Local Business

Barry: Protect your trade secrets by anticipating litigation

Most businesses have customer lists, unique production methods, and formulas that they would rather not share with competitors. What they may not be aware of is that the law can help them keep their information proprietary. Such “trade secrets” are considered protected intellectual property, similar to trademarks, copyrights and patents. Unlike those better-known forms of intellectual property, though, trade secrets cannot be registered.  The only way to protect them is to take matters into your own hands.

The Illinois Trade Secrets Act protects information that “(1) is sufficiently secret to derive economic value, actual or potential, from not being generally known 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 or confidentiality.” Thus, any information not generally known, which can provide “economic value,” and which is actually protected by a company, is protected.

Courts generally look to six factors as to whether there is a protectable trade secret. Namely, is the information:

• Known outside of the business?

• Known by employees and others involved in the business? 

• The subject of protective efforts to preserve its secrecy?

• Valuable to the company, and to its competitors?

• The product of expensive or time-consuming efforts by the company? 

• Difficult for an outside organization to acquire or independently develop?

The fundamental takeaway from these factors is that a company, through its normal business operations, can control almost all of these factors. Trade secret protection can thus be a self-fulfilling prophecy: treat the information as a trade secret and the law will treat it as such. By anticipating litigation and keeping the law of trade secrets in mind, you can transform information you would like to be confidential to information that is a legally protected trade secret.

For example, the first three factors deal with access to the proprietary information. A court would view unlimited access to “confidential” information as a strike against that information being considered a trade secret worthy of protection. Toward that end, the company can restrict disclosure of the secret to upper management only, or to others on a “need to know” basis. The more measures taken to protect security of the information, the better. Actual documented policies, nondisclosure agreements and the like all help in this regard.

The final three factors, dealing with value and cost, are still within a company’s control, but require a little more creativity. At minimum, the development and preservation of the information should be documented on an ongoing basis, with a view toward establishing the value of the trade secret.

While the specific measures that a company can take to transform its acquired knowledge and intellectual property into protectable trade secrets will depend upon the particular company and its proposed trade secret, there are some generally applicable measures and principles. On the external operations side, confidentiality agreements should be part of any independent contractor agreements, distribution arrangement, or joint venture when a trade secret is involved. For internal operations, employment agreements, documenting the development of trade secrets, and restricting internal access are important. Increasing security, whether through the IT system or through physical barriers also will help. Other operational areas such as bidding, marketing and distribution also should be examined for trade secrets implications.

Fundamentally, any business that relies on valuable, proprietary information should have trade secrets considerations play a part of executive decision making for most its external operations. Treating your confidential business information under the same principles that a court would consider can translate into greater protection – and potentially greater chances of success should litigation actually be necessary – as you invest in obtaining and developing critical information and intellectual property.

• Gregory J. Barry is an attorney with Zukowski, Rogers, Flood & McArdle in Crystal Lake. Reach him at 815-459-2050.

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