Understanding IP Law & Trade Secrets as a Business

A business’s intellectual property (IP) can often be its most valuable asset — in many cases, it’s critical to the company’s products, services, and processes. The total value of IP in the US is valued at $5 trillion, and businesses lose approximately $250 billion to IP theft each year. IP law empowers business owners to protect their ideas, ultimately helping businesses maintain a competitive edge and differentiate their brands through innovation. 

Among the different types of intellectual property, trade secrets are especially integral to a company’s operations. By researching what qualifies as a trade secret and learning how to protect that information, businesses can preserve the value of their confidential information and foster greater organizational growth.

Intellectual property encompasses ideas, inventions, designs, and other intangible assets that are based in thought and creativity. IP law exists to protect a creator’s ownership over these intellectual assets. There are four main areas of IP law:

• Patents – When a business receives a patent, it gains exclusive rights to produce and sell an invention. There are several restrictions for what kinds of inventions qualify as patents — namely, they must be new, useful, and not obvious to a professional in the field.
• Trademarks – Trademarks protect words, images, and other recognizable indicators related to a company’s branding, such as logos and slogans. Along with phrases and designs, trademarks can also apply to broader concepts like sounds and colors that are used in a particular context.
• Copyrights – Copyrights apply to “original works of authorship,” which are tangible creations such as novels or song lyrics.
• Trade secrets – Businesses often keep ideas secret to prevent competitors from using their methods. These trade secrets can include processes, inventions, formulas, algorithms, strategies, lists of contacts, and more.

Trade secrets are unique to other types of intellectual property because there’s no official registration process involved with protecting trade secrets. While businesses may need to register for patents, trademarks, and copyrights, they gain intellectual property rights over trade secrets through the way they handle their confidential information. 

What Defines a Trade Secret?

Although the exact definition of a trade secret can vary depending on the state, most states use the Uniform Trade Secrets Act (UTSA) to govern claims related to trade secrets. The UTSA states that an idea or piece of information must typically meet these requirements to qualify as a trade secret:

• The information isn’t available to the general public.
• The information is economically valuable because of its secrecy.
• The business is taking reasonable steps to keep the information private.

By keeping proprietary information private as trade secrets, business owners can enjoy certain protections and rights. Typically, owners of a trade secret have the right to prevent others from sharing or using that information without permission. There are no time limits related to trade secret rights; businesses can enjoy legal protection of their trade secrets for as long as the information remains private.

When it comes to trade secrets, IP law primarily focuses on preventing businesses from using unfair practices to discover the confidential information of other companies. This means that if a competitor acquires information through legitimate means, they aren’t violating IP law.

Allowable means of discovering trade secrets may include:

• Reverse engineering – If a company studies a product that’s available to the public, they may be able to legally recreate the original design through reverse engineering.
• Independent research – It’s possible for two companies to independently discover similar processes and designs. When this occurs, neither company can stop the other from using that information.

IP law comes into play when a company uses improper or unethical means to discover or use a company’s trade secrets. This process is also known as misappropriation. Types of misappropriation include:

• Unauthorized acquisition – If a company uses industrial espionage to gather information, they’re using illegal, unethical methods to learn trade secrets.
• Unauthorized disclosure – If one of the few people who have access to a trade secret shares it without permission, they’re complicit in misappropriation.

There are several steps business owners can take to protect their trade secrets — in fact, taking these steps is often essential to gaining trade secret status in the first place. Businesses must implement reasonable measures to protect their trade secrets in order for them to qualify as such. Therefore, being proactive about maintaining secrecy is the cornerstone of establishing trade secrets and guarding them from competitors. 

 

Here are a few examples of protective measures a business may take to keep its trade secrets private:

Using Proper Labeling 

A business should be able to clearly define what information is confidential, establishing a shared understanding with employees and business partners about what to keep private. Labeling confidential information as such can deter people from using it improperly. And if there is a breach, proper labeling can help a business build the case that the leaked information qualifies as a trade secret.

Limiting Physical Access 

Trade secrets should have layers of security protecting them from prying eyes. By limiting physical access to confidential information, businesses can ensure that only authorized individuals have access. This can include keeping physical documents in locked areas, setting up video surveillance, using security badges to limit visitor access, and keeping logs of who accesses sensitive information. Businesses should also have in-depth protocols for destroying confidential documents.

Confidential information on computers should always be password-protected, and physical copies should remain in locked areas with restricted access.

Implementing Cybersecurity Measures

A business’s digital data can be one of its greatest vulnerabilities, so it’s important for business leaders to have a thorough cybersecurity plan. This can include training employees to recognize signs of phishing, requiring regular password changes, and prohibiting the use of personal devices to access company information. All cybersecurity teams should have a plan of action for addressing potential attacks and breaches.

Using NDAs 

For employees and business partners that do have access to confidential information, NDAs are key. NDAs create a paper trail that validates the secrecy of the information and the overall importance of keeping it secret. Business leaders should clearly explain what their NDAs cover at the beginning of any professional relationships. When those professional relationships end, they should immediately revoke access to confidential information.

If a business shares confidential information with an employee who is later recruited by a competitor, an NDA can keep that employee from using trade secrets in their new role. If that employee does share trade secrets, both them and their employer may be subject to legal action.

With proper preparation and documentation, businesses can use trade secrets to promote innovation and distinguish themselves from competitors. 

Businesses that have an in-depth understanding of IP law can proactively ensure that their most important confidential information qualifies as trade secrets. This maximizes their legal protections, making it easier to enforce secrecy and potentially gain restitution if a violation occurs. 

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