How to Guard Your Trade Secrets (and Why You Must)

How to Guard Your Trade Secrets (and Why You Must)

Trade secrets are key to the survival of any business, but if you aren't careful, modern technologies like BlackBerrys and USB drives (or loose lips) can help them walk right out the door--and without a well-written contract, you may have little legal recourse.

On the one hand, you have trade secrets. The law is clear. If you give someone implicit or explicit permission to reveal your trade secret, you lose your ability to protect your trade secret. The agreement not to reveal your trade secrets must explicitly be an obligation that lasts forever.

On the other hand, you have non-competition. The law is different in this area than with trade secrets. With non-competition, forever is generally improper. The law doesn't favour long-term obligations not to compete. The public policy underlying this is that you don't want to allow an agreement to unduly restrict a person's ability to work.

Further, non-competition agreements have to be limited to a "reasonable" geographic scope and to a limited period.

In the middle of this stew, you have a general obligation to maintain your confidential information, which information doesn't rise to the level of a true trade secret. Here, the law allows you wide latitude to negotiate an agreement. You can agree to have the agreement expire after some reasonable period without any legal penalty like losing the trade secret status of your information.

The danger lies with sloppy drafting. I've seen agreements that take these three concepts and lump them together. You can't do that.

The obligation to maintain trade secrets must be forever. The obligation not to compete must end. You can do generally whatever you want with proprietary information that isn't a trade secret. If your agreement gets this wrong, you have a problem.

I'm not suggesting that you shouldn't have these three types of provisions in one agreement. They naturally fit together. I'm just suggesting that it be drafted carefully with a sensitivity to the differing legal standards that govern each part of the agreement.

If You Don't Have an Agreement

While there can be no doubt that it's always a good idea to have a good agreement in place, sometimes trade secrets may be revealed without an agreement in place. That's bad. That's always bad, but it's not necessarily a complete disaster.

In some circumstances, the law will protect a trade secret that's revealed without the benefit of a written agreement in place.

One situation would be where there was an express promise of confidentiality before disclosure. The problem here is likely to be a proof problem: You don't want your trade secret to depend on one person's word against another.

Another situation in which the law might offer protection is if the trade secret was disclosed in a situation where the person knew or had reason to know that confidentiality was expected. Even then, the person learning the information must have agreed to an obligation of confidentiality.

Employees also have an inherent duty to maintain trade secrets, but don't depend on an implied duty. You should have an agreement in place.

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Tags trade secretssecrity

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