“I’d tell you, but then I’d have to kill you.” That line has been used jokingly in many circumstances ranging from overly dramatic spy movies to restauranteurs on the Food Network protecting a recipe. Not that we’re promoting violence, but a similar sentiment is felt by many entrepreneurs and business owners guarding their trade secrets.
The formula for Coca Cola, Colonel Sander’s secret recipe of 11 herbs and spices, and the 40 ingredients in WD-40 are just a few of the most protected secrets kept by their respective corporate giants and for good reason; if you post these magic potions anywhere on the Internet, the competitive edge and demand for these products disintegrates. Just think about how many copycats there already are for each market. Coca Cola came before Pepsi and Sodastream, KFC battles for sales with Popeye’s, and WD-40 has imitators from the 3M Company (among other products in stores that I don’t frequent).
Let’s first narrow down what the term “trade secret” means. According to Chicago attorney Donald Tarkington, “Trade secrets can include technical or nontechnical data, compilations of information, marketing or financial data, manufacturing processes and lists of actual or potential customers. It covers virtually any information that is sufficiently secret that it derives economic value from the fact that it is not generally known and that the business makes a reasonable effort to keep confidential.”
Trade secrets differ from items that need a trademark, copyright, or patent because the information is not subject to public knowledge. For example, you can identify the logo for the brand Nike (trademarked), you can quote half of your favorite movie at a Christmas party (copyrighted), and you can see how your cell phone holder attaches to your car’s dashboard (patented)… no secrets there. However, if you were to make Coca Cola at home using carbonated water, sugar, caramel color, and enough chemicals to strip the paint off your walls, you would have a hard time coming up with the exact recipe. Or what if you spent hundreds of hours analyzing the market trends in your specific field? The last thing you would want is for your findings to end up in your competitor’s hands.
Yet what if they do? “Courts look to six factors in evaluating whether information is a trade secret,” explains Tarkington.
“The extent to which the information is known outside the employer’s business;
The extent to which it is known by employees and others involved in the business;
The extent of measures taken by the employer to guard the secrecy of the information;
The value of the information to the employer and to its competitors;
The amount of effort or money expended in developing the information; and
The ease or difficulty with which the information could be properly acquired or duplicated.”
This checklist is valuable not only if your IP security is compromised, but as a starting point to construct a plan of action to guard your secrets if you don’t have one in place already.
There are a few more things you can do to safeguard your intellectual property. You can first determine if it falls under the patent, copyright, or trademark categories or if it truly is a trade secret. Secondly, ask a business lawyer to draw up a confidentiality agreement with employees, contractors, or anyone else who has access to this valuable information. In Forbes Magazine, lawyer R. Mark Halligan and consultant David A. Haas take this concept one step further. “Senior managers need to work to make sure employees understand what the company’s trade secrets are and what their responsibilities for them are. They need to know that risks to the company’s secret information are risks to its revenues, earnings and share price, and ultimately to their own jobs. Management’s efforts to protect the company’s trade secrets are efforts to protect the employees’ jobs, their stock options and their pensions. The employees have to know that.”
Thirdly, if someone illegally has implemented your idea, consider having them sign a licensing agreement with the help of your business lawyer. For a specified fee they can use your IP within the terms that you set. This option saves you the time and expense of litigation, you still maintain control of the product or idea, and you can generate more income.
Nevertheless, identify what trade secrets keep your company unique from anyone else’s and wisely and carefully guard it. It’s like the saying, “I’d tell you, but then I’d have to kill you”. No one really knows where that quote originated, but then again, it might be a secret.