For many, the words “trade secret” conjure up thoughts of a recipe, a formula or source code that underpins a company’s entire business model. The Coca-Cola recipe is perhaps the most famous example; Google’s search algorithm is another.
But that view is far too narrow. From a legal perspective, the term “trade secret” applies to a broad range of business information that is valuable because it is confidential.1 A customer list can constitute a trade secret.2 So can historical sales data, pricing and costs, customer preferences, strategies, and manufacturing and sales techniques – as well as a whole host of other proprietary information that a company may use to differentiate itself in a crowded marketplace.3
Viewed from that perspective, trade secret law carries significant business implications. For example, a company’s customer list may qualify for trade secret protection. Or it may not.4 If such an issue is raised in the context of a lawsuit, its resolution will require a detailed analysis of the company’s ordinary business practices to determine whether the company has, in fact, taken sufficient steps to maintain the secrecy of the information at issue.5 Ultimately, the resolution of that question turns both on the law of the state in which the company operates as well as the case’s specific factual circumstances.6
A company with a clear understanding of the types of business information that may qualify for trade secret protection can take proactive, systematic steps to protect those materials from disclosure and misuse in the company’s ordinary course of business. The question of what steps are appropriate will necessarily depend on the specific materials at issue and the practical realities of the company’s actual operations. Such steps may include (for instance) employee handbook provisions, mobile device policies, information-technology procedures, basic security measures as well as agreements with employees containing confidentiality or non-competition restrictions.
By pointing to its implementation of and compliance with such measures, the company can maximize its chances of success in a legal action challenging an employee’s or competitor’s misappropriation of the company’s trade secret information. Those same measures can help the company defend itself against a misappropriation claim made against it by a competitor. In that respect, the company’s practices and procedures should protect not only its own confidential materials but also ensure that its employees do not use (inadvertently or otherwise) trade secrets belonging to others. If the company finds itself facing allegations by a competitor that one of its employees has used or disclosed trade secrets belonging to a competitor, the company can cite to its compliance with its policies and procedures as evidence that it has not acquired or used any such materials.
Too often, the inquiry unfolds in reverse. For many companies, the issue of what information is truly valuable – and whether its confidentiality is truly protected – is one that receives real scrutiny only after management realizes that the company’s trade secrets may have been removed or misused, or after the company is accused of having misused trade secrets belonging to others. Absent an existing set of utilized policies, practices or procedures, the company may face an uphill climb in convincing a judge (or a jury) that the materials at issue are truly confidential and are treated as such by the company in its business.
An effort to address these issues need not involve a great deal of time, expense or complexity. The key word is “reasonable,” taking into account the company’s day-to-day business realities...
