Do You Need to Protect Your Trade Secrets?

Many have read of the recent prosecution of Hanjuan Jin, a Motorola Software Engineer, who was this year convicted in federal court in Chicago for criminal theft of trade secrets. The case was aggressively pursued by federal prosecutors, and Jin was ultimately convicted of diverting Motorola trade secrets to a Chinese competitor. Some questions remain as to whether her four year prison sentence was sufficient. Regardless, the Jin case drives home a point for every American business predicated on technology: protect your trade secrets.
What exactly is a trade secret? Almost every state in the union has adopted, without significant modification, the Uniform Trade Secrets Act (UTSA), published by the Uniform Law Commission in 1979 and amended in 1985. The UTSA is a uniform statute promulgated to provide a legal framework to improve trade secret protection for industries in the United States. Under the UTSA, a trade secret is:

information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Many companies in the United States prosper because of their technological edge — whether it consists of a key customer list, a method of manufacturing, a customized software program, or a formula (like that for Coca-Cola®). Clearly, one need not be a multi-national company to benefit significantly from the possession of a trade secret.

If your company derives benefit from proprietary business information, it might well be a trade secret, subject to protection under state law (and even federal law in some circumstances). To make sure your valuable information is kept safe, there are certain key steps your business can take to protect its trade secrets … before they board an airplane to China.

Inventory the Trade Secrets: Every business should take the time to determine what exactly its most valuable assets are, and identify, so that it can be explained in court, the proprietary business information most important to the business. If there is information in this category that would cripple your business if lost or exploited by a competitor, it is likely a trade secret.

Secrets Should be Kept Secret: Should your business ever have to litigate a trade secret case, it must be able to establish that it treated the proprietary business information as a secret. What that means is that the information: (i) should only be disclosed to officers, agents, and employees who need to know it, and not to anyone else; (ii) is otherwise kept under lock and key; and (iii) is subject to policies and contracts to ensure that secrets remain secrets — confidentiality and non-disclosure policies are a must, as are employee handbook statements supporting these contractual obligations.

Contracts are King: Your business should have agreements with each employee, officer, and agent who has access to your trade secrets that commit that person to never divulge, use, or even think about (except for the benefit of your business) such trade secrets, unless and until the information is available in the Library of Congress. The same holds true for third-party vendors, all of whom, if exposed to your trade secrets, should be committed to secrecy by a non-disclosure or other appropriate confidentiality agreement.

Internal Controls and Training: Not only should you train your employees on the significance of proprietary information and the risks of abusing or misappropriating such information, but you must ensure that steps are taken internally to avoid inadvertent disclosure or publication of proprietary information. Keep such information under lock and key, in a safe if need be; do not allow access to computer databases with such information without securing it (password protected, encrypted, etc.); do not allow hard copies of the information to be left sitting around unreturned to a safe location after use; ensure proper penalties for violation of this category of business rules (e.g., immediate employment termination); and collect and shred any materials that disclose such information when used after dissemination beyond those who are contractually bound.

Don’t Give People Access to Your Business: We’ve all been on tours of famous businesses or factories where access is denied to restricted areas. This should be the case for your company’s truly protectable trade secret information. With each level of protection, a judge or jury will be more likely to believe that you treat your information as confidential, because it is and is treated as such, because it is valuable — very valuable.

Develop a “Doomsday Plan”: What if your security and protective measures are breached? Have a plan in place to readily identify and contact the members of your staff who have access to the information and any “team” needed to implement the “Doomsday Plan” (e.g. counsel, security, vendors, insurance, and public relations). Ensure you can shut down access if a breach occurs so that no one can assert that your efforts to prevent a catastrophe were less than adequate for protection of valuable, proprietary and trade secret information.

This article was prepared by Fred Mendelsohn from Burke, Warren, MacKay & Serritella. For more information on trade secrets, the law, their protection or other points in this article, please contact Fred at fmendelsohn@burkelaw.com or 312/840-7004.