Keep It Confidential

Under Wraps

The real question in these cases is whether a given set of information is really a trade secret. To some extent, it's a matter of degree. A departing employee who physically removes a crucial customer list--even by copying it and leaving the original--is taking something that belongs to the employer. But if the employee merely remembers the names of clients and reconstructs the list, that's not necessarily stealing trade secrets. Courts do not require former employees to forget what they know. Your best protection when it comes to customer lists is a noncompete agreement signed by employees while they are still working for you--or a clause in their employment agreements not to solicit former customers.

Under the Uniform Trade Secrets Act adopted in most states, information is a trade secret if it meets three criteria:

1. It must have independent economic value to people outside the company. Knowing your processes, pricing information and customer lists could give another firm a competitive advantage, while knowing your management structure probably wouldn't.

2. The information must be generally unknown and unlikely to be discovered by lawful means. If a customer list could be drawn from a trade directory, it's not likely to count as a trade secret. In a frequently cited Ohio case, an Arthur Murray dance studio sued to keep one of its former instructors from teaching its dance steps to Fred Astaire dance studio students across town. The court refused to recognize the dance steps as trade secrets because they simply weren't secret.

3. The owner of the secret must make efforts to maintain the secret. If the information is not labeled as confidential and anyone has easy access to it, chances are slim that a court would treat it as a trade secret. "You have to establish that something is a trade secret," Linn says. "Make sure it's not available outside the company, and make sure not everyone in the company has access to it."

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This article was originally published in the March 1998 print edition of Entrepreneur with the headline: Keep It Confidential.

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