When most people think of "intellectual property," patents, copyrights, and trademarks are what typically come to mind. These three forms of intellectual property are commonly used by businesses of all sizes to protect various types of proprietary information. All three are often registered with the federal government (either through the U.S. Copyright Office or the U.S. Patent and Trademark Office). But countless businesses rely on an additional form of intellectual property protection that is not formally registered: trade secrets.
Trade secrets are, broadly speaking, valuable inside information that give a business a competitive advantage in the marketplace. What constitutes a trade secret, and how can you protect any that might belong to your business?
Trade secrets are protected by a combination of state and federal laws, which all define this form of intellectual property in slightly different ways. A trade secret ordinarily might consist of any formula, pattern, physical device, idea, process or compilation of information that:
What could qualify as a trade secret under this definition? Consider the formula for Coca Cola. While many of the ingredients are public information (listed on the back of each bottle) consumers have no idea how those ingredients are combined in order to create the familiar taste, smell, and bubbly sensation of the soft drink. The process by which Coke makes its drink is considered its trade secret; employees are prohibited from discussing the production process, and the process is never publicly disclosed. If a competitor illicitly learned of the process and attempted to manufacture its own version of Coca Cola, Coke could sue the competitor and likely obtain a court order to stop the infringement.
Trade secrets protect Coke, as well as the recipes and formulas for Listerine, Twinkies, and many other foods, drinks, and products. Trade secrets can also protect computer algorithms, survey techniques, manufacturing processes, and certain types of corporate strategies.
Interestingly, some elements of trade secret protection might overlap with other forms of intellectual property protection. For example, certain aspects of a chemical formula can be subject to patent protection, while the composition of the chemical within a larger product—and the way that product is assembled—can be subject to trade secret protection. Companies that need strong intellectual property protections will usually work with their legal teams to ensure maximum protection from some overlapping combination of the various forms of legal protection.
Unlike copyrights, patents and trademarks, trade secrets do not need to be formally "registered" with the state or federal government. Moreover, they do not expire. They are valid as long as your business continues to use the information and maintain its confidentiality. Needless to say, if the information behind the trade secret becomes public, it loses legal protection and is no longer proprietary.
As described above, one of the key factors in determining whether a court will find a trade secret to be protectable is whether or not the business has made reasonable efforts to protect it.
What can you do to ensure that your trade secrets will be viewed as "real" secrets, should you ever need to defend them in court?
First, use discretion in discussing the secret publicly. Not surprisingly, courts will be reluctant to label an idea or practice as a "secret" if it is, in fact, not secret at all. If everyone in the world knows how you conduct a particular business practice —or even just everyone in the relevant industry —it can hardly be considered a trade secret. T
his means using discretion at dinner parties, as well as being careful in monitoring your business's advertising to ensure that it does not describe any of your confidential methods or practices in too much detail.
Second, to the extent that your trade secret is a discreet recipe or formula, write it down and keep it within a secure environment, such as a locked safe. If you have digital files that establish or describe the trade secret, keep those files password-protected and encrypted. (If a court hears that you kept your business's "super secret" formula in an unlocked, widely accessible online storage platform, you are unlikely to be entitled to protection.)
Third, consider using nondisclosure agreements (NDAs) with your executives, employees, and vendors. An NDA creates a confidential relationship between the person or entity that has a trade secret and the person or entity to whom the secret is disclosed. Signatories to the NDA are legally bound to keep the information a secret; if they breach that legal contract, they could be liable for damages.
NDAs are often part of the overall employment contract that employees or vendors sign as a condition of employment or work. They will normally describe the outlines of the trade secrets being disclosed and explain that the signatory promises to not disclose that secret to any third parties. Not only does the NDA give your business a legal remedy against "leakers," but it also helps to clarify expectations for employees and vendors, who will be put on notice as to the importance of discretion and secrecy.
Some combination of these approaches will help your business establish to a court that you have made reasonable efforts to maintain the secrecy of your trade secrets from third parties.
