Are Your Trade Secrets Really Secret?
22 November 2018
A recurring theme across our blogs and top tips is thinking about key legal issues before problems arise; and the same applies to protecting your trade secrets. Entrepreneurs don’t often think about confidentiality until something’s gone wrong… usually when an ex-employee is off to work for a competitor and they’re worried that the employee will dish the dirt and reveal their trade secrets!
There have been recent developments to the law in this area, specifically the Trade Secrets Enforcement Regulations 2018, which came into force in June 2018. These Regulations implement European law into the UK and aim to harmonise the approach to protecting trade secrets across Europe and bring the UK closer to countries such as the US and China. You might be thinking, “Brexit”? However, the Regulations will continue in force and won’t be affected by Brexit (unless the Government decide to change the legislation, of course).
1. What is a trade secret and how does it differ from confidential information?
A trade secret is business information that is not only confidential but gives your business its competitive edge. The Coca-Cola recipe is probably the most well-known example and has managed to stay secret since 1886! A trade secret can take any form – from databases to recipes, customer lists or formulas, the list goes on.
There wasn’t previously a definition of “trade secret” but the new Regulations states that, in order to be a trade secret:
(a) the information must be secret and not generally known or available within the industry;
(b) it must have commercial value – aka, it can’t be worthless;
(c) you must be able to show that reasonable steps were taken to keep the information secret. Ask yourself, are your secrets really secret? If the answer is no, you probably won’t be able to rely on this protection.
2. As an entrepreneur, does this apply to me?
In short, yes. If you want to protect important business information these Regulations apply to you. The Regulations are important because they provide invaluable protection, particularly where other legal rights which protect information, such as Intellectual Property (“IP”) rights, are often: (i) too expensive for start-ups to explore in the early stages of their business; or (ii) the information can end up in the public domain as part of the registration process so businesses decide not to register the IP.
Check out our previous blogs for more information on IP rights.
3. What do you need to do to protect your trade secrets?
It goes without saying that you need to be vigilant and cautious about what you (and your employees!) talk about in public, particularly at conferences and industry events – if you inadvertently disclose a trade secret, it is no longer a secret and therefore can’t be protected!
There are a number of practical steps that you can take to put your business in the best possible position:
- Educate your team – make sure your team is aware of their duties of confidentiality, explicitly tell them about their duties of confidentiality at the start of their engagement with you (the employment/consultancy contract is a great place to do this) and don’t be afraid to remind them on a regular basis.
- Sign Non-Disclosure Agreements (NDAs) – before you start negotiating with suppliers or customers, consider signing an NDA and make sure that you clearly set out what “Confidential Information” means in the contract.
- Work out your boundaries – audit your business information and create a list of the information that you consider to be trade secrets; decide (and limit) who has access to that information; implement adequate policies to protect the information; and ensure that your policies are followed throughout your business. It’s also good practice to allocate a senior member of staff to monitor security and compliance with these policies. If something gets leaked, this will help demonstrate that you took steps to keep it secret!
- Watch out for reverse engineering – this is the process by which something is deconstructed to work out its design and construction. It is lawful to do this unless your contracts say otherwise, so make sure you think about whether this applies to your business (and more importantly, your trade secrets).If someone discloses your trade secrets, you may be entitled to claim certain types of damages, but remember, the loss of the secret itself might cause far greater harm to your business in the long term, so act quickly and seek appropriate advice!