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Loose lips sink ships - Protecting your trade secrets

01 Nov 2010

Trade secrets can be valuable assets and useful tools. The big advantage of using trade secrets is that, because they are not registered, you don’t need to disclose them to the world to establish a property right. Trade secrets can also endure perpetually providing that they are kept confidential. However, a trade secret does not prevent someone else from independently developing and using the same concept or knowledge, and if that person then publishes it freely, anyone can use it. Secondly, if your trade secret is published it is no longer a trade secret and no amount of legal action will get it back, although you may be able to obtain damages if it was leaked by someone who owed you a duty of confidence.  In an electronic world, today’s leaked document is tomorrow’s internet publication, and the risk of trade secrets being destroyed in seconds is much greater than in previous times. For these reasons, trade secrets are most effective when used in conjunction with other intellectual property. For example, many companies use patents to obtain a monopoly over key concepts and then use trade secrets to protect recipes, operating parameters, etc.How to create a trade secretTo rely on trade secrets you need to:

  1. identify relevant confidential information and material;
  2. take all reasonable steps to keep the relevant information secure;
  3. ensure that the relevant information is disclosed to people only on a need-to-know basis and in confidence; and
  4. ensure that those who do have access to a trade secret know that it is confidential and know what they can and cannot do with the information. 
Documenting your systems for protecting your trade secrets will help you to prove your case in court if necessary.  A checklist for beginnersThe list below outlines the minimum steps that most businesses need for an effective trade secret regime. There may be other steps that should be taken in certain circumstances, so seek specific advice if you are unsure.Identify trade secrets.What do you do differently from your competitors which is not publicly known and which gives you real competitive advantage? This is the potential basis of your trade secrets.  Capture and record.Document the relevant know-how and keep it secure. Minimise the number of people who ‘know everything’ about your business. Identify key personnel and try to keep them.  Confidentiality and non-compete agreements.Don’t disclose confidential information unless you need to. Use robust confidentiality agreements, and require that confidential material be returned after a transaction. Review agreements.Ensure all contract documents are accurate and are reviewed by legal counsel or appropriate managers before signing. Keep a central record of all agreements sent out or signed.Hiring and exit procedures.  Insist on references for all personnel who will have access to confidential information. Consider restraints of trade, and take legal advice to ensure they are enforceable. Use exit interviews to identify trade secrets and ensure return of relevant materials. Physical security.Be prudent about issuing mobile phones and other personal electronic devices. Ensure premises are secure and visitors are logged. Public areas such as reception areas, desks or computers next to windows (especially at night) and un-shredded waste can be good sources of leaks.  Computer software and electronic data.Make use of automatic ‘confidential’ footnotes on documents and correspondence. Use password security or encryption on key documents. Review your procedures for the disposal of obsolete computers. Publications and publicityHave and enforce a policy for release of information to news media. This should include a requirement that all proposed publications (including local seminars, talks, etc) be reviewed by management before submission for publication. EducationDevelop clear policies and make sure everyone in the business knows about them. Address the treatment of confidential information during induction, and then regularly remind staff of policies and procedures through newsletters, emails, discussion at meetings, etc.  RelationshipsResolve all staff difficulties (whatever the issue) promptly; one disgruntled employee can undo many years of work in a very short space of?time. And finally, remember that any trade secret regime is only as good as the way it is managed, so constant vigilance, regular re-evaluation, and active management are required.