Tuesday, January 19, 2016

Trade Secrets

Don’t overlook trade secrets as a form of protection. Trade secrets are simply information, techniques, procedures, codes, patterns, plans, processes, formula, and prototypes that are developed confidentially and that are kept confidential. Trade secrets even include customer lists and instructional methods. The Coca-Cola syrup formulation is an example of a trade secret. (The added value of this approach from a brand perspective is that it often creates a mystique that has its own cachet.)

Sometimes it is better to keep something a trade secret than to patent it. In some industries, companies routinely watch for competitors’ new patents and then try to design around them. Noncompete and nondisclosure agreements are important, but not infallible, in protecting trade secrets. The Economic Espionage Act of 1996 protects trade secrets against theft. Information is legally considered to be a trade secret if an organization can show that it took reasonable measures to keep the information secret and that there is economic value to the information not
being made public.

A business can protect its trade secrets in the following ways:
  • Share confidential information only on a “need to know” basis.
  • Limit the number of employees exposed to trade secrets. Always inform employees exposed to those trade secrets a) that they are being exposed to secrets and b) of the importance of keeping the secrets secret.
  • Mark all confidential documents CONFIDENTIALNO COPIES ALLOWED. For added security, number each copy and keep a log of which numbered copy was given to which employee.
  • Use access logs for trade secrets.
  • Require anyone (employees, suppliers, customers, consultants, and other business partners) who might come in contact with trade secrets to sign confidentiality and nondisclosure agreements before the relationship begins.
  • In consultant contracts, be clear about what intellectual property the consultants are to assign to your company during their assignment.
  • Require employees to sign noncompete agreements that prohibit them from working for competitors for a period of time after their employment with you ends. If this is done within an employment contract, present this information to prospective employees well before they commence their employment with you so that the “consideration” is employment.
  • Employment contracts can also prohibit moonlighting or consulting for companies in similar lines of business while employed at your company or, less restrictively, while on company time or using company equipment
  • (including computers).
  • Educate employees about the treatment of proprietary information during and after their employment with you.
  • Carefully orchestrate employee terminations so that employees are not able to take proprietary information with them.
  • Schedule exit interviews with departing employees. Use those interviews to remind departing employees of their confidentiality obligations.
  • Develop, communicate, and enforce security processes—from physical security for the building to security of paper documents and computers. Secure confidential information with electronic and mechanical locks. (Passwords or codes should be changed regularly.)
  • Never store or allow transfer of confidential information outside of your company’s firewall.
  • Make extensive use of shredders.
  • Be especially careful of contract workers. Provide them with a company computer so that they don’t have to use their own on the job.
  • Conduct trade secret audits.
  • Most important, identify all trade secrets and develop formal protection plans for those secrets


Coca-Cola’s syrup formula is kept in a bank vault in Atlanta, and only Coca-Cola’s board of directors has the power to request the vault to be opened. Only two anonymous employees know the formula, they have signed nondisclosure agreements and they are not allowed to fly together on the same plane.

(Source: Stephen Fishman and Rich Stim, Nondisclosure Agreements: Protect Your Trade Secrets and More, Berkeley, CA: Nolo, 2001).

© 2015 Brad VanAuken, Reprinted from Brand Aid, second edition, available here.

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