Trade Secrets . . .

are all of a company’s proprietary know-how that gives it an advantage in the marketplace. Different states define trade secrets differently, but most state laws only protect trade secrets that are not generally known to competitors and only when the company takes actions to identify and protect them.

Unlike patents, which entitle the holder to preclude others from using patented technologies, trade secrets protection prevents others from using company technologies only by keeping them secret. If others discover the company’s secrets by "reverse engineering" or by developing the same secrets on their own, they cannot be stopped from using the knowledge. Trade secrets protection can prevent others from stealing company secrets, but only if the company takes appropriate actions to prevent unauthorized disclosure of its information.

Confidentiality and secrecy agreements with company employees, owners, and consultants who have access to secrets are common methods of protecting trade secrets. Investors who put money into companies with valuable secrets usually require the companies to enter into secrecy agreements with their employees. Some also require management members to enter into secrecy and noncompete agreements directly with the investors.

Confidentiality agreements alone will not protect company secrets. Other measures must be taken to ensure the secrecy of the information. These include limiting access to company secrets (only those persons who need to know the secrets to perform their job and who are bound by a secrecy agreement should have access), marking secrets as confidential, and distinguishing between secrets and nonsecrets. Material containing company secrets should be stored in a safe place and destroyed when it is no longer needed so that it cannot be "leaked."

Trade secrecy laws vary from state to state. Some states, for instance, distinguish between technical trade secrets and non-technical confidential information, allowing a company to protect nontechnical information only by contract and only for a limited period of time. Some states require stricter definitions of technical trade secrets than they do of nontechnical confidential information. Others make no distinction at all. All prescribe definite limits to the availability of trade secrecy protection.

Attempts to extend protection beyond these legal limits, even if inadvertent, can jeopardize the trade secrecy protection a company relies upon. This, coupled with the fact that companies must comply with all of the conditions and requirements set out by their state’s laws before they can claim trade secrecy protection, makes it important for companies to have an experienced professional review the precautions they take to protect their secrets and to review the form of any secrecy agreements they use. See: Confidentiality Agreements, Lawyers, Software Protection, Think Capital.