Northwest Michigan Business News

April 17, 2017


No sensible businessperson would leave money lying around the office or keys to the company car in the ignition. But sometimes the most important assets of a company, its “trade secrets,” are left completely unprotected. This article is the first in a two part series. Because this month’s edition is dedicated to manufacturing, we will discuss what trade secrets are and how to protect them from being misappropriated by competitors. In next month’s edition, dedicated to human resources, we will discuss protecting trade secrets from being misappropriated by employees.

What is a trade secret?

The term “trade secret” embodies a wide range of commercial and technical information and has no precise definition. A trade secret consists of any valuable formula, pattern, device, process or other information that is used in your business and gives you a competitive advantage over your competitors who do not know or use the information.

However, to be a “trade secret,” the information must be a secret. Trade secrets do not include that information that is readily ascertainable or capable of being acquired by competitors or the general public without undue difficulty. Some things that are typically considered trade secrets are pricing formulas, customer lists, specialized software programs, devices, manufacturing methods or techniques, and testing processes. The most famous example of a trade secret is the formula for Coca-Cola.

Trade secrets are very different from patents and trademarks. You cannot maintain both a patent and a trade secret on the same invention. They are mutually exclusive. Patents establish exclusive rights that prevent others from making, using or selling the patented subject matter. The trade off in getting a patent versus keeping a trade secret is that the patent, once issued, is published for the entire world to know. This means that nothing in an issued patent can be a trade secret by definition.Trade secrets and trademarks are also exclusive of each other. A trademark is used to protect and increase the consumer’s recognition of a particular company, whereas the purpose of maintaining a trade secret is to keep the underlying information away from the marketplace and competitors.

Determining if something is a trade secret:

Whether the information is considered a trade secret depends upon:

  • the extent to which the information is known outside your company
  • the extent to which it is known to those inside your company, i.e., by the employees
  • the precautions you take to guard the secrecy of the information
  • the savings effected and the value derived by your company in having the information against your competitorsthe amount of effort or money expended in obtaining and developing the information
  • the amount of time and expense it would take for others to acquire and duplicate the information

Trade secret protection under the law:

Trade secret protection comes from common law dating back to the 1800’s. However, today almost every state has some form of trade secret protection law on its books. Most states use the Uniform Trade Secrets Act, which created a uniform body of law to protect trade secrets from unauthorized disclosure or misappropriation.

The Uniform Trade Secrets Act defines a trade secret as any “information, including a formula, pattern, compilation, program, device, method, technique, or process” that meets two requirements: (1) the information derives economic value (actual or potential) from not being generally known to the public or others who can obtain economic value from its disclosure or use, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The law affords individuals a private right of action against those who misappropriate the trade secret and awards monetary damages and injunctive relief. However, these laws only protect those who take reasonable measures to protect themselves by safeguarding and keeping their trade secrets secret.

How to protect your trade secret:

  • Restrict access to the trade secret by preventing unauthorized entry into the facility where the trade secret is kept
  • Get non-disclosure agreements from key employees who come in contact with the trade secret
  • Get non-disclosure agreements for the trade secret from suppliers and other manufacturers, including sub-contractors, raw material suppliers and component manufacturers
  • Get a confidentiality agreement from anyone that has direct or indirect contact with the trade secret
  • Make only pertinent documents available to suppliers for the purpose of bidding or manufacturing

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