Most businesses develop trade secrets at some point during their existence. A trade secret generally includes any information which lends a competitive advantage and is not generally known within the trade or industry. A trade secret may include a formula for a chemical compound, a process for manufacturing or treating materials, research and development information, customer lists, methods of bookkeeping, business plans or designs, computer programs, special pricing and cost materials, and materials outlining special customer needs.
What is a Trade Secret?
As long as a state’s trade secret law does not conflict with federal law, trade secret protection is governed by the law of each individual state. This is in contrast to patent, copyright and trademark law which are largely governed by federal statutes. The application of state law to trade secrets will, naturally result in some variation in protection and requirements for trade secrets between states.
There are generally three criteria which must be met in order to claim something as a trade secret:
1. It must not be common public knowledge;
2. It must have demonstrable value; and
3. It must be protected and maintained as confidential by the owner.
Unlike patents, there is no strict standard of “invention” involved in determining what can be made the subject of trade secret protection. However, trade secret information must have some demonstrable value in order to be protected. For example, if the information does not provide some competitive advantage, it probably does not qualify as being a trade secret.
The Need for Confidentiality
In order to claim trade secret protection, the information or subject of the trade secret must obviously be kept secret or confidential. Clearly, disclosure of a trade secret to a non-employee of the company could endanger the ability to claim such information as a trade secret unless it is also carefully regulated and controlled, preferably by a written agreement or nondisclosure contract. As discussed in detail below, measures should be taken by an employer to control the scope and nature of the distribution of trade secret materials to its employees and the circumstances under which, and the extent to which, employees may obtain access to such information.
Can Both Patent Protection and Trade Secret Protection Be Claimed?
Once a patent has been issued, the subject matter disclosed therein becomes public knowledge and part of the public domain. Patented subject matter cannot be made the subject of trade secret protection. However, the mere filing of a patent application does not cause trade secret rights to be forfeited. Since patent applications are maintained in strict confidence by the United States Patent and Trademark Office until the patent application is published or the patent issues, any subject matter contained within a pending patent application which otherwise meets the criteria for a trade secret may be claimed as a trade secret up until such time as a patent is issued.
Further, the courts have held that even if certain subject matter is patentable (e.g., a novel chemical process), the owner of the technology can elect to claim such subject matter as a trade secret rather than seek patent protection.
How Are Trade Secrets Different From Patents, Copyrights, and Trademarks?
Like patents, trade secrets can provide some measure of protection for ideas. However, trade secrets are not afforded the exclusivity provided by patent protection, since third parties are at liberty to independently develop the subject matter of a trade secret or to take a product and perform reverse engineering until the trade secret is discovered. On the other hand, while a utility patent expires after twenty years from filing, the duration of a trade secret may be indefinite and depends only upon one’s ability to maintain its secrecy. Thus, if it is possible to maintain patentable subject matter secret for an extended period of time (an example might be the famed COCA-COLA formula), it may be more desirable to protect the idea as a trade secret rather than apply for patent protection.
Trade secrets are somewhat similar to copyrights in that unauthorized copying of tangible subject matter embodying a trade secret is impermissible. However, copyright law does not provide any measure of protection for the ideas themselves, but only to the form of expression of those ideas. Advantageously, the licensing of trade secrets is typically granted greater contractual latitude under the antitrust laws than is true of patents. Additionally, when trade secrets are included with trademarks in a franchising agreement, greater latitude is provided for requiring that the franchisee purchase its goods and materials from the franchisor.
What Rights Are Attached to Trade Secret Ownership?
By properly claiming and protecting a trade secret, the trade secret owner maintains the right to use the subject matter of the trade secret in secrecy, as well as the right to use and disclose the trade secret to others by way of a contractual or confidential relationship. Trade secret rights are generally considered property rights and can be assigned or licensed or otherwise disposed of or transferred by contract.
How to Maintain & Protect Trade Secrets
How does one go about maintaining and protecting confidential subject matter as a trade secret? A few basic techniques are outlined below:
In determining whether trade secret protection is a viable alternative or the most desirable alternative in any particular instance, a careful evaluation of the technology should be conducted, taking into account the ability to maintain important aspects of the technology secret for an extended period of time, the potential for patent protection, and other considerations. Once a determination has been made that certain information will be maintained as a trade secret, vigilance on the part of the owner in maintaining its secrecy is the key to its protection. Contracts should be entered into before the information is disclosed to third parties and internal company practices should be followed to assure that employees are bound by an obligation of secrecy