What Qualifies As A Trade Secret — And How To Protect It
Your business may depend on information that isn't visible to customers but is essential to how you compete. A pricing formula, customer list, manufacturing method, marketing strategy, software process, or other internal information can represent years of investment and effort.
If that information reaches a competitor, the resulting harm may extend far beyond the immediate loss of confidentiality. You may lose a competitive advantage, face reduced revenue, or discover that information you worked hard to develop is being used without permission.
For business owners, one of the first questions is whether the information actually qualifies for trade secret protection. Not every valuable piece of business information meets the legal requirements, and protection can depend partly on the steps you take to keep the information secret.
Hyland Law Firm LLC helps businesses address intellectual property and other legal concerns involving confidential information and commercial relationships. A business lawyer can help you evaluate whether particular information may qualify as a trade secret and identify practical measures for protecting it.
Hyland Law Firm LLC serves clients from its location in Overland Park, Kansas. Reach out to the firm to discuss your business's circumstances.
What Makes Information A Trade Secret?
Under the federal Defend Trade Secrets Act and applicable state law, trade secret protection generally applies to information that derives economic value from not being generally known or readily ascertainable by others who could benefit from its disclosure or use. The owner also generally must take reasonable measures to keep the information secret.
This means that value alone isn't necessarily enough. A business might have a highly valuable customer database, but if the information is freely available to the public and the company takes no meaningful steps to restrict access, trade secret protection may be difficult to establish.
Trade secrets can involve many different types of information. They aren't limited to technical inventions or manufacturing formulas. Depending on the circumstances, business information, financial information, methods, processes, and other confidential materials may qualify.
Examples Of Potential Trade Secrets
Businesses in nearly every industry rely on information that may have commercial value. The specific information that qualifies for protection will depend on the facts, including whether competitors could readily obtain or recreate it.
Potential examples can include:
Customer information: A proprietary customer list containing nonpublic information about customers, purchasing patterns, preferences, or contacts may qualify in appropriate circumstances.
Pricing information: Internal pricing formulas, discount structures, cost calculations, or bidding strategies may have economic value because competitors don't have access to them.
Business methods: A proprietary process for delivering a product or service may receive protection when it provides economic value and is kept confidential.
Manufacturing processes: Production techniques, formulas, specifications, or procedures can potentially qualify when they aren't generally known.
Software information: Certain source code, algorithms, technical processes, or development information may qualify when the applicable requirements are met.
Marketing strategies: Nonpublic plans, strategies, research, or campaign information may have trade secret value under appropriate circumstances.
Financial information: Internal financial data, forecasts, or other confidential business information may qualify when it meets the legal requirements.
The important distinction is that the information must have the characteristics required for trade secret protection. Simply labeling a document "confidential" won't automatically make the information a trade secret.
Practical Steps To Protect Confidential Information
Trade secret protection isn't simply something you claim after information has been disclosed. Your business's efforts to maintain secrecy can be an important part of establishing that the information was treated as confidential.
Start by identifying information that provides your company with economic value because competitors don't know it. Once you've identified it, consider who actually needs access and how access can be restricted.
Businesses may use several measures to protect confidential information:
Confidentiality agreements: Written agreements can establish expectations concerning the use and disclosure of protected information.
Access controls: Limit access to sensitive files and systems to employees, contractors, or other individuals who need the information for legitimate business purposes.
Confidentiality policies: Written internal policies can explain how employees should handle sensitive business information.
Document markings: Appropriate confidentiality markings can communicate that certain materials aren't intended for unrestricted distribution.
Employee training: Employees should understand what information is confidential and what they can and can't disclose.
Technology safeguards: Password controls, permissions, encryption, and other security measures can help restrict access to electronic information.
Exit procedures: When an employee leaves, the business should address company devices, files, accounts, and confidential materials in the employee's possession.
These measures should reflect the nature and value of the information involved. A small business may have different needs from a company handling large volumes of proprietary technical data, but both can benefit from deliberate confidentiality practices.
A business law attorney can help review agreements, policies, and procedures to identify areas where additional protection may be appropriate.
Protecting Valuable Information With A Business Lawyer
A trade secret can be an important business asset, but its legal protection depends on more than its financial value. The information generally must derive economic value from being unknown to others, and the business must take reasonable measures to keep it confidential. Identifying sensitive information and adopting appropriate protections before a dispute arises can help preserve its value.
Hyland Law Firm LLC helps businesses address legal concerns involving confidential information, commercial relationships, intellectual property, contracts, and other business matters.
Attorney Charles J. Hyland can assist with confidentiality agreements, internal policies, employee-related concerns, potential misappropriation, and other issues involving proprietary information.
Hyland Law Firm LLC serves clients from its location in Overland Park, Kansas. If you're concerned about protecting information that gives your business a competitive advantage, reach out to Hyland Law Firm LLC to discuss your circumstances and how the firm may be able to help.