Protecting Your Business With Trade Secrets and Other Confidential Information

Businesses develop different types of information during their operation that they don’t want to fall into the hands or eyes of competitors. Businesses should consult with experienced Nashville business lawyers to understand what information should be protected, how the information can be protected, and what remedies the company has if the information is not protected.

Trade secrets and other information companies should protect

Trade secrets are “practices or processes” of a company that anyone outside of the company is generally not likely to know. Generally, trade secrets give a business a competitive edge over competitors. Trade secrets are usually the result of research and development, customer relations, and other internal operations of the company. To be protected,  trade secrets must have intrinsic economic value and must contain information. Businesses have a duty to make a “reasonable effort in concealing the information from the public.”

The US Chamber of Commerce states that trade secrets:

• Must be used in the business
• Cannot be generally known
• Must have value “because it places its owner at a competitive advantage”

Various federal and state laws govern trade secrets. Trade secrets include the following types of information:

• Business
• Economic
• Engineering
• Financial
• Scientific
• Technical

Examples of trade secrets include:

• Customer and supplier lists
• Formulas and recipes
• Resources
• Analysis of data or other business materials

A classic example of a trade secret is Coca-Cola’s formula for their beverage. Algorithms also generally qualify as trade secrets.

Trade secrets are one type of intellectual property. Other types of intellectual property include trademarks, copyrights, and patents. Franchises and digital assets may also qualify as intellectual property.

How can businesses protect trade secrets?

Business lawyers in Nashville generally recommend one or more of the following methods to ensure the confidentiality of trade secrets:

• The partners and owners may have trade secret confidentiality requirements in their employee contracts, partnership agreements, shareholder agreements, and other business agreements.
• Confidentiality agreements/Non-disclosure agreements. The requirement to keep trade secrets confidential may be part of the contracts described in the contracts section above. Businesses may also have standalone confidentiality agreements that specifically apply to trade secrets and any other intellectual property.
• Non-compete agreements. This clause or full agreement usually appears in an employment agreement or along with an employment agreement. These clauses/agreements generally limit the ability of an employee to work with a competitor in a specific area for a specific amount of time after an employee leaves the company. Non-compete agreements are generally reviewed by courts with some skepticism because they affect the ability of employees to earn a living. The Federal Trade Commission, however, has proposed a rule severely limiting the use of non-compete agreements.
• Intellectual property agreements. Employers may have clauses in their employment contract, especially if the employee has the skills or experience that might generate intellectual property, that define in detail who owns the intellectual property that is created – the company or the person/employee who created the intellectual property. There may be different terms and requirements depending on whether the intellectual property is a trade secret or another type of intellectual property.

The duties and obligations of these clauses, contracts, and agreements may vary depending on whether the employee works for your business or has left your business.

When and how should trade secrets be protected?

Businesses should take steps to identify what trade secrets they have and prioritize which ones they want to protect. The identification of the trade secrets should be properly labeled so that anyone with access to the trade secrets understands the information must be confidential. Generally, businesses should limit the number of people who have access to the company’s trade secrets.

Tennessee businesses should identify which employees, partners, owners, and others need to keep trade secrets confidential so that the proper clauses and contracts can be prepared and signed. The businesses should also review which outside companies/vendors may have access to the trade secrets and take appropriate contractual or practical precautions.

The business should know where the trade secrets are stored and who has access. Many trade secrets may be stored on computers or in the cloud. For this reason, passwords should be regularly changed, and access to the computers should be controlled.

In some cases, trade secrets may qualify for protection as trademarks, copyrights, or patents.

What remedies can businesses use for breaches of company trade secrets?

If a business suspects that trade secrets are being used by competitors, the business should speak with our experienced Nashville business lawyer as soon as possible. Early intervention can reduce the spread of trade secrets and the amount of damage that occurs.

Possible remedies include:

• Notifying the offender to cease and desist.
• Filing for an injunction to stop the disclosure if the disclosure of the trade secrets violates a company contract.
• Filing a complaint for compensation for damages against the person who disclosed the trade secrets – and any company that knowingly used the confidential information.

If an employee discloses the trade secrets while the employee still works for the company, the company could discipline or fire the employee.

At The Law Office of Perry A. Craft PLLC, our Nashville business lawyer helps businesses understand how to protect their trade secrets and other confidential information. Businesses should review their trade secret issues before and after any breach happens. Call us or complete our contact form to schedule a consultation to discuss your trade secret rights and remedies.