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Trade Secrets Protection for California Businesses: Things to Know (So Others Don't)

Posted by attorney Justin Lowenthal

Under California law a "trade secret" is defined as "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." Civ. Code 3426.1(d).

Trade secrets, the oft-overlooked component of a company's intellectual property portfolio, are confidential pieces of information which are proprietary in nature. Any such information that gives a company a competitive advantage is likely worth keeping confidential and thus, protecting. Trade secrets are rarely breached as a result of disgruntled employees or corporate espionage; the cause is often mistake or inadvertance. Nevertheless, a thoughtful trade secrets policy could minimize the risk created by sharing internal or external confidential information with the company's workers. This is especially true in highly competitive industries with high turnover rates, such as software development and technology. In fact, your company's customers or clients may even require that the company have one!

To protect your company's trade secrets on at least a minimum level, you must clearly show others that you consider the information confidential. A "marking" policy, e.g., using "CONFIDENTIAL" stamps on all confidential documents might be a good start. Another possibility is to use complex passwords or access restrictions for confidential computer files and encrypted e-mail transmissions on internal servers for sensitive electronic communications.

In this author's opinion, a company concerned about their own particular risk of exposure of trade secrets should take the following three steps:

  1. Formulate a thoughtful, personalized trade secrets policy.

  2. Educate the company's workers as to the importance of keeping information confidential and how the company can be harmed by a policy breach; and

  3. Ensure continuing confidentiality by requiring employees to sign nondisclosure or restricted project agreements.

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