Trade Secrets- Are You Protected?

Entrance Gate of Sejong University, Seoul, Korea
Entrance Gate of Sejong University, Seoul, Korea

We live in a competitive world.  The extent to which a company or organization is able to protect its trade secrets is an important factor in its overall ability of  to survive and prosper. Recent hacking scandals involving Korean credit card companies or retail companies in the US such as Target has reminded us of the need for constant diligence to protect company information from outside hackers.  But what about from internal hacking or theft?  In the employment context, complicated legal issues arise when a departing employee is in a position to use and/or disclose confidential information to a competitor.

Complicated legal issues also exist when hiring the employee of a competitor as well.  What happens if the employee brings confidential information- such as trade secrets with him?

Companies not only need to implement risk management processes to protect confidential information from hacking but also to prevent the theft of loss of trade secrets.  Loss of IP to competitors can spell disaster.  One of the easiest ways to lose trade secrets is not from hacking  from the outside but from theft or misuse by a departing employee.   An important step in the legal risk management (LRM ) process is for a company to  implement processes to protect trade secrets and confidential information as well as protect itself from  unfair competition claims..

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In order to implement adequate safeguards a company must first decide what information it has in its possession constitutes a trade secret.  Under the common law  of the U.S. and other countries  courts generally look at six factors for determining whether information is a trade secret.  Those factors are:

  • 1.  The extent to which the information in question is known outside the business;
  • 2.   The extent to which the information is known by employees and others involved in the business;
  • 3.    The extent of the measures to safeguard the secrecy of the information;
  • 4.    The value of the information to the competitor;
  • 5.    The amount of effort or expense required to develop or compile the information; and
  • 6     The ease of difficulty with which the information could be properly acquired or duplicated by others.

The determination of whether information constitutes a trade secret is extremely fact specific, and the courts have reached opposite conclusions on the same types of information depending on the facts presented.  Two principal factors create the difference between cases that recognize information as a trade secret and cases that do not.  First, courts determine whether the information is truly secret, i.e. not in the public domain or easily accessed.  Second, courts determine whether the employer has taken reasonable steps to protect the secrecy of the information.

Only if a company has taken reasonable steps to protect its trade secrets will courts enforce trade secret laws and regulations.  Otherwise, the company may have lost the legal right to protect the information.  There are numerous steps and processes that a company needs to take to protect its trade secrets, specifically from unauthorized disclosure by employees or former employees.

Has your company taken adequate and reasonable steps to protect its trade secrets and confidential information? Is Risk Management involved?