Trade Secrets 101: What Entrepreneurs Should Know

Protecting your trade secrets is becoming more and more important for startups and small businesses. Here’s what you should know.

Unlike the other forms of IP, which are primarily protected through federal laws, trade secrets are primarily protected through state laws. That means every state maintains their own trade secret statutes. However, most of them share the common elements of trade secret protection, which is what we’ll dive into below. (Note – there is a fairly new federal statute, the Defend Trade Secrets Act, which now allows federal claims in the area of trade secrets.)

(Confused about IP? See the differences between copyrights, trademarks, trade secrets, and patents in this guide.)

What constitutes a trade secret?

Generally speaking, a “trade secret” is information that you (a) reasonably attempt to maintain as confidential; and (b) is valuable due to its confidential nature. Practically all kinds of information can be protected by trade secret laws including technical data, non-technical data, formulas, programs, methods, lists, presentations, and more.

How do you protect trade secrets?

The key to protecting your trade secrets is to take reasonable actions to maintain the confidentiality of the information. Here are a few tips on how to do that:

• Limit the number of people who have access to the information. You can do this with physical barriers such as walls, doors, or even safes. And for digital information, you can use passwords, firewalls, and encryption.
• “Stamp” the information as “CONFIDENTIAL” (although that isn’t a prerequisite for protection).
• Most importantly, use non-disclosure agreements with everyone that has access to your confidential information – including employees, contractors, clients, and others.
• (Unlike copyrights, trademarks, and patents, there are no registration options for trade secrets.)

Once you obtain trade secret rights, the protection will last for as long as you maintain the confidentiality of the information.

What is “misappropriation?”

Once you have a trade secret, you can prevent others from “misappropriating” your trade secret. That means you can prevent them from:

• Acquiring your trade secret without your consent.
• Using your trade secret without your consent.
• Disclosing your trade secret without your consent.

Those rights are quite broad and, if someone is violating your rights, you may have the right to seek injunctive relief to stop them from continuing the violation plus actual monetary damages and sometimes punitive monetary damages.

(This article is general in nature and is not legal advice.)