2008 Lane Reports

Can You Keep a Secret? Discover the Value of Trade Secrets

Sunday, June 1, 2008
by Cori A. Mathis, J.D.

Coca-Cola brought a federal lawsuit in 2006 against a former employee for trying to sell trade secrets to PepsiCo. The convictions of the two individuals that received an 8 year and 5 year sentence for trade secret theft were affirmed on appeal this month. According to surveys conducted for the ASIS International and Pricewaterhouse-Coopers, U.S. businesses lost $59 billion due to intellectual property theft from 2000 to 2001, and that figure has only increased since then.

Most business people are aware of the value of protecting and enforcing trademarks and copyrights. However, many companies tend to overlook trade secrets, although they are often just as valuable as other intellectual property and just as costly to a company if mismanaged or stolen.

A trade secret is information that is sufficiently secret to derive actual or potential economic value from not being generally known to those who can obtain economic value from its disclosure or use and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Trade secret protection may be available for customer lists, programs, technology, processes, financial data, know-how and research and development data. Trade secret protection may also be available for negative know-how (what doesn't work) and unique combinations or compilations of otherwise unprotectable information.

The more time and money spent developing information and the greater the security measures, the more likely that it is a protectable trade secret. Conversely, the greater the number of people that know and have access to the information (both inside and outside of your company), the less likely that it will be considered a trade secret.

Trade secrets can exist alone or in conjunction with patents. Often, the research and development data or know-how for a patented invention is protectable as a trade secret. In these cases, patents and trade secrets dovetail and may increase each others' value. In other cases, companies may choose trade secret protection over patent protection. Trade secret protection lasts as long as the information remains confidential, whereas patent protection generally lasts for only 20 years. Also, unlike patents, there is no government filing or registration process necessary to establish the existence of trade secrets.

The first step in trade secret protection is to perform a trade secret audit. The audit includes reviewing your company's assets to determine which information gives your company a competitive advantage and the extent to which that information is already known to third parties. The audit should be performed at least once a year to ensure that new information is incorporated into the inventory and obsolete information is removed.

The next step is to establish a trade secret protection program. The program should be tailed to your company's particular needs, but may include having employees, agents and third parties sign non-disclosure agreements; establishing a confidentiality policy and educating your employees and agents about that policy; marking appropriate documents as "confidential" and maintaining them in a separate, monitored area; and holding exit interviews with departing employees to ensure the return of any documents that contain trade secret information.

Companies that mismanage their trade secrets may suffer from decreased revenue, competitive advantage and market share, as well as increased research and development costs and insurance costs. Therefore, it is critical that trade secrets are identified and protected as soon as possible.

We would be happy to assist you in identifying and protecting your trade secrets. Please contact Marc Lane in confidence via email at mlane@marcjlane.com (312) 372-1040 / (800) 372-1040 (outside Illinois).


Cori A. Mathis, J.D., is an Associate Attorney with The Law Offices of Marc J. Lane, a Professional Corporation. Ms. Mathis received a certificate in Intellectual Property Law from the DePaul University College of Law.

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The Lane Report is a publication of The Law Offices of Marc J. Lane, a Professional Corporation. We attempt to highlight and discuss areas of general interest that may result in planning opportunities. Nothing contained in The Lane Report should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein. Copyright © 2008 by The Law Offices of Marc J. Lane, A Professional Corporation. Reproduction, in whole or in part, is forbidden without prior written permission.

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