What are Trade Secrets?

Small business tips - SandGarden Law GroupTrade Secrets: yours and everybody else’s

As we discussed last week, trade secrets are a type of Intellectual Property protection.   The courts define “trade secret” very broadly.  It can mean any type of confidential or secret information that gives a business a competitive edge.  Some examples of trade secrets: survey methods used by professional pollsters; formula for a sports drinks; recipes; a new but unpatented invention; manufacturing techniques; marketing strategies; and computer code or algorithms.  Trade secrets can even mean a good prospect list or supply chain.  Trade secrets are any valuable business information that is not generally known.

Generally trade secrets are most important in four types of business interactions:

  1. Between an employer and their employee or independent contractor
  2. Between two businesses that are working on a joint project or joint venture together
  3. Between two businesses, where one business has hired the other to provide services
  4. Between business co-owners

Does this cover a lot of business interactions?  Yes, more than you think it would.  These are all examples of situations where an individual or business may have access to another business’ confidential information.  Businesses want to prevent others from releasing or disclosing any confidential information that might be seen during a business interaction.  They also want to prevent other people from being able to use confidential information that was illegally obtained.

Most businesses use the most basic and comprehensive trade secret protection: the Non-Disclosure Agreement (also called the “NDA”).  An NDA lays out strict rules identifying confidential information and requiring certain standards and practices to maintain confidentiality.  Some businesses don’t use a separate NDA, they will instead put the same or similar requirements into confidentiality clauses in their Employment, Joint Venture, or Independent Contractor Agreements.  Note that businesses who use NDAs must also take steps to make sure that they keep their own information secret.  An NDA will not cover information that the business owners have accidentally or intentionally allowed to become public knowledge.

If a business believes that another person or business has stolen or improperly disclosed their trade secrets, they have several different ways or stopping or punishing the other party.  If there is an NDA or contract with confidentiality provisions, the injured business can sue in civil court for breach of contract.  In California, theft of trade secrets is also a crime, and businesses can complain to the California authorities.  Up until 2016, each state also had its own Trade Secrets civil provisions, which protected business owners, and businesses could sue under the State civil code for breaches of trade secret protections.  As of 2016, there is now a Federal law, called the Defend Trade Secrets Act of 2016.  This new Federal law adds additional protections to each state law, and new enforcement tools.  Now businesses have the protections through contract enforcement, state civil code, or Federal laws.  In the next blog post we will explain about the specific new requirements and protections of the new Federal Act.  These new tools empower businesses to protect their trade secrets, but also create mine fields for employees, independent contracts, and any other business that might handle any of their data or information.

Stay tuned for each installment. And if you have questions, ask us at SandGarden Law.

SandGarden Law Group of Sunnyvale, CA provides creative and accessible legal solutions for individuals, families, and small businesses.

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