 Legal Best Practices
Magazine
Protect Your Idea$ Part III
Turning Ideas Into Value
by Brent C.J. Britton
Published: June / July 2008
If you’ve been following this column for the past few
months, you’re now at least passingly familiar with
intellectual property (IP) of three flavors: patents,
copyrights, and trademarks. In this issue, we’ll cover a
fourth kind of IP known as trade secrets and then we’ll
summarize our IP discussion.
Trade Secrets Generally
Of the various forms of available IP protection, trade
secrets tend to be the easiest to grasp. That’s because
since childhood most of us have learned two important
things about secrets: 1. how to keep them, and 2. how
not to keep them. Luckily, it doesn’t take much more
than that to get the hang of dealing with trade secrets
in a business context.
Scope and Duration of Trade Secret Protection
A trade secret is any information that confers
commercial value from its being kept secret. Trade
secret protection is obtained simply by keeping the
information secret, and protection lasts for as long as
you keep it secret. The underlying information itself is
sometimes referred to variously as “confidential
information,” “proprietary information,” or “know-how.”
But no matter what it is called, almost any information
can qualify as a trade secret, as long as the holder
derives some economic advantage from the information
specifically because the holder’s competitors do not
know it. Here is only a partial list of examples of
potential trade secrets: the recipe and list of
ingredients for producing a food product, an unpublished
patent application, a customer database, a list of
employee salaries, business plans and strategies, and
marketing research results.
Trade secret law protects against misappropriation or,
less euphemistically, theft of secret information. Note
that this is much thinner protection than that afforded
by a patent and is, in this regard, a lot like
copyright. You can sue an innocent patent infringer and
win, even if the defendant has never seen your invention
or read your patent. With trade secrets, however, you
may only win against those who actually steal your
secrets from you and use or disclose them in violation
of a legal obligation not to. Under trade secret law,
independent discovery is a complete defense to a claim
for trade secret misappropriation.
Keeping Secrets Secret
In order to be given protection under trade secret law,
information must be the subject of efforts to protect
its secrecy. Information that is not subject to
affirmative efforts to protect secrecy can lose trade
secret protection. Just claiming that information is a
trade secret is not enough; marking confidential
documents with a “confidential” stamp is nice, for
example, but comprises only one step in what should be a
more comprehensive process for protecting secrecy. Such
a process might also include maintaining only a limited
number of copies of sensitive documents, tightly
controlling access to confidential information with
sign-out sheets and electronic passwords and, perhaps
most importantly, executing nondisclosure agreements
with anyone who is not already under an obligation to
protect the secrecy of shared information.
Nondisclosure Agreements
Nondisclosure agreements (NDAs) must be executed with
everyone outside your company with whom you intend to
share trade secrets. Failing to do so can result in the
loss of trade secret protection for all information
shared. The reasoning for this is simple. Trade secret
law protects secrets! Information shared with anyone not
legally obligated to keep your secrets is by definition
no longer a secret. So make it a habit to get NDAs in
place with every third party with whom you share trade
secrets.
If such a practice strikes you as overkill, consider
that not every meeting with every third party needs to
involve the disclosure of trade secrets. Indeed, most
potential investors, vendors, and business partners are
unlikely to sign an NDA in anticipation of the very
first meeting they take with you. Your job at that first
meeting is often only to pique their interest in your
opportunity to a level sufficient to move them to sign
an NDA for the second meeting. Thus, two presentations
of just about every aspect of your business are
required: a public version and a secret version. Whip
out the NDA only for the latter.
Be sure the provisions of your NDA do not inadvertently
deprive you of the full duration of trade secret
protection available. Many NDAs, as with most contracts,
recite limited periods of time during which they are in
full force and effect. Unfortunately, such a limited
period may not always coincide with the length of time
the underlying information could otherwise have enjoyed
the benefit of trade secret protection. In short, the
period of time during which the recipient of trade
secret information under an NDA should be obligated to
maintain the confidentiality thereof should be
unlimited; the nondisclosure and nonuse provisions of
the NDA should survive any termination of the rest of
the agreement until such time as the underlying
information no longer qualifies for trade secret
protection. Again, the reasoning for this is simple: if
you contractually obligate me to keep your secrets for
only two years, then when that two year period ends your
secrets will be, by definition, no longer protected as
secrets.
Two years may sound like a long time for any secret to
have value in this rapidly changing world. On the
contrary, however, consider that the secret “7X” formula
for Coca Cola has been successfully maintained as a
trade secret since 1886! How tragic it would have been
had such a valuable secret lost its protection under the
law by virtue of a poorly conceived NDA. Read your NDAs
carefully lest you fail to protect what is rightfully
yours for the legal duration.
Summary - Electing Forms of Protection
As you may have noticed, the four areas of IP law that
we have discussed – patents, copyrights, trademarks, and
trade secrets – share a certain amount of overlap as to
their subject matter. Software, for example, can
conceivably be protectable by three, if not all four,
kinds of IP. Many trade secrets are potentially also
protected as copyrightable works or patents. Herein lies
an opportunity for many businesses to engage in a bit of
strategy. You may elect to protect certain items with
different forms of IP depending on the particular facts
and circumstances of you business and your competitive
landscape.
For example, if duration of protection is important,
consider that patents last for 20 years and copyrights
last for 90 years (in many cases), while trademarks and
trade secrets potentially last forever. If scope of
protection is important, consider that copyright and
trade secret law both permit suits against only
intentional copyists, while patent and trademark law
both permit suits against even innocent users.
In summary, the careful selection among the forms of IP
protection available is a critical component of every
company’s competitive strategy.
Brent C.J. Britton is a lawyer at the Tampa office of
Squire Sanders & Dempsey LLP, a global law firm. He
practices intellectual property and corporate law.
bcbritton@ssd.com
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