Trade Secrets and Confidentiality Agreements

Most business owners and executives have at least heard of the "big three" areas of intellectual property -- copyrights, trademarks, and patents -- although they might not fully understand the distinctions. However, trade secret law remains a foreign concept to most people, despite its important role in business.  Trade secret protection is based on state law, with no federal equivalent.  Thus, the definition of a trade secret and the degree of protection afforded to trade secrets varies among the states.  This, coupled with the very fact-sensitive nature of trade secret cases, means that information that might be subject to trade secret protection in some states might not enjoy similar protection in others.

As a general matter, a trade secret is information (e.g., a film treatment, manufacturing process, inventory system, or sales program) created by a company or individual that is not generally known to others and can provide its creator or owner with a competitive advantage.  However, simply calling proprietary information a "trade secret" does not automatically make it subject to protection.  Indeed, for something to legally qualify as a trade secret, its owners must take reasonable steps to protect the information.  It is a prudent practice for companies to develop systems for asserting trade secret protection in their proprietary information and consistently following written procedures governing the dissemination of information considered or containing trade secrets.  This might sound easy, but it actually requires careful planning and diligent implementation.

Individuals and companies engaged in entertainment and other industries frequently share proprietary information with other parties.  For example, a production company might send a treatment or script to other parties when securing talent for a film project.  Similarly, an inventor or designer might need to share a schematic or CAD file with a manufacturer or part supplier during the sourcing or manufacturing process.  At any time, many outside individuals and companies might have access to one’s confidential information.
 
Parties engaged in business activities often use confidentiality agreements or non-disclosure agreements (often referred to as "NDAs").  At their core, non-disclosure agreements contractually bind recipients of confidential information not to disclose or use the information without the owner’s authorization, and to use it only for the purposes specified in the agreement.  Among other things, a non-disclosure agreement should clearly define what information is and is not protected, the time frame for protection, and the permitted uses of the information.

Employers also use non-disclosure agreements, as well as confidentiality provisions in comprehensive employment agreements, to protect against current and past employees disclosing confidential information.  It is also a good practice to use non-disclosure agreements when inviting visitors to facilities if there is a chance that they might have access to proprietary information.

---