Managing trade secrets

Most businesses have trade secrets. Many don't become aware of them until competitors attempt to buy client lists, marketing plans or talk to employees to gather information about copying the way they do business.

Original, confidential information is valuable and provides a unique competitive advantage.

In most states, including Alaska, a trade secret comprises any formula, pattern, physical device, idea, process, or a combination of these items. It will usually have some cost associated with it and is not common knowledge in a given industry.

A trade secret must meet two requirements.

1. Provide the owner with a competitive advantage in the marketplace.

2. The concept/product idea is treated in a way that can reasonably be expected to keep the public or competitors from learning about it -- aside from theft or other form of improper acquisition.

Potential trade secrets can include basic items such as marketing strategies and recipes, formulas for nutritional foods such as sport drinks, new inventions that have not yet been patented or architectural drawings and designs.

Specific scheduling techniques, manuals, training methods or manufacturing processes can also be trade secrets. The Restatement of Unfair Competition (2002) defined a trade secret as "any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others."

Unlike patents, copyrights and trademarks, a trade secret is a do-it-yourself form of protection. There is no formal registration with any governmental agency; you must simply try keeping the information confidential. The trade secret lasts as long as the idea remains under cover.

In today's competitive business environment, trade-secret protection becomes even more important. Some companies go to great lengths to protect information.

For example, the formula for Coca-Cola is kept in a bank vault that can only be opened by a resolution voted on by the board of directors. Only two people know the formula at any given time, and they may not travel on an airplane at the same time.

This may seem extreme to most business owners, but you don't have to turn your office into Fort Knox to protect information. Taking reasonable steps can prevent people from copying, using or benefiting from the secret.

Basic precautions include labeling paperwork "Confidential", locking documents pertaining to the trade secret in a file or office safe after hours, or limiting access to the information.

The best way to protect a trade secret is to use a nondisclosure agreement. Courts have repeatedly encouraged and upheld nondisclosure agreements in litigation dealing with trade secrets.

Keep in mind that there is one group of people that cannot be stopped from using the information. These are individuals or groups who discover the secret independently without using any illegal means or violating agreements or laws. NOLO.com, a legal information Web site, offers an example:

XCEL glue is comprised of a trade-secret-protected formula. Phil, a chemist, analyzes the contents of XCEL glue and determines its composition and then recreates the formula. Phil can legally use this information to make and sell his own glue.

Every state has laws that prohibit theft or disclosure of a trade secret. In order to prove trade-secret infringement, the owner must show that the information alleged to be secret provides a competitive advantage and that efforts were made to maintain the secrecy of the information.

In addition, the owner has the burden of proving that the information was illegally or improperly acquired by the accused.

In order to effectively conduct business, it is not unusual for a business to share its competitive and proprietary information with new hires, current employees, prospective and actual licensers and licensees, business acquirers, manufacturers, suppliers, vendors, corporate officers, directors, and others.

Yet we live in an era in which there tends to be a general lack of loyalty between employer and employee, and employees frequently change jobs.

Protecting proprietary information in this context becomes an essential aspect of business planning. Take a careful look at business processes and, if needed, institute a few precautionary measures to protect your trade secrets.