In the dynamic business world, companies often possess valuable information that gives them a competitive edge. This confidential information, known as ‘trade secrets’ plays a crucial role in enhancing a business's competitive advantage and overall success.
In this article, we guide you through the concept of trade secrets, their protection and their significance for small businesses in the UK.
What does trade secret mean?
A trade secret is a type of confidential information held by a company, but it differs from merely being private (e.g. financial data relating to the company or employee details), trade secrets are highly valuable information that provides a competitive advantage to a business and is usually kept confidential within the business itself as well as to the general public.
Trade secrets can include formulas, manufacturing processes, customer lists, marketing strategies or any other confidential business information that isn’t publicly known but is extremely valuable to the business. A famous example is the recipe for the spice blend on KFC chicken, which isn’t only secret from the public, but is only known within the company on a ‘need to know’ basis.
Are trade secrets intellectual property?
Yes, trade secrets are a form of Intellectual Property (IP). Intellectual property encompasses a broad range of intangible assets, including inventions, designs, trademarks and creative works.
Unlike other forms of intellectual property, such as patents, they don’t require registration and can be maintained indefinitely as long as they remain a secret. They can be a vital component of a company's intellectual property portfolio and play a significant role in contributing to its overall value and competitiveness.
Are trade secrets protected by law?
Absolutely! The protection of trade secrets is essential for the growth and success of small businesses. In the UK, they’re primarily safeguarded through the application of the common law of confidence, i.e., the right to keep certain information confidential and to stop others from disclosing that information.
The UK government has also enacted specific EU legislation, including the Trade Secrets (Enforcement, etc.) Regulations 2018 (the “Regulations”) give additional clarity and rights over protecting trade secrets.
How can a trade secret be protected?
As a business owner, you should proactively safeguard your company's trade secrets. This is especially important if relying on the Regulations. Some practical strategies to protect your trade secrets include:
- Implementing confidentiality policies – develop and enforce internal policies that clearly define what constitutes a trade secret, the employees entitled to know such trade secrets and the measures those employees should take to maintain confidentiality
- Non-Disclosure Agreements (NDAs) – require employees, contractors and partners to sign an NDA to ensure they understand their obligation to keep sensitive information confidential
- Limited access – limit access to secrets to only those employees who require it for their job responsibilities
- Physical security measures – store physical trade secret documents and materials in secure locations with restricted access
- Digital security measures – utilise encryption, passwords, and other digital security measures to protect electronic information
- Employee training – conduct regular training sessions to educate employees about the importance of IP protection and the risks associated with disclosing sensitive information
How long do trade secrets last?
Unlike some other forms of intellectual property, trade secrets can be protected indefinitely as long as they remain secret. However, once the information becomes publicly known, it loses its status and is no longer protected.
Can you license a trade secret?
Yes, as the owner of a trade secret, you have the right to license it to others for commercial use. Licensing Agreements allow you to grant specific individuals or companies the right to use your IP while still retaining ownership and a right of confidentiality.
How to protect trade secrets from departing employees
When employees leave your company, there is a risk that they may take valuable trade secrets with them to their new employers or start their ventures. To mitigate this risk, consider the following steps:
- Exit interviews – conduct thorough exit interviews to remind departing employees of their ongoing obligation of confidence regarding trade secrets
- Termination procedures – ensure that all access to company systems and confidential information is immediately revoked upon an employee's departure
- Non-compete clauses – consider incorporating non-compete clauses in Employment Contracts to restrict departing employees from joining competitors for a specified period
- Non-solicitation clauses – include non-solicitation clauses to prevent departing employees from poaching clients or other employees
Can trade secrets be reverse-engineered?
Reverse engineering refers to the process of analysing a product or technology to understand its underlying principles. While trade secrets are vulnerable to reverse engineering, you can take steps to make it challenging for others to uncover confidential information. This includes using a combination of other forms of IP protection.
Get legal assistance from LawBite
Protecting your intellectual property, including trade secrets, is paramount to securing your company's competitive advantage and long-term success. At LawBite, we understand the critical role that intellectual property plays in the growth and prosperity of your business. Whether you need assistance safeguarding your trade secrets through robust Non-Disclosure Agreements, crafting Licensing Agreements, or formulating comprehensive IP protection strategies, our team of experienced IP lawyers are here to guide you every step.
We believe in doing law differently, making legal services more accessible to entrepreneurs, startups and small to medium-sized businesses. Our mission is to educate and empower you, ensuring your business is well-protected and strategically positioned for success.
Don't let your trade secrets and intellectual property go unprotected. Speak to one of our IP lawyers today and discover how we can help you secure your company's valuable assets, turning your ideas into lasting commercial success. If you’d like to speak to one of our expert IP lawyers about protecting your confidential information, book a free 15 minute consultation or call us on 020 3808 8314.