Small Business Trade Secrets

Guest Blogger – Richard Proffer, University of Missouri Cape Girardadeau County Extension Office SBTDC

Secret

Photo (CC) by laverrue, on Flickr

Every business, whether large or small, has a secret considered vital to success. It could be a family recipe for a meat dish that has a special spice or a new way to create a rubber product cheaper but yet it lasts just as long. Whatever it is, it is of value to the business and is often considered to be one of the most important assets when the business is up for sale.

Unfortunately, trade secrets cannot be easily and universally defined. The real definition comes from the fact the following three tests on the idea: is kept secret, is considered important and necessary for the business’s success and has a value to it. Those three tests must be met for a court to protect the trade secret in a legal issue.

A trade secret can be almost anything used in the business or created by the business as long as it is not generally known in the industry. For example, if a business owner creates a new recipe using pinto beans for a homemade chili, it will not probably be considered a trade secret because 1) chili is common, 2) pinto beans are common, and 3) most importantly, it is common knowledge you can use pinto beans in chili. What a trade secret does is provide the business owner with a competitive advantage and allows it operate a higher profit margin usually.

Trade secrets are treated differently than copyright or patents. As long as they are kept secret they remain valuable to the business. But that value can diminish when a competitor has figured out how to duplicate the process. Once discovered independently, the once trade secret can be used without any legal action being able to be taken unlike the copyright or patent. If obtained illegally, then the owner has the right to take legal action and claim damages.

How can a business protect its secrets? The first step is to determine what in your processes create a trade secret. Unfortunately, the information gathered in creating a product cannot be labeled as one as it usually represents skill or industry practices. Courts also protect an employee’s rights to carry with him his experience from one employer to another or her own business.

The second step is to write them down in a log and indicate who knows the secret. The business owner needs to make sure all the people on the log understand the importance of the secret to the business and they are not to disclose the information.

While no protection plan is entirely safe, the starting of one should indicate to the staff the owners are serious about protecting the secret and its importance to the business.

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