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Keeping Trade Secrets From Competitors

Sep 07, 2012

By Karen Kitchens, Intellectual Property/Documents Librarian, Wyoming State Library, Karen.kitchns@wyo.gov, guest submitter.

 

How can I protect information about my business from becoming known to my competitors, which could potentially give them a commercial advantage?

 

As a small business owner, you likely have a wealth of information which is valuable to your business that, if known to your competitors, would give them an advantage over you in the business market. This Intellectual Property (IP) is known as trade secrets. Virtually any type of information may be designated for IP protection. The United States Patent and Trademark Office (USPTO) definition of trade secrets: “Information…can include a formula, pattern, compilation, program, device, method, technique or process. To meet the most common definition of a trade secret, it must be used in business, and give an opportunity to obtain an economic advantage over competitors who do not know or use it."[i] In other words, the information derives its economic value from not being known to the public or others and is the subject of reasonable efforts to maintain its secrecy. Both information which is valuable, and information which possesses the potential to be valuable, can be protected. Customer lists, product sales information, financial forecasts or the methods by which you conduct your business are examples.

 

Trade secrets are protected by both Wyoming law (Wyoming §40-24-101 through 110) and federal law (18 U.S.C. Sec. 1831-1839). Trade secrets are subject to legal protection as forms of valuable property – but only if you, the business owner, have made reasonable efforts to safeguard information secrecy. The criteria of reasonable effort vary with each case. In general, the following factors are considered when resolving whether information qualifies for trade secret protection:

 

  • The extent to which the information is known outside the business.
  • The extent to which the information is known within the company.
  • The extent of measures taken to protect the secrecy of the information.
  • The value of the information to the company and its competitors.
  • The effort expended in developing the information.
  • The ease with which other companies could develop the information.

 

Because the key factor in determining whether information constitutes a trade secret is the secrecy of the information, it is critical your business develop a program to protect valuable information. There are two ways you can do this: physical measures and written agreements.

 

Physical Measures

 

  • Restricting access to confidential materials.
  • Providing secure passwords for company computer systems.
  • Destroying or shredding sensitive written documents or samples on company premises.
  • Permanently erasing or purging materials from company computers of departed employees or computers which are to be discarded or sold.
  • Providing locked cabinets for proprietary materials.

 

Written Agreements

For the best protection, employees should sign simple agreements confirming that the company’s information is confidential. Three key components of such agreements:

 

  • A nondisclosure section requiring employees to hold the company’s proprietary information in confidence.
  • A section confirming work created by employees is owned by the company.
  • Restrictive covenants, which prohibit an employee who leaves the company from soliciting other employees or competing against the company for a limited period of time in some geographical area.

 

Because trade secrets are likely an essential element of your business, it is important you check with your legal counsel to be sure of the specific legal requirements.

 


[i]  “USPTO Office of the Administrator for Policy and External Affairs: Patent Trade Secrets,” last modified October 4, 2010, http://www.uspto.gov/ip/global/patents/ir_pat_tradesecret.jsp .



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