Trade Secrets 101: What Entrepreneurs Should Know

Safeguarding trade secrets is more important than ever for startups and small businesses. If you’re growing a company in Kansas City or Boulder, understanding how to protect confidential information can give you a competitive edge and prevent costly legal disputes.

Unlike copyrights, trademarks, and patents (which are primarily governed by federal law) trade secrets are mostly (but not entirely) protected by state laws. While laws vary by state, most share common principles. Additionally, the Defend Trade Secrets Act allows businesses to bring federal claims for misappropriation.

(Confused about IP? Learn the differences between copyrights, trademarks, trade secrets, and patents here.)

What constitutes a trade secret?

A trade secret is any information that a business reasonably attempts to keep confidential which derives value from being secret. Practically any kind of information can qualify, including:

• Technical and non-technical data
• Formulas and processes
• Software programs
• Customer lists
• Business strategies and presentations

How do you protect trade secrets?

The key to protection is taking reasonable steps to maintain confidentiality. Here are some effective strategies:

• Restrict access by limiting the number of people who can see them.
• Use physical and digital security such as locked storage, passwords, encryption, and firewalls.
• Label confidential information with clear designations like “CONFIDENTIAL” where appropriate (but this is not required).
• Require non-disclosure agreements (NDAs) with employees, contractors, clients, and business partners.

(Get a Free NDA Template here.)

Unlike other forms of intellectual property, trade secrets cannot be registered. Instead, protection lasts as long as the information remains confidential.

What is misappropriation?

If a business has a legally recognized rights, it has the right to prevent others from misappropriating. This includes:

• Acquiring the secret without authorization
• Using the secret without permission
• Disclosing the secret without consent

Businesses that suffer misappropriation may be able to seek injunctive relief to stop unauthorized use, recover monetary damages, and in some cases, obtain punitive damages for willful violations.

Trade secrets can be a critical asset, but only if they are actively protected. Taking the right legal precautions can help prevent information from falling into the wrong hands.

*This article is general in nature and is not legal advice.