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Trade Secrets 101: Protecting Your Business’s Core Assets 

An Informative Guide for Small Business Owners 

In the competitive world of business, trade secrets are among the most valuable assets a company can possess. These secrets—whether it’s a unique recipe, proprietary software, or innovative processes—can provide a significant edge over competitors. For small business owners, understanding how to protect trade secrets is a critical step in building a sustainable and resilient enterprise. 

What Are Trade Secrets? 

Trade secrets refer to any confidential business information that provides a company with a competitive advantage. To qualify as a trade secret, the information must: 

  • Be kept confidential (not publicly known). 
  • Have economic value derived from its secrecy. 
  • Have reasonable efforts made by the business to safeguard it. 

1Examples of trade secrets include the formula for a popular soft drink, customer lists, manufacturing techniques, or even marketing strategies. 

Why Protecting Trade Secrets Matters 

Failing to secure your trade secrets can result in severe consequences, including financial losses, reputational damage, and losing your competitive edge. In some cases, legal disputes may arise if sensitive information is stolen or leaked, creating costly litigation for small businesses. 

Real-Life Example 

Consider the case of a small software company whose proprietary code was shared with licensees of that software, and the licensees used the proprietary code to become the software company’s competitor. 2Because the company did not have adequate protections in place(such as proof they treated the proprietary code as secret by keeping access to the code limited), the court ruled that the information was not a trade secret, and they lost their competitive edge. This underscores the importance of proactive measures to safeguard sensitive information. 

Practical Tips for Small Business Owners 

1. Use Confidentiality Agreements 

Confidentiality agreements, also known as non-disclosure agreements (NDAs), are a key tool for protecting trade secrets. Require employees, contractors, and business partners to sign NDAs before sharing sensitive information. Clearly outline the obligations to keep the information private and the consequences of breaching the agreement. 

  • Pro Tip: Make sure that the NDA term limit (typically 5 years) does not include trade secrets. The requirement to keep trade secrets, secret, should last forever.  

2. Implement Non-Disclosure Policies 

Develop and enforce non-disclosure policies within your organization. These policies should clarify what constitutes a trade secret, who can access it, and how employees should handle sensitive information. Regularly review and update the policies to ensure they align with evolving business needs.  

  • Action Step: Need a Non-Disclosure Policy? Click here 

3. Train Your Employees 

Educating your team on the importance of trade secret protection is essential. Conduct regular training sessions to help employees recognize sensitive information and understand their role in safeguarding it. Reinforce the importance of discretion and emphasize that the security of trade secrets is a collective responsibility. 

  • Action Step: Need an Employee Trade Secret Training or Trainer? Click here 

4. Limit Access 

Adopt the principle of “need-to-know” when it comes to sharing trade secrets. Restrict access to sensitive information only to those employees or contractors who need it for their work. Use secure systems to store and share confidential data, such as encrypted files or password-protected platforms. 

5. Monitor and Audit 

Regularly audit your practices to identify vulnerabilities in your trade secret protection. Monitor access logs and track who views or shares sensitive information. Proactive monitoring can help you detect potential breaches early and take corrective actions swiftly. 

6. Consult Legal Experts 

Every business is unique, and one-size-fits-all solutions rarely work. Consulting a legal expert can help tailor your trade secret protection strategy to your specific needs. Legal professionals can assist with drafting NDAs, ensuring compliance with applicable laws, and preparing defenses for potential litigation. 

Common Pitfalls to Avoid 

  • Assuming verbal agreements are sufficient: Always document agreements in writing for clarity and legal enforceability. 
  • Failing to update policies: Outdated policies may leave gaps in your protection strategy. 
  • Over-sharing information: Be cautious about sharing too much, even with trusted partners. Remember, trade secrets, must be kept secret.  
  • Neglecting cybersecurity: Digital trade secrets require robust cybersecurity measures to prevent breaches. 
  • Failing to enforce your policies: Having a policy is great, but failing to enforce the policy will also leave gaps in your protection 

Checklist for Trade Secret Compliance 

  • Have all employees and contractors signed NDAs? 
  • Are non-disclosure policies in place and regularly updated? 
  • Is employee training on trade secret protection conducted regularly? 
  • Are access controls securely implemented? 
  • Are audits performed to assess vulnerabilities? 
  • Have you consulted a legal expert to tailor protections? 

Conclusion 

Protecting your trade secrets is not just about securing information; it’s about safeguarding your business’s future. By implementing robust confidentiality agreements, enforcing non-disclosure policies, and training your employees, you can reduce risks and enhance your competitive advantage. Remember, consulting legal experts can ensure your protection strategy is comprehensive and aligned with your unique business needs. Take proactive steps today to secure your trade secrets—and your business’s success. 

Endnotes:

  1. “Explaining the Defend Trade Secrets Act” by Bret A Cohen, Michael T. Renaud, and Nicholas Armington on https://www.americanbar.org/groups/business_law/resources/business-law-today/2016-september/explaining-the-defend-trade-secrets-act/ 
  2. Broker Genius, Inc. V. Zalta, 280 F. Supp. 3d 495 – Dist. Court, SD New York 2017 at https://scholar.google.com/scholar_case?case=6214960575815942331&q=broker+genius&hl=en&as_sdt=6,39 

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