You may not realise it, but sometimes a business’ most valuable asset is its creative ideas, technology, special procedures, unique expressions and branding. This form of asset is often referred to as ‘intellectual property’. To get the most value for your business out of this form of property, you need to have a protection strategy in place – this will be particularly important to keep an ‘edge’ over your competitors and get the best price for your business if you decide to sell it.
Often when people think about protecting their intellectual property, they consider things such as copyright, patents and trade marks. There is, however, another method of protection that can sometimes be effective and that is by treating certain information, ideas and concepts as ‘trade secrets’ or, to put it another way, by ‘keeping the cat in the bag’.
What is a trade secret?
In a nutshell, a trade secret is:
- any information that is known or used in a business;
- that information is not generally or readily available to the public, particularly the business’ competitors; and
- that information is maintained by the business confidentially and securely.
It’s as if the business is carrying around a special little paper bag and no one can be sure whether the bag contains a cat, a piglet or something else altogether. (Note: Firstly, if you have no idea why I am using this imagery, you might like to look at the origins of the saying “let the cat out of the bag” and secondly, as a general rule I don’t condone putting cats in bags).
What might be classified as a trade secret?
There are many different forms of information or data that might be considered a trade secret. It might be something similar to Colonel Sander’s secret recipe, or a blueprint of the inner workings of a machine or perhaps a new marketing strategy.
In everyday business, the following items and information might contain trade secrets:
- Business and marketing plans
- Customer/ client/ supplier lists
- Diagrams & designs
- Product recipes and formulas
- Know-how & procedures
- Financial statements
- Computer files, software, codes and circuit layouts
What are the advantages of using trade secrets as a protection strategy?
There are some good reasons to use secrecy – also called confidentiality and non-disclosure – as a way of protecting your valuable business information. Unlike other forms of protection such as trade marks and patents, there is no registration system for trade secrets. This means that you do not have to release your valuable information to the world or incur registration fees in order to secure your rights. It also means that you can continually develop and build on your information without needing to re-register or amend an existing registration.
What are the risks of keeping my valuable information as a trade secret?
While the absence of a registration system has its distinct advantages, there are also some very real risks involved in adopting this form of protection strategy.
Because there is no registration system, there is nothing to tell the world that this is your information, you discovered it first, and you have the exclusive rights to use it. Keeping something as a trade secret does not give you exclusive rights. If someone independently discovers or develops the same ideas or information, then there is nothing you can do to stop them using those ideas and information.
There is also extra need to carefully manage how the information is stored and distributed. The value of a trade secret is almost certainly destroyed once the bubble of confidentiality surrounding it has been popped.
Putting the Cat in the Bag
So, before you decide to use secrecy as the only way of protecting your valuable information, here are my top ten practical tips in implementing your ‘secrecy strategy’:
1. Conduct an intellectual property audit of your business
Do a thorough ‘self-check’ of your business to identify the information that is held by your business that you consider to be valuable, or perhaps more relevantly, that your competitors would consider valuable. Take note of where that information is located, what form it is in (e.g. document, computer data) and who has been given access to it. Consider whether any of the information looks like it might be a ‘trade secret’.
2. Get professional advice
Take the results of your ‘self-check’ to a legal advisor with intellectual property expertise. It will be important to work through whether another protection strategy (such as patent registration) would be more appropriate for the type of information you have identified. It will also be a helpful starting point in identifying the information that can be categorised as ‘trade secrets’ and give your advisor a solid platform for drafting robust non-disclosure and confidentiality agreements, which takes me to my next point…
3. Non-Disclosure/ Confidentiality Agreements
The effectiveness of your ‘secrecy strategy’ will be heavily reliant on the agreement framework that you implement in your business. If you are disclosing trade secrets to anyone, including employees, contractors, consultants, advisors, potential customers or investors, then this needs to be in the context of those people having signed well-drafted and enforceable confidentiality/ non-disclosure agreements before they are given any of the valuable information. The agreements must be drafted with your specific situation in mind with the benefit of professional advice. It is crucial to get this right. A poorly prepared or unenforceable agreement is a sure way of letting the cat permanently out of the bag.
4. Employee Induction and Exit Procedures
A lot of the issues that arise around trade secrets involve employees moving over to work for a competitor and using information that they gained in their earlier employment. A business needs to have strong and consistent procedures when inducting employees and when employees leave the business. You should develop checklists for both the induction and exit of employees to ensure that all of the business’ valuable information, documents, and data do not leave with the employee.
5. Adopt a ‘Need to Know’ Policy
Work out who actually needs to know certain pieces of information. If someone either within our outside of your business doesn’t need to know the information, don’t tell them.
6. Establish ‘Quarantine Zones’
A little like the ‘need to know’ policy, you should look at your premises and consider whether everyone needs to have access to all areas. For example, if someone does not need to have access to the design lab, restrict their access by implementing appropriate security measures. This includes creating appropriate ‘online’ quarantine zones on central servers and databases. If you’re not sure how to establish these zones, speak to an IT professional.
7. Get out your Red Ink
Look at the documents that are produced by your business and where they go. If any of those documents contain ‘trade secrets’ or other confidential information, then make sure they are clearly marked as ‘confidential’. If someone is not clearly notified that something is secret, then they may unwittingly distribute the material.
8. Keep Track
Use registers and logs to keep track of your valuable information. This might be as simple as having limited numbered copies of certain documents and making sure that there is a ‘check-out/ check-in’ procedure when distributing those documents. Likewise, visitors to your site might be required to sign in and be escorted. You also need to develop ways of controlling how the information is managed on portable devices such as mobile phones, tablets, disks and laptops.
9. Keep Clean & Invest in a Paper Shredder
Cleanliness might sound completely unrelated to trade secrets, but it certainly does help in maintaining security and secrecy. The less papers, disks and equipment that are left exposed on desks and other visible places the better. All documents and disks containing confidential information should be shredded or otherwise securely destroyed before they leave the premises.
And finally but most importantly…
10. Get out there and commercialise!
It’s no good having a brilliant idea that is locked away getting dusty and not making you any money – you need to take it to the market, before someone else does. But how do you do that without letting the cat out of the bag? This may be best done by adopting a ‘layered’ approach to your marketing. One aspect would be to develop a punchy marketing pitch that is carefully crafted for general consumption that generates interest in your product or service without giving away your trade secrets. Another aspect may be to identify and invite genuinely interested customers, investors or business partners, to take a glimpse at the contents of your ‘trade secrets bag’, but this should only be explored in the context of having strong, enforceable signed non-disclosure agreements in place.
For further information, please contact the author.
This article is posted in Adelaide, South Australia by Tri-meridian Corporate & Commercial Law and is intended to be used as a guide only. It is not, and is not intended to be, advice on any specific matter. We do not accept responsibility for any acts or omissions resulting from reliance upon the content of this article. Before acting on the basis of any material in this article, we recommend that you consult your professional adviser.