Why is it important to protect your company’s trade secrets? What are trade secrets and how can your business protect your processes and creative product?
Whether one owns a small commercial laundry business or a multi-billion dollar entertainment company, any business owner should take steps to protect a company’s intellectual property. The theft of a company’s intellectual property can significantly damage a company’s brand and result in substantial monetary damages.
California Trade Secrets Law
One type of intellectual property that a company needs to protect is a trade secret. Under California law, a trade secret means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
- Derives actual or potential economic value from not being generally known; and
- Is subject to reasonable efforts to maintain its secrecy.
In order to protect your company’s trade secrets you must identify them, secure them and limit access. Examples of trade secrets include customer lists, a drink formula, marketing strategies, computer algorithms, or manufacturing techniques. The statute does not define what reasonable efforts must be undertaken to maintain the secrecy. Nevertheless, here are some examples of what a court will look to in order to determine whether sufficient efforts were undertaken to keep a trade secret confidential:
- Written confidentiality agreements or nondisclosure agreements with employees;
- Limiting the number of employees who have access to confidential information; and
- Locking or password protecting the location where trade secrets are located.
Trade secrets can be an important part of any non-compete agreement. If another person acquires or discloses a protected trade secret, the owner can have a court issue an injunction to enjoin the actual or threatened misappropriation of a trade secret. In addition, the owner of a trade secret can file a civil lawsuit to obtain monetary damages.
A court may award financial damages for the actual loss caused by misappropriation and unjust enrichment not factored into the actual loss. Or, a court may award the payment of a reasonable royalty to cover the period of time the use could have been prohibited. Depending on the trade secret at issue, the damages at issue can be significant, as evidenced by a recent California trade secret lawsuit.
Learn more about how to protect your company’s trade secrets as well as the integrated tax, legal, accounting and business consulting services of Allen Barron and contact us or call today to schedule a free consultation at 866-631-3470.