Theft of Trade Secrets: Can You Stop It?

One unhappy former employee could mean nightmares for your company. Learn how to protect your secrets.

A Trade Secret Is ...
Before calling your attorney or an investigator with a claim of the theft of trade secrets, it is important to define a trade secret. One of the more commonly cited definitions comes from the "Restatement of Torts," which defines a trade secret in the following manner: "A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving material, a pattern for a machine or other device, or a list of customers."

The Uniform Trade Secrets Act expands on this definition by stating: "Trade secret means 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."

In simple terms, a trade secret must be novel or unique, it must be protected and it must have economic value.

Reasonable Measures of Protection
According to the above definition, a company must take reasonable measures to protect trade secrets, or it will be easy to say that the information is not a trade secret because everyone had access to it. When reviewing the following "reasonable measures," notice that the steps outlined cross departmental lines. Protecting trade secrets falls upon the shoulders of the legal, HR, physical security and IT/IT security departments. This again reinforces the current trend of holistic or collaborative security.

Trade secrets should be classified as "Confidential" or "Trade Secret," labeled accordingly and stored appropriately. Electronic files should have the appropriate rights and restrictions applied so that only those with a definite need can access them. Restrict or eliminate remote access to trade secrets. Other technology measures should also be implemented to protect trade secrets, including the installation of a properly configured and maintained firewall. (In this day and age it is hard to imagine any company exists that does not have a firewall.) Initiate monitoring of corporate e-mail. E-mail monitoring applications exist that allow companies to filter e-mail messages based on certain criteria. If there is a new product under development and it has a specific code name, it might be prudent to filter e-mail to ensure that no e-mail exits the organization that contains this particular code name. One solution that provides this capability is CAMEO, Content Auditing for Microsoft Exchange Organizations. Information on this product can be found at

However, the filtering of corporate e-mails may not be enough. Those intent on sending information to the competition will not use a corporate-supplied e-mail account. It is extremely simple to set up a free Web-based e-mail account or to use a personal account that provides Web access. Companies should block access to free e-mail sites such as Hotmail and should issue a policy prohibiting the use of Web-based e-mail. This can assist not only with protecting trade secrets but with employee productivity issues as well.

Lastly, it might be important to perform periodic audits of the laptop computers of traveling sales staff and corporate executives. Because laptop computers are portable, it is possible they are being used to communicate trade secrets when the suspect employee is out of the office. When an employee is terminated or leaves the company, take the appropriate steps to have the laptop returned as quickly as possible.

Technology solutions are not the only steps that need to be implemented; physical security issues need to be addressed as well. Hard copies of trade secrets should be stored in locked file cabinets that are located in rooms with restricted access. Other physical and procedural barriers should be put in place that prevent non-employees from being in areas where these trade secrets are stored. This includes restricting access to cleaning crews, other third-party vendors and the general public. Many companies refuse to implement measures like this because access can become cumbersome if the measures are not implemented properly.