Intellectual Property Law 101: Trade Secrets

Definition

A Trade Secret is a formula, practice, process, design, instrument, pattern, commercial method, or compilation of information which is not generally known or reasonably ascertainable by others, and by which a business can obtain an economic advantage over competitors or customers. Unlike all others areas of Intellectual Property Law, Trade Secrets are not filed at either the state or federal level. Trade Secrets, whether a simple customer list or a complex block of computer code, are among the most valuable competitive advantage that companies have.
 
To break it down, information becomes a Trade Secret when:

• Is not generally known to the public
• Confers some sort of economic benefit on its holder (where this benefit must derive specifically from its not being publicly known, not just from the value of the information itself)
• Is the subject of reasonable efforts to maintain its secrecy

Registration (or Lack Thereof)

The lack of filing at either the state or federal level results in the “secret sauce” of a company being held as a Trade Secret rather than filed for a Patent, which could be scrutinized publically. Uniquely, a company can protect Trade Secrets forever, effectively creating a perpetual monopoly on secret information that does not expire as would a patent or copyright. However, the lack of federal protection means that a another company is not prevented from independently duplicating and using the secret information once it is discovered.
 
As patent protection has weakened (a discussion for another post), companies are increasingly keeping Trade Secrets of ideas that they might have patented in years past. Additionally, a Trade Secret owner simply needs to take reasonable steps to protect the information, and the owner doesn’t have to prepare a lengthy application or go through the patent prosecution process.

Protecting Your Trade Secret

Owners of Trade Secrets seek to protect trade secret information from competitors by instituting special procedures for handling the Trade Secret, as well as technological and legal security measures. Legal protections include non-disclosure agreements (NDAs), work-for-hire clauses, and non-compete clauses. Violation of any of the legal agreements carries the possibility of heavy financial penalties that operate as a disincentive to reveal trade secrets. Trade Secrets such as a secret formula are often protected by restricting the key information to a few trusted individuals. A famous example of product protected by a Trade Secret is Coca-Cola.
 
Companies often try to discover other company’s Trade Secrets through a lawful method such as reverse engineering. Companies also use illegal methods such as industrial espionage. The importance of that illegality to Trade Secret law is: if a trade secret is acquired by improper means then the secret is deemed misappropriated. A misappropriated Trade Secret, subjects the “thief’ to legal liability for having acquired the Trade Secret illegally.

Big Changes Ahead

​Trade Secrets are governed by both state and federal law. Recently, the federal government passed the Defend Trade Secrets Act (who says that congress can’t get anything done), which will provide additional protection for Trade Secrets by creating a means for companies to sue Trade Secret thieves under federal law and in federal court. Now a company can choose to sue under either state law or federal, which may have significant legal advantages in some cases. If you want to nerd out with me, I can also tell you about many more interesting tidbits that come out of the new federal law, however, I am not including them here because I don't want to put any of my readers to sleep...haha

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