Trade Secrets: How to Identify and Protect Them

I have always been keenly interested in the law relating to trade secrets.  I was initially intrigued because, unlike leases, contract squabbles and corporate bylaw provisions, trade secrets sound just so, well, James Bondian.  And the great thing about trade secrets is that you don’t have to be some rogue international playboy or a shadowy figure with a menacing nickname to have them.  In fact, just about every business I have ever represented has trade secrets that are important, if not vital, to their activities.  Thus, the importance of identifying, securing and maintaining your business trade secrets is crucial. 

Kentucky Fried Chicken certainly seems to have identified and maintained the secrecy of one of its crucial trade secrets -- Colonel Sanders' handwritten recipe of 11 herbs and spices.  KFC recently made a big deal about the fact that the recipe was removed from safekeeping at its corporate offices for the first time in decades. The transfer of this yellowed piece of paper had all the trappings -- the locked briefcase handcuffed to the beefy wrist of a “security expert,” the gun-toting guards, the idling armored truck which sped off to an undisclosed location.  It was great marketing and KFC exhibited a strong, albeit overboard, effort in maintaining its trade secret.  Plus, even if you’ve done nothing much more than make and sell fried chicken since the early 50s, trade secrets provide the opportunity to play dress-up for a day (I do recall, however, that Colonel Sanders did like to play dress up every day). 

So what is a trade secret and how do you properly maintain its status as a secret?  The exact definition of a trade secret varies by jurisdiction but there are three common factors: a trade secret is information that:  (a) is not generally known to the public; (b) economically benefits its holder; and (c) is the subject of reasonable efforts to maintain its secrecy.  A trade secret can be a formula (such as the Colonel’s recipe or the recipe for Coca-Cola), patterns, plans and designs, a process, method or technique (such as a particular process or method to manufacture an item), or the catch-all category of know-how. 

Once you have identified your trade secrets, you must undertake reasonable efforts to maintain their secrecy.  What is reasonable is determined by a cost-benefit analysis that varies from case to case.  At a minimum, the word “Confidential” or other clear indication of secrecy should be placed noticeably on the medium or container holding the trade secret, the information should only be conveyed within the company to those who need to know it, and it should be secured in a locked vault or drawer and/or password protected if maintained digitally.  If you must disclose your trade secret to outsiders, those receiving it should need to know it and the recipients should execute a Non-Disclosure Agreement/Confidentiality Agreement beforehand. 

A trade secret will be legally protected from exploitation by those who improperly obtain access, get the information from a party who they knew or should have known accessed the information improperly, or those who breach a promise to keep the information confidential. Remedies for infringement of a trade secret include damages, profits, reasonable royalties, and an injunction. Under the Uniform Trade Secrets Act both an actual or threatened misappropriation of the trade secret may be enjoined and attorney’s fees are available if the misappropriation is willful and malicious, or if a motion to terminate an injunction is made in bad faith. Some state statutes also provide for enhanced damages and attorney’s fees in certain circumstances.

This information about legal issues is for informational purposes only and is not intended to constitute advertising, invite an attorney-client relationship or serve as a source for legal advice. You should not rely upon any information contained herein for any purpose without seeking legal advice from a duly licensed attorney competent to practice law in your jurisdiction.