Question: I am concerned about protecting my company’s trade secrets. What should we be doing to protect our confidential information and trade secrets?
Answer: It is prudent to take steps to protect your business’s trade secrets and confidential information. Virtually all companies have some non-public information which would be harmful to their business operations if leaked to a competitor. Despite that business owners often fail to take the steps necessary to protect that information.
To understand how best to protect trade secret information, it is important to consider the two components that make information a “trade secret” entitled to protection. First, the information must derive some real or potential value from the fact that it is non-public (i.e., a “secret”). Second, it must be the subject of efforts to maintain its secrecy that are reasonable under the circumstances. You do not need Colonel-Sanders’-secret-recipe level protections for your small business’ materials costs database, but you do need some level of protection.
Many employers have trade secret policies in their employee handbooks or require that employees sign confidentiality agreements that protect trade secrets. Those actions are essential to maintaining trade secret protection, but often more is needed to ensure full protection.
In addition to having trade secrets policies in place, there are several specific categories of individuals who should be separately considered. A common way trade secret status can be lost is by failing to ensure that the information is protected as to third-parties, such as vendors and independent contractors. If any third-parties will have physical access to your trade secrets they should be required to sign a non-disclosure agreement, or at the very least should receive notification that the company requires them to maintain the confidentiality of such information.
Another often overlooked area is with regard to job applicants. Disclosure of planned operations, new ventures, or other trade secrets to potential recruits will waive protections as to that information. You should either avoid such disclosures, or require applicants to sign a non-disclosure agreement if you plan on discussing confidential information as part of the hiring process.
Departing employees represent one of the most challenging areas of trade secret protection – especially in California with its broad rule against non-compete agreements. It is advisable to conduct an exit interview with any departing employee who had access to trade secrets. The employee should be given copies of all trade secret policies and confidentiality agreements he or she signed, and reminded of his or her ongoing obligations. The interview should also include confirmation that all company property and confidential information in the employee’s possession, whether physical or electronic, has been returned. Finally, as soon as it is known that any employee with access to critical trade secrets will be departing, that employee’s access to the information should be monitored, limited, or eliminated.
Of course, in addition to your employment policies, there are numerous physical protections that might be required to protect your trade secrets, including locks, passwords, log-in screen warnings, and video cameras. These steps will go a long way to help businesses protect trade secrets and confidential information.