Safeguarding Your Company’s Trade Secrets to Maintain a Competitive Advantage

By George Likourezos, Esq.

A trade secret is like the secret sauce of a business—it’s confidential and valuable information that gives a company a competitive edge. This can include formulas, processes, customer lists, production and manufacturing methods, marketing strategies, and other proprietary information that’s not publicly known. Protecting trade secrets involves a combination of legal measures and practical safeguards. Legal steps may include having employees sign non-disclosure agreements (NDAs) and implementing confidentiality clauses in contracts. Limiting access to the information within the company and marking it as confidential can also help. Practical safeguards involve things like secure storage, restricted access to sensitive areas, and educating employees about the importance of keeping trade secrets confidential. Essentially, it’s a mix of legal tools and good business practices.

In 2016, another protection measure came into existence; the Defense of Trade Secrets Act (DTSA) was signed into federal law in the United States. It provides a federal civil cause of action for the misappropriation of trade secrets. Before the DTSA, trade secret protection was primarily governed by state laws. The key features of the DTSA include the ability for businesses to file civil lawsuits in federal court for trade secret theft, seeking remedies such as injunctions and damages. It also includes provisions for the ex parte seizure of property to prevent the propagation or dissemination of stolen trade secrets. The DTSA doesn’t replace state trade secret laws, but rather provides an additional avenue for legal recourse at the federal level. It’s aimed at providing a more consistent and predictable legal framework for trade secret protection across the United States.

As mentioned above, one of the best ways a company can protect its trade secrets is through non-disclosure agreements (NDAs). NDAs are legal contracts that outline the confidential information a person or business is sharing with another party and the terms under which that information should be kept confidential. Having employees sign NDAs can be crucial, especially if they have access to sensitive company information, trade secrets, or proprietary processes. NDAs help establish a legal obligation for employees to maintain the confidentiality of certain information even after their employment ends. It adds a layer of protection and can be an important tool in safeguarding a company’s intellectual property and competitive advantage. However, it’s important for NDAs to be reasonable in scope and duration, and they should be carefully drafted to ensure they are enforceable. Additionally, employment contracts and policies should be clear about what constitutes confidential information and the obligations of the employees regarding such information.

Overall, protecting trade secrets requires a multi-faceted approach. Here are some key strategies a company should consider:

1. Identify and Classify Trade Secrets: Clearly define what constitutes a trade secret within your company. Classify and document the specific information that is considered confidential.

2. Implement Security Measures: Physically and digitally safeguard your trade secrets. This may involve restricted access to certain areas, password protection, encryption, and secure storage.

3. Confidentiality Agreements and Contracts: Have employees, contractors, and business partners sign confidentiality agreements, such as NDAs, or include confidentiality clauses in contracts. Clearly outline the obligations regarding the protection of confidential information.

4. Education and Training: Ensure that your employees are aware of the importance of trade secrets and understand their responsibilities in maintaining confidentiality. Regular training can reinforce these principles.

5. Limited Access: Only grant access to sensitive information on a need-to-know basis. Restrict access to trade secrets to employees who require it for their specific roles.

6. Monitor and Audit: Regularly monitor and audit access to sensitive information. Keep track of who has access and when, and investigate any unusual activity promptly.

7. Legal Protections: Register patents, trademarks, or copyrights where applicable. Also, take advantage of legal tools like NDAs and consider the DTSA for added legal protection. Don’t share pitch or investor decks that include proprietary and confidential information without having the recipient sign an NDA.  This is even recommended when there is a pending patent application, as the patent application may not have been published or issued at the time of the sharing of the deck, and also, an NDA establishes contractual obligations between the discloser and the recipient, such as the latter cannot design around or circumvent the disclosed technology without being in breach of the NDA.

8. Exit Procedures: Have clear exit procedures for employees leaving your company. Ensure the return or deletion of any confidential information and remind them of their ongoing obligations.

9. Vendor and Partner Agreements: Extend confidentiality requirements to third parties, such as vendors and partners, through contractual agreements, such as NDAs.

10. Stay Informed: Keep abreast of developments in intellectual property law and trade secret protection by having an intellectual property law firm advise your company. Regularly review and update your intellectual property protection strategies as needed.

Remember, a combination of legal measures, technological safeguards, and good business practices will contribute to a robust trade secret protection strategy for your company.

A resource you can consider as a company owner or officer in developing a trade secret protection strategy and creating training materials for protecting your company’s trade secrets is the intellectual property law firm of Carter, DeLuca & Farrell. Carter DeLuca has assisted hundreds of companies protect their intellectual property, including their proprietary technologies via patents, their brands and logos via trademarks, their software and websites via copyrights, and their trade secrets, and has also assisted many investors in making informed business decisions in determining how prospective companies they are seeking to invest in treat, maintain and safeguard their intellectual property, which includes their trade secrets.

For a free consultation, in establishing safeguards and measures for protecting your trade secrets and other intellectual property, which is made available through Spotlight Family Office Group, please contact us at Info@SpotlightFamilyOffice.com.