How to Protect Trade Secrets
By John W. Davis

Generally speaking, a trade secret can be any information that derives independent economic value from not being generally known or readily ascertainable. Among the things that have been recognized as trade secrets are formulas, patterns, compilations, programs, devices, blueprints, customer lists, pricing information, strategy documentation, non-public financial data, methods, techniques and processes.

In determining whether something is a trade secret, courts may consider:

• the extent to which the information is known outside the business;
• the extent to which it is known to those inside the business (i.e. by the employees);
• the precautions taken to guard the secrecy of the information;
• the savings effected and the value to the holder in having the information as against competitors;
• the amount of effort or money expended in obtaining and developing the information; and
• the amount of time and expense it would take for others to acquire and duplicate the information.

This article focuses on precautions used to guard the secrecy of trade secrets. Courts are generally disinclined to treat information as a trade secret if the owner of that information did not treat the information as a trade secret by taking appropriate measures to ensure its secrecy. So what measures are reasonable? It depends on the situation and the nature of the trade secret to be protected, so it is best to consult an attorney for legal advice as to any specific instance, but generally the following are considered reasonable protection efforts:

(Note that, when in doubt, it will never hurt, from a trade secret protection perspective, to err on the side of over-protection.)

• Physical Security Measures - Courts have found protection efforts adequate where trade secrets were locked in private rooms or in filing cabinets or a safe, as opposed to out in the open or in a non-locking cabinet. The key or code to the safe or cabinet should be given to as few employees as possible. Courts have also favored the use of security cameras, entry-screening by a receptionist, the use of private security guards and practices prohibiting competitors or members of the public from entering the premises. Employees should not be allowed access to trade secret information unless that information is required in their employment. Courts have also appreciated efforts to ensure confidential material is properly shredded and disposed of, and periodic garbage checks for accidentally discarded trade secret or confidential material. See, e.g., Stampede Tool Warehouse, Inc. v. May, 651 N.E. 2d 209, 216 (Ill. App Ct. 1995); Frantz v. Johnson, 999 P 2d. 351, 354, 359 (Nev. 2000); Valco Cincinnati, Inc. v. N & D Machining Serv., Inc., 492 N.E. 2d 814, 819 (Ohio 1986).

• Computer Security Measures - Courts have favored the use of restricting access to electronic trade secret information by requiring passwords and minimizing access to confidential information (i.e. by only allowing key employees access or by storing the electronic information on a local, physically secure machine without internet or outside network access). See, e.g., Stampede Tool Warehouse, Inc. v. May, 651 N.E. 2d at 216; Home Pride Foods, Inc. v. Johnson, 634 N.W. 2d 774, 778, 782 (Neb. 2001).

• Use of Confidentiality Agreements - When your employment attorney drafts your employment agreements, non-compete clauses, non-solicitation clauses and non-disclosure or confidentiality clauses may be appropriate. These kinds of agreements offer obvious protection when a key employee leaves the company to work for a competing business. Use of these agreements also demonstrates to the court that you have taken your trade secrets seriously and have attempted to protect them appropriately. Note that, if you use these kinds of agreements, you must enforce them. A solid non-compete weighs in your favor, but a history of non-enforcement shows the court that you haven’t taken the issue very seriously. Additionally, confidentiality agreements should be used with key suppliers, manufacturers, vendors or any other person or entity with access to your confidential information or trade secrets. See, e.g., Stampede Tool Warehouse, Inc. v. May, 651 N.E. 2d at 216; Marshall v. Gipson Steel, Inc., 806 So. 2d. 266, 272 (Miss. 2002); Lynn-Flex West Inc. v. Dieckhaus, 24 S.W. 3d 693, 699 (Mo. Ct. App. 1999); Lamorte Burns & Co. v. Walters, 770 A. 2d 1158, 1166 (N.J. 2001); Platinum Management, Inc. v. Dahms, 666 A. 2d 1028 (N.J. Super. 1995); Morlife, Inc. v. Perry, 66 Cal. Rptr. 2d 731, 735 (Cal. Ct. App. 1997).

• Labeling Documents “Confidential” - As obvious as this may seem, courts will be disappointed if supposedly sensitive documents are not labeled accordingly. Trade secret documents should be clearly marked confidential, with their envelopes or covers bearing clear confidential markings as well. Blueprints or specification sheets and similar documents should be printed with confidentiality language in the margins. Trade secret documents should, preferably, contain language restricting their use to appropriate applications by authorized personnel only, and prohibiting any reproduction or distribution of the documents or the information contained within. Naturally, the people receiving such documents should be subject to a confidentiality agreement before they receive the documents. See, e.g., Valco Cincinnati, Inc. v. N & D Machining Serv., Inc., 492 N.E. 2d at 819.

• Entrance and Exit Interviews - The use of entrance and exit interviews will give the company a chance to ensure that new hires and departing employees understand their obligations to the company with respect to intellectual property, especially trade secrets. While this step isn’t necessary to enforce written confidentiality agreements, is certainly bolsters the company’s case and credibility when arguing to a judge that the agreements should be enforced. It also gives the company an idea of where former employees are headed and how much of a competitive risk each departing employee poses.

Again, a good plan for trade secret and confidential information protection should involve consultation with an experienced employment or intellectual property attorney. Courts are likely to treat your confidential information with as much, or as little, respect as you treat it prior to the occurrence of any problems. Few favored protective efforts require elaborate measures or the expenditure of great expense. An ounce of common sense and proper planning are worth a pound of litigation bills.