Everyone has secrets – even businesses. But secrets can be good. Customer lists, vendor relationships, pricing and profit margins, even the type of syrup in a coffee shop’s “double secret latte” are valuable information that, if disclosed, could seriously harm a business and give its competitors an advantage.
What is secret, and what is protected by law? That question has two answers: the type of information that can be protected, and the steps that must be taken to protect it.
Employers assume that internal business information is “secret” or “confidential,” and that using such information outside the workplace justifies discipline. That’s usually true; you can fire an employee, for example, if she compares pricing lists with a friend who works for a competitor. But the ability to discipline or fire an employee for disclosing sensitive information does not protect the business after an employee leaves. Nor does it create rights against outside parties who use confidential information.
Unfortunately, all “confidential” information is not a “trade secret.” And even if it could qualify for legal protection, information does not become “trade secret” unless its owner takes step to protect its confidentiality.
California adopted a version of the Uniform Trade Secrets Act, a law incorporating legal principles developed over centuries since the rise of a business class in England. Bringing these principles together law resolved some if their uncertainties and gave businesses a roadmap to protect (and enforce) the secrecy of their valuable information.
In order to qualify as a “trade secret” under the act, information must be “a formula, pattern, compilation, program, device, method, technique or process, that (1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” In other words, to protect confidential information, you must show (1) that you can prove some real economic benefit to keeping information secret, and (2) that you have actually taken reasonable steps to protect the information. Information a business failed to protect, for example by leaving it on a server without password protection, loses trade secret protection no matter how valuable it is.
If a business takes reasonable steps to protect information, then almost anything valuable can be a trade secrets customer lists, sales history, software modifications, production methods (such as using a particular machining process), personnel policies, industry targets. If a business spent effort to develop a particular “method” or a list of information (such as promising prospects), those may be trade secret. Taking trade secrets without authorization – known as “misappropriation” – is specifically prohibited by the Act.
Federal law protects trade secrets as well under a specific law, the Defend Trade Secrets Act. This law is likely to become more important in coming years as the Federal Trade Commission moves to prohibit almost all non-compete agreements. Protecting trade secrets is the best defense when an individual moves from one job to another. But beware: it is important to include specific language in confidentiality agreements for the federal law to apply.
Every business should take time to identify and take steps to protect its valuable information in advance. These efforts may include written confidentiality agreements for all employees, training and periodic notices reiterating a business’ confidentiality policies, marking sensitive documents as “confidential,” limiting access to important information, and designating someone to manage and protect confidential information. Taking time to find and protect your information in advance does not just protect an employer: it creates protection under the law. That’s worth the effort for every business.