Understanding Trade Secrets

A trade secret is a formula, technique, process or collection of information that is not generally known or easily ascertained by the public, and that is used by a business to gain an economic advantage over competitors (or customers in some cases).  The formula for Coca-Cola is the classic (okay, bad pun, but I couldn’t resist) example of a trade secret.  A trade secret only has value as long as it is kept secret.  Once the cat is out of the bag, the value of the trade secret is lost forever, and the owner’s only option is to file a law suit if the secret was disclosed improperly.  However, it is not “improper” for somebody to figure out or discover the secret on their own.

How Are Trade Secrets Protected

You can’t register a trade secret (the registration process for other forms of intellectual property always involves disclosure of the IP, which would instantly reveal your secret to the world).  So how do you protect it?  Simply put, you keep it secret!  In fact, taking reasonable steps to keep it secret is a necessary element to having something be considered as a trade secret in the first place.  Generally, the use of confidentiality agreements, non-disclosure agreements, and other contracts with employees, contractors and others are a fundamental part of protecting your trade secrets.  Even simpler, restricting the information to those who have a “need to know” is one of the most basic steps you can take.  Coca-Cola only allows two key executives to know its secret formula.  KFC actually mixes portions of its secret blend of herbs and spices at two different locations, and then combines them at a third location.

Also, trade secrets don’t have any term or expiration.  As long as you manage to keep the secret a secret, you can maintain your trade secret protection.

The Law of Trade Secrets

All but two states have adopted some form of a standardized set of statutes called the Uniform Trade Secrets Act (UTSA).  While some states may make some changes to particular terms of the UTSA when they adopt it, overall the Act serves to provide consistent laws concerning trade secrets across the country.

Misappropriation and Litigation

Misappropriation is obtaining a trade secret through “improper means,” or obtaining it from someone else who used “improper means” to get it.  Theft, bribery, misrepresentation and violation of a confidentiality agreement or NDA are all forms of “improper means.”  Improper disclosure of a trade secret can also be considered misappropriation.

Whenever there is misappropriation, the holder of the trade secret may take legal action if they have suffered any damages.  The legal action can take the form of informal demands, or can include formal litigation, with request for injunctive relief and an award of damages.  Of course, the damages can be significant, because disclosure of the secret might well ruin the entire economic value of the trade secret.