For many companies, proprietary information can be most valuable in its intellectual property portfolio. Unlike copyrights or trademarks, the value of proprietary information is derived in large part from its secrecy. Proprietary information at a high level is information not in the public domain, generally not available, and can be broken further down into two basic categories: confidential information and trade secrets.
The Uniform Trade Secrets Act defines a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique, or process that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
By contrast, confidential information is much broader and typically includes trade secrets and any information of value to its owner and is treated as confidential. Examples include formulae, manufacturing techniques, financial data or customer lists.
The difference between confidential information and trade secrets is somewhat nuanced. Having the right legal representation to adequately protect this asset is important to the long-term success of an organization. In order to preserve the confidential nature of a company’s proprietary information, it is imperative that at the organizational level the company implements effective security protocols. Unless these protocols are adhered to from the top down, the company risks losing a key edge to its competitors.
There are several strategies a company can utilize to help protect its proprietary information.
Before disclosing information to a third party, it is always a best practice to execute a Non-Disclosure Agreement (NDA). This document specifies how the third party can use the proprietary information, including limitations on competitive uses. Instituting these contractual protections will make it easier to stop the drain of information — if someone decides to share it with a competitor — and costs much less than having to engage in litigation to remedy a breach or absorb the loss of proprietary information in the company’s bottom line. In addition to employees, third parties, such as vendors, suppliers and consultants, often have access to proprietary information and also need to be restrained by an NDA. NDAs typically also contain additional restrictive covenants such as non-solicitations and non-competes.
- Commingling Information
Given the value of this information to a company’s success, proprietary information should be segregated from routine information and labeled as confidential. Ideally, a limited-access system would be established that restricts computers and phones of employees who hold this information, including keeping hard copies in a locked location.
- Confidentiality Policy
Connected with keeping this information secure is having a well-articulated and disseminated confidentiality policy that clearly outlines what is considered proprietary and the prohibition against disclosing it. Further, with whom and when this information could be shared, as well as the consequences of disclosure (such as disciplinary action and termination), must be explained.
- Employee Departures
The departure of key employees is a situation that can expose a company to the disclosure of proprietary information, especially if the parting was conflicted. While executives want to be able to trust this individual, they should not be exempt from NDAs and non-competes out of loyalty. Many an organization has come to regret such actions, and the company’s longevity should take precedence.
- Consult With an Attorney
Protecting your company’s trade secrets should be a priority, but it takes the right planning and knowledge to obtain maximum benefits. The attorneys at the Atlanta law firm of MendenFreiman understand the needs of organizations at all stages of development and can provide the legal support you need to help your company succeed. Contact us to schedule a consultation.