Protecting Your Company’s Trade Secrets

If you are a successful small business, part of your success may be due to your use of proprietary techniques, processes or information your competitors do not have. Protecting this information is vital to maintaining your competitive edge and ensuring your continued success. Yet every day, employees, contractors or consultants attempt to take a business’s proprietary information and trade secrets to start their own competing business. The ease with which one can copy, transfer and disseminate huge amounts of data has greatly increased the risk that your trade secrets may be stolen.

It is essential to enact a plan to protect your valuable trade secrets from unauthorized disclosure and theft. By following some of the guidelines below, you can decrease the risk of theft by an unfaithful employee or third party, while improving the likelihood that a court will provide you with a remedy in the event of theft.

What is a trade secret?

In New York, a trade secret is defined as any formula, pattern, device or compilation of information that is used in one’s business and that gives the owner a competitive advantage over competitors who do not know or use it. The trade secret may be central to the business, such as the source code for software, or a unique manufacturing process, or it may be ancillary information that gives the business a competitive edge over its competitors, such as customer lists, pricing data, or confidential supply sources.

5 Steps to Protect Your Trade Secrets

1. Identify your company’s trade secrets.The first step to protect your company’s trade secrets is to identify them. Carefully identify and create an inventory of any confidential or proprietary information that provides your business with a competitive advantage. By doing so, you will be able to properly segregate and protect this information, and will create a clear record of the information you consider proprietary and confidential in the event of litigation.
2. Establish procedures to restrict access to your trade secrets.Once you have identified your trade secrets, you must take steps to ensure the information’s confidentiality. Access to the information should be carefully restricted within the company to those who need to know it. Trade secrets should be physically segregated from regular company files in a separate and secure location accessible only to necessary personnel. Access to electronically stored information should be password protected and available only to required personnel. Clearly label physical copies of all such information as confidential trade secrets.
3. Require employees to execute confidentiality agreements.Require all employees to sign a confidentiality agreements at the time of hiring. The agreements must specifically reference the company’s trade secrets and confidential information and delineate the employee’s obligations to safeguard this information. Annually, require employees to reaffirm their obligations to maintain the confidentiality of trade secrets in writing.

   Upon termination of employment, require employees to certify in writing that they do not have any of the company’s trade secrets or confidential information in their possession, and to acknowledge their continuing duty to maintain the confidentiality of the company’s trade secrets even after their termination.
4. Require non-disclosure agreements with third parties.Require any third party that may need access to such information (eg. consultants, potential investors) to execute a non-disclosure agreement before providing such access.
5. Have a written policy addressing the treatment of trade secrets and proprietary information.Prepare an employee manual outlining your company’s policy regarding the company’s trade secrets and the duties of your employees in maintaining the confidentiality of this information.