January 11, 2016

Building Trade Secrets to Last

Many companies don’t realize that they possess information that could qualify for trade secret protection. Trade secrets are frequently associated with mysterious formulas, like the recipe for Coke, but trade secret law is broad enough to protect many types of information.

In general, information can qualify as a trade secret if (1) it derives economic value because it is not generally known, and (2) the owner has made reasonable efforts under the circumstances to protect the information’s secrecy. The law extends significant protections to trade secret owners, including sweeping civil and criminal remedies for the misappropriation of trade secrets.

Construction and design firms may possess many types of information that may qualify for trade secret protection. Most notably, proprietary construction methods and manufacturing processes fall squarely within the trade secret realm. But other business information — including sales or pricing information, certain customer information and business negotiation information — may also qualify.

Information will qualify as a trade secret, however, only if reasonable measures have been taken to protect that information’s secrecy. For example, depending on the circumstances, trade secret owners may decide to:

  • Institute physical and electronic security procedures
  • Require employees to execute non-disclosure agreements
  • Adopt document labeling policies
  • Address IP ownership and confidentiality issues in contracts with third parties

Trade secret-related issues are particularly important to businesses operating in the construction industry. Given the widespread use of subcontractors, it is imperative for construction and design firms to evaluate whether their contracts sufficiently address trade secret-related issues, including non-disclosure obligations and the ownership of any jointly created intellectual property. Construction firms bidding for public contracts should also carefully balance the business need to disclose sufficient information to win the contract against the need to protect the firm’s trade secrets. If truly sensitive information must be disclosed to the government, the firm should evaluate whether steps can be taken to shield that information from the public.

Trade secret-related issues are also important to businesses that hire construction and engineering firms because contractors and engineers may acquire a company’s confidential and proprietary information when building a new project. For instance, a contractor may design and build a manufacturing facility that contains the manufacturer’s confidential and proprietary production processes. Companies should carefully address trade secret and IP ownership issues in their design and construction contracts. They should also institute procedures during the design and construction process to protect against the unauthorized disclosure of trade secrets and confidential information.

Fail to consider these issues when contracting for design and construction services, and you could lose valuable trade secrets.

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