Keeping Trade Secrets Safe: 8 Tips to Thwart Loose Lips

Employee turnover is a fact of life, especially during protracted economic slumps like the current one. Whatever their reason for leaving, departing employees often take valuable experience and company knowledge with them when they go.

It’s tough enough losing a well-trained engineer, but losing a closely guarded trade secret to the competition can be far worse.

Fortunately, you can take some steps to minimize your risk. Below are eight things you should know or steps you can take to help plug intellectual property leaks.

1. Know the Law

Federal and state laws protect trade secrets, and many states’ laws conform to the standards of the Uniform Trade Secrets Act. But be sure to learn the laws that apply to your business and your state.

The federal government can impose criminal penalties on people who steal trade secrets for economic gain and knowingly harm the original secret owner. Most states allow a company to sue if it believes valuable secrets have been improperly disclosed, and winning parties may obtain significant civil payouts.

In addition to federal and state laws, courts may also consider other factors in deciding if a trade secret has been violated, including how well known the information is both within and outside your business, the value of the information, the degree of difficulty to duplicate the secret, and the steps you’ve taken to safeguard it.

2. Classify Your Information

Catalog your trade secrets and sensitive material in a central register or secure computer database. It may also be useful to consider classifying trade secrets based on their value and sensitivity. Specific classifications—"top-secret," "ultra-strict security," or "for internal eyes only" —make it clear who is and is not allowed access to certain information. At Krispy Kreme, for instance, only key employees may know the ingredients of the doughnut glaze while the ingredients of the doughnuts may be more commonly known among employees.

3. Disclose Less Information

Statistically speaking, the more people who know a trade secret, the more likely it is to be disclosed. Even high-level associates like business managers, senior officers, or board members may not always need to know every piece of intellectual property. Some companies compartmentalize different aspects of the trade secret so that only a few key employees know how all the pieces fit together.

4. Get Signed Agreements

Individual secrecy and non-compete agreements make key employees personally liable for unauthorized disclosures. Requiring such an agreement can remind employees of the continuing need to keep sensitive information secret. But when it comes to enforcement, many judges will weigh a claim against an employee’s right to earn a living based on industry knowledge and experience. The most effective secrecy agreements take this into account.

5. Keep Good House

Companies must regularly review their trade secret portfolio to remove or reclassify outdated items. Keep key employees who signed secrecy agreements up to date on a trade secret’s status and any recent legal action taken to protect it. It’s a great way reinforce the seriousness of maintaining secrecy.

6. Educate Your Employees

If employees know the importance of maintaining secret information—and the consequences of leaking it—they’ll be more likely to guard your trade secrets. Build a corporate culture of diligence through periodic educational programs on confidentiality.

7. Conduct Exit Interviews

Use the exit interview to remind departing employees of their ongoing obligation to keep company secrets. Remind employees of the possible consequences of violating secrecy agreements. Consider asking them to sign a written affirmation of your policies.

8. Monitor Your Competitors

Web sites, trade shows and white papers are good ways to keep an eye on your competitor’s activities in a period of high turnover. If a competitor recruits several of your top engineers in a short time frame, you may have cause for alarm—especially if the competitor’s new products bear more than a coincidental resemblance to your own recent releases.

[Adapted from "Keeping Secrets," by Daniel Staley, Fennemore Craig, P.C., for Mechanical Engineering, August 2010.]