Primer |
CALIFORNIA TRADE SECRETS CONTENTS
A trade secret is information that has economic value and gets that value because it is not generally known to the public and which efforts have been made to keep secret. The California Civil Code §3426.1(d) defines a trade secret as follows: "Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Trade secrets are assets of you business even though they do not appear on the balance sheet. YOUR COMPANY SHOULD CONDUCT A TRADE SECRET AUDIT You wouldn't neglect a piece of equipment used in a manufacturing business. Nor would you forget about important inventory or a business bank account. Similarly, if you operation has trade secrets they should not be overlooked or neglected. That you can=t see, hear or feel trade secrets is all the more reasons that these intangible assets should be given special consideration. But you can't protect something that you are unaware of. So the first step is to determine whether or not you have any trade secret assets; then to identify them; and final to take measures to make sure they retain their status as protectable trade secrets. Enter the trade secret audit. A trade secrets audit identifies what trade secrets, if any, that a business may have. It is an important step to protecting the trade secrets of your business. Just like other audits It should be conducted at least once a year. The TOP SIX reasons to conduct a trade secrets audit are: 1. A trade secret audit identifies assets of the business that may not be reflected on a balance sheet. Your most valuable asset may be a trade secret. A periodic trade secrets audit keeps you current on these often overlooked valuable assets. 2. What you don't know CAN HURT YOU. Unless you take certain measures your trade secrets may be forever lost. A company that does not formally treat information as a trade secret, will likely have minimal efforts to maintain the secrecy of such information. Don't run the risk of allowing a former employee or competitor taking use your sensitive internal information, because you failed to adequately maintain its secrecy. 3. A trade secrets audit gives you legal ammunition to attempt to prevent a former employee or a competitor from using your trade secrets. Don't give a former employee or competitor the argument that your trade secret is not entitled to protection because it was not identified in a trade secrets audit. 4. A court may be more likely to give "trade secret" status to information your business has already designated internally as a trade secret through a trade secrets audit. In close call cases, a judge may be reluctant to deny Atrade secret" status to information your business has identified internally through a trade secrets audit. 5. A trade secret audit helps you conduct an "Exit Interview" of terminated employees. Avoid misunderstandings and costly litigation by telling former employees what information they can and cannot use. 6. A trade secrets audit saves you money. A trade secrets audit allows a company to conserve resources by discussing trade secrets in an organized, thorough, periodic fashion. The key people in your business should get together to determine whether your business has protectable trade secrets. The objective of the meeting should be to Review and Identify Potential Candidates for Trade Secret Protection. The following list is suggestive of categories of information which may be subject for treatment as a trade secret. Production/Quality Control
Purchasing/Inventory
Sales/Marketing
Accounting
Business Structure Information
For Each Information Category you identified ask: 1. Does the information derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; 2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; 3. To what extent is the information is known outside of his business; 4. To what extent to which it is known by employees and others involved in his business; 5. To what extent are measures measures taken to guard the secrecy of the information; 6. How valuabe is the information; how valuable would it be to your competitors; Consider the amount of effort or money expended by a competitor in developing the information and the ease or difficulty with which the information could be properly acquired or duplicated by others. In conducting your trade secret audit, focus on what information each department of your business generates or has access to and where such information is kept. Identify Trade Secret Information As Confidential 1. Stamp or watermark documents with the following legend: CONFIDENTIAL AND PROPRIETARY INFORMATION [COMPANYNAME] (UNPUBLISHED) ALL RIGHTS RESERVED 2. Create headers or footers that provide: This document contains confidential and proprietary information of [COMPANYNAME] and is protected by copyright, trade secret and other State and Federal laws. Its receipt or possession does not convey any rights to reproduce, disclose its contents, or to manufacture, use or sell anything it may describe. Reproduction, disclosure, or use without specific written authorization of [COMPANYNAME] is strictly forbidden. Limit Access to Trade Secret Information 1. Maintain trade secret documents under lock and key when not in use 2. Password protect, encode or encrypt trade secret documents 3. Number or serialize the copies of documents containing trade secrets and record the name of employees given particular numbered documents. 4. Limit the access to confidential material and things to employees who have a need to know or have the materials in order to perform their duties. 5. Limit access to the physical area where confidential information or things are maintained only to those employees who have a need to have such access. 6. Require visitors to register at the reception desk and to enter the working areas only if escorted by an employee. Do not permit visitors to observe confidential information or documents. 7. Use "KEEP OUT" or "AUTHORIZED PERSONNEL ONLY" signs. 8. Install physical barriers such as fences, self-locking doors and alarmed doors. 9. Limit the use of photocopy machines by means of a key. 10. Shred confidential documents which are no longer in use. Agreements/Policies Require all employees who have access to confidential information to sign an Employee's Non-Disclosure Agreement. Where allowed by law, have employees sign an employment agreement that also provides for Covenants not to compete (California Business and Professions Code section 16600 prohibits covenants not to compete except under certain circumstances.);
Exit Interviews For Departing Employees Conduct exit interviews with departing employees to:
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