Generally, a trade secret is valuable information that gives a business a competitive edge over other businesses. The “information” can be a formula, pattern, compilation, program, device, method, technique, or process. Specifically, a trade secret includes the three following elements:
- The public cannot access the information. In fact, even most employees of a company that depends on a trade secret cannot access the secret;
- The information is economically beneficial to its owner. It gives the owner a significant advantage in the marketplace;
- The owner makes reasonable efforts to maintain the secrecy of the information.
Trade secrets are a type of intellectual property, along with trademarks, copyrights, and patents.
Some of the most famous products on the market depend on carefully guarded trade secrets, such as
- The Colonel’s Famous Kentucky Fried Chicken Recipe: In the beginning, only the Colonel himself knew the recipe. Now it is shared, but only with a very few employees of the company;
- The Formula for Coca-Cola: In 2006, an employee and two accomplices stole the formula for Coke and tried to sell it to Pepsi. Pepsi informed Coke management and the culprits were arrested;
- The New York Times Bestseller List: The formula used by the newspaper to compose its bestseller list has never been made public. People may think they know the secret and that the list is based on sales volume, but this is not the case;
- Krispy Kreme Doughnuts: Reportedly, the secret is not in the recipe, but the process used to make the doughnuts;
- Twinkies: Some say that the manufacturer of Twinkies does not want to reveal the ingredients because the names of chemicals used would discourage people from feeding them to their children;
- Google’s Search Algorithm: Reportedly Google modifies its secret algorithm just to keep others from gaming the system and figuring out its secret;
- The Special Sauce for MacDonald’s Big Mac: This recipe was kept secret so successfully that no one who worked for the company was able to find it for a period of time. Fortunately for Big Mac lovers, they were eventually able to locate it.
The companies that own these trade secrets maintain confidentiality by keeping them locked in vaults, sharing them with only a few key personnel, and taking additional measures to protect them from disclosure, such as monitoring access and making sure to respond with legal action if the secrecy is compromised. Some companies intentionally refrain from patenting their trade secrets so they do not have to reveal them.
What Are the Differences Between Trade Secrets, Trademarks, and Patents?
Different statutes are involved in the protection of different kinds of intellectual property. Federal statutes, namely, the Lanham Act and the Patent Act, protect trademarks and patents. State law also applies to trademarks. Trademarks need to be registered with state, federal, foreign, and international agencies.
Copyright protection is a matter of federal law and a person needs to register material they want copyrighted with the U.S. Copyright Office. Copyright protection is available for literary works, visual artwork, music, song lyrics, sound recordings, computer programs, movies, photographs and more.
Trademarks cannot be considered trade secrets because they are visible to the general public, as they are such items as logos and website graphics. Similarly, copyrighted material has to be protected precisely because it is available to the public.
Both federal and state laws protect trade secrets. The Uniform Trade Secrets Act (UTSA) has been enacted in most states. However, the theft or misappropriation of some trade secrets can be a federal crime. Pursuing a federal civil case for theft of a trade secret became possible in 2016, which is when Congress passed the Defend Trade Secrets Act (DTSA). The DTSA is a very important piece of legislation that creates the right to sue for trade secret theft in federal courts.
There is a three-year statute of limitations, and the remedies that are available for trade secret theft are very similar to those found in state law.
Trademarks and patents are not kept secret from the public, but trade secrets never supposed to be revealed. This is why some owners of trade secrets do not seek patents. If they had to register for a patent, they would have to reveal their secret.
It is often advantageous for the owner of a trademark or patent to let as many people as possible know that they own that specific trademark or patent. On the other hand, trade secrets are concealed from the public, because if the information becomes public, the trade secret holder would lose its competitive edge.
Another consideration in protecting trademarks and trade secrets is the fact that court decisions in recent years have made protection of patents more difficult. So more companies are interested in protecting their competitively advantageous information as trade secrets rather than patented information.
Finally, a number of exemptions apply to trademarks and patents that do not apply to trade secrets. People can normally satire or parody trademarks. Parodies and satires of trademarks are usually considered speech that is protected by the First Amendment. Also, patents are subject to expiration after twenty years, while trade secrets never expire. They can be protected indefinitely.
How Do Businesses Protect Their Trade Secrets?
One way for companies to protect their trade secrets is to add certain terms to employment contracts. Non-disclosure agreements (NDAs) are one of the most direct protective measures used by employers to maintain the confidentiality of their trade secrets. An NDA requires employees not to disclose the information specified in the agreement, which can include trade secrets. Companies can also use non-compete agreements to prevent former employees from disclosing trade secrets to competitors.
Yet another strategy is for companies to develop policies and procedures for an employee’s use of a trade secret as well as internal communications regarding a trade secret. Companies that choose to protect their trade secrets in this way usually address these policies and procedures in orientations for new employees and training sessions for existing employees. A company that does have such policies should clearly communicate its intent to maintain the confidentiality of the trade secret, so that all employees understand the necessity of confidentiality.
Companies routinely limit access within the company to its trade secrets, sometimes going so far as to physically lock documentation of the secret in a vault to which only a very few employees have access.
Difficulties Surrounding Trade Secret Lawsuits
As was noted above, filing a federal civil case for trade secret theft is now possible, and is an important tool for protecting a trade secret. One of the most important issues in trade secret protection is for a company to understand what its trade secrets are and who has access to them. In addition, the location of the secrets and their value to the enterprise should be identified. A company would also want to delineate exactly what measures it takes to maintain the secrecy of its trade secrets.
If an employee reveals a trade and a company decides to sue, it will need to identify exactly the secret that has been stolen and how much damage the theft causes to the company.
The first step in protecting a trade secret that has been stolen is to go to court to obtain an injunction against the use of the secret. An injunction is an order of the court that directs a a person to cease some activity, such as trying to capitalize on a company’s stolen trade secret. An injunction would minimize the injury to the company whose trade secret has been stolen.
Many trade secret lawsuits are between the holder of a trade secret and its competitors or former employees. In lawsuits against competitors, the competitors may claim that they created the trade secret first. For this reason, it is very important for companies to document how a trade secret came into being and the dates when the trade secret was created.
Do I Need an Attorney?
If you believe that someone is using your trade secret without your permission, you should consult an experienced intellectual property attorney for guidance. Your attorney can analyze the facts of your situation and determine whether you have a valid claim for trade secret theft.
If you do have a claim, you may be able to recover money damages and obtain an injunction to stop the unlawful use of your trade secret. If someone acquired your trade secret via unlawful means, such as theft, the perpetrator could also be subject to criminal penalties.
If you are considering using information that may be someone else’s trade secret, or if you have been accused of taking someone else’s trade secret, you should probably consult a criminal defense lawyer immediately to evaluate your position.