Trade Secrets

A trade secret can be any commercially important information, but you need robust procedures in place to protect your trade secrets.


If you decide you don’t want to pursue a patent, either it’s too expensive at this point or it’s not the right kind of technology for a patent protection, you might decide to keep it as a trade secret. A trade secret or patent protection is important information how to produce a product, some little trick in the processing. It could be a customer list. Trade secret could be business plans. It can be a lot of things. And it’s an asset of your company that you need to protect.  

Now when we say you have to protect your trade secrets we really mean it. The courts will not be sympathetic to you if you accuse someone of stealing your trade secrets if you did nothing to protect or if you didn’t do enough to protect it. You have to have a policy in place and procedures in place to protect your trade secrets. And have in mind there’s no government grant, no registration.  You don’t file a secret paper with the government to register your trade secrets.  You simply know them, and you hope that other people don’t. If other people come across those trade secrets on their own, if they invent the same process, if they come up with the same customer list, they are free to use it. There’s nothing you can do about that. You can stop them if they misappropriate your trade secret by talking to your employees and getting them to divulge secrets that they shouldn’t be divulging. That’s wrong. You can stop them. If they come up with their ideas on their own, I’m afraid they are free to use those ideas.  

If somebody leaves your company and begins to misappropriate your trade secrets you’re going to want to act on that. So what do you need? You need records that show you had that concept in place, in mind, recognize that it was a trade secret, that it was an asset of the company, and took steps to protect it. Now taking steps to protect it, that’s probably going to be a general description of what the company does to protect its trade secrets. Locking doors and having robust IT protections, and keeping papers off desks when visitors are in the area, all of that. A judge is actually going to want to know that you took steps, affirmative, real, concrete steps to protect your trade secrets. If you did, then the judge will help you protect them. If you treated your trade secrets glibly and didn’t really bother to protect them, the judge is going to be unsympathetic.  
Hopefully you’ve been diligent in your employee intake and in your employment policies. All of your employees know not to use trade secrets learned from another employer before they came to you.  Good. That’s all great. Nevertheless, the day may come when you’re accused of having misappropriated someone’s trade secrets.  If that happens, dig in, take a look, do a study, see whether or not there really is a problem.  There very well may not be. It’s easy to make allegations. It’s harder to prove them. But you don’t want to be on the wrong side of an actual trade secret finding. Do your homework when the allegation is made, take it seriously. You might very well be fine. If you’re not fine, remedial action. Do what you need to do to get the trade secrets out of your product. Or maybe take a license. It’s possible that the trade secret owner would be happy to have the revenue if you’re willing to pay a license fee to use that trade secret.  

So with everything else you have going on, paying attention to your intellectual property’s strategy is going to be crucial to your business success.

Suggested Readings

Founders School || Intellectual Property || Trade Secrets || Impact Guide (PDF).

The Secret Of Trade Secret Success

A report by the Commission on the Theft of American Intellectual Property estimates that annual losses of international intellectual property theft cost the U.S. economy over $300 billion not including job losses associated with such theft or the diminished incentive to innovate. IP Commission Report (PDF), May 2013.

Note that the procedures in place to protect the company’s own trade secrets will come into play if the company undertakes confidentiality obligations regarding trade secrets of another company, for example, under a confidentiality agreement, supply contract or joint development agreement.

The importance of protecting a company’s trade secrets is seen in the case of AMSC, formerly American Superconductor Corporation. While the courts may offer some remedies for the misappropriation of trade secrets, prevention is better than a cure. Consider the federal indictment filed in June 2013 against Sinoval, China’s biggest wind turbine company. As outlined in the indictment, Sinoval conspired with an AMSC employee to steal advanced software from the American firm, its former supplier, causing $800 million in damages and the laying off of hundreds of AMSC employees.

US Patent & Trademark Office on trade secret protection vs. patent protection.

Questions for You

What trade secret assets do you have? What records do you need? What steps to protect?

Does your IP Strategy call for protecting trade secrets of the company? If so, what procedures do you need to implement and institutionalize to protect your trade secrets and to be able to demonstrate that you follow those procedures?

What management procedures do you need to implement to determine the possible impact on your trade secret rights of any planned dealings with others, such as entering into a joint development deal?

What management procedures do you need to implement to ensure that incoming employees do not improperly use or disclose to your company any trade secrets of a former employer? Will you be able to demonstrate that you follow those procedures?

Tools and exercises

Numerous trade secrets protection checklists and discussion materials are available on-line. This PowerPoint presentation from the US Patent and Trademark Office provides discussion and checklists for protecting and enforcing trade secrets and other intellectual property rights. The notes associated with the trade secreted slides are useful.

Checklist for Protecting and Enforcing IP Rights in U.S. and Abroad (PPT).