Protecting Trade Secrets

It is easier to transfer information now than at any time in history.  E-mails, thumb drives, the “cloud”, copy machines and any number of modern devices allow for easy copy, storage and transmission of almost all types of data.  If you manage a business where your commercial model or product is unique, or maintain client lists, pricing lists, or similar information, you need to consider your strategy for protecting proprietary information. 

A powerful tool to protect proprietary business information from misappropriation is the New Hampshire Trade Secret Act, RSA 350-B, et seq.  This law affords a company the ability to obtain an injunction against dissemination or use of the trade secret, and an award of damages or attorney’s fees when a trade secret is misappropriated. 

These cases often turn on whether the propriety information at issue is a “trade secret”, as that term is defined by the law.  Generally speaking, if proprietary information meets the definition of “trade secret”, a company can take steps to halt the information’s misuse or dissemination.  If the information does not meet the definition of trade secret, however, a business’ options are significantly narrowed.

A business’ treatment of proprietary information directly bears on whether that information is a “trade secret”.  The “trade secret” is defined under the Trade Secret Act as: 

“Information, including a formula, pattern, compilation, program, device, method, technique or process that (a) derives independent economic value, actual or potential, from not being generally known to, and not readily ascertainable by a proper means by other persons who can obtain economic value from its disclosure or use; and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” 

 Most cases focus on whether a company has taken reasonable efforts to protect the secrecy of its proprietary information, thus entitling a plaintiff company to proceed under the Trade Secrets Act.  The court’s examination of a company’s efforts is fact-specific.  First, a court will look to whether a business handbook or employee contract designates certain information as confidential or proprietary, and prohibits its disclosure.  Such agreements should clearly delineate the types of information the company maintains as proprietary, and make clear the expectation that it will remain secret and is not to be misused or disseminated.

 After reviewing any employee handbooks or contracts, courts will look to a company’s treatment of the information, and whether the company’s treatment reflects or is indicative of a bona fide effort to keep the information secret.  Companies should carefully consider which employees have access to sensitive information, how that information is stored, how information is labeled, and how it is protected against dissemination.  Have design specifications been given to vendors for manufacture?  What protections, if any, have been built into the contracts with manufacturers?  Are client lists clearly marked “confidential”?  Does only management have access to confidential information?  Is the confidential information password protected?  Are client lists, pricing lists or similar information collected from non-management employees at the end of the day?  Is proprietary information kept in the open for anyone to review?

These questions are all central to whether a certain piece of proprietary information will be considered a “trade secret”, and therefore protected.  Careful planning is essential to protecting a company’s business interests, and is largely dependent on statutory language and construing case law.  Companies should consult with counsel in order to develop a workable plan to protect its proprietary information to the greatest degree possible. 

As a threshold matter, however, companies can take common-sense approaches to ensure sensitive information will be construed as trade secrets. Always make sure client lists and databases are not generally available to non-necessary personnel and are password-protected. Label sensitive information “confidential”. Consult with counsel to craft general firm-wide confidentiality policies and specific confidentiality agreements with key personnel. Make sure an enforceable understanding exists with third parties who will be receiving sensitive proprietary information. More broadly, ask yourself “is this information something I would feel comfortable in the hands of my competitor?” If the answer is no, you should review what steps you need to take to ensure the information is available only to appropriate personnel and is protected against unfettered dissemination.