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Trade secrets: Lonely and misunderstood

Kurt Leyendecker //January 26, 2012//

Trade secrets: Lonely and misunderstood

Kurt Leyendecker //January 26, 2012//

Over the years, we have had thousands of consultations with prospective clients. I cannot think of a single time when I was asked about protecting the prospective client’s trade secrets. Trademarks, all the time. Patents, almost daily. Copyrights, regularly. Trade secrets. What?

It’s not like transactional intellectual property attorneys (lawyers that protect your intellectual property or IP) opine on the virtues of trade secrets. While IP attorneys do gladly explain the benefits of patenting an invention, trademarking a brand name, or copyrighting websites and writings – trade secrets get nothing. Nada. Zilch. Why? Most IP attorneys just don’t understand trade secrets, and worse, they do not know how to make money from trade secrets. There is nothing to register, no forms to complete, and no regular process to follow. So they just ignore them.

At its core, a trade secret is a piece of information that requires effort, ingenuity or skill to acquire or compile and provides the business with a competitive advantage.

The lonely trade secret sits alone at the patent bar sipping her cheap cabernet, while the transactional IP lawyers ignore her. Instead, they ogle, cajole and flirt with the happy-go-lucky trademarks, the sophisticated patents and the drunk but easy copyrights. “Hey lady,” the bartender crows, “perhaps you should leave, your kind isn’t welcome here. The bar down the street is for your type.”

Litigators (lawyers who sue) lust over trade secrets, but they also rarely understand them. When an employee leaves the job and takes what he has learned to a competitor or worse yet, starts a competing company, the litigator is called in. He informs the aggrieved that the employee learned stuff during his tenure and that information might be trade secret. A lawsuit is filed. Unfortunately, litigators usually aren’t terribly concerned with whether appropriated information is really trade secret: They are entranced by the thrill of the suit. Maybe the wayward employee will fold or the suit will settle. Either way, the litigator makes his money.

The trade secret entered the dimly lit trial bar. It was filled with litigators slickly dressed in sharkskin suits that quickly circled any piece of information that entered. Most of the information wasn’t what it appeared to be: candy wrapping without substance inside. The litigators didn’t care as long as the information looked good. One smelled blood and went in for the kill. “Baby, you’re fine, so confidential and proprietary. Wait till I get you into court, I am going to rock your world”. But he really wasn’t interested in her; the trade secret could sense it. The litigators would just use her, get what they wanted and move on. They didn’t realize or even care that she was the real thing.

A trade secret can be as simple as a customer list or as complex as a customized piece of software used in the internal operations of the company. However, there is one very important distinction that is so often overlooked: The information must be properly protected from those who do not have a need to know it, especially those outside the company but even from those within the company.

If the secret is a unique algorithm used by the design department, the sales department shouldn’t be able to access it. If the information is a list of potential sales prospects, the accounting department doesn’t need to see it, and when it is not in use, it should be locked up and/or password protected. It also doesn’t hurt to mark the information as confidential or proprietary. In other words, it must have been kept secret – or protected – by the business.

In theory, protecting information as trade secret is relatively easy and simple but in practice it is very rarely ever done properly. Convenience and expediency tend to trump vigilance in day-to-day business operations, which is unfortunate given the considerable power behind trade secrets.

When employees leave a business, they can be prevented from using any trade secrets learned or used while with the business. Moreover, the business can also prevent a competitor who hired the former employee from using the information. Furthermore, employees who have access to trade secrets can be restricted from competing with the business for a reasonable period of time if they signed a non-compete agreement with a trade secrets clause. Finally, non-compete agreements are usually not favored under Colorado law for all but certain key employees – except when trade secrets are involved.

The trade secret squirmed from the litigator’s grasp and ran from the bar into the cold night. She walked alone the down the street wondering whether she would ever find someone to give her the respect she deserved and recognize all she had to offer.
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