Trade Secrets
Welcome
to Plaskacz and Associates' 'LEGAL SOLUTIONS TO SOFTWARE ISSUES' newsletter.
This is a free information service provided by the law firm of Plaskacz
and Associates. IT IS DESIGNED TO PROVIDE INFORMATION OF A GENERAL NATURE
ONLY AND IS NOT INTENDED TO REPLACE SPECIFIC LEGAL ADVICE. Q1 2002
What is a Trade Secret?
Formulas, programs, devices, methods, techniques, business plans, product
designs, business information, employee know-how, pricing information,
employee salaries, employee performance levels and processes can all
be considered trade secrets. When a company possesses information which
is not generally known by the public and which can be utilized for economic
gain it may be considered a trade secret. In order to retain the trade
secret status of corporate information, a company must make reasonable
efforts to prevent disclosure of the information.
How do I know if I have information I should be protecting?
If the information in question is important to your enterprise and is
not generally known outside your organization, it should, at least at
first, be considered a trade secret. If you already take measures to
guard the secrecy of the information and your competitors could use
it to their advantage, or if it was expensive to acquire and/or would
be difficult for others to procure, it is probably worth protecting.
A trade secret could be as important to your company as an issued patent
or registered trademark. In order to be certain what business information
should be protected as a trade secret, you may consider an independent
intellectual property audit.
How should I protect my Trade Secrets?
Begin by periodically reviewing specific information considered confidential
and proprietary to the company, then notify employees, both verbally
and in writing, that this information should not be disclosed to any
one else. It is possible to take this one step further by restricting
access to, and circulation of, trade secret information and material
to only those who are directly involved with it. Other precautions include
having one area secured to retain trade secrets, separating research
and development from production areas, securing computers systems with
secret passwords or employee numbers, installing physical security (locked
doors, safes etc.) and reviewing the types of information disclosed
at trade shows, to company visitors, business partners, suppliers, etc.
To successfully claim damages for misuse of confidential information,
it must be established that the subject information was intended to
be confidential, that it was indeed secret and that it was used in an
unauthorized fashion contrary to a contractual or fiduciary obligation
prohibiting disclosure. It is evident that unless you treat your information
as a trade secret, the courts are unlikely to do so.
What About Non-Disclosure Agreements?
In dealing with prospective partners for the purpose of engaging in
a joint venture or other business arrangement it is important to have
a corporate policy regarding mutual non- disclosure of corporate information.
The policy should designate one person or officer in your enterprise
who has responsibility for implementing mutual non-disclosure agreements
prior to each discussion. The designated individual should review the
general nature of the information to be disclosed and the information
to be received. A mutual non-disclosure agreement generally prohibits
use of disclosed information for purposes other than the intended business
relationship. If research or development is intended to be conducted
in a certain way, independent of the prospective business partner, accepting
disclosure of information from a prospective strategic alliance partner
may be risky. Care must be taken to ensure that the non-disclosure agreement
does not inadvertently preclude you from pursuing a particular project
for fear of subjecting yourself to a legal claim for misappropriation
of the prospect's confidential information should the strategic alliance
fail to materialize. In fact, the obligation to not pursue commercial
advantage of secret information may arise, even if a non-disclosure
has not been signed, simply by virtue of the relationship of the parties.
In the 1986 case of International Corona Resources Ltd. v. LAC Minerals
Ltd., the Supreme Court of Canada made it very clear that to recover
damages for the improper use of confidential information, no final written
non-disclosure agreement between two parties need be established. The
ingredients for liability are only that the information was confidential,
the communication of the information occur in circumstances where an
obligation of confidence arose and the information is used for an unauthorized
purpose.
Conclusion
Loss of trade secrets continues to be a major problem for many businesses.
Yet, many corporations have still failed to adopt policies to protect
against these violations. The increased use of contract software developers,
the creation of spin-off companies, joint ventures, strategic alliances
with suppliers and 'open door' product development make trade secret
protection difficult but all the more necessary. A carefully thought
out and implemented trade secret policy can mean protection against
losing your own secrets, and being accused of misappropriating those
of others.