Trade secrets: how to protect what’s yours

6 min read
Cathy Ngo

In a highly competitive business climate, responding to the needs of current and potential customers requires the constant evolution of goods and services. Existing or new businesses wishing to thrive in this environment must be able to do research and development, gathering the information they need to deliver something special to the marketplace. That something special is known as a trade secret.

Unfortunately, your competitors can get access to such information rather easily. One way they can do this is by hiring the key employees who created or have access to useful information that gives your business a competitive edge.

The great news is there are ways to protect your trade secrets.

This article will go through ways to best safeguard proprietary or confidential information.

Ways to protect your trade secret

A trade secret — like Coca Cola’s recipe, for example — could be the thing that sets your startup or small business apart from the thousands of others out there. It could be the thing that makes your fortune. Here’s how to keep it to yourself:

  1. Adopt a strict information security policy.
  2. Have employees sign non‐disclosure agreements.
  3. Keep confidentiality in managing your office.

Ready to protect your secrets? Let’s go.

But first, what exactly is a trade secret?

Trade Secrets Woman Holding Protein Shake Mixer
Successful businesses make their fortunes by being able to keep a secret.
Photo: Kelly Sikkema on Unsplash

A trade secret is any information that is:

  • Not generally known to people in similar business circles or to the public
  • Has some economic benefit to the owners, a benefit related to the fact that the information is not commonly known
  • The focus of reasonable efforts to maintain confidentiality

Anything that is quickly and completely disclosed by the mere inspection of a product put on the market cannot be a trade secret.

If it can be easily guessed by examining your product, that doesn’t count.

But it’s a broad definition, as a trade secret may consist of:

  • Information relating to a formulation, pattern, device or other merging of information
  • Technical information used in the manufacturing process
  • Marketing, sales strategies or other business management routines or procedures, including the software used

Hmm … got you thinking now, don’t we?

Famous examples of trade secrets

Trade secrets can be tangible — something that can be touched — or intangible. For instance, Google's search algorithm exists as intellectual property in code. It is regularly updated to improve and protect its operation.

The secret formula for Coca-Cola is locked in a vault to guard against theft.

Trade Secrets Coca Cola Can on Rail Tracks

Since it has not been patented, the recipe has never been revealed.

The Coca-Cola company’s policy is that only two people in the company can know the formula at one time. The identity of the two people is never disclosed, and they are not permitted to fly on the same aeroplane at the same time.

Another famous example is KFC’s blend of 11 secret herbs and spices. It is one of the most tightly guarded trade secrets in the restaurant industry. The recipe itself, signed by Colonel Sanders, is locked inside a vault at KFC’s headquarters in Louisville, KY.

Advantages and disadvantages of trade secrets vs. a patent

A trade secret is basically an unregistered patent. According to Legal Vision, there are advantages in keeping a trade secret unpatented:

  • It already has general protection under the common law against unfair competition
  • Since it is unregistered, a trade secret doesn't expire
  • You don’t need to reveal the exact details of the secret, as you would in the patent registration process

However, the disadvantage is that without a patent, you won’t have much legal protection against a competitor who stumbles on and then sells a similar or identical product, service or process.

Ways to protect your trade secret

There are other downsides to not patenting your secret recipe, product or technique.

What if an employee who knows your trade secret leaves? They take that knowledge with them.

Trade secrets can be tricky to sustain over time, especially with a business that is growing and with multiple people coming and going. In the unfortunate event that there is internal theft by a disgruntled worker, you’ll might have to say goodbye to your competitive advantage.

But there are a few ways to protect your trade secret from getting into the wrong hands:

1) Adopt a strict information security policy

No matter how small your business, it makes sense to have an information security policy that also includes a trade secret protection policy. The information security policy should list all the procedures designed to protect the information from disclosure to anyone not authorised to have that information.

2) Have employees sign non‐disclosure agreements

Non-disclosure agreements signed by employees, suppliers, contractors and business associates can help keep trade secrets away from your competitors.

Common law provides protection for:

  • Infringement of trade secrets
  • Breach of confidentiality agreements
  • Passing off trademarks

Proving a breach of confidentiality under common law is possible but can be complicated and is potentially more costly than defending patent rights.

So in addition to signing a confidentiality agreement when contractors and employees start work with you, it is recommended to have them agree in writing that they will not compete with your business after they leave.

It's easier to prove competition than a breach of confidentiality.

Note: These undertakings can be difficult to enforce and documents must be prepared by a lawyer. You need to be careful that your contract does not restrict the contractor's or employee's right to earn a living or seek further employment elsewhere.

3) Keep confidentiality in managing your office

Person with Hand to Their Ear

Secrecy starts with you — one moment of unguarded talk could be overheard. For example phone calls discussing sensitive topics are dangerous. Ensure that all conversations are held in private.

Photocopying and printing out materials can be risky if those copies make their way into a competitor’s hands. If the documents need to be disposed of, use a shredder and consider hiring a locked secure waste bin.

Also, ensure all software and computers have strong password systems. Encrypt sensitive documents with a password and never leave your computer open for others to snoop. Make sure your employees follow this policy as well.

Over to you

Protecting your intellectual property and trade secrets is an issue for all businesses. Think about it well before you launch, as once you start rolling information can easily trickle down to competitors.

You can protect your business by using legal documents such as confidentiality and non-disclosure agreements drafted by a lawyer.

Other ways to protect your trade secret can be as simple as ensuring everything is password protected. If you’re ever unsure where to start with your business confidential information, always seek legal advice from a professional.

Got a secret? Claim the matching domain name to keep future competitors from stealing a piece of your pie. Type the words that describe your trade secret into the domain search box here to see if the domain name is available.

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