Business Law 101 / Trade Secrets

 

By Albert L. Kelley

A trade secret is just what it sounds like: a secret.  It is the weakest form of intellectual property protection, lasting only as long as your business can keep it secret.  Some companies are very good at keeping secrets; others not so much.  Once the secret is leaked, it loses its protective status.   There are no government registrations or protections for it, except for certain statutory protections for trade secret theft.

So how do you protect a trade secret?  It can be very difficult, and in some cases impossible.  Let’s start with a situation you cannot protect.  What if you create a new type of product but it doesn’t qualify for patent protection?  Before it is released as a new product, nobody knows what you have created.  However, once you release the item for sale, it may be reverse engineered.  That is, people can take it apart to see how you built it.  Once done, they may legally start creating identical products and compete with you.

Luckily, some items cannot be reverse engineered.  An example would be a computer program. Software is written in two aspects: source code and object code. While object code may be discovered by a programmer, the source code behind it cannot.  Source code is available for copyright protection; however, many programmers choose not to copyright the code as it would make their code public, allowing other people to modify their program.

For items that can be kept secret, there are ways to protect yourself.  First, require all of your employees to sign non-compete and non-disclosure agreements.  These agreements, if properly drafted and enforced, can prevent your employees from taking your secrets to your competition or from starting their own business to compete against you.  If an employee attempts or actually does release your secrets to a competitor, you can go to court to obtain an injunction to prevent the competition from using the information.  Next, only release your information to those employees with a need to know.  As an example, popular rumor holds that Coca Cola keeps the recipe for their drink in two portions kept in two locations so that no one employee knows the entire recipe.  Not true, but a good example of trade secret protection.

Some companies desire to keep their manufacturing process a secret.  Plant design can tell a great deal about a company’s product.  For this reason, some companies restrict their plant design to in-house architects and designers and take other steps to prevent their competitors from discovering their methods.  This can be more difficult than it sounds. In one case, a company (Company A) desired to learn their competitors (Company B) operation methods while their competitor was building a new plant.   Company A hired an airplane to fly overhead and take pictures of the construction, which would disclose Company B’s trade secrets.  While this was not criminal and was not considered a trespass, Company B went to court to stop Company A from doing this.  The Court stated that Company B should not be required to keep the construction site covered while under construction (they had already built a wall around the site to keep the methods secret) and that Company A had used improper means to learn their trade secrets.  They were found them guilty of trade secret theft.

Remedies for trade secret theft include both compensatory damages for losses as well as punitive damages if they can show the Defendant acted in bad faith.  In addition, successful plaintiffs may obtain an injunction, preventing the Defendant from using the secret (this may be true even if the Defendant obtained the secret innocently).

            Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University.  He is also the author of “Basics of Business Law” and “Basics of Florida’s Small Claims Court” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice.  If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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