When people think of trade secrets, they often think of Coca-Cola’s secret formula, locked away in a vault to which few people have access. Or they might think of scientists in a laboratory conducting top-secret, high-stakes pharmaceutical research. Unfortunately, too many business owners fail to think of trade secrets that they may own. In fact, they’re quick to dismiss the notion that they even have trade secrets.
All businesses can have trade secrets, and many of them actually do. By law, a trade secret is any type of business or technical information that derives value from the fact it can’t be independently developed or reverse engineered by those who would obtain value from its use. That’s a complicated way of saying that a trade secret can be any information or process that makes your company unique. And if your competitors would love to get their hands on it, because they’re not able to create the information on their own, then you might just have a trade secret.
You don’t have to be Coca-Cola or a high-tech lab. In my twenty-plus years of practice, I’ve seen trade secrets claimed by all sorts of businesses, including a trucking company, NASCAR teams, hospitals, lawn care services, restaurants, breweries, temporary staffing companies, window cleaning companies, and funeral homes. They rightfully claim as trade secrets things like customer lists, detailed histories of customers’ orders, employee information, financial records and Quickbooks accounts, research and development results, recipes, operations manuals, and knowledge gained from substantial trial and error. A lawsuit between a pizza franchisor and its former franchisee made clear that pizza recipes could even be a trade secret. When the former franchisee argued that “pizza is pizza,” a federal court in Charlotte had this to say:
Ever since Neapolitan Gennaro Lombardi opened the first American pizzeria in New York’s Little Italy in 1905, this confection of dough, cheese, tomato sauce, spices and assorted toppings has inspired intense local and regional rivalries. Chicagoans vehemently reject any “Second City” designation when it comes to their succulent “deep dish” pizzas; and, as counsel has acknowledged, Giordanno’s and Gino’s East have their advocates (although the Court prefers Pizzeria Uno and Due). Elsewhere, New Yorkers prefer it thin and by the slice, while San Franciscans dote on their gourmet pizza. Even in the south, barbecue has begun to appear atop pizza. Wherever and whenever pizza is sold, there are few quicker ways to set Americans to bickering then to ask them who makes the best pizza.
Lockhart v. Home-Grown Indus. of Georgia, Inc., 2007 WL 2688551, at *2 (W.D.N.C. Sept. 10, 2007).
Of course, your valuable business information cannot be a trade secret if anyone can get to it, and that’s why you must take reasonable steps to protect the information. Such steps can include:
- Creating a culture of confidentiality. Stress the need for confidentiality in employee handbooks and as part of regular employee training;
- Conducting a trade secret audit so you can identify your company’s most valuable information;
- Ensuring that all valuable electronic data is secure. Require complex passwords and consider disabling employees’ ability to connect external drives to their work computers;
- Limiting access to valuable business information to those employees with a need to know such information;
- Including confidentiality agreements as part of the paperwork when new employees are hired;
- Ensuring that hard copy files are locked away and that your office is not configured in such a way that anyone can walk through and obtain your valuable information;
- Using confidentiality agreements with vendors and other business partners; and
- Conducting exit interviews of people who had access to your valuable business information and reminding them of the need for continued confidentiality.
All of this matters greatly, because the majority of all trade secret theft is committed by two groups: 1) employees who quit and take such information with them, and 2) business partners who are given access to another’s information as part of a joint venture, potential merger or acquisition, or a manufacturing or supply agreement. This could happen to anyone, but if you’ve taken the appropriate steps to identify and protect your trade secrets, you will have remedies under North Carolina and federal law.
State and federal laws allow for a specific cause of action against anyone who wrongfully takes or uses another’s trade secret, and the remedies are powerful. They include an injunction (punishable by sanctions and contempt of court), money damages for the wrongful use (measured by your lost profits, lost market share, or the wrongdoer’s unjust gain), punitive damages, and attorney’s fees.
But if you’ve not taken any steps to identify and protect your trade secrets, well, perhaps you can drown your sorrows with a certain soda and a slice of pizza.
About the Author: Josh Durham
Josh Durham is a litigation attorney at the law firm of Bell, Davis & Pitt. He helps businesses and business people through a wide variety of legal issues, including contract disputes, corporate governance matters, and the protection of valuable business information.