Technology Law: Trade
Secrets and the Internet
Trade secrets play a valuable role in the
competitive efforts of many companies. Protecting
information that gives the company an advantage in the
marketplace is therefore a critical and ongoing concern.
Once information that constituted a trade secret becomes
public knowledge, it loses its protected status. The
Internet, with its remarkable ability to disseminate
information, thus poses significant new dangers to trade
secret protection. To avoid forfeiting important competitive
information, companies must exercise great care in managing
the use and security of their Internet systems.
Protecting Private Company Information
Trade secrets are a unique form of property, which can be as
valuable as the company's copyrights and patents. A trade
secret has three essential qualities: 1) it has economic
value to the company; 2) competitors cannot obtain the
information without undue hardship; and 3) the company takes
reasonable measures to guard the secret. Copyrighted and
patented goods are typically right before the public's eyes.
A trade secret, as the name implies, derives its value
because competitors cannot observe it and make use of it.
While a copyright and patent are of fixed duration, a trade
secret exists as long as the company can keep it unknown.
The siren call of the Internet presents a
tough test for corporate trade secrets. Internet commerce is
growing so rapidly, companies feel compelled to establish
and maintain as enticing and popular a Web site as they can
create. Ironically, the Internet can undermine the very
competitive advantage companies seek by rushing into the
online world. The same lightning quick network that brings
customers into the company can carry guarded company secrets
out. Just like a company's other assets and products, its
Internet system must be set up and maintained with an eye
toward protecting business interests.
Because it is such a versatile medium, the
Internet provides numerous ways for companies to lose trade
secrets. Among the most obvious is e-mail, with which
employees can transfer information instantaneously to
virtually limitless recipients. These recipients can be both
within and outside the company. Many e-mail programs also
make it effortless to send simultaneous e-mails to large
groups. By clicking in an e-mail address book, or typing a
pre-established group name, one user can send a message to
dozens of people with no more effort than to one person. In
addition, carelessness in replying to an e-mail can direct
the response to many people, some of whom the sender may not
have intended and may not even know.
Another source for rapid dissemination of
information is Internet newsgroups or discussion groups.
Once a user posts information to such a site, it is
available to everyone who accesses it. Sites of this sort
exist for almost any topic and frequently contain very
detailed and useful information. The collegial nature of
newsgroups and discussion groups, and a certain code of
honor within net culture, can lead to the release of
information a company might prefer to withhold.
There is also the chance that a computer
hacker will use Internet connections to acquire protected
information. This could involve some aspect of the company's
Web site, such as a graphics feature the hacker wants to
usurp and reproduce. It can also be information more
carefully protected from public eyes. Some types of hacking
are relatively innocent, but almost any information held
within company computers is, theoretically, vulnerable.
The best way to protect a trade secret is
to keep it safely within the confines of the company.
Essential to that goal is to protect it from Internet
circulation. To keep trade secrets out of e-mail and off of
Web sites, companies should establish and rigorously enforce
policies defining what sort of information may not to be
circulated electronically. Employees should get ongoing
exposure to the policy and it should comprise part of the
company's formal efforts to protect its trade secrets.
Monitoring e-mail stored on the system, and deleting old and
sensitive information, should also be part of the program.
The company should also monitor Internet sites devoted to
information in the company's field to ensure its secrets do
not appear.
Another important piece of armor is a
confidentiality or nondisclosure agreement. Employees who
will be handling sensitive information should sign contracts
binding them to a promise not to disclose company secrets.
The company should be careful not to disclose secrets on its
own, too. This could happen, for example, if the company's
advertising agency suggested it post its customers' names to
show the numerous and important companies with which it
transacted business. Descriptions of future business plans
or products, if too detailed, could also hurt the company,
even if the intention in mentioning them was to generate
excitement for future sales. If the company works with
others on its Web site, it should be careful to protect its
rights in the software used or produced in conjunction
therewith, and to ensure confidentiality among its business
partners.
What if the company's best laid plans
fail, and trade secret information finds its way to the
Internet? In this event, the company must act immediately to
remove the offending information. Remember, once the
information is found to have passed into public knowledge,
it loses its status as a trade secret. Fortunately,
cyberspace is vast, and it is possible for information to
make it to the Internet and still not become public. Courts
will look at the extent to which the information was made
available. If it appeared in a little known or rarely
accessed location and for limited duration, a court may find
that it did not become public knowledge.
The company will also have its
nondisclosure agreement, with which to pursue an employee
who tries to disclose secrets, and a variety of laws with
which to pursue unscrupulous competitors. The trade secret
holder may be able to get an injunction barring an entity
from displaying or transmitting sensitive information.
Criminal penalties may be available for corporate espionage,
whereby one company attempts to steal another company's
secrets. Damages may also be available, or an injunction
prohibiting the company that illegally acquired the secret
from using it in its business.
Trade Secret Law
The Internet offers substantial benefits
and risks to companies that make use of it--in other words,
to most companies. Protecting trade secrets in the Internet
era will require heightened vigilance. Executives in charge
of Internet activity need to create careful and thorough
policies governing the structure of the Internet and
intranet (intracompany) systems, as well as their function
and use. Sound firewalls, encryption software, and antiviral
programs are important, as are policies governing employee
access to, use, and transmission of, company information.
Employees with sensitive information should sign
nondisclosure agreements, and the company should monitor
both internally and in cyberspace for sensitive information.
There are many legal considerations facing companies seeking
to protect trade secrets, and experienced legal counsel can
offer important guidance in these areas.
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