When it comes to protecting a company’s competitive advantage, it is important to know the difference between confidential information and trade secrets. Knowing the difference allows businesses to design and implement the appropriate measures to protect their information and secure their competitive advantage.
In Illinois, confidential information has been defined by the courts as particularized information that has been disclosed to an employee during the employer-employee relationship. This information must be (1) unknown to others in the industry and (2) give the employer an advantage over its competitors.
Trade secrets are a subset of confidential information and are defined in Illinois through the Illinois Trade Secrets Act. Under the Illinois Trade Secrets Act, a trade secret is defined as information, including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers that:
- is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and
- is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality.
In addition, while not determinative, courts in Illinois may also look to the following factors to assist them in determining whether information qualifies for protection as a trade secret:
- The extent to which information is known outside of the business;
- The extent to which the information is known by employees and others involved in the business;
- The extent of measures taken to guard the secrecy of the information;
- The value of the information to the business and competitors;
- The amount of effort or money expended by the business in developing the information; and
- The ease or difficulty with which the information could be properly acquired or duplicated by others.
All information that qualifies as a trade secret is confidential information. However, not all confidential information is a trade secret. As a result, the category of information that is potentially protectable as confidential information is more encompassing than a business’ trade secrets.
The first step a business should take in identifying its confidential information and trade secrets is to conduct an internal audit. Once a business has identified its confidential information and trade secrets, the business can put in place the necessary protections to help it maintain its competitive advantage. Those protections may include restricting access to the information through internal and external security measures, having employees and third parties sign confidentiality agreements and restrictive covenants, developing internal policies and procedures and implementing a compliance monitoring plan. There is no-one-size-fits-all approach to protecting confidential information and trade secrets. However, identification is the first step.