Tricks of the trade Featured

6:26am EDT September 30, 2005
Trade secret information can be a company’s most important asset. This includes, but is not limited to, proprietary research and development, customer databases, strategic plans, personnel practices and financial performances.

As Bec Edelson, partner of Alschuler Grossman Stein & Kahan LLP points out, even negative research can be an important asset.

“If a business spends a lot of time and money coming to the conclusion that a particular path is not the path to take, that can have value to the business and may be considered a trade secret,” she says.

Smart Business spoke with Edelson about what trade secret protection is, why it’s so important and what businesses can do to safeguard their sensitive information.

What elements of a business are eligible for trade secret protection?

Under California law, a trade secret is defined as information which derives independent economic value from not being generally known to the public or from other persons who can obtain economic value from its disclosure or use. It also has to be the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Even though most people usually think of it as research and development, it can virtually be anything. Businesses should think out of the box and should not limit themselves to the stereotypical R&D. They should consider whether their marketing information, financial information, businesses strategies in general, customer information and database information qualifies as trade secrets. They might also want to consider an idea in someone’s head as a trade secret. It doesn’t have to be put down on paper or even in a computer to qualify as a trade secret.

How can businesses ensure that when an employee leaves, they won’t take any trade secrets with them?

There is actually no way that they can possibly ensure it, but they can certainly take steps to reduce the possibility. They can require the employee to agree to return physical things that reflect trade secrets; for instance, documents and computer discs. Also, it’s important to remember that employees keep things at home, so you need to remind the employee that they check at home. A more difficult issue is what employees keep in their heads. For that, you’ll want an agreement that they won’t use or disclose an employer’s confidential information. A helpful device, as well, is the exit interview.

If a business discovers that someone has already violated a nondisclosure agreement, what steps should they take?

The first thing you probably want to do is consult a lawyer. You also want to consider interviewing relevant witnesses, although admittedly it is not always easy to figure out who the relevant witnesses are. Also, tread lightly with the interview; for instance, one of the witnesses turns out to be the best friend of the person who violated the nondisclosure agreement.

Let’s say that the person has just left and is no longer an employee. What sometimes happens is the employer will immediately reassign that person’s computer to a new employee and important files will get written over or destroyed. Although you don’t necessarily want to dive right in and look at what’s in the computer, you don’t want to reuse the computer either.

You need to consult with a lawyer as to whether or not there are privacy issues, but you want to keep the computer intact. Let’s say you just suspect that there is an employee who has breached their nondisclosure agreement. Then you want to try and cut off access to sensitive information. On the other hand, you don’t want to immediately terminate them without consulting with a lawyer as to what their rights are and what your rights are.

How long does trade secret protection last?

As long as the trade secret remains secret and continues to have value. For instance, if everyone else discovers the alleged trade secret, it’s not going to continue to be a trade secret. Some trade secrets last longer than others; for instance, the recipe for Coca-Cola. Sometimes there’s a technology that’s replaced by a better technology, so it’s not worth anything eventually, even if it remains secret.

Why is it a smart idea to protect your company’s business practices, products, services or intellectual property?

If something has value you want to protect it. If you don’t, rest assured, somebody will steal it. Treating something as a trade secret is not the only way to protect intellectual property. You need to figure out what makes sense for the particular intellectual property at issue, and for your company. Some types of information can’t be protected by trade secret protection. Some intellectual property you may want to protect by trade secret because it can be less expensive than other means of protection and because it’s less rigid. It just really depends on the circumstances of your business and the intellectual property at issue.

Rebecca Edelson is a partner in Alschuler Grossman Stein & Kahan LLP’s Business Litigation Department and is a member of the firm’s Intellectual Property and Patent Litigation Practice Groups. Reach her at (310) 255-9151 or