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Protecting Your Company’s Valuable Secrets and Proprietary Information

When was the last time you considered what your company’s “trade secrets” are and how crucial protecting them may be to the success of your business? Real estate brokers, developers, contractors, and others involved in competitive markets within the real estate industry have a variety of “secrets” and other confidential information concerning their business that have value because they are secret. Because a company’s “trade secrets” and other confidential information may be some of its most valuable assets, companies of all sizes should regularly assess their proprietary information to determine what information should be protected, and how to protect it.

To a business, a “trade secret” is typically defined as the secret, proprietary information and knowledge that is critical to its success. This is the foundation upon which businesses are built. Trade secrets include methods, formulas, and processes, customer lists, secret recipes, budgets, business plans, pricing and cost data, compilations of data, research and development, vendor pricing and so on. These assets provide great value to a business and in many cases may be a business’s greatest asset because the secret information and know-how is what allows a company to separate itself from the competition. They are also valuable to a competitor, and if and when trade secrets fall into the hands of a competitor, serious economic harm can result to the secret’s owner.

Defined by the law, a trade secret is information or knowledge that provides value to a business and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. In almost every state, the law protects trade secrets from being misappropriated, which includes obtaining, disclosing, or using trade secrets without the owner’s permission. When misappropriation occurs, a business may be entitled to a court order prohibiting other parties from using or disclosing the trade secrets, and may also be entitled to recover monetary damages caused to the business, including lost profits and/or the money made by the wrongdoer.

There is no bright-line definition of what qualifies as a “trade secret.” Accordingly, it is critical for a business to undertake consistent, reasonable efforts to protect its confidential information from the outset to prevent the loss of legal protection of a company’s secrets. An important step a business can take to protect its trade secrets is requiring that its employees and business partners execute a non-disclosure or confidentiality agreement, or include a non-disclosure or confidentiality provision in the employment and business agreements. The mere fact that such an agreement or provision exists will help establish that the information is protected by the law.

Once the company has a confidentiality and/or non-disclosure agreement in place, it should consider implementing additional safeguards to ensure that it is undertaking reasonable efforts to protect the secrets. The following are some options:

• Informing all new employees of the company’s trade secret or confidentiality policy upon commencement of the employment relationship.

• Clearly labeling or marking documents (including electronic versions) “confidential.”

• Physically restricting access to confidential information by storing the information in a locked room or file cabinet, or storing it electronically in a password-protected manner.

• Limiting access to confidential information on a “need to know basis,” and to only so much information as is necessary under the circumstances.

• Limiting access of suppliers or manufacturers to the specific information needed to perform their part of the work.

• Establishing and consistently enforcing policies and practices to prevent the inadvertent disclosure of information on websites or in marketing materials.

• Performing exit interviews of employees, obtaining all confidential information from them, and reminding them of their obligations to keep the information confidential after their employment ends.

• Being careful with the garbage – shred any information that may be secret.

This is a basic list of safeguards. It is best to implement a policy that includes a combination of them, or others. And while the efforts to safeguard confidential information and trade secrets must be “reasonable,” a business is not required to undertake unreasonably expensive or extreme efforts to obtain protection under the law.

Protecting the lifeblood of your company is crucial to its continued success, especially in a challenging economy. And given the ease with which information can be accessed, discovered, and shared, assessing your portfolio of confidential information and trade secrets and establishing (and enforcing) a strong policy of protection are essential to that success.

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We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.
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