Trade Secrets – Protecting the (Corporate) Family Jewels

27 August 2014 Manufacturing Industry Advisor Blog

Disputes regarding trade secrets and corporate espionage are becoming perpetual fixtures in the news. One of the most common scenarios is that a key employee departs to join a competitor and his or her former employer quickly learns that, just before departing, the former employee copied critical proprietary information to an external drive or uploaded it to a cloud storage site without permission.

Another news item is the recent introduction by the House of Representatives of the Trade Secrets Protection Act of 2014. The Act seeks to create a basis in federal law for private companies and individuals to file suit to protect their trade secrets instead of under state law where there may be important differences from one state to the next. One of the sponsors of the federal legislation noted that “American businesses face relentless cybersecurity threats every day, costing our economy billions of dollars and tens of thousands of jobs each year.” This risk could impact your business.

Whether an effective federal trade secrets law emerges at all and, if so, what form it will take, may not be known for quite some time. Regardless, an effective strategy to protect trade secrets should be part of every company’s efforts to protect the substantial investments that it has made in research and development. According to the National Association of Manufacturers, U.S. manufacturers are responsible for two-thirds of all private-sector R&D in the United States and U.S. manufacturers drive more innovation than any other sector of the economy. Every manufacturer making a commitment to innovate, to create business efficiencies or to develop new products and services must take steps to preserve and protect those valuable assets. These are the corporate family jewels.

Every company has information, business methods or techniques or a unique service delivery model that has competitive value worth protecting. Some information, processes and techniques may benefit from patent, trademark or copyright protection, but there is a much broader universe of your company’s R&D, business analysis and process improvement that is potentially protectable as a trade secret.

The first step in securing that protection is to identify your trade secrets. Once trade secrets have been identified, you can then design documents and procedures to maximize the available protections and to preserve the value of your business. Protectable trade secrets may be found in many aspects of your business. Common examples could include your marketing strategies, key analysis of your customers’ purchasing habits and preferences, proprietary statistical models and the terms of your strategic alliances with business partners. Less obvious, but no less important, examples could include an innovative risk management strategy, unique processes to continuously evaluate and improve the delivery of your products and services, or methodologies to assist in evaluating and responding to RFPs.

Your efforts to identify potentially protectable trade secrets should include a 360-degree view of every important aspect of your business by brainstorming with one of your most crucial assets – your people – to create an inventory of everything that you believe contributes to your company developing and maintaining its niche and its market share. Ask key employees in each of your business units what your company utilizes in its business that enhances the value of your products and services and that you do not want competitors to know. What do these key employees think gives the company a competitive edge? Once a comprehensive review is undertaken, the next steps will include analyzing: (1) how and by whom the potential trade secret was developed and; (2) whether and to what extent the information or process is known outside the company. Armed with this information, your company will be in a better position to critically evaluate its potential trade secret inventory, to identify which of these assets is protectable as a trade secret and to design and implement strategies to protect those assets to the maximum extent possible.

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