Trade secrets are valuable, so make sure you protect them – Derek Hamill

Derek Hamill is a Partner and Head of Corporate at Gilson Gray

But unlike patents and trademarks, there is no official register where you can assert your ownership of secrets. You don’t register your source code or algorithms. If secrets aren’t kept, they lose their value.

So how do you protect them if your business depends on that secret knowledge?

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The first step is to understand the difference between know-how and trade secrets. Know-how is the practical knowledge on how to achieve something, eg an employee’s experience. Trade secrets can be anything: formulas, recipes, designs. They must be of commercial value and known only to a limited group of people.

What if someone tries to use your trade secrets or your know-how without your consent? To protect your business, there are three important proof points.

The first is to demonstrate that the information has a “quality of confidence”. There’s no set rule for establishing this but usually you need to show that the information was not already in the public domain.

The second is that the information must have been provided in confidential circumstances, eg, the existence of a contract such as a non-disclosure agreement or a confidentiality clause within a contract. Confidential circumstances can also arise because of the relationship between the owner and the recipient, such as an employer/employee relationship.

But there’s no straightforward test to show that a duty of confidence was owed between the parties. And that’s why law firms recommend sharing information under a non-disclosure agreement or similar. If there’s no agreement in place, labeling documents “confidential” will demonstrate that the owner of the information expected it to be kept confidential.

The third point is that that person you are preventing from using your trade secret is not allowed to use it.

But that’s not all. There are extra rules which apply to trade secrets and know-how. You need to show that you have taken reasonable steps to protect your information. Locking your source code in a vault and giving two employees only half the details each – like Coca-Cola did with its recipe – isn’t always practical. But measures such as password-protecting documents and limiting access to employees go a long way when seeking to establish this.

Unlike trade secrets, employees take know-how with them when they leave. They can’t unlearn the training you gave them. So how do you protect what they learn from you?

You can ask an employee to keep their know-how secret for as long as they work for you and for a brief period after they leave. Examples include customers, price lists and infrastructure. What you can’t stop them from doing is applying their full skill to a new job – but the specifics of the business can be protected.

If the information you want to protect is so confidential that it would cause real or significant harm to your business if it were shared, then it will likely be regarded as a trade secret. In which case, it is legal to ask an ex-employee not to use it in their next job.

The message is clear. If you need to protect your important business information, you should put a contract in place to do so.

Derek Hamill is a Partner and Head of Corporate at Gilson Gray

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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