How And When To Protect Trade Secrets

Written by: Fargo Inc

By Todd Zimmerman and Abigale Griffin

Photos via Fredrikson and Byron

In business, the ability of a company to protect its confidential information can be the difference between success and failure.  This confidential information is commonly referred to as trade secrets. Broadly defined a “trade secret” is information not generally known to others that the company uses in order to gain a competitive advantage. 

Trade secrets are often accessible to employees. In an effort to protect their trade secrets, many employers draft non-compete provisions into their employment contracts in an attempt to prevent employees from leaving the company and competing with the employer.  

North Dakota, however, is one of a handful of states to have strict laws barring most non-compete provisions in employment contracts.  So, what is a North Dakota employer to do when an employee walks out the door, trade secrets in hand?

North Dakota has adopted the federal Uniform Trade Secrets Act, which defines a trade secret as (1) Information that (2) derives independent economic value from not being generally known and (3) is the subject to reasonable efforts to be kept a secret.

What information is considered a valid trade secret?

Information is one component necessary to make a valid trade secret. A trade secret can come in a variety of forms, including a formula, pattern, compilation, program, device, method, technique, or process. Contract information, pricing information, business strategies, and customer repair and purchase histories are not usually trade secrets. Customer lists are typically not trade secrets; but, if a customer list that contains important, non-obvious and specific attributes of the customers may be a trade secret.

A trade secret has independent economic value from not being generally known

Next, the information must derive independent economic value from not being generally known or readily ascertainable. The independent economic value of a trade secret can be actual or potential. In determining whether information derives independent economic value, courts look at the value the information has to the company and its competitors, and how much effort and money the company expended developing the information.

Information is readily ascertainable if it can be accessed by others in the relevant industry through proper means, including a public source or through the product itself. While it is acceptable to have individual elements of a trade secret be in the public domain, the total configuration must be novel and unique.

Subject to reasonable efforts to be kept a secret

Lastly, the information must also be subject to reasonable efforts to be kept a secret. Unlike patents and trademarks, trade secrets are not registered with the government. Instead, a trade secret is entitled to protection as long as the information is not available in the public. The efforts to maintain secrecy need only be reasonable under the circumstances and need not be extreme.

Tips for protecting your company’s trade secrets

Most companies have trade secrets but may not know how to protect them. Here are some tips for protecting your company’s trade secrets:

  1. Identify and mark your company’s trade secrets – In order to protect your company’s trade secrets, an employer first must identify what information can qualify as a trade secret. Questions an employer should consider include:
    • Is the information known outside the company? 
    • Do all employees have access to the information?
    • Are there measures in place to keep the information a secret?
    • What value does the information have to the company?
    • What is the potential value of the information for a competitor?
    • How much effort and/or money was expended in developing the information?
    • How difficult would it be for others to acquire or duplicate the information?
  2. Have written policies and procedures in place – Employers should also have written policies and procedures in place as a method of safeguarding the company’s trade secrets. Employers ought to have all employees sign confidentiality agreements, as well as agree to a company policy that sets out which job positions are authorized to have access to trade secret information. Further, it is recommended that employers require the employees with access to trade secrets to attend training on how to properly handle the information. Such employees should also acknowledge in writing that they have access to trade secrets and will protect the identity of those trade secrets.
  3. Control access to the information- Lastly, it is important for employers to control access to the trade secret information. This includes an employer both controlling which people in the company have access to the information and keeping anyone outside the company from accessing the information. Additionally, to diminish the risk of a trade secret being misappropriated, an employer should store the information in a separate location under lock and key.

Any documents containing trade secret information should be labeled as “confidential.”

In summary, before a problem arises, careful consideration should be given to defining and protecting trade secrets.  Clear policies and contracts should be drafted, signed, and acknowledged. Even with that, companies often find themselves in the situation where trade secrets have been misappropriated. 

 Several strong and unique remedies are available in that situation.  Employers may be able to obtain injunctive relief to regain control of the trade secrets and prevent further dissemination.  Damages caused by the misappropriation can be recovered, and attorneys’ fees may be assessed against the offending party. Careful and well-thought-out actions should be taken with the advice of legal counsel to both limit the risk of misappropriation and quickly address any actual or threatened misappropriation.  

A company doesn’t have to own a mega-brand to be concerned about protecting its trade secrets. Countless Fargo and North Dakota companies have valuable trade secrets worth protecting. 

Todd Zimmerman
Todd Zimmerman, shareholder at Fredrikson & Byron in Fargo, he is a litigator who represents a wide range of businesses and individuals. He can be reached at [email protected]
Abigale Griffin
Abigale Griffin, third-year law student at the University of North Dakota and is currently a law clerk at Fredrikson & Byron

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Brady Drake is the editor of Fargo INC!