Are non-disclosure agreements necessary to protect trade secrets?
A trade-secret owner must take reasonable measures to protect its secret from disclosure to competitors and the public. If the owner’s efforts are lax, it risks losing trade-secret protection entirely. Many businesses thus obtain non-disclosure agreements from those who are given access to a trade secret. But while entering non-disclosure agreements may be a best practice, it is not necessarily required.
No one particular security measure is necessary to maintain trade-secret protection. Instead, whether a trade-secret owner’s efforts at maintaining secrecy are “reasonable” depends on the unique circumstances of a case, judged in their totality. While courts do not have any set checklist of security efforts they consider reasonable, the following protective measures, either in combination with or as an alternative to non-disclosure agreements, can help companies meet their obligations:
- Limiting disclosure of trade secrets on a “need to know” basis;
- Labeling physical and digital files containing trade secrets “Confidential” or “Proprietary”;
- Encrypting sensitive files;
- Using secure passwords and two-factor authentication;
- Training employees in best practices for IT security;
- Maintaining physical office security;
- Using secure file-sharing programs to send sensitive documents;
- Maintaining a company confidentiality policy and regularly training employees on that policy;
- Reminding parties with access to sensitive information that the information is confidential; and
- Sharing trade secrets only with non-competitors.
The importance of any particular measure will depend on the circumstances and the disclosure threats a company faces. Companies should thus take stock of how their most valuable information might be disclosed and then evaluate whether their existing protective measures are adequate to address those risks. Non-disclosure agreements are a useful tool trade-secret owners can employ. But they are not the only tool, and they may not be the best one for a company’s unique situation.
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