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Protecting Your Client’s Trade Secrets

When you visit a client’s facility, did you ever wonder why you are required to sign in and agree to keep all information seen or heard during your visit confidential? In many cases, that confidentiality agreement is put in place to allow your client to maintain trade secret protection for their valuable information. Sophisticated clients use the confidentiality provisions to protect information that is readily seen, heard or read during a visit to their facility. For example, a company may have a special machine that performs an important manufacturing step. The use of that machine may be a valuable trade secret for the company because it makes their manufacturing process more efficient, and therefore less expensive. A visitor to the facility could easily see the machine on the manufacturing line and therefore know it’s being used in the process. Without some type of confidentiality agreement between the company and visitors, the trade secret in the use of that machine could be lost. Trade secrets need to be kept secret, or they lose their protection.

Trade secret protection prevents the unauthorized misappropriation of valuable information, where the information has independent economic value from not being generally known to the public. California has adopted the Uniform Trade Secrets Act, which defines what a trade secret is, and how it should be protected.1 In order for a company to maintain information as a trade secret, the information must be kept confidential by efforts that are reasonable under the circumstances. This requirement that companies use “efforts that are reasonable” leads to clients mandating that all guests visiting their facility sign confidentiality provisions before they can enter.
Many companies don’t realize how much trade secret information they have within their business. Customer lists, vendor lists, purchasing information and financial results can all be valuable trade secrets that should be considered for protection. This information, along with computer code, drawings and designs, can be misappropriated when an employee leaves a company. Manufacturing tricks and techniques that improve efficiency and yields may also be valuable trade secrets. All of this confidential information should be protected so that competitors don’t benefit by gaining access to the information. The last thing a company needs is for its employees to learn all its manufacturing processes, and then leave to teach a competitor the same techniques.

However, only requiring visitors to sign a blanket confidentiality form may not be reasonable enough protection depending on the trade secret being protected. Imagine the case where the client’s main product is a beverage that is marketed as having secret ingredients that competitors can’t determine. The secret ingredients give the beverage a unique flavor desired by customers and is a main selling point of the beverage. It may not be reasonable to only require guests to sign a confidentiality agreement on entering the office if the exact ingredient list of the beverage is posted on a wall that is easily viewed by everyone entering the facility. A court may find that for such an important secret, it would only be reasonable for additional steps to be taken to maintain that trade secret. For example, a court could find that the formula should be stored in a locked safe, with limited access by only selected employees. Each specific trade secret must be evaluated so that the required reasonable steps are taken to maintain that trade secret in confidence.
In order for your clients to know what reasonable steps are necessary to protect their trade secrets, they should take a two-step approach. The first step is to specifically identify what formula, pattern, compilation, program, device, method, technique, or process they want to protect as a trade secret. Without this identification step it can be difficult to determine what steps are reasonable to protect the information. Any information that is designated as a trade secret should be clearly labeled as “CONFIDENTIAL” or “TRADE SECRET” in a manner that is appropriate for the type of information being protected. Papers can be stamped with an ink stamp. Computer files can be labeled as confidential, and stored in a directory that has limited access to only certain employees. Machines or processes can be labeled with “CONFIDENTIAL” stickers to indicate to visitors and employees that there are trade secret aspects to the use of the particular machine.
After the trade secret is identified, and labeled as confidential, the second step is to determine what would be reasonable, under the circumstances, to maintain that information as secret. Each different trade secret may require different steps to maintain its secrecy. Special formulas that hold tremendous value may need to be kept in a locked safe. Less valuable information could be protected with only the signed confidentiality provision on entrance to the facility. Particular machines may need to be segregated into locked rooms that require certain credentials to enter. In general, the more monetary value ascribed to a trade secret, the more extreme steps are required to reasonably maintain its secrecy.
The company may also put additional layers of audit tracking or security in place to ensure that the steps they are taking to protect the identified trade secrets are reasonable. Employee access to certain computer files may be monitored and tracked. Electronic locks on doors can monitor who comes and goes from segregated rooms that contain trade secret information or equipment. Management may schedule regular audits of this information to determine if unauthorized users are accessing the trade secret information. In some cases, security guards may be hired to individually check access credentials to very sensitive information.
Your clients should also be proactive with educating their employees on the importance of maintaining the confidentiality of information that is designated as a trade secret. Employees need to clearly understand what information is a trade secret, and how they are supposed to act to maintain the confidentiality of that information. Reminding your client to perform regular educational and training updates with their employees who work with trade secret information is one good way to reinforce the value of the information. The company should clearly explain what is expected of each employee by the company to maintain its trade secret protections. The employee manual is a good place for your client to outline its policies and procedures for maintaining trade secret information. That manual should have a section devoted to informing employees of their responsibilities to maintain company secrets in confidence. In addition to a handbook, many companies also require their employees to sign non-disclosure statements which can prevent the employee from discussing any confidential work information with third parties during, or after, the term of their employment.
Whenever an employee leaves a company, particularly on bad terms, there is a risk that the employee will take trade secret information with them in an attempt to jump-start their job search. This is where your client’s identification of its trade secrets becomes important. A company should first determine what access the departing employee had to particular trade secrets, and then look to see if that information was recently accessed by the employee. If such access is found, the company may want to write to the departed employee and remind them of their duty to keep all trade secret information confidential. If there is evidence that actual information was taken by the employee by, for example, downloading it to a thumb drive or emailing it to their personal email accounts, further steps and consultation with an intellectual property attorney may be warranted. Finally, a company may want to monitor where each employee that leaves the company gets hired. Some employees may move to a completely different career where any trade secret information would be unlikely to be used. Other employees may move to a direct competitor and be in a position where your company’s trade secrets could be valuable information. It’s this circumstance that is the most frightening for most businesses and where a managed and organized trade secret protection program will pay off.

Help your clients protect their trade secrets by having them specifically identify each trade secret used to protect their valuable information. Then make sure they are using reasonable steps to protect those trade secrets so that if there is ever any misappropriation of the trade secret they have options to enforce their rights under California law.

Mike Fuller

Mike Fuller is the Co-Managing Partner of Knobbe Martens San Diego office and chair of the firm’s biotech practice group. Mike’s practice includes patent prosecution, strategic planning and counsel relating to infringement and licensing issues, and intellectual property due diligence studies and related negotiations for mergers and acquisitions.

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Filed Under: Featured StoriesMarketing

About the Author: Mike Fuller is the Co-Managing Partner of Knobbe Martens San Diego office and chair of the firm’s biotech practice group. Mike’s practice includes patent prosecution, strategic planning and counsel relating to infringement and licensing issues, and intellectual property due diligence studies and related negotiations for mergers and acquisitions.

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