5 Tips for Minimizing Trade Secrets Theft by Clients, Contractors and Vendors

Watching YouThe business world is littered with the carcasses of companies which, after they shared their confidential information and trade secrets with a non-competitor, such as their client, supplier, or vendor, were undercut by that party, who all of a sudden realized that they could profit from the information by cutting out the middle-man.

How can companies prevent this from happening? Here are the five basic tips on avoiding being blindsided by your own business partners:

  1. Never share your entire confidential information or trade secrets with anyone, no matter how sure you are that they won’t compete with you in the future.  This is a no-brainer, but limiting the access to the confidential information on a “need-to-know” basis is the easiest, yet the most underutilized, protection measure.
  2. Only disclose the information once the vendor/supplier/client signed a non-disclosure agreement. Simply put, do not share any sensitive information under you have a signed NDA in hand.  The NDA should state, among other things, that the vendor/supplier/client will make sure its employees are bound/will obey the NDA.
  3. Only share the information through a virtual data room, which allows you to track who accessed the information, when they did so, and what they did with it.  Some virtual data rooms allow you to set alerts for when a large amount of data is downloaded or printed. Such virtual data rooms also allow you to control the various permission settings to prohibit or limit the download or copying of the information and to limit access to certain individuals, rather than the entire companies or departments.
  4. Consider using software that allows you to track the information once it leaves the virtual data room. Some programs on the market allow you to track who has access to your information and what they do with it even after it leaves the virtual data room.  For extremely sensitive information, such measures may be worth the extra cost.
  5. Use data encryption when sharing confidential information outside the virtual data room. The encryption can now be done automatically and it prevents anyone who does not have an encryption key from reading the message – all they will see is a random collection of characters.

BOTTOM LINE:  In Texas, to claim trade secret protection, the owner of trade secrets must show that he/she took “reasonable measures” under the circumstances to keep the information secret. What constitutes “reasonable measures” is often a point of contention in lawsuits involving trade secrets misappropriation.  As the owner of trade secrets, you never want to be in a position where you cannot point to at least some measures you took to protect the confidential information.  Thus, the above steps are not only a great business practice, but they can also help in court if a company ends up suing its vendor/supplier/client for misappropriation of its trade secrets.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below.

 

Four Ways to Protect Your Business Ideas: Patents, Trademarks, Copyright, and Trade Secrets

pictureWhether you are an owner of an established business or a budding entrepreneur working on a start-up, understanding how you can protect your business ideas is key to making your company attractive to investors, securing funding, growing the company and ensuring the longevity of your business.

Depending on the type of idea that you have, the state of the idea, and the amount of money at your disposal, you have the following four ways to protect your intellectual property:

1. PATENTS.   There are three types of patents in the U.S.: utility patents (90% of all patents); design patents, and plant patents. Having a patent for an invention or a design allows the owner to exclude others from making, using, or selling the invention or design for a certain period of time.  To obtain a patent, a person must file an application with the U.S. Patent and Trademark Office (USPTO).

Utility patent may be granted to anyone who invents or discovers any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof.  Approximately 90% of the patent documents issued by the USPTO in recent years have been utility patents, also referred to as “patents for invention.”  Utility patents last up to 20 years from the date of patent application.

Design patent may be granted to anyone who invents a new, original, and ornamental design for an article of manufacture.  In general, a design patent is obtained for the aesthetically appealing features of a product. It gives the owner the right to prevent others from making, using, or selling a product that so resembles the patented product that an “ordinary observer” might purchase the infringing article, thinking it was the patented product.  An example of a famous design patent is Coca-Cola’s unique bottle shape. Also, many clothing companies often patent a unique design to prevent other companies from imitating it.  Design patents last for up to 14 years from the date of the grant.

In many circumstances, one may obtain a design patent in addition to a utility patent for the same invention. Also, to the extent that the subject qualifies as a work of art, there may be an opportunity to obtain a copyright for the same, and if the design is embodied in a physical article, and also functions as a trademark, a trademark registration may be obtained.

Plant patent may be granted to anyone who invents or discovers and asexually reproduces any distinct and new variety of plant.

The patent application process is complicated and can cost thousands of dollars as most applications require help from a qualified patent attorney or agent.  To maintain the force of the patent, you must pay fees due at 3.5, 7.5 and 11.5 years after the patent grant.  The total amount of maintenance fees for a small entity (such as an independent inventor) is $4,430, while bigger entities must pay $8,860.

2. COPYRIGHT. Copyright protects original works of authorship including literary, dramatic, musical, and artistic works, such as poetry, novels, movies, songs, computer software, and architecture. Copyright does not protect facts, ideas, systems, or methods of operation, although it may protect the way these things are expressed.  You do not have to register your work to have copyright protection.  However, only registered works may be eligible for statutory damages and attorney’s fees in a copyright infringement suit. Thus, you should register your work with the U.S. Copyright Office, which can be done online for just $35 – $55 fee.

The term of copyright for a particular work depends on several factors, including whether it has been published, and, if so, the date of first publication. As a general rule, for works created after January 1, 1978, copyright protection lasts for the life of the author plus an additional 70 years. For an anonymous work, a pseudonymous work, or a work made for hire, the copyright endures for a term of 95 years from the year of its first publication or a term of 120 years from the year of its creation, whichever expires first.

3. TRADEMARKS. A trademark is a word, phrase, or design that distinguishes the source of the goods of one business from its competitors.  A right in a trademark is acquired by use, but registration with U.S. Patent and Trademark Office (USPTO) makes it easier to enforce such right.

To apply, you must have a clear representation of the mark, as well as an identification of the class of goods or services to which the mark will apply.  You can submit an online application, and filing fees vary according to the type and the number of classes of goods or services, among other factors. Filing an application for trademark is complicated, so, as with patents, most people hire attorneys who specialize in trademarks to handle the process.

4. TRADE SECRETS. Trade secrets in Texas are protected by the Texas Uniform Trade Secrets Act (TUTSA).  A Texas business or a person may claim as a trade secret any information that (1) has economic value because it is not generally known and (2) is subject to efforts to maintain its secrecy that are reasonable under circumstances. Trade secrets may include, but are not limited to the following: formula, pattern, compilation, program, device, method, technique, process, financial data or list of actual or potential customers or suppliers.

Thus, even those ideas and business processes that do not qualify for patents, copyright or trademark protection, can be protected by the owner as trade secrets, as long as they have economic value and the owner’s efforts to keep the ideas secret are reasonable under circumstances.

Under TUTSA, Texas business owners may also seek a temporary injunction to prevent misappropriation or threatened misappropriation of their trade secrets. A temporary injunction is a court order, which, if granted, prevents a person or a company from using the information claimed to be a trade secret.  Sometime, injunctive relief is the only way to protect valuable information from being stolen or misused by a competitor, but the owner must act fast after discovering misappropriation or a court might decide that the misappropriated information is not as valuable as the owner claims.

For more information about Texas trade secrets law, please click here.  If you suspect that your business’s trade secrets have been misappropriated or you are looking to implement measures within your organization that will prevent or minimize the chances of trade secrets being misappropriated, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.