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An Action Plan for Protecting Your Trade Secrets

As we discussed here, trade secrets are often the key to seizing and maintaining marketshare in a fiercely competitive marketplace. Trade secrets are protected under the California version of the Uniform Trade Secrets Act (“UTSA”). See Cal. Civ. Code §§ 3426, et. seq. The UTSA prohibits theft of your trade secrets.

To be entitled to protection under the UTSA, you and your company must take active steps to keep the information actually secret. To help, here is an action plan for protecting your confidential information and preserving them as “trade secrets.”

Conduct an Inventory (Part One): WHAT are Your Trade Secrets?

Trade secrets can be almost anything – methods of operation, an unusual ingredient, component or raw material, unique know-how, customer lists, supplier/vendor lists, financial data, compilations on customer buying habits, etc. There are two caveats, however. The information

  • Must be not generally known or easily obtained by the general public AND
  • Must be commercially valuable

This means that, if a quick internet search brings up terabytes of information about your “super-secret” vendor, then your vendor is not a trade secret. Of course, other information about your vendor might be trade secrets if you take steps to protect the information. Such data might include, without limitation:

  • Discount practices
  • Typical responses to requests for contract waivers
  • Customary but informal grace periods on paying invoices
  • Time-lags between orders and delivery

If you have compiled that type of information on your vendors, then take steps to protect that commercially valuable data.

Conduct an Inventory (Part Two): WHERE are the Trade Secrets?

Most trade secrets will be located in the usual places – documents in file folders in cabinets, in computer files, on laptops, on mobile devices, etc. Trade secrets can also crop up in surprising places like minutes of the meetings of the board of directors. Think “outside the box” and try to identify ALL the locations.

Just as important, update the inventory periodically and as you remember/discover locations.

Get “CONFIDENTIAL” Stamps and USE Them in Red Ink on Trade Secret Documents

Once you have identified the trade secrets, get CONFIDENTIAL stamps and use them on all documents—both hard copies and electronic data. Give a stamp to every employee and train them in how to use them.

Use red ink, too. The color red denotes “stop” and “warning.” These sorts of subtle practices will help protect your confidential information and add weight to the evidence of protection if litigation becomes necessary.

Cautionary note: Do not over-stamp. A “stamp-everything” approach is the equivalent of “stamp-nothing.” If the information is available to general public, do not stamp it CONFIDENTIAL.

Limit Who Has Access to Trade Secrets

Not every employee needs access to your trade secrets. Just as importantly, not every employee who needs access needs access to every trade secret.

Secure Where the Trade Secrets are Stored

Use locked cabinets, password protected computers, safety deposit boxes, security guards, etc., as necessary to protect your confidential trade secret information. The more valuable the trade secret, the more security is needed.

Use Confidentiality and Nondisclosure Agreements to Protect Trade Secrets

It is important to have confidentiality and non-disclosure agreements ready to be signed as stand-alone agreements and as part of all of your vendor, financing, licensing, and sales agreements.

Similarly, it is probably wise to have stand-alone confidentiality and non-disclosure agreements with all of your key employees.

Create Company Policies and Procedures to Protect Trade Secrets

Your company should have written company-wide policies and procedures that maintain the secrecy of your information. Some of those are discussed above (e.g., using CONFIDENTIAL stamps and keeping the secrets secured). Additional policies are needed for reporting possible leaks, conducting interviews with separating employees, security procedures to checking personal belongings for departing employees, procedures regarding email and access to networks, etc. These policies should be in your employee handbook.

Train Your Staff to Protect Trade Secrets

Your employees will need training on what is required to maintain the secrecy of the information and on how to avoid accidental disclosure. This also ensures that all employees understand what trade secrets are and how and what to mark as CONFIDENTIAL. It would be wise to have your employees formally sign acknowledgments that they have completed the training. A video can be used to simplify the process and insure standardization.

Contact San Diego Corporation Law Today

If you would like more information about protecting your trade secrets or about intellectual property, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email.

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