Impact | Business Risk Management Blog

To some it may seem obvious, but before a business can take reasonable steps to protect its trade secrets, it must be able to identify which of its intellectual assets are protectable as trade secrets. A business may not differentiate between trade secrets and confidential information, but there is a difference and a business should differentiate between the two (see our previous post on the differences here). A business may believe that whatever steps it takes to protect its confidential information will be sufficient to protect all of its trade secrets. However, that approach can prove harmful in practice, as the practical measures to protect the intellectual assets may differ depending on the nature of the assets. 

In all but three states, trade secrets are defined under some variant of the Uniform Trade Secrets Act (UTSA)¹. Trade secret information is a subset of confidential information. All information that qualifies for trade secret protection is confidential information. But not all “confidential information” falls within the coverage of the UTSA.

Most business owners believe that their business has important confidential information which must be protected from competitors. Obvious examples of confidential information are secret formulas or recipes for certain cola drinks or fragrances. But what about customer lists, customer ordering patterns or preferences, pricing formulas, marketing strategies, product designs, sales strategies, and the like? Most business owners would not dream of disclosing these types of information to a competitor. But when an employee resigns or is fired, the former employee may decide to disclose this confidential information to a competitor or the employee may become the competitor. Most business owners believe that everything about their business is a trade secret, but they may be in for unpleasant surprises. Just because a business labels something a trade secret, does not mean that a court will recognize it as a trade secret. The goal of this article is to give business owners a better understanding of what factors courts consider to determine whether a business has a trade secret and what business owners can do to increase the chance of the court finding that their information is a trade secret.

Whether big or small, a customer base is vitally important to any business. Depending on the size and sophistication of a business, a customer list may be kept in one's head, on index cards, in a book or on a computer. Regardless of how that customer list is kept, a business wants to take steps to protect that customer list from being disclosed to people outside of the company, especially its competitors. And by taking those steps, a business may be able to qualify its customer list as a trade secret, which would allow it to take advantage of certain legal protections, such as those offered by the Uniform Trade Secret Act. This Act is an important tool in preventing third parties from obtaining and using a business's customer list.