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Keeping It Top Secret

Keep competitors away from your formula for success. Use these five rules to protect your trade secrets.
May 16, 2005
URL: http://www.entrepreneur.com/article/77852

What's the most valuable trade secret in the world? If your answer is "the formula for Coca-Cola," most experts would say you're right.

It's amazing but true. The incredibly valuable formula for Coca-Cola isn't protected by a patent, a trademark--although the names "Coca-Cola" and "Coke" are both registered trademarks--or a copyright.

The formula for Coca-Cola is, and always has been, just a lowly trade secret.

A trade secret is basically any information that's unique and valuable to your business but isn't known to people outside of your business. Trade secrets can be protected under state and federal law. However, in order to be classified and legally protected as trade secrets, there are five key rules that a business must generally follow regarding the information.

Trade Secret Rule #1: Trade secrets must really be secrets. In other words, a trade secret must be any type of information used in your business that's not generally known to the public and would not be ordinarily available to your competitors except by the use of improper or illegal means.

So watch very carefully what type of information your business voluntarily provides to any outsider or third party. Any information that you voluntarily (a) give out to potential customers, (b) post on your website, (c) provide to trade associations or (d) provide to others outside your company cannot be protected as a trade secret unless the recipient signs an appropriate confidentiality agreement.

Trade Secret Rule #2: Use a warning label. In many cases, you must use a written label or sticker to classify and protect your designated trade secrets. You can simply use a "Confidential" rubber stamp on each page of any trade secret information or put the word "Confidential" in the header or footer of each page of any documents you consider to be trade secrets.

If you want to provide a more "legal sounding" warning, you could consider placing a label on the front cover of any trade secret document that contains the following warning:

This item/document/material contains CONFIDENTIAL TRADE SECRET INFORMATION owned by [THE LEGAL NAME OF YOUR COMPANY] and/or its affiliated companies. This information is protected by applicable state law and may be protected by the federal Economic Espionage Act OF 1996 (18 U.S.C. Sec. 1831), which provides for criminal penalties of up to 15 years in prison and/or a $5 million fine for stealing, receiving, possessing and/or duplicating any information contained herein.

Trade Secret Rule #3: Restrict physical or electronic access to your trade secret information. It's very important that you also limit access to trade secret materials on a need-to-know basis. A locked filing cabinet with limited key access is sufficient. You could create secure passwords for computer-stored trade secret information. In addition, you should consider shredding (rather than throwing away) any documents containing trade secret materials and you should also be obliterating or wiping (rather than merely deleting) any trade secret information contained on a computer hard drive or other electronic storage medium.

Trade Secret Rule #4: Continue to require that everyone sign confidentiality agreements. As already mentioned above, if you voluntarily give any trade secret information to someone outside your company, you must have the recipient sign an appropriate confidentiality agreement. In addition, you should get in the habit of having all employees, consultants, independent contractors and potential business partners routinely sign confidentially agreements if they may receive or have access to any of your company's trade secrets.

Trade Secret Rule #5: Follow all the rules outlined above. Now that you've come this far, it would be a shame to lose protection for your trade secrets by not practicing what you preach. Having a trade secret policy without actually enforcing it on a daily basis will have a negative impact on your company's ability to protect its trade secrets in court.

These are the general rules that every business can use to protect its valuable trade secrets. Just remember that the law governing trade secrets may vary somewhat from state to state, so it's important to check with your legal counsel to be sure of the specific requirements in your state.