How to safeguard your business trade secrets

Protecting trade secrets has always been an essential part of running a successful Colorado business. With the sudden increase of employees working from home due to COVID-19, this task has increased urgency and importance. Business owners must take reasonable steps to safeguard their trade secrets to receive the protection of federal and Colorado laws. Failing to do so can put their trade secrets at risk, whether employees are working from home or not.

What is a Trade Secret?

A trade secret is data or information with its own actual or potential economic value because it is not generally known. Trade secrets are only legally defined as such if there are efforts to maintain their secrecy. They have value to other parties who cannot legally obtain them. Without all three of these characteristics, the information does not qualify as a trade secret and has no legal protection. To ensure valuable information has legal trade secret protection, a company should limit the knowledge of the information and use reasonable measures to protect the information.

Trade secret laws protect a wide range of crucial information, including information not covered under existing trademark, patent, or copyright law. Obtaining, using, or disclosing secret information in a way that goes against ethical commercial standards by others is an unfair practice and a violation of trade secret protection.

Examples of trade secrets include:

• Client or customer lists
• Supply chain information
• Business development and financial plans
• Marketing programs
• Formulas and recipes
• Proprietary databases
• Business processes and methods
• Information about costs, pricing, margins, and overhead
• Manufacturing processes
• Proprietary computer software programs

Listerine, McDonald’s Big Mac Special Sauce, Krispy Kreme Doughnuts, Twinkies, Kentucky Fried Chicken, WD-40, the New York Times Bestseller List, Coca-Cola, and even the Google search algorithm are all famous examples of trade secret information.

Five Steps Colorado Business Owners Can Take to Protect Trade Secrets Use and Improve Contracts

Businesses that need to protect trade secrets should have all employees sign a contract. If companies work with independent contractors or freelancers, they should also have a contract specific to them. These contracts should include a confidentiality clause in which the signer of the contract commits to not disclosing confidential business information.

The contract should detail what is and is not considered confidential business information to avoid any misunderstandings. It should also discuss the ownership of any new information created by an employee in the course of their work for the business, often referred to as “work made for hire.” Companies may also want to include non-disclosure (NDA), non-solicitation, and non-competition clauses in their employee contracts.

Limit Physical and Virtual Access to Trade Secrets

With that said, companies do not need to allow all employees access to trade secrets. Only employees and contractors who need to have access to or be informed of the information within the scope of their employment should have access. Even then, companies may want to limit precisely what types of trade secret information employees may access.

Businesses should limit physical access to hard copy documents. They can do this by reducing locations where the confidential information is stored, locking or otherwise securing each site, and keeping track of individuals’ access permissions. Their employees’ ability to print confidential documents should also be restricted and password protected. If there is public access to a company storefront or building, any trade information retained on site should be in a secured area protected with cameras, alarms, or possibly security guards.

Companies also should take care to protect electronically stored information. They can do this by:

• Utilizing the password protection feature on documents and databases containing confidential information.
• Limiting access to those documents on external devices, especially if employees are working from home.
• Implementing security monitoring procedures.
• Requiring secure connections for those who work from home and remind them to password-protect their WIFI connection.
• Discouraging the use of personal devices for work purposes.
• Providing platforms for secure electronic communication within the company.

Train Employees and Recirculate Policies

All businesses should have clear policies and procedures that address the marking and maintenance of confidential information in the employee handbook. New employees should receive training on these policies. Current employees should be re-trained anytime there are significant changes to the policies. It is also a good idea to periodically recirculate policies to remind employees of their obligations and the company’s expectations.

Take Precautions with Departing Employees

Some employees will inevitably leave, putting a company’s trade secrets at an even greater risk. However, companies can act when an employee leaves the company to continue protecting their trade secrets.

Whenever possible, an exit interview should be conducted. During this interview, the HR manager should remind the departing employee that any NDA, trade secret agreements, or other contract clauses will remain in place at the end of their employment. A copy of the contract should be provided to the departing employee with a verbal reminder of their ongoing obligation to protect business trade secrets. Ensure they know not to access any company property, including any electronic devices they should be required to return. Some businesses require departing employees to sign certifications acknowledging their obligations to continue to protect their trade secrets.

Work with an Experienced Intellectual Property Attorney

Many business owners are not aware of what types of trade information they might need to protect or exactly how to go about doing so. Even those that do know may not be taking reasonable measures to protect their trade secrets. Either of these positions is risky.

It is best to speak with an intellectual property attorney to help identify what types of information should be protected and determine the appropriate steps to protect them. It is highly recommended that Colorado businesses review their trade secret protection strategies every three years, ideally with an attorney. Intellectual property attorneys often have many creative solutions. They are aware of the latest technologies and techniques relating to protecting valuable trade secrets.

Aaron Atkinson and Doug Griess of Hackstaff & Snow, LLC, are top Denver business attorneys with expertise spanning various industries. Specializing in business law, litigation, intellectual property, tax law, and dispute resolution, Aaron Atkinson and Doug Griess offer an in-depth understanding and knowledge of general corporate rules and regulations and are a trusted resource for business owners throughout Colorado.