For Your Eyes Only: Trade Secrets

What if you’ve got an idea so good or unique that it needs to stay secret? How do you protect it? If you’ve found your special sauce, it could be considered a “trade secret.” Every state has laws prohibiting the theft or disclosure of trade secrets. The federal law is the Defend Trade Secrets Act of 2016 (the “DTSA”). Trade secrets are protected under the DTSA if they are related to “a product or service used in, or intended for use in, interstate or foreign commerce.” 

What is a Trade Secret?

There is no uniform definition of a trade secret, but it is determined by a few key factors by trade secrecy law at both the state and federal level. A trade secret is (a) not known or readily accessible by competitors, (b) has commercial value or provides a competitive advantage in the marketplace, and (c) must be protected by the owner of the information from disclosure through reasonable efforts to maintain secrecy.

Trade secrets are a type of intellectual property that includes know-how, processes, best practices, formulas, recipes, customer lists, relationships with vendors, advertising strategies, data sets, designs or drawings, renderings, distribution methods, financial information, and source codes.

There are no filing or legal services needed to create trade secrets, but just calling it a trade secret doesn’t make it one. Here are a few steps you can take to protect sensitive business information. 

1. Write it down.

It might sound counter-intuitive to protect a secret by documenting it but writing it down will serve as evidence that you own the trade secret and value it. Start by writing it down on a piece of paper or digital document with the date and your information. Detail  all the ingredients, materials, measurements, methods, or processes that make up your special sauce. Label the document as Confidential.

2. Keep it safe.

Put the document in a file folder also marked Confidential. Store in a lockable drawer and keep it locked when you’re not around. If digital, keep the document in a password protected file. Only allow access to the file on a need-to-know basis. Require any collaborators or staff to treat this info as confidential.

3. Get an NDA.

The most common way to protect trade secrets is with a Non–Disclosure Agreement (“NDA”). Courts have repeatedly reiterated that NDAs are the most effective way to keep confidential information secret. It is an agreement that can be simple but goes a long way in setting expectations with your potential investors, collaborators, or hires. This agreement gives you legal recourse if the secret is spilled and the contract is breached. Need an NDA?

4. Use the NDA.

Before you allow anyone to access the confidential info, ask them to sign an NDA. Make sure to use their full legal name and collect some form of contact information in writing. An NDA can be helpful if you are pitching an idea or shopping a project around to potential investors or partners. If you are considering bringing a collaborator or co-owner into your business, consider them signing an NDA to start the relationship off with clear expectations of what can be discussed and what cannot. If you’re hiring a contractor, have them sign an NDA before you share the brief. If you’re hiring an employee, have  them sign an NDA before their first day of work. In some contexts, an NDA might feel aggressive, but you should at least understand the risk when outweighing the benefit.

As a thank you for tuning in to our newsletter, we’d like to share a resource with you that can help protect your business. For a limited time only, download a discounted NDA template which includes our guide for how to use it.