Preserving trade secrets and confidential information: Best safeguards & practices

The Trusted Advisors Legal Digest

INTRODUCTION

Trade secrets are a vital component of a company’s intellectual property portfolio giving them a competitive advantage over their competitors in the industry. For this reason, it is important that trade secrets are adequately protected to ensure not only the company’s survival but its continued profitability.

TRADE SECRETS AND CONFIDENTIAL INFORMATION

Trade secrets are confidential information which have economic value because they are not generally known to the public. Interestingly, trade secrets are protected without the need for registration. There are no procedural requirements for their protection. As long as it is not discovered, legally acquired by others or revealed to the public, trade secrets can be protected for an unlimited period of time.

However, to be considered a trade secret and thus entitled to protection, the information must be a secret i.e the information must not be generally known or accessible by unauthorized persons. Secondly, the information must have commercial value because it is a secret. Lastly, reasonable steps must have been taken to keep the information a secret. Whether or not the steps taken are reasonable will depend on the circumstances of each case.

Example of trade secrets include information concerning manufacturing processes, experimental research data, software algorithms, distribution methods, list of suppliers & clients, advertising strategies, financial information, formulas and recipes.

BEST SAFEGUARDS & PRACTICES

Many companies heavily rely on trade secrets for the protection of their intellectual property. To adequately secure these trade secrets and confidential information, there are certain steps that can be taken by these companies who own them.

Firstly, businesses need to limit the number of persons that know or have access to the secret and ensure that those who know are aware that the information is confidential. This can be done by restricting access to buildings, marking the relevant documents as confidential or restricted and ensuring online data are adequately secured. The physical and information technology (IT) security systems should be regularly assessed and improved.

Secondly, employees should be required to enter into non-disclosure agreements prohibiting them from making unauthorized disclosure of the confidential information. This may be included in their employment contracts. In addition, the employees may also be required to sign non-compete contracts restricting them from competing with the business when they leave. If they violate the contract then they would be liable to pay penalties or damages to the company.

Thirdly, business must ensure that their partners sign confidentiality agreements before disclosure of confidential information. Companies seeking to collaborate with third parties should include trade secret protection in their due diligence process and clearly communicate expectations for trade secret protection to third parties.

Furthermore, companies should develop and implement corporate policies and procedures for preserving confidential information. It may include requesting that employee return confidential information when leaving a company to marking documents as confidential, or not allowing third parties have access to confidential information.

In addition, trainings should be conducted regularly to ensure that both employees and third parties are aware of what information is considered confidential and how best to handle and secure such information.

Where confidentiality is breached, an employer may take disciplinary action against the erring employee, up to and including termination. The employer may also institute an action in court for redress.

CONCLUSION

It is important to note that trade secrets protect its owner from unlawful access to confidential information that goes against ethical business practices such as commercial espionage, breach of contract, breach of confidence and inducement to breach. However, where someone else obtains the same information through independent development or reverse engineering, or where the owner failed to take reasonable steps to keep it secret, there is no protection.

With this in mind, it would be worthwhile to consider whether the secret is patentable and, if so, whether it would not be better protected by a patent. This is because patents provide an exclusive right to exclude third parties from making commercial use of the information irrespective of whether it was independently developed by them. It also prevents a situation whereby the trade secret is patented by someone else who developed the relevant information by legitimate means.

Article written by Adeife Omolumo. Adeife is an associate at the Trusted Advisors Corporate and Commercial law Practice Group