Trade Secrets
Russell Egan, Esq.

Russell Egan is an Houston, Texas intellectual property attorney with extensive experience interacting with inventors to obtain patent protection for their properties.  This includes novelty, infringement and validity searches and opinions, application preparation and prosecution, appeals and interferences, and other needs as they arise.  He has obtained over 500 domestic and foreign patents for individuals and corporations covering a wide range of technologies and subject matter.  His clients range from Fortune 500 corporations   to small, single member entities.  His web site is located at www.lawyerscenter.com/patentlaw.

What is a Trade Secret?

A trade secret is any information, knowledge or plan which being unknown to the public and the rest of the industry, gives a company an economic and competitive advantage.  Examples of trade secrets include:  salary information, formulas, specifications, patterns, inventions, customer and vendor lists, unpublished works of authorship, software, industrial methods, techniques and processes, marketing and sales plans, and marketing forecasts and pricing information.  Probably the most overlooked trade secret is failure.  It is often regarded that the attempt didn't work so nothing proprietary was gained.  But consider the definition of a trade secret.  It is just about anything that gives you a competitive advantage over your competitions.  You now know that something doesn't work and you will try a different course of action.  But why teach your competition?  Isn't it better to keep this information secret and let the competition follow the unprofitable course, expending their time and resources?

Why Should Trade Secrets be Protected?

A trade secret has no definite term of life.   By definition, the trade secret must be kept "secret" or the trade secret becomes public information and anyone is free to use it.  Therefore, the key to a trade secret is secrecy.  As long as the secret is guarded by the company, the courts will protect the secret from misappropriation by others.  A court will penalize one who steals or wrongly appropriates a secret.  However, the company cannot protect a trade secret against a competitor who might independently develop the same idea, information or plan, nor against one who lawfully gains access to it.  As long as loss of a trade secret could mean loss of a competitive edge in the industry, trade secrets need to be guarded.  Their public disclosure could bring economic injury to the company.

How to Protect a Trade Secret

The one sure way of protecting a trade secret is not to disclose it to anyone.  Unfortunately, that is not always practical, at least not if the trade secret is to be used to commercial advantage.  Therefore, the way to protect a trade secret is to disclose it to as few persons as possible and be sure that those persons know they are to keep it secret.  As long as the company owning the trade secret takes reasonable steps to maintain the secrecy of the trade secret, the courts will protect the trade secret.

Of course, what is "reasonable" depends on the circumstances.  Some "reasonable" steps would include:

• keeping trade secrets private or confidential and not disclosing secrets outside the company.

• marking the information as "company confidential", "secret", or the like.

• restricting access to the information, for example, by maintaining it in a secure place.

• requiring written employee secrecy agreements (these are often combined in a single document with patent and copyright assignment agreements, and

• conducting new hire and exit interviews emphasizing to newly hired and departing employees that they have a legal duty to maintain the secrecy fo the company's trade secrets. 
  

A company should guard against inadvertent disclosure of trade secrets by screening of abstracts and drafts of articles by the employees through the company's legal department. 

Someone who steals or wrongfully acquires a trade secret may be subject to civil or criminal action or both (usually in state court), and may then be subject to payment of damages and fines and to an injunction or imprisonment.  Trade secrets are property, and those who steal them may be prosecuted using the same statutes that cover other thefts of property, or under special statutes dealing specifically with the theft of trade secrets.

Receiving Trade Secrets From Third Parties

Unsolicited submissions of new ideas are often received from third parties outside a company.  Such submissions must be carefully handled to avoid a later accusation of misappropriation of the idea.  Some companies refuse to receive such third party submissions.  Others require the submitter to sign an agreement specifying the rights and duties of the parties respecting the information as a condition to accepting the submission, usually specifying that such acceptance will be on a "non-confidential" basis.  Many companies return unexamined any information received from a third party who has not signed such an agreement with a request that the agreement be executed prior to resubmission of the information.

Sometimes a company will receive an offer to disclose trade secrets from another company, such as a vendor or customer, under a confidential disclosure agreement.  Of course the agreemetn should not be signed unless it has been cleared by the company's legal counsel.  If another company's secrets are received under a confidential disclosure agreement, those secrets should be guarded at least as carefully as the company protects its own secrets.  They should be used only for the purpose covered in the agreement and should not be shared with anyone, even company employees, except as permitted by the agreement.

Except as covered by a confidential disclosure agreement, the company should avoid receiving information on a confidential basis from anyone outside the company.  Wrongfully using another company's trade secrets can expose the company and employees receiving the secrets to legal penalties.   Observing the following guidelines can help prevent such problems:

• Do not assume the company has any right to use another company's secrets.

• Do not hire a competitor's employee to gain access to the competitor's secrets.

• If a competitor's employee is hired, instruct the newly hired employee in writing that the company expects him or her to protect the former employer's secrets.

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