Six Tips for Protecting Manufacturers' Most Valuable Assets – Trade Secrets

05 November 2014 Manufacturing Industry Advisor Blog

Long gone are the days when spies needed physical access to information to steal, copy, or photograph it; modern technology now enables instantaneous global access and transmission. Protecting trade secrets ranks high on manufacturers’ priority lists, yet understanding “how” to protect these most valuable assets may be challenging.

A vast majority of states have adopted the Uniform Trade Secret Act (UTSA). The UTSA supplies the most commonly utilized standard for determining whether information qualifies as a trade secret. Though minor differences exist in the UTSA’s application from state to state, generally speaking, the following characteristics are required for information to qualify as a trade secret:

  1. It must derive independent economic value from secrecy.  Generally, this requires that the trade secret: (a) be used in business; (b) is not generally known or readily ascertainable; (c) has value; and (d) provides an advantage over those without the information.
  2. It must be the subject of reasonable efforts taken to secure the information and maintain its secrecy.

In order to maximize the protections available under the UTSA, manufacturers must implement practices constituting reasonable efforts to prevent disclosure. Manufacturers should consult an attorney to ensure that they correctly understand applicable state law governing trade secrets in the jurisdictions in which they operate. Generally speaking, any manufacturer hoping to shelter information as trade secrets should consider the following tips.

  1. Understand your trade secrets. Create an inventory of trade secrets and update that inventory periodically via trade secret audits. The inventory provides a baseline to ensure appropriate measures are taken to secure the information. Protective measure should be commensurate with the value of the trade secret.
  2. Share trade secrets on a “need-to-know” basis. In most cases, it is unnecessary and imprudent for every employee of a company to know all of the trade secrets.  Instead, limit access to those key employees who need the knowledge to perform their duties. In addition to non-disclosure agreements, employees should be required to acknowledge what information is confidential and how that information may be used and disseminated internally and externally.
  3. Be careful of accidental public disclosure. In particular, manufacturers pursuing government contracts or participating in litigation must be mindful not to inadvertently place a trade secret into the public domain. When bidding for government contracts, carefully consider what information to include in a proposal. If sensitive information must be included, consult with counsel to implement proper precautions. In litigation, companies should ensure that an appropriate protective order, confidentiality agreement, or both are put in place.
  4. Employ effective digital security practices. It goes without saying that electronic information is susceptible to unique risks, and it can be difficult and expensive to properly secure. Nevertheless, firewalls, authentication procedures, and limited access are essential to properly protect trade secrets.
  5. Do not forget about physical security. Under the law, “reasonable efforts” to protect trade secrets include physical security measures. These may be as simple as using restrictive legends (e.g., “Confidential” and “Eyes Only”). Additionally, locked rooms or cabinets may be important. Limiting the printability of certain documents may also be prudent. Regardless of which measures are appropriate, be sure to consider physical security in your plan.
  6. Implement onboarding/termination procedures. Hiring new employees or terminating exiting employees mark important events in protecting trade secrets. Accordingly, manufacturers must design and follow protocols. For example, when hiring an employee, ensure that they have executed all of the appropriate non-disclosures/confidentiality agreements and policy acknowledgements before they may access confidential information. At the other end of the spectrum, inventory exiting employees’ physical and electronic information. Not only are these key to safeguard your information, this evidence may be needed if litigation arises.

Although it provides a valuable starting point, the foregoing list is not intended to be comprehensive. The practices necessary to protect trade secrets vary in complexity based on specific circumstances. Manufacturers, in particular, should carefully consider whether their trade secrets are adequately protected.

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