Summary
- Under the Trade Secrets (Enforcement, etc.) Regulations 2018, information qualifies as a trade secret if it is secret, has commercial value and is subject to reasonable steps to maintain confidentiality.
- Businesses should use confidentiality clauses in employment contracts and non-disclosure agreements with contractors to protect trade secrets and commercially sensitive information from unauthorised disclosure.
- If a trade secret is misused, a court can order the infringer to stop, require destruction of infringing products and award damages based on economic loss or the value of a licence.
- This guide explains what constitutes a trade secret in the UK and how businesses can protect commercially sensitive information from misuse.
- LegalVision’s business lawyers specialise in advising clients on trade secret protection and intellectual property matters.
Tips for Businesses
Map the confidential information your business holds and decide who genuinely needs access. Put confidentiality clauses in all employment contracts and non-disclosure agreements with contractors before sharing sensitive information. Review IT access controls at least annually and restrict physical or digital access to the most sensitive materials.
The Trade Secrets Regulations 2018 gave UK businesses their first statutory definition of a trade secret: information that is secret, has commercial value and is protected by reasonable steps to maintain confidentiality. Before 2018, businesses relied on common law breach of confidence, which continues to run alongside the Regulations. To qualify for protection, a business must actively maintain confidentiality. Information that enters the public domain loses its protection permanently. The National Security Act 2023 also introduced criminal liability for trade secret misappropriation in certain national security contexts. Practical protection measures include confidentiality clauses in employment contracts, non-disclosure agreements with contractors and partners, and IT safeguards that limit access to sensitive information. This article will explain a trade secret and how to protect your business’ trade secrets and other commercially sensitive information.
What is a Trade Secret?
In UK law, a piece of legislation called The Trade Secrets (Enforcement, etc.) Regulations 2018 regulates trade secrets.
A trade secret is information held by a business which:
- is secret;
- is likely to have commercial value (i.e. your competitors would be willing to pay for that information); and
- has been kept secret because reasonable steps have been taken to ensure the information remains secret.
Most businesses are likely to have trade secrets. For example, information about how you run your business, who your customers are, and specific secret formulae or procedures used to create your products or services are all your business’ trade secrets.
Examples
In the UK, the definition of a trade secret is very broad. Most businesses will have trade secrets, such as:
- Technical Information: Manufacturing processes, chemical formulas, algorithms, software source code;
- Business Information: Customer lists, pricing strategies, marketing plans, financial projections;
- Strategic Information: Expansion plans, research and development projects, acquisition targets; and
- Operational Information: Quality control methods, supply chain details, cost structures.
Some well-known examples of trade secrets include the exact recipe for Lea & Perrins Worcestershire Sauce, the recipe for the Scottish drink Irn Bru, and the formula for WD-40.
What Does it Mean to “Take Reasonable Steps”?
There are court cases that give us guidance on this term. In these cases, non-disclosure agreements with employees were considered evidence of a ‘reasonable step’ in ensuring confidentiality.
This is because it ensured that one could only access confidential information:
- through the company’s IT system;
- on company premises; or
- by people authorised to access that IT system.
Therefore, you should implement non-disclosure agreements to protect trade secrets.
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Confidential Information
Suppose the information about your company does not meet the requirements of a trade secret. In this case, it could still constitute confidential business information. UK law protects confidential information as well.
Protecting Trade Secrets and Confidential Information
The easiest way to keep your trade secrets and confidential information secret is to include confidentiality clauses in your employment contracts. For example, you should include a clause that prevents employees from sharing certain information with those outside the business.
This guide outlines how to resolve commercial disputes.
Suppose you work with contractors or other agencies that need to know confidential information about your company or business processes. In that case, you can require that any such contractors sign a non-disclosure agreement (NDA). You can also require employees to sign an NDA as well. These documents mean that you will have the right to take legal action if your employee or contractor shares your confidential information with anyone else. You can also bring an action if an employee uses the data to set up a business that directly competes with yours.
IT System and Safeguards
You should also determine what confidential information and trade secrets you have in your business. Then, create a record of who has access to this information. You should also ensure that your company’s IT systems have appropriate security. Then, if any third party unlawfully tries to access your IT systems, the information they can access is limited.
Another step you could take is to ensure that confidential information is compartmentalised where possible and disclosed only on a need-to-know basis. In addition, you should ensure appropriate digital and physical safeguards are in place, such as keeping sensitive documents in a safe or implementing multi-factor authentication to access systems containing confidential information.
Protecting Trade Secrets When Employees Leave
Employment contracts should include post-termination confidentiality obligations, but these alone may not be enough. When an employee leaves, they carry knowledge of your business with them. Unless your contracts include appropriate restrictive covenants, a former employee may immediately use that knowledge to compete.
Non-compete clauses restrict a former employee from working for a direct competitor or setting up a competing business for a defined period after leaving. Non-solicitation clauses prevent a former employee from approaching your clients or recruiting your staff.
Post-termination restrictions should be reviewed when an employee’s role or seniority changes, as the original clauses may no longer reflect the level of access they have had to sensitive information.
What if Somebody Shares My Information?
If you bring a legal action for trade secret theft or unauthorised use of confidential business information, there are various remedies that the Court may provide if you are successful. These include:
- ordering the infringer to stop using or disclosing the trade secret/confidential information;
- destruction or delivery of any products using the trade secret/confidential information;
- an order prohibiting any future sale of such goods; and
- damages or compensation.
If awarded, compensation will generally constitute the amount a licence for the trade secret would have cost. Damages are calculated based on the foreseeable economic consequences to your business resulting from the infringer’s actions.
Key Takeaways
Your business’ trade secrets give you a competitive advantage. To protect your trade secrets and confidential business information, you must keep such information confidential and share it only with individuals who need to know. You should ensure that all your employees know the need for confidentiality. Additionally, you can use legal documents such as employment agreements and non-disclosure agreements. This will oblige your employees and contractors to keep such information confidential.
If you need help protecting your business’ trade secrets and confidential information, our experienced intellectual property lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
How do I protect trade secrets when an employee leaves the company?
Post-employment confidentiality obligations are not automatic. Include express confidentiality clauses in employment contracts that extend beyond the end of employment. Non-compete and non-solicitation clauses can also limit a former employee’s ability to use your trade secrets to compete with your business or poach your clients.
Can a trade secret lose its legal protection?
Yes. If a trade secret enters the public domain, it loses legal protection. This can happen if you fail to take reasonable steps to keep the information confidential, or if someone discloses it without authorisation. Once the information is publicly known, protection cannot be recovered.
What court remedies are available if someone unlawfully discloses my trade secret?
A court can order an infringer to stop using or disclosing the trade secret, hand over or destroy any products made using it, and prohibit their future sale. Damages or compensation may also be awarded, typically calculated as the cost of a licence for the trade secret.
How does trade secret protection differ from a patent?
A patent requires registration and public disclosure of the invention in exchange for exclusive rights for a limited term. A trade secret requires no registration and can last indefinitely, but only for as long as the information remains confidential. Unlike a patent, trade secret protection is lost if the information becomes public.
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