Trade Secrets: What Are They and How Do You Protect Them? 1

Trade Secrets–What Are They and How Do You Protect Them?

Every business has some trade secrets, right? But what are they and are they being properly protected are key questions that every business owner must recognize and face. Sometimes, the results are not quite what was expected, much to the dismay of the business owner.

Arizona is a party to and has adopted the Uniform Trade Secrets Act, which does provide guidance.  ARS §44-401(4) defines a trade secret as:

“[I]nformation, including a formula, pattern, compilation, program, device, method, technique or process, that both:

(a) 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.

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy (emphasis supplied).”

Trade secrets are a different category of intellectual property, separate and apart from patents, trademarks and copyrights, but still deserving of protection. With trade secrets, there is theoretically no time limit for the umbrella of protection unless the business does not take steps that are deemed reasonable under the circumstances to maintain their secrecy.

As an example, let’s assume that a sales company stores its customer lists, marketing plans and pricing information on a shelf in its work room. All of these items are unsecured, not marked as “confidential” or “trade secrets” and are generally available to the whole office staff and anyone else who might be in that space. This would be a clear case of a company failing to take reasonable efforts to maintain the secrecy of these important assets. It is highly unlikely that these trade secrets would be deemed protectable by the company.

What are some practical steps the company might have taken to garner this protection? It should have designated these items as trade secrets and highly confidential. The company should have limited access to these items whether by lock and key if in hard copy format or by password if kept electronically. In addition, the company should have required non-disclosure, confidentiality and non-solicitation agreements, particularly from those employees having access to the trade secrets, as well as from customers, visitors and other persons having access to the company premises or computer system.

Trade Secrets: What Are They and How Do You Protect Them? 2

Trade Secrets: What Are They and How Do You Protect Them?

This simple example illustrates how so many businesses with valuable trade secrets do not take adequate steps to protect them, thereby likely rendering those trade secrets non-protectable. Every business should take stock of what its “crown jewels” are and then develop and implement a plan to properly protect them. It’s not difficult, but so often ignored.

Michael W. Margrave


Disclaimer: This blog is for information purposes only. Legal advice is provided only through a formal, written attorney/client agreement.