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Trade Secrets | Protecting Your Competitive Advantage

A trade secret is any confidential piece of information that provides your small business a competitive advantage over rivals. As such, it is extremely important to safeguard this information. In this post, we discuss different types of trade secrets, what trade secrets entail, and how to best protect your company’s trade secrets.

Trade secrets include any formula, recipe, device, idea, process, or pattern used exclusively by your company. For example, trade secrets include things like:

• Coca-Cola’s soft drink formula • KFC’s chicken seasoning recipe • A new invention for which a patent has not been filed • A manufacturing process or technique • A marketing strategy • A computer algorithm

Unlike patents, trademarks, and copyrights, there is no official procedure, protocol, or government filing process to protect trade secrets. Instead, the responsibility lies with you, the business owner, to keep your trade secrets classified and to implement reasonable measures to keep them confidential. Trade secret protection lasts for as long as you keep the trade secret, well, a secret. Once the public discovers your secret, your trade secret protection ends. You do not want to patent your trade secrets because all patent filings are public information, and your secrets can be stolen after the 20-year patent protection window expires. The same holds true for copyrighting or trademarking your trade secrets.

Instead, you must put safeguards in place and establish protocols from the beginning to protect your trade secrets. This includes restricting key information to only a few trusted individuals as well as establishing binding contractual obligations to keep the information confidential — for example, through non-disclosure and non-compete agreements. All non-disclosure and non-compete agreements should describe the trade secret, how the signer may use the trade secret, the length of the agreement (including indefinitely), and what will happen if the signer breaks the agreement. We recommend hiring a lawyer to help you draft your non-disclosure and non-compete agreements.

Some additional ideas for protecting your small business’s trade secrets include:

• Marking all computer files and documents related to your trade secret with a confidentiality warning • Restricting access to trade secrets only to people who have a legitimate reason to know the information • Making anybody to whom you reveal the trade secret (partners, employees, suppliers, manufacturers, sub-contractors, etc.) sign a non-disclosure agreement • Informing employees all company information must be treated confidentially, even if said employee does not know the exact trade secret • Keeping your trade secret information in a restricted, secure area

It is critical to enact these policies and procedures from the beginning because, under the Uniform Trade Secrets Act, trade secret law only holds in court if you make a reasonable effort to protect your secrets from the start. Of course, heading to court should be your last course of action, because once your trade secret is made public, you cannot get it back. Disclosing your trade secret destroys your competitive advantage and may bankrupt your company, so keeping it confidential from the beginning is imperative.

For additional assistance with trade secrets, contact our SBDC office at (712) 325-3376. We can help determine if trade secrecy is the best option for your small business and can assist in developing policies and procedures to protect your trade secrets.

The Iowa Western Small Business Development Center is a free resource for small businesses and start-ups in Southwest Iowa. We serve seven counties – including Cass, Fremont, Harrison, Mills, Page, Pottawattamie, and Shelby – and provide consulting services to help businesses start, grow, and prosper.

(Photo credit: Mike / Flickr)

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