Trade Secrets 101


March 2011

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The dark side of secrets: Suppose you invent a better lightsaber; any trade secrets inside are open to anyone who can reverse-engineer them.

The formula for Coke. The Colonel’s finger-lickin’-good recipe. The stuff in WD-40 that fixes whatever sticks or squeaks.

These are some of the best-kept secrets in the commercial marketplace. Competitors have gone to great lengths to expose and copy them, but to no avail. How have they endured?

The answer lies in the power of trade secrets. Trade secrets protect intellectual property that even patents often can’t. They can protect a wide range of intellectual property that engineers work with all the time: compilations of data, equations, customer lists, and know-how developed and used in-house such as testing/inspection systems.

Unlike patents or copyrights, trade secrets never expire nor do they require an idea to be unique or original. All you need to do to protect a trade secret is demonstrate that it’s valuable to your company, and that you’ve taken reasonable steps to keep the information secret.

Finding the key: Atari engineers decoded a chip so their company could make games that would play on Nintendo’s game system. It was perfectly legal.

That said, trade secrets have their limitations, especially with technology-based products. Relying on their protection as an easier, cheaper alternative to a patent can be a costly mistake, because:

  • It’s perfectly legal for your competitors to reverse-engineer your product in order to copy it. The minute an unpatented product is sold in the marketplace, it is no longer considered a trade secret. Who says so? The U.S. Supreme Court.
  • No trade secret is safe from reverse-engineering, no matter how well you’ve concealed it. When market share is at issue, businesses will sometimes go to great extremes to appropriate a competitor’s secrets. Hackers and pirates can almost always crack the code.
  • By accident or design, external parties might compromise your secrets. Take every precaution to protect yourself, and to document that you’ve done so. For vendor confidentiality agreements, make sure they thoroughly cover design and packaging issues. Explicitly state the confidential nature of any sensitive verbal or written communications to external parties.


Protecting Your Secrets

You can protect your valuable information by following some basic guidelines:

1. Your company needs a formal trade secrets program -- explicit policies that are made clear to employees from their first day, and that apply to all visitors to your facility as well.

2. Document and lock away trade secrets, and restrict access to this information to employees on a need-to-know basis.

3. Require non-employees who share in company secrets to sign confidentiality agreements. Always limit the number of people made privy to sensitive information.

4. Clearly mark all sensitive documents, whether electronic or hardcopy, as confidential or secret.

5. Hire specialists to conduct regular audits to ensure your trade secrets are sufficiently defined and adequately protected.

Keeping Your Edge

Trade secrets are especially useful when used in tandem with patent and copyright measures. Each has its own important role in safeguarding your market share.

Before your product hits the market, just about everything can be considered a trade secret, including your business and marketing plans. After it’s released, things change.

Your engineering drawings may still be secret, but remember that the product design remains vulnerable to reverse engineering. The product’s high-level functionality is in the open, but a patent could still protect you. Likewise, copyright and trade secret protection could still cover things like software source codes that run on microprocessors embedded in your product.

Yes, there are limitations to trade secrets. But their proper use in concert with patents and copyrights can go a long way in protecting your company’s competitive edge.

[Adapted from "Trade Secrets 101," by Kirk Teska, Law Firm of Iandiorio & Teska; and Suffolk University Law School, for Mechanical Engineering, October 2008.]

Unlike patents or copyrights, trade secrets never expire nor do they require an idea to be unique or original.

 
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