Can You Keep A Trade Secret?

Several forms of intellectual property protection are available. Patents, trademarks and copyrights are among the best known. However, there’s a fourth type of known as trade secrets.

Unlike other forms of protection, trade secrets don’t get registered or published. Doing so would be against the express purpose of this protection. Do you have proprietary assets that should be protected as a trade secret? Read on to learn more.

What Is a Trade Secret?

Trade secrets may be almost anything that gives one competitor an advantage over another. It could be a recipe, a chemical formula, a computer algorithm, a business strategy or a new invention. Whatever the item is, it’s necessary to take proactive steps to protect it.

While eventual expiration of patents and copyrights is inevitable, trade secrets never expire as long as the owner continues to make efforts to maintain confidentiality. Accidental disclosure, or disclosure through theft, must be guarded against, and it’s possible to enforce trade secret rights in U.S. courts.

An Early Court Case on Trade Secrets

The concept of trade secrets is not new. In early America, legal precedents were already being made. The year was 1837, and the case was Vickery v. Welch. Defendant Welch was a chocolatier who, through years of work, had perfected a method for making chocolate. He sold his business to Vickery, along with his insider’s knowledge. However, Welch decided to pass on his knowledge to others. Vickery objected, believing that he had paid for the exclusive right to use Welch’s secret practices. The court found for Vickery, decreeing that Welch had breached the sales contract and defeated the purpose of the deal by not maintaining the secret of his methods.

Today’s laws are based on this early case and others like it. Additionally, most states have developed laws that are based on the Uniform Trade Secrets Act. These laws provide owners with a means of seeking compensation and protection of their rights when someone misappropriates their secrets.

Why Do Trade Secrets Matter?

Sometimes, the concepts, processes and items that are protected as trade secrets are one of the things that makes a product what it is. One of the most famous trade secrets is the formula for Coca-Cola. It’s been protected for decades, and the company continues to go to great lengths to ensure that their secret doesn’t get out. Another well-known example is Colonel Sanders’ secret 11 herbs and spices that go into his original fried chicken recipe at Kentucky Fried Chicken franchises. The colonel kept his recipe secret, and it’s a tradition that the company still follows today.

For many, trade secrets matter because they are the vital ingredient in a service or product that gives the owner a leg up on the competition. It’s what differentiates them in the marketplace, and it may be what keeps customers coming back. A small secret can be worth millions, or even billions, of dollars.

Protection Is Essential

If the owner does not take proactive steps to protect trade secrets, then he may lose his rights. Several small efforts can add up to adequate protection. Print “confidential” on documents, maintain details of secrets in a secure location, ensure that computer security is regularly updated and only provide access to secrets when people genuinely need to know about them. The most important way to protect such secrets is with non-disclosure agreements. Anyone who will be privy to this information should be asked to sign an agreement before receiving any confidential data.

These agreements can be enforced in the courts. If you think that you have a trade secret that needs to be protected, ask an intellectual property attorney about measures you can take. Drafting a general non-disclosure agreement may be a critical first step.

Trade Secrets Rights and Uses

Intellectual property may be protected in a variety of ways. New inventions may be covered by a patent while your company’s name and logo may be protected with a trademark registration. If your company publishes brochures, then these are covered with a copyright.

However, what if your company has something that they would like to protect, but keep secret? Several famous examples of “trade secrets” exist. These include Kentucky Fried Chicken’s 11 herbs and spices, the secret formula for making Coca-Cola and the search algorithm that Google uses.

Why didn’t these companies decide to patent or otherwise protect their IP via the various mechanisms that are available under U.S. law?

It’s because they wanted to keep their “secret ingredient” a secret. When you file a patent application, for example, it is essential that you disclose everything about the invention so that the United States Patent and Trademark Office can establish that it is non-obvious, novel and eligible for patent protection.

This means that any proprietary information that goes into your invention will eventually become public knowledge. When your patent expires, your technology becomes available for others to use.

However, when you protect something as a trade secret, then you have the potential to keep it a secret in perpetuity.

What Can You Protect with a Trade Secret?

Trade secrets can protect an array of things, from an ingenious idea that gives your firm a competitive edge to the marketing plans for your newest product. Similarly, customer lists can be protected as trade secrets as well as information regarding prices and costs.

Some companies even protect negative know-how as a trade secret. This basically refers to anything that they have learned to not do through extensive research and development. Sometimes, this information is just as valuable as the ingredients that successfully make up your secret.

Essentially, a trade secret can be almost any information that is valuable to your company and generally isn’t known to the rest of the world, especially your competition.

What Rights Does a Trade Secret Grant?

If a company chooses to keep some information as a trade secret, then they have the right to prevent certain people from using or benefiting from that trade secret.

Some of these people are automatically bound by a strict duty of confidentiality. This applies to any employees who work with or are knowledgeable about the trade secret.

Trade secrets also give you legal protections in the event that your proprietary information is illegally obtained via bribery or theft. A company with a trade secret further can prevent people who accidentally discover the secret information from profiting from it as well as those who are asked to sign a non-disclosure agreement before the confidential information is shared with them.

However, a trade secret does not grant a company any rights if another party independently discovers the trade secret. As an example, there is no law that prevents someone from reverse engineering a product that is only protected as a trade secret. This means that theoretically someone could analyze the formula used to make Coca-Cola, discover its precise ingredients and then start making and selling their own version of Coca-Cola. Because Coca-Cola’s formula is only protected as a trade secret, they would have a lot of difficulty stopping the inventor from profiting from his knowledge.

How Does a Company Protect a Trade Secret?

Businesses have to do more than just call a certain piece of information a trade secret. Instead, it is necessary to take affirmative actions that will protect this information and keep it confidential. Many companies will take extreme measures to keep their information strictly private.

This is the case with the makers of Coca-Cola, as the formula is locked in a bank vault that is only able to be opened after a resolution is passed by the board of directors. Only two company employees are ever allowed to know the formula at the same time. These employees are forbidden from flying on the same airplane, and their identities are never made known to the public.

Most companies do not have to go to such extreme lengths to protect their trade secrets. A few reasonable precautions generally are all that is required.

For instance, it is wise to mark any documents with “Confidential” if they contain any trade secret information. All trade secret materials probably should be locked away in a safe or other secure area after hours. Another sensible measure is to beef up any computer security protocols to ensure that hackers and other bad actors can’t gain access to sensitive information.

If you do have trade secrets, then you’ll probably want to limit how many people actually have access to that information. Ensure that your employees are bound by a duty of confidentiality, preferably with a written document, and do the same with anyone who is not an employee but who must be told about the trade secret for any reason. A proper non-disclosure agreement is a simple document that can help to protect proprietary information under just about any circumstances.

Talk to a Lawyer About Protecting Trade Secrets

If you have proprietary information that you believe would be best protected by keeping it as a trade secret, then contact the Law Offices of Jeff Williams. Mr. Williams is an experienced intellectual property attorney who can help you to understand your rights and devise a strategy for protecting proprietary information.