Trade Secrets for Entrepreneurs and Innovators

What Are Trade Secrets?

Not all the information your business possesses is a trade secret. Some information, however, has value to your business in that it is not generally known by your competitors. These are trade secrets: they have value in not being generally known, and that value would be reduced if the information became known to your competitors. Trade secrets can include a broad variety of information, including things like customer lists, contract values and terms, test data, pricing considerations, business contacts (e.g., manufacturer and distributor information), computer software design, business plans, marketing strategies, financial status of your business, methods of operation, methods of manufacture, chemical formulae, recipes, software source code and object code, etc. Trade secret data may also include elements from the public domain but in a combination that provides value by not being generally known. To qualify as a trade secret, information must:

Have Commercial Value in Its Secrecy

Your trade secret information's value would be greatly reduced if freely obtained by your competitors. For example, if your competitor knew who manufactures your products and at what cost, or knew who all of your clients were, they would be able to compete with you more effectively. Similarly, if your competitor knew cash was particularly tight for your business, they might try to operate at a loss themselves for a time to drive you out of business. That's why it is so important to keep your trade secret information known only to your business.

Be Known to Only a Limited Group of People

Generally, your trade secret information should only be known by those who actually need to know it. The more people who know your trade secret information, the more likely it is that the information will get out there someday. The old hyperbolic adage hints at the truth: "Two people can keep a secret if one of them is dead." Carefully consider each type of information your company possesses and who really needs to know it, then make sure only those people have access to it. There may even be certain information that company executives don't need to know!

Be Subject to Reasonable Steps to Keep It Secret

Your business must use reasonable measures to protect the secrecy of its information, or its trade secret status can be lost. Such measures can and should include:

• Adequate digital security, including:
  
  • Limiting or preventing external access except on a need-to-know basis;
  • Controlling internal access to those with a need to know;
  • Preventing unnecessary digital copying
• Confidentiality/nondisclosure agreements when your trade secret information is shared with others;
• Careful employee agreements that require your employees to maintain confidentiality;
• Adequate physical security, including locks and other access control, shredding, preventing unnecessary copying, etc.;
• Procedures to ensure confidential information is not left accessible;