The Top 4 Risks to Your Company's Confidential Information

What is Your Company’s Confidential Information?

Each company has its own confidential information: client data, prospect databases, client files, formulas, recipes, or processes that give you an advantage over your competitors. Some of that information may also qualify as a “trade secret,” but the two are not the same. A trade secret is a specific, statutorily defined category of information, not a synonym for everything your company keeps confidential. Under Minnesota’s Uniform Trade Secrets Act, information qualifies as a trade secret only if it “derives independent economic value . . . from not being generally known” and “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Minn. Stat. § 325C.01, subd. 5 (available at https://www.revisor.mn.gov/statutes/cite/325C.01). Confidential information that fails either requirement is not a trade secret, even though you may still protect it by contract, such as a nondisclosure agreement.

Minnesota Trade Secret Laws Protect Your Company

Trade secret law is one tool, not the only one, for protecting your company’s confidential information. Like most states, Minnesota adopted the Uniform Trade Secrets Act, codified at Minnesota Statutes Chapter 325C, sections 325C.01 to 325C.07 (available at https://www.revisor.mn.gov/statutes/cite/325C).

Your Top Risks

1. Accidental Disclosure

One of the most common ways to lose protection of confidential information is disclosing trade secrets to outsiders without confidentiality protection. Minnesota law protects information as a trade secret only if it is the subject of efforts that are reasonable under the circumstances to maintain its secrecy, so giving trade secrets to independent contractors, customers, clients, service providers, and other outsiders who work with your business, without a confidentiality agreement, can defeat that protection.

2. No Confidentiality Agreements

If your team must share trade secrets with anyone outside your company, a signed confidentiality agreement is one of the most important steps they can take, for two reasons.

First, preserving the “trade secret” status of your confidential information depends on making efforts that are reasonable under the circumstances to maintain its secrecy, and a confidentiality agreement is one such effort. Because the standard asks only what is reasonable under the circumstances, no single step is legally indispensable, and other reasonable measures count toward it as well.

Second, if that party uses or shares the information without your consent, you can sue under the Minnesota Uniform Trade Secrets Act to recover your losses, including your actual loss and any unjust enrichment, or a reasonable royalty. Minn. Stat. § 325C.03 (available at https://www.revisor.mn.gov/statutes/cite/325C.03).

3. Theft by Ex-Employees

When some employees plan to leave a company, they may be tempted to make a copy of your confidential information. This is a common tactic for employees who plan to compete after leaving. For example, I have seen employees download the company’s client database, confidential strategy documents, and other confidential information. In essence, the employee stole what took the company years and thousands of dollars to develop.

4. Computer Hackers & Thieves

Hackers and thieves steal data from cell phones, laptops, websites, and computer networks. This is a big topic, best left to your information technology experts.

How to Protect Your Information

1. Identify & Label Your Confidential Information

Make a list of the confidential files, folders, documents or computer data in your company. Mark “confidential” on any information that must remain confidential.

2. Use Confidentiality Agreements

Remind your team that sharing your confidential information with anyone outside the company, including contractors who come into the company, will jeopardize the legal protection of your trade secrets. In addition, have employees sign a confidentiality agreement or put a confidentiality provision in your employee handbook.

3. Limit Access to Confidential Information

Some information should be shared with employees only on a “need to know” basis.

4. Protect Data Behind Strong Passwords & Security Software

Most companies have policies protecting their data and someone assigned to protect data. Your IT person can schedule a routine review to look for any new risks.

Note: This article was originally published in Fidelity Bank’s newsletter, March 18, 2014.