CCS Blog

Protect Your Trade Secrets

by Jim Martin

After a half dozen Col. Sanders, KFC still has the same secret seasoning. Trade secrets may also be important to your business. You may not even realize you have secrets. If your restaurant uses Grandma’s recipes for soups and pies, and many patrons say they really come for the pies, you have a trade secret. Grandma didn’t mimeograph four thousand copies and distribute them to every restaurant in three states. If you have any unique process, ingredient or computer algorithm in your business, you have a trade secret. Now you might think I’m about to pitch patents. I’m not. I’m going to tell you how to protect your business’ intellectual assets.

I should begin by defining what constitutes a trade secret. A trade secret is any formula, pattern, idea, physical device, tool, process or set of data that provides its owner with a competitive advantage and is controlled or concealed in such a way that it could only be revealed to others through theft or unauthorized disclosure. Notice, I did not mention patent. There are many trade secrets which are not worth patenting. The patent process, which typically takes years, is 60% cost and 38% frustration.

Protecting your secrets is a hands-on, internal function. The fact that you guard a secret closely gives you rights when it is compromised. If you compromise it (whether by intent or accidentally) it ceases to be a trade secret. In the early 1960s, I worked in a pizza parlor that had the best dough I’ve ever tasted. The owner would prepare the dough in the back room with the door locked. No employee was allowed to watch. He protected his secret. He may have had the recipe written down, but there was no copy in the building.

Now that you understand that, what can you do if someone steals your secret, or if an employee tells someone what the firm’s secret is? You have rights. All states prohibit disclosure and theft. Your best first step is to ask a court to issue an injunction against further use or dissemination of the secret. You can also sue for any economic damages you feel you suffered as a result of the misappropriation. Both the user of the secret and the individual who obtained it for him can be sued. You can also meet with the local district attorney to see if prosecution is in order. (Prosecution is difficult unless the owner of the intellectual property can prove it provided a substantial market advantage.)

All businesses have vulnerabilities. If an employee quits for a position with a competitor, you should sit down with the employee and list (without detailing sensitive information) those properties of the business that you consider trade secrets. Ensure that the employee understands the legal consequences of providing those secrets (or any other sensitive information) to the new employer. Many firms with proprietary secrets require new employees to sign a non-disclosure agreement (NDA) that remains binding if they leave the firm. You should also constantly remind employees of those items which should not be disclosed to customers. Your employees are on your side. They will do what they should, if you keep them informed. Obviously you should include employee responsibilities in your employee handbook.