Trade secrets are a vital component of any successful business. They include formulas, practices, designs, processes, or any information that gives your business a competitive edge because it is not generally known to the public. Protecting these valuable assets is crucial to maintaining your competitive advantage and ensuring your business’s longevity. This guide will help you understand what constitutes a trade secret, the legal protections available, and practical steps you can take to safeguard your business’s proprietary information.

Understanding Trade Secrets

A trade secret is any confidential business information that provides a competitive edge. Common examples include:

  • Formulas: Such as the recipe for a popular product.
  • Processes: Manufacturing techniques or methods that are unique to your business.
  • Customer Lists: Detailed lists of customers that are not publicly available.
  • Business Strategies: Plans for marketing, product development, or expansion that are confidential.

To qualify as a trade secret, the information must meet the following criteria:

  1. It must be secret: The information is not known outside your business or to the public.
  2. It must have commercial value: The secrecy of the information provides your business with an advantage.
  3. You must take reasonable steps to keep it secret: The business must actively protect the information from becoming public knowledge.

Legal Protections for Trade Secrets

In Tennessee and under federal law, trade secrets are protected by both the Uniform Trade Secrets Act (UTSA) and the Defend Trade Secrets Act (DTSA).

Tennessee Uniform Trade Secrets Act (UTSA)

Tennessee has adopted the UTSA, which provides legal remedies for the misappropriation of trade secrets. Under the UTSA, misappropriation occurs when someone acquires, discloses, or uses your trade secret without consent and through improper means, such as theft, bribery, or breach of a confidentiality agreement.

If your trade secret is misappropriated, you can seek:

  • Injunctions: Court orders that prevent further use or disclosure of the trade secret.
  • Damages: Compensation for actual losses caused by the misappropriation and any unjust enrichment obtained by the wrongdoer.
  • Attorney’s Fees: In cases of willful and malicious misappropriation, you may also recover legal fees.

Federal Defend Trade Secrets Act (DTSA)

The DTSA provides a federal cause of action for trade secret misappropriation. It allows businesses to bring a lawsuit in federal court and provides similar remedies to those available under the UTSA. One unique feature of the DTSA is the ability to obtain an ex parte seizure order—a court order that allows law enforcement to seize property to prevent the disclosure of a trade secret.

Practical Steps to Protect Trade Secrets

Legal protections are only effective if you take proactive steps to safeguard your trade secrets. Here are some best practices to help protect your business’s proprietary information:

1. Identify and Catalog Trade Secrets

Start by identifying what constitutes a trade secret within your business. Create a catalog or inventory of all trade secrets, including the type of information, its importance, and who has access to it. This process helps you understand what needs protection and the potential risks.

2. Implement Strong Confidentiality Agreements

Confidentiality agreements (also known as non-disclosure agreements or NDAs) are essential tools for protecting trade secrets. Require all employees, contractors, and business partners who have access to sensitive information to sign a confidentiality agreement. These agreements should clearly define what constitutes a trade secret, the obligations of the party receiving the information, and the consequences of a breach.

3. Limit Access to Trade Secrets

Restrict access to trade secrets to only those employees who need the information to perform their job duties. Implement access controls, such as password protection for digital files and secure storage for physical documents. Regularly review access privileges to ensure that only authorized personnel have access to sensitive information.

4. Educate Employees on Trade Secret Protection

Conduct regular training sessions to educate employees about the importance of protecting trade secrets. Ensure they understand the company’s policies on confidentiality and the proper handling of sensitive information. Employees should also be aware of the legal and financial consequences of misappropriating trade secrets.

5. Monitor and Enforce Compliance

Regularly monitor the use and handling of trade secrets within your business. Implement procedures for detecting potential breaches, such as tracking access to sensitive files or conducting audits. If a breach occurs, act swiftly to enforce your rights through legal action or internal disciplinary measures.

6. Plan for Departing Employees

Employees leaving your business pose a significant risk to trade secrets. To mitigate this risk, conduct exit interviews to remind departing employees of their confidentiality obligations. Consider implementing non-compete or non-solicitation agreements to prevent former employees from using your trade secrets to benefit a competitor.

Conclusion

Protecting your business’s trade secrets is essential for maintaining your competitive edge and ensuring long-term success. By understanding the legal protections available under Tennessee and federal law and implementing practical safeguards, you can minimize the risk of misappropriation and safeguard your business’s most valuable assets.

We can help you protect the intellectual assets of your businesses. Contact us today for a free initial consultation.