Protecting Trade Secrets in an Electronic World

With the increase in the use of e-mail, and the electronic creation and retention of business documents, protecting trade- secret information is more of a challenge than ever for converting industry members.

Recent disclosures that sensitive classified information was obtained by breaking into government networks or stealing laptops from government personnel are a sobering reminder of just how vulnerable confidential information may be.

The acronym “CLLASII” (“classy”) is a useful mnemonic to help remember the main points about maintaining trade-secret protection.

Contract: Formulas, ingredient lists, customer lists, operating costs, and similar information are examples of items customarily deemed confidential, yet must often be shared or disclosed with business partners and others. Disclosures of trade secret information should occur only under contract. This means employees (including your information systems/information technology personnel who may routinely access information), consultants, business partners, and prospective business partners with whom trade-secret information is shared should enter into a written agreement regarding its confidential nature.

Label: Confidential information should be labeled “confidential” or “confidential and proprietary business information of _________.” Oral disclosures of trade-secret information should be accompanied by an oral statement that it is confidential, promptly followed by a written statement memorializing the confidential nature.

Limit Access: Access should be limited strictly to those who need to know the confidential information, both within the company and with any third parties with whom it is shared. Exit interviews with departing employees that were entitled to access trade-secret information are needed to make sure they haven't retained copies and to confirm the confidential nature of the information shared.

Secure: Strict security procedures should be observed in creating, storing, and transmitting confidential information, particularly electronically. Hard copies should be kept in an appropriate location where access is limited. Diskettes and files can be locked. If information must be placed on the network, consider password-protection devices to limit access. When transmitting hard copies or diskettes by mail, use two envelopes, with both the outer and inner envelope appropriately addressed and marked as confidential.

If you must fax trade-secret data, consider steps to control the extent to which your non-essential employees can access the data. Alert the authorized recipient before faxing it to make sure that personnel not cleared to receive it don't have access to it.

Laptops present special concerns since they are mobile and can be lost or stolen. If documents must be sent electronically, secure methods of transmission using encryption or password-protected documents may be used. Of course, use care in sharing the password and never include the password for the document in the e-mail transmitting it.

Inform: Inform employees and others about your trade-secret policy. You can include a reference in your employee manual in addition to specific written agreements with key personnel. Attempting to access trade-secret information without authorization can be a firing offense.

Inspect: Internal or third-party inspections or audits are necessary tools to verify that access to confidential information is limited and security procedures are in place. Also recommended are periodic reviews to confirm stale information is taken out of the trade-secret category, unnecessary copies of trade-secret data are destroyed, and new information is protected.

Adhering to these steps should help converters maximize their ability to protect their trade secrets in the electronic environment.

Sheila A. Millar, a partner with Keller and Heckman LLP, counsels both corporate and association clients. Contact her at 202/434-4143; This email address is being protected from spambots. You need JavaScript enabled to view it.;

Subscribe to PFFC's EClips Newsletter