifying your company’s trade secrets. The trade secrets officer can handle recordkeeping, conduct audits, and make sure all protocols are being followed to keep your trade secrets safe.
- Develop a plan: Have a plan ready for a possible breach. You’ll need legal understanding to create such a plan.
- Review all public disclosures: Carefully review all public disclosures, including marketing messages and press releases, to ensure you don’t inadvertently disclose trade secrets.
Trade Secrets vs. Patents
It’s difficult to obtain patent protection. Also, patents last for 20 years, which means after the expiration of the patent, others will be able to use that information.
However, with trade secrets, reverse engineering of your secret is not considered illegal. For example, let’s say you have built a maze toy. A competitor buys it, disassembles it, and reproduces something similar without obtaining any more information from you (either legitimately or illegitimately). It is not illegal to do that. In such a case, patent protection will be better than trade secret protection.
On the other hand, a trade secret can be kept a secret for as long as you want. It doesn’t come with an expiration date like patents. Whether you should protect your secrets with patent protection or trade secret protection depends on the kind of information you want to keep undisclosed.