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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 trade secret.

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 trade secrets.
  • 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 outside parties.

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 and plans.

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.