Trade Secrets Part Two: Three Steps to Protection

  • By Susan Burns
  • 08 Sep, 2016

In July, we reviewed the Defend Trade Secrets Act (DTSA) that passed in Congress by a sweeping majority, and was signed into law by President Obama on May 11—a rare piece of legislation that was largely agreed upon on both sides of the aisle!

In this post, “Trade Secrets: Part Two,” I want to emphasize the importance of understanding what a trade secret is, regardless of whether it is under the DTSA or state law. Surprisingly, many businesses I work with rely heavily on trade secrets for their economic livelihood, and they don’t know it. Not knowing and not tending to that little gold mine of yours can mean a significant financial hit to your business in many ways, not the least of which is losing your competitive advantage.

So, what are the components of a trade secret, and how do you protect it? Think of it in threes: the three key elements of a trade secret and three steps to protect it.

What is a trade secret?

At its most basic, a trade secret is secret information belonging to your business. It can involve a process or formula you use, a particular design or pattern, or any other type of information that gives your business an economic advantage over your competitors. The three key elements are:

  1. The information is not generally known to the public;
  2. The information obtains its economic benefit because it is not generally known, and
  3. The information is subject to  reasonable measures  to protect its secrecy

A trade secret is kept under lock and key not just because it is unique to your business, but because its secrecy gives your business a competitive edge. You know the obvious examples—the Coca-Cola® formula that is kept in a vault in the basement, the KFC® batter recipe that is made in two separate facilities so not one person knows the entire recipe, and that delicious trade secret we’re all after: Mrs. Fields® chocolate chip cookies.

But trade secrets can be more than just secret recipes. They vary from industry to industry, and can take on any number of forms—from the design of a product to the particular order of a process. Trade secrets are valuable because of the fact that they are kept from the public, and away from the industry competitors. If the public gets a hold of them, they can duplicate your recipe, product, process, etc. so that you no longer stand out from the pack.

Some secrets form the whole basis of a business’s value. Take, for example, the recipe for KFC’s batter, and the situation that has recently been lighting up social media, namely the possibility that  Colonel Sanders’ nephew inadvertently disclosed the secret batter recipe  that makes that KFC chicken so finger lickin’ good … Think about the impact inadvertent disclosure of this valuable and protected trade secret can have on their bottom line. You definitely don’t want to be in that situation!

That’s why it’s critical that you first recognize your trade secret assets, then take every reasonable measure to protect them.

So, what reasonable measures should you take to maintain secrecy?

Reasonable measures to maintain secrecy is an intricate and complex area of the law, and I definitely recommend working with well-qualified legal counsel on this issue. Sometimes, trade secret legal proceedings are won or lost entirely on this issue. In fact, I spent three years on a case focused solely on the issue of whether the client took reasonable measures to maintain secrecy of its trade secret information .

A determination of “reasonable measures” requires looking into many aspects of business operations—how the trade secret is kept, who has access to it, and what information employees have been given. Take time to evaluate whether the measures your business takes to maintain secrecy match the relative value of the trade secret. Although it is complex, here are three key steps:

1.     Divide and conquer.

Only disclose portions of trade secret information to employees that are absolutely necessary for their particular job. This means restricted access. If it’s a recipe or formula for a product, make sure no one person knows it in its entirety—don’t disclose trade secrets in a way in which more people could access more information than they need to do their job, including electronic password protection. Restrict access to secure manufacturing locations; use guards, ID badges or other appropriate physical security measures to keep track of who enters and leaves your facilities.

2.     Loose lips sink ships.

Make sure that employees with access to any trade secret information are well-vetted, including background and reference checks, before you hire them. Also make sure that they are employed under strict terms of confidentiality that are legally enforceable. Explain to your employees the importance of protecting trade secrets—that these secrets give the business its economic advantage and that legal penalties will ensue for wrongful disclosure.

3.     #CoverYourAssets in every way possible.

Implement company, staff and third-party policies to protect your valuable trade secrets. Educate your employees. Make sure they understand the policies, how they apply and that every employee plays a large role in maintaining secrecy—that it is a critical function of their job. Also, ensure that they know the consequences for violating the secrecy policy. This is NOT an area to grant leniency and be an understanding employee.

 

Be vigilant when it comes to protecting your business’s trade secrets. Maintain your competitive edge by identifying your business’s most valued assets and by taking steps to protect them.  Knowing your trade secrets and how to guard them properly can save you time and money, and give you the advantage in the event that someone decides to profit by pilfering your very effective business methods or formulas. As the saying goes, “an ounce of prevention is worth a pound of cure.”

And, if you are unsure if your business has trade secrets, schedule a complimentary 20-minute power-house consultation , and let’s make sure you know what your trade secrets are and how to #CoverYourAssets …


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More Posts from Susan's Blog

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By Susan Burns 26 Oct, 2017
P.S. There has been a lot of discussion on social media about my post on reading fine print  when installing apps, specifically focused on the Grammarly app. Some people have responded with the interpretation that Grammarly can only use your content to correct your grammar and not for anything else.

I disagree. This is not a correct interpretation, in my opinion.

Even though that interpretation may be based on a provision in the TOS that states you keep ownership of
your content, they still have an unlimited, perpetual, royalty-free right to use it. I won’t repeat the prior
post, but do urge you to read it .

Others have suggested that Grammarly’s TOS are typical of SaaS (software as a service) agreements and,
somehow, that makes it okay. The TOS may be similar, but the products aren’t. Grammarly, in my
experience, crawls through everything you type. Everything.

The other argument proposed by someone is that because this is typical SaaS language, they don’t really
mean that they are going to use your content. Really? Then say so in a clearly-drafted, user-friendly
contract a/k/a TOS.

I have not heard of someone successfully arguing in court that even though they agreed to a license of
their product, they didn’t think the person was really going to use it … and therefore, they shouldn’t be
allowed to use it. If you know of such a case, send it my way.

Again, legal ethics prohibit me from using the service. That aside, I don’t choose to give Grammarly
access to everything I type.

As one person put it, “everything ever typed on the computer, so while it runs in the background, it
gathers password, credit card data, shopping habits, text conversations from Facebook, messenger
services, anything you do... recorded and stored.”

Finally, my posts are my opinion and my legal analysis. I am not your lawyer. And, I am not telling you
what to do.

One of my major focus points with clients is clarity. Fabulous decisions come from clarity. Make a
decision that’s right for you.

I love a great discussion! Keep the comments coming.

MSB
By Susan Burns 24 Oct, 2017

Recently I was engaged in a Facebook exchange among a group of successful business women. Someone asked for opinions on using Grammarly—an app that is marketed as “A FREE, ACCURATE GRAMMAR CHECKER BUILT FOR EVERYONE.”  

The comments started rolling in: “love it!” “best thing I have used in a long time.” “Cuts my writing time significantly.” And more like that.

I actually had installed the free app a few weeks before to give it a test run. I found it to be a nuisance because that little app was popping up and sticking its grammar-nose in every single thing I wrote. My emails. My blog posts. My word documents. That spelled danger to me, and I immediately deleted it.

My curiosity piqued, I checked the Terms of Service (which, admittedly, I should have done first). Here is what I found:

By uploading or entering any User Content, you give Grammarly (and those it works with) a nonexclusive, worldwide, royalty-free and fully-paid, transferable and sublicensable, perpetual, and irrevocable license to copy, store and use your User Content (and, if you are an Authorized User, your Enterprise Subscriber’s User Content) in connection with the provision of the Software and the Services and to improve the algorithms underlying the Software and the Services. (emphasis added)

Here's what you need to know:

  • Grammarly, Inc. is a Delaware corporation. They include in the definition of “Grammarly” not only the corporation, but also all of its subsidiaries AND other affiliates.
  • The definition of “Software” is “the software.
  • The definition of “Services” is … wait for it … “services.” 
  • And, although it is poorly drafted, it seems to be attempting to include any future Software and Services provided by Grammarly, which you recall also means any subsidiary or affiliate.

What does this mean for you?

It means that if you install Grammarly, whether it’s a free service or a paid service, you are specifically giving an unlimited perpetual license to your content to Grammarly and any company they affiliate with and any of their subsidiaries basically for any service they provide now and decide to use in the future.

That means that if you use Grammarly, instead of your own brain or a copy editor, you are no longer the exclusive owner of your content. That means they can republish, provide to third party affiliates, and use your data and materials any way they see fit.

The bottom line is that Grammarly has access to—and the unlimited, forever—right to use your content. Period.

And, once you install Grammarly, it is everywhere . It pops up in every document you create. Every. Single. One. If you don’t believe me, try it yourself.

Of course, lawyers and other professionals with a confidentiality responsibility to their clients are ethically prohibited from using Grammarly. (And, I hope they read the fine print.) But even if you don’t have an ethical responsibility to keep information confidential, do you really want to give up the right to your content?

Think about it! And next time, read the fine print. … or call me, and I’ll read it for you.


​*This post has been updated here .

By Susan Burns 28 Feb, 2017

The driverless car industry is hot and super-competitive. That’s a given. Here’s what’s not hot if you are Waymo, the self-driving car business that was spun out of Google’s parent company:

By Susan Burns 19 Feb, 2017

Recently, there was a trademark spat between Adidas and Tesla. The story piqued my interest because   the big players make mistakes that are instructive for small businesses (only on a grander scale)—and because it illustrates the importance of brand identity and underscores why it’s smart to register your mark.

In a nutshell, here’s what happened: Tesla filed with the US Patent and Trademark Office (USPTO) to register its Model 3, three-bar logo as a trademark. If the registration had been for the purpose of using the mark on a car, there would not have been a problem. BUT, Tesla registered to use its three-bar “E” on clothing. Adidas, a company known for rigorous policing of its brand identity, challenged Tesla’s right to register the mark as confusingly similar to the Adidas three-bar logo. Tesla withdrew its application. Adidas protected its three-bar brand identity.
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