THE PROTECTION OF TRADE SECRETS

TRADE SECRET AUDITS: PART TWO

R. Mark Halligan, Esq.

How To Classify Trade Secrets

After the intellectual property audit is completed, it is important to determine the appropriate level of security necessary to protect the Company's different types of trade secrets. There are six factors to consider to classify the trade secrets in terms of the necessary levels of security to ensure adequate protection of those trade secrets.

SIX FACTORS

The extent to which the information is known outside the Company. The more extensively the information is known outside the Company, the less likely it is a protectable trade secret.

The extent to which the information is known by employees and others involved in the Company. The greater the number of employees who know the information, the less likely that it is a protectable trade secret.

The extent of measures taken by the company to guard the secrecy of the information. The greater the security measures taken by the Company to keep the information secret, the more likely that the information is a protectable trade secret.

The value of the information to the Company and to competitors. The greater the value of the information to the Company and to its competitors, the more likely that it is a protectable trade secret.

The expenditures by the Company (time, effort, money) in developing the information. The more time, effort and money expended in developing the information, the more likely that it is a protectable trade secret.

The ease or difficulty with which the information could be properly acquired or duplicated by others. The easier it is to acquire or duplicate the information, the less likely that it is a protectable trade secret.

Applying these factors, information scoring high "trade secret" value should be, in most cases, more valuable or subject to greater security than information scoring "low" trade secret value.

Security Measures For Protecting Trade Secrets

The following are some examples of security measures which can be taken to protect trade secrets:

Notify the recipient of trade secrets, preferably in writing, that the information is proprietary and that the information is not to be disclosed or used by the recipient for the recipient's benefit or the benefit of others without the express consent of the trade secret owner.

Enter confidentiality and non-disclosure agreements with employees and third-parties.

Establish and maintain written confidentiality policies to be distributed to all employees.

Establish and maintain oversight policies and procedures to prevent the inadvertent disclosure of trade secrets in written publications, seminars, speaking engagements, or at trade shows, by employees.

Institute overall plant physical security precautions, such as fencing the perimeter of the Company premises, limiting the number of entrances and exists, using alarmed or self-locking doors, hiring after-hours security personnel.

Install visitor control systems.

Maintain access to trade secrets on a "need-to know" basis only.

Establish secretly coded ingredients or data.

Separate departments of the Company.

Separate components of a trade secret between or among departments and/or company personnel so that each has only "a piece of the puzzle."

Keep drawers or areas for secret documents and drawings separated and locked.

Stamp documents and drawings "CONFIDENTIAL" or "PROPRIETARY."

Enter vendor secrecy agreements.

Establish physical barriers to prevent unauthorized viewing of proprietary process technology.

Install "KEEP OUT" or "AUTHORIZED PERSONNEL ONLY" signs at the access points to sensitive areas of the plant, and have a policy of enforcement.

Establish and maintain written rules and regulations prohibiting employees from remaining in the plant after hours without express permission from properly authorized personnel.

Establish and maintain rules and regulations requiring employees to stay in controlled areas about their work stations.

Require employees to wear identification badges or carry identification cards.

Require sign out/sign in procedures for access to and return of sensitive materials.

Reproduce only a limited number of sensitive documents and maintain procedures for collecting all copies after use.

Require authorized codes or passwords for access to copying machines and computers. Use key and encrypted computer data access to control theft of secret computer-stored information.

Establish and maintain policies and procedures for destruction of documents (shredders).

Establish and maintain a policy and practice for advising company employees, on a regular basis, regarding the Company's trade secrets and confidential business information.

Hold "exit interviews" to obtain return of company documents and to remind ex-employees of their obligation not to use confidential information of the Company for their own benefit or the benefit of others.

In the real world, very few companies take all of the measures or precautions listed above. The law is clear that "absolute secrecy" is not required; the standard is "relative secrecy", that is, measures which are reasonable under the circumstances to maintain secrecy or confidentiality. Sometimes only one measure may be required under the circumstances to maintain secrecy or confidentiality; sometimes several measures may be required under the circumstances; and sometimes all possible measures may be required under the circumstances. The Courts, however, do not require that extreme or unduly expensive procedures be taken to protect trade secrets.

The Exit Interview

One of the most effective ways to protect a Company's trade secrets and confidential business information is to conduct an exit interview. During the exit interview, the departing employee should be specifically advised about the Company's trade secrets and confidential business information and the obligation not to disclose or use such information for her own benefit or the benefit of others without the express written consent of the Company. A sample of an Exit Interview/Termination Acknowledgment Form is set forth below, the particulars of the form may differ depending on the business of the Company.

Exit Interview/Termination Acknowledgment

I acknowledge that the undersigned representative of XYZ Corporation has conducted an exit interview with me.
At this interview, my employment obligations to protect XYZ Corporation's trade secret and proprietary and confidential information were reviewed. I hereby acknowledge and warrant that if I have any doubt whether a particular item of information is considered to be a trade secret or confidential or proprietary information of XYZ Corporation, I agree to keep such information secret and not to disclose or to use such information for my own benefit or the benefit of others without the express written consent of XYZ Corporation.
I once again acknowledge and agree not to disclose or use any trade secrets or confidential or proprietary information of XYZ Corporation for my own benefit or the benefit of others without the express written consent of XYZ Corporation.
I further acknowledge and warrant that I have delivered to XYZ Corporation all copies of any company documents and writing, including, but not limited to notes, notebooks, letters, blueprints, manuals, drawings, sketches, specifications, formulas, financial documents, sales and business plans, and the like, in my possession, custody or control, except for the following company documents which I have been specifically authorized to keep.
1.
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Date:
Witness:
Date:

EMPLOYEE ___________________________

Social Security Number

Date:

XYZ CORPORATION By ______________________