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Trade Secrets 

Intellectual property rights are a very hot concept right now, whether your business is high tech or low tech. What does IPR really mean, though? Intellectual property is the stuff you know and use in your business that lets you provide a product or service that is better than, or at least different from, what your competition sells.

The best way you can keep a competitor from providing your customers with the same product that you make is by keeping how you make it a trade secret. If Coca-Cola had patented their product, the patent would have run out years ago and any soft drink maker who wanted to could be making an exact copy of the soft drink now. They didn’t patent it, so I can’t find out how it’s made by examining their patent. This formula is carefully protected so that very few people have access to all of the information. Consumer taste tests of colas vary but Coca-Cola fanatics believe that no one else can duplicate their favorite product. Similarly, Krispy Kreme donuts, although made right out in public view of their customers, use a trade secret formula. Competitors can analyze the chemical composition of these products. They can take tours and watch them being made. But they can’t duplicate the formula and the process because they don’t know exactly how the product is made.

You do need to be careful when deciding whether to patent your product or keep it a trade secret. First of all, are there parts of the process that you can keep proprietary? Can your product be analyzed so well that it can be duplicated? Or can your competitor take it apart and then build his own version? What happens if if a competitor hires your employees? If it’ll be easy to make your product under these conditions, you should consider patenting your product and your processes. That will provide you with legal protection if you enforce your rights. Still, that protection runs out with time and your competitors will be free to make their own copies. It’s good for them but not great for your bottom line. Take a look at what happens to drug company revenues when a hot pharmaceutical goes off patent and other companies start selling generic versions of it.

Once you’ve decided to keep part of what you do as a trade secret, you need to be careful in determining who can have access to it and which parts of it they can access. Who should know what? Your employees will need to know enough to do their jobs well. You may have to look carefully at how work is done so that you can maintain a reasonable level of trade secret security. When employees transfer from one department to another, will they learn everything about making the product? What do your suppliers need to know? Coca-Cola has several suppliers provide parts of their formula, but final mixing is done under direct company control. Krispy Kreme has stringent specifications on the content of the raw ingredients delivered to them so that they can duplicate their product from batch to batch (and a quality kitchen that makes donuts with each batch of product before it’s shipped.) You can also get employees, consultants and suppliers to contractually agree not to disclose your information to anyone else without your permission.

You also need to make certain that enough people know your trade secret, or enough portions to put it together again, in case disaster strikes. Stu Bell, one of our resident technical gurus, did an excellent article on how to keep your data safe (Back Up or Out!) when it's on computer. You may also wish to consider keeping back up copy off premises in a safe, a safety deposit box or with your attorney or accountant. Trade secrets can be powerful enough to prevent your customers from become your competitors' customers. If you keep them safe, you can profit from them for many years.