What is a Trade Secret?
Trade Secrets are techniques, methods, or know-how used by a business that
are not publically known and kept as a secret, which are valuable to the
business and give the business a competitive advantage. Two well-known
examples of trade secrets are the formula for Coca-Cola® and the recipe
for KFC® original chicken. Trade secrets may be in tangible or intangible
form, and may include items such as customer lists, recipes, marketing
strategies, manufacturing methods or techniques, business plans, computer
algorithms, and data compilations. Any specific technique, method, or
know-how that pertains to the operation of a business and gives the business
a competitive advantage may be protectable as a trade secret, provided
that unrestricted public disclosure of the trade secret is not made. While
disclosure of trade secrets to employees and outside entities may be necessary
to business operations, business owners need to take appropriate measures
to protect the secrecy of the trade secret information disclosed to the
employees and entities so that the information may be maintained as a
What are the Benefits of Keeping a Trade Secret?
A trade secret has no expiration date; therefore a business may use a trade
secret to retain a competitive advantage for as long as the business maintains
the secrecy of the trade secret. In some circumstances, keeping techniques,
methods, or know-how as a trade secret may be a better alternative to
protecting the techniques, methods, or know-how through patents, which
requires eventual disclosure of the information to the public (and competitors)
in the published patent application. Thus, a business can potentially
enjoy the exclusive use of a trade secret for a much longer period of
time than the 20 years (from filing date) protection provided by an issued
patent. For example, the Coca-Cola® formula has been a trade secret
for more than a century.
There are disadvantages and pitfalls associated with trade secrets. Unlike
with patents, trade secrets are only protected from being acquired improperly,
and are otherwise accessible to others using legitimate means. If a trade
secret is disclosed, even accidently, it is no longer protected. A trade
secret acquired through independent discovery or reverse engineering by
a competitor may be used by the competitor, and the trade secret owner
has no recourse in such a scenario. Therefore, as a general rule, only
information not easily discoverable through independent research or reverse
engineering benefits from being kept as a trade secret. Information easily
discoverable or reverse engineered is likely better protected by a patent,
which grants the holder the right to exclude others from practicing the
claimed invention of the patent regardless of how the others gained knowledge
of the claimed invention.
How are Trade Secrets Protected?
Protection for trade secrets is provided under state law. State laws may
vary, but 48 states have adopted the Uniform Trade Secrets Act (UTSA).
UTSA provides protection against improper acquisition of trade secret
information by theft, bribery, fraud, espionage, breach, or by causing
someone to breach a duty to keep the secret. UTSA has a three-year statute
of limitations, which begins to run when the owner of a trade secret discovers
or reasonably should have discovered the misappropriation of the trade
secret. Courts can grant injunctive relief to an injured party to prevent
disclosure of information, and in some cases, may even restrict former
employees from being employed in positions in which the trade secret information
is likely to be disclosed. The USTA allows injured parties to claim damages
for actual loss caused by the misappropriation, or for unjust enrichment.
Under the UTSA, courts can even award treble damages (triple the amount
of actual damages) for willful and malicious appropriation.
Additionally, a federal claim can be brought under the Economic Espionage
Act of 1996, which also protects businesses from having trade secrets
acquired without authorization.
Practical Tips for Protecting Trade Secrets
To protect its trade secrets, a business needs to put forth an effort "reasonable
under the circumstances" to maintain the secrecy of the trade secret.
In general, appropriate precautions for maintaining the secrecy of a trade
secret may involve:
- Properly training employees on maintaining secrecy.
- Including language in employee manuals concerning the confidentiality of
- Selectively restricting employee access to trade secret materials.
- Having employees or business partners execute non-disclosure agreements
or confidentiality agreements.
- Having departing employees sign non-competition agreements.
- Physically securing tangible information containing trade secrets.
- Password protecting electronic information containing trade secrets.
Once a trade secret has been disclosed to someone outside of the business
without a confidentiality or non-disclosure agreement in place, trade
secret protection for the information disclosed may be lost. Therefore,
businesses should strive to maintain the secrecy of its trade secrets
and take care not to inadvertently disclose trade secret information to
Call us. Howard IP Law Group, P.C. can help you protect valuable information
imperative to operating your business. We can work through the facts and
questions with you and point out pitfalls, saving you time, money and
headaches. Together we can craft an approach tailored to your situation
Please note that the content of this page should only be used as a general
reference, and is not a substitute for legal advice. It is recommended
that you seek the assistance of legal counsel.