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Protecting Your Company's Trade Secrets

Corporate & Business Law

10 minute read

Today's business environment has become increasingly competitive, and keeping confidential and proprietary information out of a competitor's hands can be a matter of economic survival. Trade secrets are not just found in hi-tech and information companies; all companies, whether large or small, have trade secrets to protect.

What is a trade secret?

While there is no specific definition of what is a trade secret, there are numerous matters that a business may classify as a trade secret. A trade secret may consist of a formula, compilation of data or information, pattern, process or device that is used in one's business and provides an advantage over the competition. The matter claimed to be a trade secret must be kept secret and cannot be a matter of public or general knowledge. A person or entity that acquires a trade secret through deception, theft or other unjust means is liable to the wronged entity for damages.

In order for a matter to be a trade secret, does it have to be patentable or copyrightable?

No, these are not requirements.

Can all information imparted to an employee be considered a trade secret?

The general rule is, no. Upon terminating his or her employment, an employee may retain and use the general skills and knowledge acquired during his or her employment. However, the employee may not take with him or her information that he or she knows-or should know-is a trade secret.

The courts will balance the public interest of allowing a person to pursue his or her trade or profession against the right of a company to retain the fruits of its efforts. The courts in Massachusetts require that "the employer's interest in the secret must be crystal clear to justify the restraint of the employee, for whom it may have become part of his general knowledge and experience." The courts look to see if the business specifically identified the matter as a trade secret, made it known to its employees that the matter was a trade secret, and took steps to protect the confidentiality of the matter.

Does a matter lose its status as a trade secret if it becomes of public or general knowledge?

The general rule is, yes. Once the matter is of public or general knowledge, it is no longer secret. However, the courts will scrutinize how the alleged wrongdoer acquired the confidential information.

Even if the information is generally available to the public, a court can still find the existence of a trade secret when the information claimed to be a trade secret is obtained through theft or deception. The courts will certainly treat a confidential matter as a trade secret up to the point when it becomes of public or general knowledge. Thus, damages may be awarded for the period of time from when the confidential matter was taken until the date it became of public or general knowledge.

How does a business protect its trade secrets?

A business must specifically identify those matters it considers to be trade secrets and take steps to keep those matters confidential. These steps may include the following: having employees sign confidentiality agreements; informing employees what the company considers to be trade secrets; limiting the number and types of employees who have access to the trade secrets; establishing internal procedures to protect the trade secrets; restricting people outside the business from accessing the trade secrets.

A business should also implement a means to review its procedures for maintaining trade secrets.

Not all of these actions are required, nor is this an exclusive list of the steps that can be taken to preserve a trade secret. The steps a business is required to take depend on the size of the company and the matters that are considered trade secrets.

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