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How proprietary is your confidential information?

Madison, Wis. - In our last few columns, we discussed the value of well-managed due diligence programs for all businesses. Of particular importance to early stage companies, one of those columns focused on the intellectual property aspects of due diligence. We emphasized the importance of identifying, defining, and adequately protecting all of the company's intellectual property from the outset. In general, this process sounds very straight-forward. That is, until you start looking at some of the technology industry's most valuable assets: trade secrets.

For this column, I've asked a colleague of mine to help guide us through the essential components of trade secrets. Melinda Giftos is an attorney in the Madison office of Whyte Hirschboeck Dudek, specializing in assisting companies in identifying and protecting their valuable intellectual property. I've asked her to give us all some guidance in how to get the most value out of trade secrets.

What is a trade secret?

Almost every business has protectable trade secrets. In the technology industry, trade secrets often comprise a company's most valuable assets, often worth millions or even billions of dollars. Unfortunately, while it is relatively easy and even commonplace for companies to identify their patents, trademarks, and copyrights, trade secrets have always been much more amorphous and are often overlooked.

So what exactly is a trade secret? In basic terms, a trade secret is any information, device, process, or procedure that is not generally known to the public, is economically beneficial to you as its owner, and retains its value because you protect its secrecy. Examples include customer lists, research processes and data, formulas, and any other type of information that not only gives you a competitive edge, but would also be considered a great loss if the information fell into the hands of your competition.
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The type of information or material comprising the trade secret is not overly important. Trade secrets can encompass a very broad range of ideas, processes, discoveries, and information. The critical issues are how do they add value to your company and what does your company do to adequately safeguard them? This is important because protection of trade secrets is never automatic. They are protectable only if you take affirmative steps to preserve them.

However, all too often, companies do not even think about their trade secrets until after someone steals them or until they are poised to sell the company and the prospective purchaser wants to know what exactly the company has. And then it is often a mess trying to sort through what is “secret,” what is “generally known,” and what steps the company actually took to preserve the value in the information.

Preparing a protection plan

A better approach is to actively seek out and define the information, processes, and expertise within your company that are valuable and will remain valuable so long as they are secret. The next step is to implement a trade secret protection program. Having a solid business plan in place to protect your trade secrets allows you to: (1) more concretely identify your trade secrets; (2) decrease your risk of loss; (3) deter theft and carelessness with your valuable information; and (4) demonstrate that your company is serious about safeguarding its most valuable assets.

The breadth of any trade secret protection program will vary from company to company and will require a cost-benefit analysis regarding how deeply to delve into trade secret protection. However, every protection program will include: adequate identification of confidential and proprietary information, detailed confidentiality agreements with employees and any third-party licensees, and ongoing reviews of what company information is valuable, who has access to it, and what procedures are in place to keep the information protected. While it is not always easy, it is always well worth it. Carefully identifying and protecting your trade secrets allows you to leverage the value of your proprietary information to the highest level possible.

Looking ahead

We hope this has provided the framework for trade secrets and why you should take affirmative steps to safeguard yours. If you have questions about whether particular information might qualify as a trade secret and, if so, how to protect, confer with your counsel to put a good plan in place. Next time, we will shift gears a bit to look at another program that might help many early stage companies.

Sverre Roang heads the Corporate Transactions and Business Acquisitions Practice at the Madison office of Whyte Hirschboeck Dudek S.C., a Wisconsin law firm with a full range of integrated practice areas to advance the interests of corporate clients. Sverre is also the team leader of the firm's Emerging & Entrepreneurial Companies Team. Sverre earned his law degree from UW-Madison and currently serves as an adjunct professor at the UW Law School. He may be reached at sroang@whdlaw.com or 608-234-6079.

Melinda S. Giftos is an attorney specializing in intellectual property and intellectual property litigation in the Madison office of Whyte Hirschboeck Dudek. She may be reached at 608-234-6076 or mgiftos@whdlaw.com.

The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC. WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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