7 Things Every Entrepreneur Should Know About Trade Secrets

7 Things Every Entrepreneur Should Know About Trade Secrets

The term “trade secret” is often tossed around without a true understanding of what it is and why it is important — especially for small, online businesses. Trade secrets protect your valuable, and often confidential, information from getting into the wrong hands and being used inappropriately. Every entrepreneur can benefit from knowing these important details about trade secrets.

1. What are Trade Secrets?

Not all of the information pertaining to your company can be considered a trade secret. Trade secrets generally are information that you reasonably want to remain confidential and is valuable because of its confidential nature. Trade secrets can also provide their owners with a competitive advantage in the marketplace.

Another way to look at trade secrets is that they can be treated in a way that competitors or the general public are prevented from learning about them, unless they’re doing something illegal or nefarious. Trade secret law usually covers, but isn’t limited to, both technical and non-technical data, formulas, programs, methods, lists and presentations.

2. How are Trade Secrets Protected?

Remember, just because you consider something to be a trade secret does not automatically make it so. You need to treat it in a way that makes it clear you want to keep the information a secret (such as keeping a formula locked in a safe). So, take some extra precautions to protect any information you consider to be a trade secret. It is not difficult to do. Your best course of action is to follow these simple guidelines:

  • Limit the number of people who have access to the information
  • Place a “CONFIDENTIAL” stamp mark on important papers
  • Maintain computer security
  • Lock the information up, especially after business hours
  • Limit access to people on a need-to-know basis
  • Use non-disclosure agreements with everyone who has access to the information.

3. Misappropriation of Trade Secrets

When you have a trade secret, you also need to prevent misappropriation of the secret, which means preventing others from using it inappropriately. Usually this happens when someone:

  • Acquires it without your consent
  • Uses it without your consent
  • Discloses it to others without your consent

If anyone violates your rights to a trade secret, you may be able to seek an injunction against the perpetrator. In some cases, you will even be able to seek monetary compensation.

4. Putting Trade Secrets to Use

Trade secrets can protect information that is not otherwise protected under other types of intellectual property law, such as copyrights, trademarks and patents. Trade secrets also perform the following functions:

  • Protect ideas that give businesses a competitive advantage
  • Keep competitors from learning about a new product or formula that is in development
  • Protect valuable business information, such as cost or price, marketing plans and customer lists
  • Keep competitors from learning about functional or technical attributes of a product
  • Protect information regarding which strategies and practices do not work (negative know-how)
  • Protect other information that has value and is generally not known by competitors.

5. What Rights do Trade Secret Owners Have?

When you own a trade secret, you can prevent groups of people from using, copying or benefiting from it, or letting others know about it, without your permission. These groups include:

  • People who are automatically bound by confidentiality not to use or disclose the information
  • People who acquire the trade secret through improper means
  • People who knowingly learn the information from people who did not have the right to share it
  • People who mistakenly learn about the trade secret and have no reason to know that the information is protected
  • People who sign non-disclosure agreements

The only group of people who cannot be prevented from using trade secret information are those who discover the information on their own without using any illegal means.

6. How Can You Enforce Your Trade Secret Rights?

Every state has laws preventing people from stealing or disclosing trade secrets. So, if you believe someone has violated your trade secret rights, you can seek an injunction against the person or group.

7. Is Stealing Trade Secrets a Crime?

Intentionally stealing someone’s trade secret is, indeed, considered a crime under both state and federal law. It is covered under the Economic Espionage Act of 1996. This act gives the U.S. Attorney General sweeping powers to prosecute any company or individual involved in trade secret misappropriation. Violators of this law can be subject to a fine of up to $500,000 for individuals or $5 million for corporations. Violators may also face up to ten years in prison. The penalties are even stiffer if the theft was done on behalf of a foreign government or agency.


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