CONFIDENTIAL INFORMATION VERSUS TRADE SECRETS – ARE YOU PROTECTED? TIPS ON HOW TO PROTECT BOTH

As a business owner, the protection of your intellectual property, including your confidential information and trade secrets, is vital to the long-term success of your business.

IS YOUR INTELLECTUAL PROPERTY, INCLUDING YOUR CONFIDENTIAL INFORMATION AND TRADE SECRETS, PROTECTED?

This is something that must be done right away or you risk losing the protections as the information could be considered in the public domain or in the hands of a third party without any protections. The best way to secure this protection is ensuring that you have an agreement to protect your confidential information, including trade secrets, executed any time you may disclose this information and this should be done prior to disclosure.

DO YOU HAVE A CONFIDENTIALITY AGREEMENT AND/OR NON-DISCLOSURE AGREEMENT IN PLACE PRIOR TO DISCLOSING?

In order to ensure the greatest protection of your confidential information and/or your trade secrets, it is important to understand the overlap and differences between the two. For instance, a clause protecting trade secrets may not always protect confidential information, even though a clause protecting confidential information may also extend to trade secrets (as trade secrets are usually a subset of the definition of your confidential information). While this may seem confusing at first, the overlap will make sense with a better understanding of the practical difference between the two.

TRADE SECRETS VERSUS CONFIDENTIAL INFORMATION – DO YOU KNOW THE DIFFERENCES?

Trade secrets are generally considered technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers, which is not known to the general public and can be used to gain a competitive economic advantage over other businesses. In addition, something is only considered a trade secret if reasonable measures are taken to protect the information. If a business chooses not to protect its trade secrets, it is likely they won’t be considered trade secrets at all. The Uniform Trade Secrets Act (“USTA”) defines a trade secret as “information, including formula, pattern, compilation, program, device, method, technique or process that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value for its disclosure; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy (See footnote below). A Non-USTA definition (as a common law tort) uses six factors to consider in determining whether information constitutes a trade secret as follows: (i) the extent in which the information is known outside of the business; (ii) the extent in which it is known by employees and other involved in the business; (iii) the extent of measures taken to guard the secrecy of the information; (iv) the value of the information to competitors; (v) the amount of effort or money expended by the business in developing the information; and (vi) the ease or difficulty with which the information could be properly acquired or duplicated by others.

Confidential information is a much broader category that can include: employee personnel information, pricing lists, customer lists, customer information, discounts, pricing strategies, methodologies and strategies, training materials, information on a business deal, or even trade secrets. Generally though, confidential information that is not a trade secret revolves around an instance or occurrence, as opposed to a long-term advantage that is unique to a business. For example, pricing lists fluctuate based upon certain market effects or customer relationships, and therefore may not be considered a trade secret. However, a pricing list would still be confidential information that could be protected from dissemination. Steps, including execution of a confidentiality agreement or non-disclosure agreement, must be taken in order to reasonably protect information for it to be considered confidential.

ARE YOU ENSURING PROTECTION OF BOTH, YOUR CONFIDENTIAL INFORMATION AND YOUR TRADE SECRETS?

In order to best protect a business from dissemination of trade secrets and confidential information, it is important that any agreement specifically enumerates the information that is being protected. Blanket provisions that seek to protect all information as confidential, or just confidential information generally, may not rise to the level of protection needed to prevent disclosure. A trade secret protection clause may go far enough to protect trade secrets, while leaving other confidential information unprotected. As such, it is important that your business includes the necessary and most up to date provisions within its confidentiality agreements to ensure adequate protections of its trade secrets along with its confidential information in accordance with commercially reasonable industry standards and recommended legal practices. In conclusion and most importantly, it is crucial for your business to follow specific written policies regarding the classification of confidential information or trade secrets, as well as the recommended protocols for ensuring its protection.

PLEASE REVIEW ALL OF OUR ARTICLES ON THE TOPIC OF INTELLECTUAL PROPERTY, LICENSING, AND PROTECTIONS OF INTELLECTUAL PROPERTY ON THIS WEBSITE FROM WALTZ, PALMER & DAWSON, LLC

Should you have any questions about confidentiality and/or non-disclosure agreements, how to protect trade secrets or confidential information, or any other law that may affect the operation of your business, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.

Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services.  Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.

Sources and Notes Used for This Article:

  • The Uniform Trade Secrets Act (“UTSA”) is a legislative act created by the non-profit organization, the Uniform Law Commission (ULC). The USTA defines trade secrets and describes claims related to trade secrets. 47 states and the District of Columbia have adopted the USTA.
  • Prior to the development of the USTA, improper use or disclosure of a trade secret was traditionally a common law tort. Sections 757 and 758 of the Restatement of Torts (1939) set forth the basic principles of trade secret law that were widely adopted by U.S. courts.  In particular, § 757, comment b, listed the six factors to be considered in determining whether information constitutes a trade secret.
  • Found at: https://www.law.cornell.edu/wex/trade_secret

This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.

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