Intellectual Property: What is a Trade Secret?
Trade secrets are a form of intellectual property that protect a business’ ideas, processes, and formulas. Unlike copyrights or patents, which last for a specified number of years before lapsing, trade secrets are protected for as long as they are kept secret. Trade secrets can give businesses an advantage over their competitors and give a product a long shelf-life. The formula for Coca Cola, for example, has been a trade secret for over 100 years and has kept the soft drink continuously viable during that time.
What can qualify as a Trade Secret?
Almost any piece of information can become a trade secret. The list includes:
- Supplier or customer lists
- Financial data
- Personnel information
- Physical devices
- Computer software
- “Know-how” (catch-all category)
However, just because a piece of information comes from this list does not mean it is automatically afforded trade secret protection. To maintain such protection, the information must meet three requirements:
- The information is secret. For information to be "secret," it must not be generally known by or readily ascertainable to competitors. If the information becomes known to competitors or to the general public at large, it loses its trade secret protection. There is no punishment for those who happen to come up with the same process, formula, or other trade secret by coincidence, and in some states there is no punishment for attempting to reverse engineer a process or formula. Once the information is out, it’s out.
- Reasonable efforts are made to keep the information secret. In order to keep trade secret information secrets, companies have to do some work. Coca Cola reportedly allows no more than two executives to know the formula at a time and keeps the original copy of the formula in a bank vault, but ordinary companies do not have to go to this extent. What constitutes reasonable efforts to keep information secret is determined on a case-by-case basis.
- The information confers a competitive advantage on the company. To determine whether a piece of information passes this test, courts look at the value of the information to the company and its competitors, how much effort and money went into development the information or process, and how it would be for others to duplicate the information.
How Does One Violate Trade Secret Law?
Although trade secret law does not protect secret information once it’s out in the open, it can punish those who misappropriate it. One can misappropriate trade secrets in a couple of ways:
- Obtain the information through illegal means, such as theft, fraud, bribery, industrial espionage, breaching a contractual duty to keep the secret confidential, or inducing others to breach that duty.
- Publish information you know to have been acquired by illegal means. This can apply even if you don’t know for sure whether the person who gave you the information acquired it illegally. If, for example, someone anonymously sends you documents belonging to another company and those documents are marked “secret” or “confidential,” you will likely be held to know that the information was obtained illegally.
If you misappropriate trade secrets, you can be exposed to a variety of legal remedies. These include:
- Injunction. A court may order you to take down trade secret information you have published.
- Damages. You may have to compensate the company for any economic loss they suffered as a result of the trade secret coming to light. If you published the secret information knowing it was illegal to do so, you may also be exposed to punitive damages, which exist just to punish you.
- Attorney’s Fees. If you’re taken to court over an alleged misappropriation of trade secrets and lose, you may have to the pay for the cost of the opposition’s lawyer.
Uses in Employment Context.
Trade secrets are usually used to deter industrial espionage and to stop employees who used to work for one company from spilling that company’s secrets when they go to work for another company. To this end, employers will sometimes make their employees sign Non-Disclosure Agreements either at the beginning or end of employment. These agreements prevent the employee from revealing trade secrets to future employees lest they be exposed to the legal penalties listed above.