Even the smallest business has confidential information worth protecting. Confidential information is that which a company creates, discovers or acquires that is held in confidence. But only some confidential information qualifies for special legal protection as a “trade secret.” A trade secret can be any formula, device, process, data compilation, technique, model, plan, or information that is unknown outside of the business and that gives the business an opportunity to obtain an advantage over competitors. Trade secrets do not have to be patented or copyrighted; in order to enjoy legal protection from unauthorized use or disclosure they must (1) have some economic value, (2) not be readily ascertainable by legitimate means, and (3) have been maintained in reasonable confidence. The most common form of trade secret is a business’s confidential customer or “prospect” list.
When in doubt, assume that your information can be protected. The company must treat the information as secret and take reasonable steps to maintain its confidentiality. Some basic steps are necessary to qualify for protection:
First, important papers should be marked or otherwise identified as “Confidential”, “Sensitive” or “Proprietary.” They should be physically secured from inadvertent disclosure. Formal policies and procedures should be adopted and committed to writing to define and classify confidential information and to instruct employees about its proper handling.
Second, appropriate confidentiality agreements should be signed by those with whom it is necessary to share confidential information; for example, employees, customers, vendors, or contractors. Almost inevitably, employees of the owner need access to confidential information; a nondisclosure clause can be included in a basic employment contract or a separate confidentiality agreement. Vendors, contractors, customers, and other third parties can be asked to sign similar confidentiality covenants whenever they are expected to come into contact with confidential information. These agreements should provide a broad, clear definition of confidential information and a secure mechanism for return of all company property at the end of the employment or other relationship.
Third, in many businesses it is customary to require key employees such as sales personnel, product designers, engineers, and managers to enter into Noncompetition agreements. Such agreements assure against the use of a company’s own secrets in competition against it by prohibiting the employee from performing similar work in the same kind of business or marketplace during employment, and usually for a specific period of time thereafter. If appropriately limited in duration, scope of activities and geographic region to that reasonably necessary to protect the legitimate business interests of the employer, such noncompetition covenants are enforceable in most states, including Virginia. Such agreements also typically contain promises by the employee that he will not disclose or use (either during or after employment) any of the confidential information of the employer. One danger: in Virginia, as in other jurisdictions, a court will not rewrite an overbroad noncompetition clause. If too draconian, it will not be enforced at all.
Finally, take all reasonable steps to protect the confidentiality of your information. It is rarely sufficient to simply identify information as “confidential” and assume that it will be legally protected. When an owner of confidential information seeks damages for improper disclosure or an injunction to prevent threatened misappropriation, being able to demonstrate a pattern of reasonable security precautions may be necessary to obtaining relief. Courts may refuse to enforce trade secrets that have not been closely guarded. Disclose them only to your employees who have a demonstrated need to know them. Make sure that your employees or any others who see the trade secrets understand their significance and have promised in writing not to disclose them. Do not deploy your trade secrets in the marketplace in a way that allows their attributes to be readily ascertained by proper means (e.g. by reverse engineering).
The benefits of the protections afforded trade secrets are significant. There are no time limitations on enforceability, such as exist with patents and copyrights. There is no need to file any application or to make any disclosures in order to gain protection. If a trade secret is misappropriated, you should immediately contact your attorney and take swift action to preserve your rights and minimize your losses. Injunctive relief, monetary damages, the imposition of a forced “royalty” on future sales, punitive damages, and reimbursement of attorney’s fees can all be obtained under appropriate circumstances when a violation has occurred.
Your trade secrets could be among the most important assets of your business. Do not wait until after a problem arises to protect yourself. Identify your valuable confidential information now, and implement a legal protection plan to ensure you legal recourse in the event that someone tries to take unfair advantage of your hard work and resourcefulness.