Information that is important to your business is worth safeguarding. Protecting company trade secrets may be vital to your very existence. To do so, you must treat the information as a trade secret and take proper precautions. In today’s AI environment, this is growing increasingly difficult…but it can be done. Understand what to protect and how to do it.
Discover the protections a trade secret can offer
What’s a trade secret?
All information, including a process, pattern and compilation, that has economic value to your company can be classified as a trade secret. Such information is considered a trade secret to the extent that it gives you a competitive edge, and you treat it as confidential.
Examples:
- Customer lists
- Formulas
- Methods of manufacture
- Methods of operation
- Pricing information
- Survey methods
What legal protection can you gain?
Trade secret protection is forever–as long as you can keep the information a secret. For example, Coca Cola’s soft drink formula has been guarded for more than 100 years and remains perhaps the most famous trade secret to date. Other well-known trade secrets include KFC’s original recipe, Krispy Kreme’s donuts recipe, WD-40 (it was never patented), Google’s search algorithm, and the New York Times Best Seller List methodology.
All states other than New York have the Uniform Trade Secrets Act or some variation of it, which prohibits the theft or disclosure of trade secrets. New York has judicially-created (common law) protections.
Usually, violations of trade secrets are civil actions for which violators can be ordered to cease using the information and to pay monetary damages (such as profits they derived from using your information). Intentional theft of trade secrets is a crime under federal and state law and violators can be subject to severe penalties and jail time.
Caution: You can’t protect against inevitable discovery–that someone else independently derives the same information without using your secrets. Using reverse engineering, another company may lawfully figure out your secrets and then exploit them to its advantage. McDonald’s Big Mac secret sauce recipe, a trade secret kept for 45 years, for was figured out and posted online.
How can you keep your secrets?
To keep your information protected so that anyone who tries to use it is liable to you for damages, no formal registration is required, as is the case with a copyright or patent. You simply must treat the information as confidential and keep it secret.
Contractually restrict use of your secrets. In all your dealings, put in writing that information you disclose to another party remains a secret. Include this restriction in:
- Employment contracts with both employees and independent contractors
- Contracts with vendors
- Discussions with investors or lenders
Idea: Employees are bound by confidentiality because of the nature of their relationship to you. But having them sign an agreement highlighting confidentiality of trade secrets can help to reinforce this obligation.
Include restrictions in:
- Franchise agreements
- License agreements
Take steps to lock information up. Important information should be kept under lock and key (supposedly the Coca Cola formula is housed in a bank vault). When it is stored on a computer, limit access to the information by means of a password or otherwise. Supposedly, only a few data specialists have access to the New York Times Best Seller list methodology; even editors of the New York Times Book Review don’t know.
Ban inputting online. AI remembers everything. Prohibit employees from inputting proprietary code, customer lists, formulas, etc. into AI tools (e.g., ChatGPT; Claude; Copilot). For example, you want to create a marketing campaign and ask Copilot to generate captions for Instagram posting about your gluten-free bread. You upload the company’s recipe’s so that AI can generate specific language. The problem is that any leak about the recipe, such as proportions, can enable AI to offer recipes like yours to those who search for gluten-free bread recipes.
- Use a data opt-out tool on AI platforms.
- Instruct employees to keep specifics offline.
Final thought
“Three may keep a secret, if two of them are dead.” ~ Benjamin Franklin
Labeling an email, text message, fax transmittal, or other communication as “confidential” does not establish confidentiality and won’t provide you with any protection (unless the communication relates to a prior agreement of confidentiality). Identify what you want kept confidential and then take steps to ensure this is done.
For more information about trade secrets, see this list of blogs here.
