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Trade Secrets 101

The world of intellectual property (“IP”) is often an enigma to the general public.  While creations of your mind, works of authorship, names/symbols used in commerce, and various know-hows are likely the most valuable assets of your business, there is still a fairly limited understanding by business owners about different forms of IP.  We regularly receive questions from our clients regarding trademarks, copyrights, and patents – the difference between them, what they cover and how the protection works, requirements, time frames, and so on. Protection of IP is a complex duty that is critical to every organization.  While significant effort is put into protection of trademarks, copyrights, and patents, another form of IP is often times not even on the companies’ radar. This form of IP is called “trade secrets” and along with other forms of IP, it warrants thorough consideration, understanding, and the development of legal strategy.  Once the nuances surrounding trade secrets are unraveled, trade secrecy may be chosen over IP registration.

A trade secret is any proprietary method, know-how, formula, device, process, practice, or any information that gives your business a unique competitive advantage over competitors.  In other words, any confidential business information which provides a company with competitive edge can be a trade secret. Some examples of trade secrets are sales and distribution methods, recipes, formulas, manufacturing processes, consumer profiles, supplier and client lists, advertising strategies, software algorithms, and inventions.  The world’s most famous trade secret examples are Google’s search algorithm, the Coca-Cola formula, Kentucky Fried Chicken coating mix recipe, Lena Blackburne’s baseball rubbing mud technique, WD-40 formula, and The New York Times “Best Seller” list methodology.  These trade secrets vary in their nature, but they all have one trait in common: they are not registered.

Unlike other forms of IP, trade secrets do not have to be registered with the government in order to enjoy legal protection.  Trade secrets are protected by state law without any procedural formalities if the following requirements are met:

  1.  A “trade secret” must consist of proprietary information.  Virtually any type of confidential business information could qualify to be a “trade secret.”
  2. Information must be a secret and cannot be generally known by the public, industry competitors, or others who could realize economic value from the information disclosure or use. 
  3. Proprietary information must derive economic value, whether actual or potential, because of its secrecy.
  4. Information must be the subject of reasonable efforts to maintain its secrecy.  The duty of safeguarding secrecy can be fulfilled by taking steps and precautions with employees, contractors, vendors, and other personnel.  A common reasonable measure involves putting a contractual obligation on their part not to disclose proprietary data.

While almost anything can be kept secret, there are limitations on what can be protected by a patent or a copyright.  If a given creation is eligible for a patent, a trade secret, or copyright protection, then the decision on how to protect that information depends on business considerations and weighing of the relative benefits of each type of IP.  Instead of seeking a patent or copyright registration, companies sometimes choose to keep their inventions or creations a trade secret.  Often times it makes more sense to do so over obtaining a patent or copyright in order to not disclose it to the public and keep your competitors in the shadow.  Also, trade secrecy is different than patent law or copyright in that it can last forever if the condition of secrecy is met. Trade secrets do not expire, so protection continues until discovery or loss of the proprietary data.

Sometimes this form of protection may not be ideal because a trade secret holder is only protected from “misappropriation,” which is wrongful acquisition, disclosure, or use of the proprietary information.  If a trade secret holder fails to maintain secrecy or if the information is independently discovered, reversed engineered, becomes released or otherwise becomes generally known, protection as a trade secret is lost.  With patents, copyrights, and trade secrets all available to help secure protection for a business’s IP, a clear understanding of pros and cons of each avenue is a must. A thorough consideration of each factor and in-depth analysis of your business situation will enable you to make a decision regarding which form of IP protection to choose.  If you have questions about the optimal IP protection strategy for your business, contact CLARK.LAW so that we can help you.