It may sound flip, but the best way to protect a trade secret is not to tell anyone.
In order to have secrets, you have to have the intention and the ability to keep them. When absolute exclusion and secrecy are possible, that is the way to maintain your trade secrets. However, either by the nature of the secret or the nature of its use in your business, absolute secrecy is rarely possible in practice, and so you must do everything you can do to keep your trade secret under your control. In addition, because the manner in which you protected your secret will only arise as an issue in litigation to prevent or compensate for unauthorized disclosure or misappropriation, you must establish adequate precautions and stick to them.
Limited Dissemination: First and foremost, you must establish and maintain procedures to limit dissemination of the secret among your employees, agents, and associates — not to mention your competitors. “Need to know,” a phrase recited prominently in military and government security rules and regulations, is the foundation of any secrecy policy. Therefore, you should reveal your trade secret only to those persons who need to know it in order to do their jobs. Further, you should reveal to each of these persons only as much of the secret as that individual needs to know to perform his or her particular function. Most of all, you must resist the temptation to treat your trade secret casually to any degree. That kind of temptation is strong in any effort to sell your company’s products and services, and also whenever you give the Grand Tour of your business to friends and relatives. A secret is not a secret any longer when you tell it to someone who has no need to know it.
Documentation: As counterintuitive as it may at first seem, one of the basic ways of protecting your trade secret is to write it down, take pictures of it, and otherwise document exactly what the secret is to the fullest extent possible. This documentation should also include data about how you came by the secret, what it cost in time and money to perfect it, how you use it in your business, and how it benefits the business. Because a trade secret is secret, it only comes into question when there is an instance of its misappropriation or a threat of its disclosure. When such a situation arises, the first thing you must be able to do, in order to get relief, is to identify the trade secret that has been, or may be, disclosed. Then you have to show that the person disclosing it, or threatening to disclose it, knew it to be a trade secret, and finally that it was a valuable business asset achieved at a cost.
While it may be possible in some cases to identify a trade secret after the fact, it may be difficult to show that someone who may have revealed it knew it was your trade secret unless you’ve defined the secret knowledge or material thing specifically for that person. Documenting the secret along with identifying the persons who have been given knowledge of it goes a long way toward preventing innocent disclosure as well as setting aside claims of innocent disclosure.
Furthermore, precautionary measures should be documented, too, since your taking reasonable measures to protect your secret is one of the elements that define the secret as a trade secret. In a dispute, the object of which is to prevent disclosure, further disclosure, or use of your secret by others, it’s one thing to say what you’ve done about security, but it’s much more effective to be able to show your written security procedures, log books, and other hard evidence of an implemented system of protection.
Locks and Keys: The most obvious way to keep something away from those you don’t want to have it is to keep it under lock and key and strictly limit the number of keys made and to whom you give them. Whenever possible, your trade secret should be used only in a secure place accessible only to those with authorized knowledge of the secret based on their need to participate in its use. A trade secret must never be used in a public place nor in the presence of anyone who is not part of your business. However, when some or all of a trade secret can only be used or performed in the presence of other company employees, agents, or associates, then every effort must be made to conceal as much as possible of the secret by, for example, putting up screens and barriers, restricting casual access, routing ordinary foot traffic away from it, and removing or obscuring any identifying labeling and marking.
Any documentation and anything recorded in any way on any medium that relate to, or are used in the trade secret — including the documentation of the secret recommended above — must be kept under lock and key, in locked cabinets and even in locked rooms, when practicable. Anything kept in a computer system, especially that kept on a computer network, should be kept in a secure, key-locked system, when possible, but must be kept in secure files using such things as passwords and encryption to prevent unauthorized access. Whenever a trade secret is run on a computer (including programs in computer-controlled machinery), then the programs and their output (including temporary output) must be made secure so that they are neither readable nor operable by unauthorized persons. Running the applications should at least require operator log-in and password identification.
Agreements: Whenever anyone other than the sole proprietor of a business is involved in using the business’s trade secret to any extent, there should be a written non-disclosure agreement between the business and that individual. Such an agreement should identify the trade secret by reference (not explicitly) and clearly set out liabilities and penalties resulting from unauthorized disclosure or misappropriation, as well as the manner in which disputes will be settled.
Furthermore, whenever a trade secret is in use in a business, regardless of the nature of its use, all employee agreements should contain confidentiality and non-disclosure terms. These terms should state that anything learned about the business is considered confidential, and that the employee will be liable for unauthorized disclosure or misappropriation of confidential information relating to the business. In general, you should have employee agreements with any employee who performs a mission-critical function in the business, and with those who are in a position to learn details of the operation of the business, whether or not these individuals are involved in using your trade secret.
Finally, if your business has trade secrets, you should have an employee manual or some form of written employment guidelines that all employees are required to sign off on. Such guidelines should state clearly that all information related to the operation of the business is considered confidential and that, as a condition of employment, all employees are obligated not to reveal information about the business to anyone outside the business.
