Three former Coca-Cola employees made headlines when they were charged with stealing company secrets and trying to sell them to PepsiCo. The theft occurred when an employee hid confidential documents and product samples in her personal bag, then conspired with others to sell the information to Coke’s long-time rival.

Luckily, PepsiCo refused to buy the stolen information, worked with the FBI to nab the thieves and Coca-Cola’s formula was not compromised. But the thwarted attempt drew the attention (and no doubt the ire) of the soda maker’s chief executive, who acknowledged in a memo to employees: “Information is the lifeblood of the company.” Coca-Cola, he wrote, would be reviewing its security procedures.

While the formula for Coca-Cola is likely the highest profile trade secret out there, virtually all companies — large and small — own unique information that gives them an advantage over competitors. Wisconsin-based manufacturer Metso Minerals, for example, recently won a $25 million settlement in a case involving theft of blueprints for its high performance rock crushers.

In an age where a significant percentage of a company’s information can be toted away on a thumb drive, or inadvertently divulged in an email, it is critical for companies to keep their trade secrets … well … secret. Countless businesses, from food sellers to industrial manufacturers, are successful because they have developed, designed or manufactured a product or process, or created a price list or customer list that competitors have failed to replicate. It is that sort of information that is the lifeblood of an enterprise and can literally mean the difference between great success and monumental failure. It is that sort of information that must be vigorously protected. 

Adequately protecting trade secrets begins with understanding which designs, materials, manufacturing processes or other information qualifies as a “trade secret.” Only then can an enterprise establish and implement proper measures to protect them.

Doing this correctly has advantages. If an individual (or competitor) misappropriates a trade secret and the victimized company
has accurately defined its key intellectual property and taken proper measures to secure it, the law allows a victimized company to obtain a court order prohibiting the thieves from using the trade secret and, in many cases, requiring its immediate return. In addition, the company can sue for damages to be made whole and to disgorge any profits made by others while using the secret. If the theft was willful and malicious, a company may even obtain attorneys’ fees and up to three times its actual damages.

So what is a trade secret?

The Uniform Trade Secret Act (UTSA) has been adopted in nearly every state and generally defines a trade secret as: Information used in the operation of a business that is sufficiently valuable to afford an actual or potential economic advantage to its owner, and that is subject to reasonable measures to ensure its secrecy. A trade secret can exist in a combination of characteristics or components. If information is commonly known or available in the public domain, it will generally not be afforded trade secret status (though a unique compilation of “generally known” information may qualify). Further, even unique information can lose its protected status if its owner does not take proper precautions to maintain its secrecy.

A fair question is: When should companies rely on trade secret law to protect their information rather than patent law? It often depends on the type of information being protected. Some information qualifies as a trade secret but may not qualify for patent protection, such as business plans, customer lists, and detailed dimensions and tolerances in manufacturing blueprints.

Another issue to consider is that a patent expires after 20 years and the information in the patent is made available to anyone who wants to see it, whereas a trade secret can exist in perpetuity. For example, if Coca-Cola had patented its secret formula, other companies could have been making Coke 20 years later. Instead, Coca-Cola has kept its formula secret for over a century and, given management’s stated willingness to invest in additional trade secret security, that is unlikely to change.

What are “reasonable security measures?”

The law does not require that a company maintain absolute secrecy to qualify information as a trade secret; rather a company must undertake “reasonable security measures.” This requirement is vague, but past court decisions offer guidelines that a company can follow to put it in the best position to obtain a finding that its security measures pass the test.

Some measures are obvious, while others really are not. For example, owners can limit access to physical facilities that house their secrets, require password protection on computers and limit the disclosure of information to key employees who must have access to fulfill their responsibilities. In addition, a business might use confidentiality agreements and non-disclosure agreements with employees and suppliers, use confidentiality legends on key documents, restrict copying of documents containing trade secret information, restrict the ability of employees to store confidential information on personal computers and limit the ability of employees to travel with confidential information.

Because of the value of trade secrets, many manufacturers have conducted “trade secret audits” aimed at (1) defining what information in the business qualifies as a trade secret; (2) reviewing physical security measures and improving them if appropriate; (3) analyzing employee agreements with an eye toward protecting intellectual property; and (4) developing written trade secret protection plans. The goal of these efforts is to lower the probability that an employee will walk off with key information in the first place, and in the event it happens, to put the company in an optimal position to recover the secret and minimize the damage.

Manufacturers and trade secrets

Trade secrets exist in the manufacturing world in many forms. Items awarded trade secret status by the courts include design drawings, design manuals, production machinery, cost/price data, process/manufacturing technology, propriety information concerning production/processes, vendor/supply information, experiments and experimental data, calculations, prototypes, formulas, quality control procedures and manuals, sales forecasts, budgets, profit and loss statements, and customer lists.

As a first step in protecting these trade secrets, key people in the company — often its principals, engineers, sales people and legal counsel — should consider what information the company owns that provides it an edge over its competitors. Once the trade secrets have been identified, the company should determine what can be done to protect these trade secrets. Some key questions are:

• Are there any measures currently in place to safeguard the trade secrets?

• Who has access to the trade secrets and where are the trade secrets located?

• Are there written policies currently in place concerning how the company and its employees should safeguard trade secrets?

• Are these policies enforced on a uniform basis?

• Are there specific physical or technological upgrades that can be undertaken to better secure the trade secrets?

Once these questions have been answered, a protection plan can be drafted and steps put in place to ensure its implementation. Companies willing to make a modest investment up front position themselves to recoup that investment and much, much more should key competitive information somehow find its way outside the business.

Steve Berryman is chair of the Commercial Litigation Group at Quarles & Brady LLP in Milwaukee. He handles business litigation in Wisconsin and throughout the country, including matters involving the theft of trade secrets.

By Steve Berryman