Trade Secret Protection Programs

Monday, August 30, 2010 - 01:00

For many companies, state trade secret laws have become a preferred form of intellectual property protection, even in cases where the subject matter (i.e., invention) might otherwise be eligible for patent protection. A trade secret may include any formula, pattern, device, or compilation of information that is used in one's business and that gives the person in possession an opportunity to obtain an advantage over competitors who do not know or use it.

We talked about trade secret protection programs with Alan S. Gutterman of The General Counsel and Gutterman Law & Business, and author of several Thomson Reuters titles, including Business Transactions Solutions , Business Counselor's Law & Compliance Practice Manual and the Corporate Counsel's Guide to Technology Management and Transactions .

Editor: Why should trade secret protection programs be put in place?

Alan S. Gutterman: One of the key elements of perfecting legal rights in trade secrets is the person's ability to establish and maintain a complete and effective trade secret protection program. Several factors must be considered in designing and implementing an effective program for identifying and protecting a company's trade secrets:

• Gaining a full understanding of the company's business including the intellectual property used by the company and other enterprises with which the company comes into contact (such as licensees, suppliers or competitors);

• Understanding the company's organizational structure and the way in which information is distributed vertically and horizontally;

• Becoming acquainted with those persons within the company that have ongoing access to the trade secret information; and

• Learning the procedures that the company currently uses and has previously employed to protect its trade secrets.

With this information, a trade secret program can be designed that will fit the particular needs of the company as well as provide for continuing education of employees and an ongoing review of the overall program.

Editor: What are the keys to a proper trade secret protection program?

Gutterman: Most trade secret protection programs will consist of several procedures, including the adoption of security measures to mark trade secrets, thus, identifying what is or is not considered to be confidential. The programs also include segregation of trade secret information and limitation of access to the trade secret owner or other authorized personnel. I also recommend that a program places employees on notice that the company maintains confidentiality of its trade secret information and that each employee has a duty to assist in protecting such items.

It's also important to develop a system to prevent inadvertent disclosure of the trade secrets to the public (such as through advertising or other publications). And, the program should strictly control the legitimate disclosure of trade secret information to third parties so that recipients are obligated to protect any information which they might receive, not disclosing or using it in any unauthorized manner.

Editor: How should a trade secret protection program be supervised?

Gutterman: One person within the company should be given primary responsibility for implementing and supervising the program. Alternatively, a committee of two or more may meet regularly to determine what information is to be protected as a trade secret and the procedures to preserve the confidentiality of such information. Each committee member should have detailed knowledge of the company's technology, as well as its contractual relationships with third parties.

In larger companies, responsibilities for the trade secret protection program may be located among several departments. For example, the company might organize a central protection committee with the primary responsibility for developing and implementing a program. The committee might include representatives of each department within the company that might be called to ensure that the protection program is consistently implemented throughout the organization. The committee would report to senior management. While the legal department would have the responsibility of enforcing the company's rights to its trade secrets, internal auditing would assist in the periodic review of the program.

Whether the company uses a single security coordinator, or forms a committee of several persons, the following steps should be taken in order to properly launch and maintain an effective trade secret protection program, including:

(a) Conduct an investigation and legal compliance review covering the company's intellectual property rights, including its trade secrets and other confidential information;

(b) Based on the results of the compliance review, develop a set of recommendations which can be incorporated into a draft of the program;

(c) Circulate the draft security program to the directors, officers, and key employees of the company, as well as persons who may have responsibility for handling confidential data and information;

(d) Prepare drafts of model documents and contracts necessary for effective trade secret protection, including confidentiality agreements, employee confidentiality and innovations assignment agreements, noncompetition agreements, and provisions for use in license agreements and other standard contracts;

(e) Obtain comments on all draft documents and prepare final versions for inclusion in employee handbooks, etc;

(f) Obtain authorization from the board of directors to implement necessary physical security measures, including labeling and storage of trade secrets;

(g) Conduct one or more training seminars for employees regarding trade secrets and the program;

(h) If necessary, obtain executed employee confidentiality agreements from all employees; and

(i) Establish a schedule for periodic review of the protection program, including reports by the administrators of the program to senior management and board of directors.

Alan S. Gutterman's publications are available on Westlaw and at www.west.thomson.com. Gutterman can be reached through his website, www.alangutterman.com.