26 Jan Signed, Sealed, Delivered: A Roadmap To Trade Secret Protection
Jens K. SandbergAssociate
Trade secrets are often referred to in conjunction with other intellectual property such as patents, copyrights, and trademarks. Like other types of intellectual property, trade secrets are a valuable and intangible property right. Whereas patent, copyright, and trademark protections are based often on disclosure and registration, trade secrets derive their protection from the fact that they are secrets. Further, trade secrets encompass a diverse range of information and are an essential asset to many businesses. These assets may also be critical to the value of the business especially for someone seeking to sell to a third party. However, many businesses often undervalue the time and effort involved in developing trade secrets and fail to safeguard this asset appropriately. While Stevie Wonder was not talking about trade secrets in his 1970’s single, “Signed, Sealed, Delivered,” he could have been.
What are trade secrets?
In Texas, a trade secret includes all types of information, “including business, scientific, technical, economic, or engineering information, and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, or list of actual or potential customers or suppliers, whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.” Tex. Civ. Prac. & Rem. Code 134A.002(6); see 18 U.S.C. 1839(3).
Additionally, in order to maintain protection under federal and state law, the owner of a trade secret must take reasonable measures under the circumstances to keep secret any information meeting the definition of a trade secret. Tex. Civ. Prac. & Rem. § 134A.002(6)(A); 18 U.S.C. § 1839(3)(A).
What are reasonable steps to protect trade secrets?
The answer to this question has been left open for the Courts to decide. While there have not been any strict laws explaining what reasonable measures one must take for a trade secret to be protected, there are a few measures that have been consistently ruled as “reasonable steps.”
Non-Disclosure Agreements (NDA) or Confidentiality Agreements are mechanisms designed to keep trade secrets protected and preserve confidentiality. Executing these agreements at the onset of a business or employment relationship establishes a baseline protection. Anything a business shares with the public or its employees will not likely be protected.
For example, the ingredients of a Big Mac are displayed on the restaurant’s menu for the public consumer, yet the contents of their “secret sauce” are known only by a select few and remains confidential within the company.
Assets such as technical drawings, formulas, or the aforementioned “secret sauce” recipe are at higher risk of being stolen by competitors and replicated. This could leave a business vulnerable, increasing the need for discretion. The key first step is identifying what information needs to be protected.
Can the information be accessed on personal devices? Which employees have the password to access confidential information?
Employees with access to protected information must be trained in the policies and procedures for accessing and using protected information. This can be as simple as emphasizing data protection during meetings and instructing employees on best practices for maintaining confidentiality.
Storing information on secure servers, encrypting sensitive data, and tracking files and personnel access significantly help protect the information. Marking or identifying physical or digital data as ‘confidential’ with a stamp or signifier is another recommended measure.
When combined, these reasonable steps add layers of protection to your most valued assets.
Mere attempts at protection are not enough, you must deliver. For example, in Baxter & Assoc., L.L.C. v. D & D Elevators, Inc., Baxter Elevators argued that all the company’s files concerning its trade secrets were kept on a server located offsite and were not accessible by anyone other than high level employees, multiple passwords were required to access that information, yet there were unsigned non-disclosure agreements intended to protect the information. Baxter & Assocs., L.L.C. v. D & D Elevators, Inc. 2017 WL 604043, at *10 (Tex. App.—Dallas 2017, no pet.)
Baxter Elevators made multiple mistakes. They took too long to ask employees to sign non-disclosure agreements and retained employees even after they refused to sign the agreements. The data at issue was not protected by any monitoring system or file tracking software, nor was it labeled as confidential or proprietary Id. Having a great plan of protection is not the same as delivering on that plan.
The best advice is to take as many precautions as necessary to protect trade secrets and take them now. Having comprehensive policies, procedures, employment manuals, and non-disclosure agreements in place will help protect your trade secrets and ultimately your business.
ABOUT THE AUTHOR: Jens K. Sandberg is an Associate at Rapp & Krock, PC in the Transactional Group .
Rapp & Krock, PC presents the information in this article for general education purposes only. Although this article discusses legal issues, it is not legal advice. The law and the content of any linked website may have changed since this article was written, and Rapp & Krock, PC makes no warranty or guarantee about the continuing accuracy of the information presented. Use of this article does not create an attorney-client relationship, and Rapp & Krock, PC does not represent you unless and until we are expressly retained in writing.
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