THE LAW. Today's definition of trade secrets encompasses any information, technical or nontechnical, that your organization has reasonably protected and is valuable enough to give you an actual or potential advantage. Both federal and state laws govern trade secrets:
Federal: The Economic Espionage Act of 1996 made it a federal theft to take, download or receive trade secrets without the owner's authorization.
States: All states have some kind of law. So far, 41 states have adopted statutes modeled after the Uniform Trade Secrets Act. Two states (Alabama and Massachusetts) have separate state statutes protecting trade secrets. And seven states (Missouri, New Jersey, New York, Pennsylvania, Tennessee, Texas and Wyoming) protect trade secrets under common law.
WHAT'S NEW. In 2001, companies lost $59 billion due to trade-secret theft, according to a Pricewaterhouse-Coopers study. And lawsuits involving stolen trade secrets are rising.
Plus, intellectual property attorneys report a troubling trend: Many organizations establish written trade-secret protections, but then ignore them. Result: If information isn't protected, it could lose its "trade-secret" status.
HOW TO COMPLY. Safeguarding company trade secrets is important for two reasons: First, you make it less likely that confidential information will be misused. Second, it will be easier to seek relief in court if your secrets are stolen.
Preventive measures are your best protection. Take these four steps to safeguard your secrets:
1. Establish a written policy. A nondisclosure agreement can help protect your trade secrets if you have genuine secrets to protect. If not, consider issuing a confidentiality policy to help safeguard sensitive information in lieu of asking workers to sign a nondisclosure pact.
2. Conduct a trade-secret audit. Identify exactly what type of information is and is not a trade secret for your business. Establish an ongoing way to identify new trade secrets.
Limit access to confidential information to employees who need to know, and label all documents that contain trade secret data as "Confidential."
Then train employees on your policy, defining what they can and can't say (or do) with the information. Be specific. For example, if you're developing a new product, can your marketing people say so?
This is important because, as a matter of law, if one of your employees voluntarily discloses protected information to a third party, that action instantly destroys your company's right to protect the information in court as a "trade secret."
3. Focus on off-site situations. Your closely held secrets and business plans are often most vulnerable at public business events, such as trade shows, conferences and networking meetings. Example: A loose-lipped sales rep presents a product at a trade show and blabs that an improved version is coming in three months. As a result, your sales of the existing product plummet.
Remember, not all conversations take place in the booth or the conference room. Competitors may overhear juicy gossip in the elevator, at a cocktail party or in the restroom. Remind employees beforehand that they're "on" 24/7 and not to let their guard down.
4. Issue reminders about employee agreements. If your employees signed confidentiality pacts, regularly remind them of their responsibilities.
When employees resign or are fired, require them to return all confidential documents. Obtain their written acknowledgment that they understand and will comply with the confidentiality, nondisclosure or noncompete pacts.
How to win in court
If you accuse an employee or competitor of stealing secrets, you'll need to prove three things:
1. The information had been truly secret, unknown outside the company.
2. Adequate steps had been taken to protect the information.
3. The recipient of the information "knew, or should have known," that it was obtaining a trade secret.
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