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The Hawkins Law Firm

160 N. Brindlee Mountain Parkway
Arab, AL 35016

An Ounce of Prevention – How To Protect Your Company’s Confidential Information

A Company’s most valuable asset might also be its best kept secret – trade secret that is. Trade secrets consist of confidential business information that can give a business a unique advantage over its competitors. The non-authorized disclosure of confidential business information can create a broad range of costly issues for companies, including loss of competitive advantage, lost revenues, damage to business reputation and increased costs. The sources of misappropriation of confidential business information stem from current and former employees, customers and clients, third-party contractors, vendors and suppliers and strategic partners.

The best known example of a trade secret is the formula for “Coke”. But did you know that almost every business — no matter how small — has trade secrets? Just a few common examples include customer lists, financial data, manufacturing data, drawings, mailing lists, pricing information, processes, computer programs, product specifications and strategic plans. Unlike other types of intellectual property (such as patents, trademarks and copyrights), trade secrets are protected by confidentiality and not through public disclosure that comes with government registration or filings. In fact, in order to qualify for trade secret protection, the information sought to be protected must not be publicly known. Keeping business information confidential – while still being able to use it – can therefore be the key to protecting the information as a trade secret.

As a matter of standard business practice, every Company should implement policies and procedures that are designed to ensure the confidentiality of its business information. As a legal matter, a Company must take “reasonable measures” to protect confidential information if it considers that information worthy of trade secret protection. There is no bright line test for determining reasonableness, and ultimately it is a question of fact for a jury. With respect to third parties such as vendors, suppliers, distributors, clients and customers, at a minimum a Company should identify its confidential information, mark it “Confidential”, limit access and require recipients to execute a properly-drafted Confidentiality Agreement.

A Company’s employees may pose the greatest threat of misappropriation. This is especially true in light of the increased use of technology in the storage and communication of business information. Information previously kept in filing cabinets under lock and key is typically stored on a server, hard drive or extranet. Modern technology makes for the undetected and instantaneous duplication, transportation and communication of business information through thumb drives, PDAs, Company e-mails and by other means.

A Company should consider taking the following steps to protect confidential business information:

  • Require incoming employees to execute the appropriate Confidentiality Agreements
  • Consider whether non-solicitation and non-compete covenants should be included in Confidentiality Agreements to further deter the disclosure of Confidential Business Information
  • Identify Confidential Business Information and mark it “Confidential”
  • Limit access to Confidential Business Information to employees who have a need to know and prohibit the general dissemination of the information
  • Implement policies concerning the use of technology-related resources, including external storage devices, Company e-mail and security passwords
  • Communicate Company policies regarding Confidential Business Information effectively, considering the proper use of employee handbooks
  • Monitor access and use of Confidential Information and conduct annual audits
  • Train employees in the identification and use of Confidential Business Information
  • Conduct exit interview with departing employees and require the execution of certifications related to the use of Confidential Business Information and technology resources

A Company’s trade secrets might well be a valuable asset, providing the path to economic success. The proper handling of Confidential Business Information, especially in today’s technology-driven business environment — is paramount to the protection of trade secrets and intellectual property. All businesses should develop policies and procedures designed to restrict access and monitor the use of Confidential Business Information.

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