In general, a trade secret is valuable information which provides a business with a competitive edge over other businesses. This information may include:

  • Formulas;
  • Patterns;
  • Compilations;
  • Programs;
  • Devices;
  • Methods;
  • Techniques; or
  • Processes.

More specifically, trade secrets include the following three elements:

  • The information cannot be accessed by members of the public;
    • In many cases, the employees of the company may not be able to access the secret;
  • The information is economically beneficial to the owner, providing the owner with a significant advantage in the marketplace; and
  • The information owner makes reasonable efforts to maintain its secrecy.

Trade secrets are a subcategory of intellectual property, in addition to:

Some of the most famous products on the market are based on on carefully guarded trade secrets, including:

  • The colonel’s famous Kentucky fried chicken recipe: When it began, only the Colonel himself knew the recipe. Now the recipe is shared, but only with very few employees of the company;
  • The formula for Coca-Cola: An employee and two accomplices stole the formula for Coca-Cola and tried to sell it to Pepsi in 2006. Pepsi informed Coke management and the perpetrators 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; and
  • The special sauce for MacDonald’s big mac: This recipe was kept secret so well that no employee was able to find it for a period of time. Fortunately for Big Mac lovers, they were eventually able to locate it.

Companies that own such secrets maintain their confidentiality by keeping those secrets locked in vaults and sharing them with only as many people as necessary. They are also protected by monitoring their access and will typically respond with legal action if their secrecy is compromised.

In some cases, a company may refrain from patenting a trade secret so that they are not required to reveal it.

What are the Differences between Trade Secrets, Trademarks, and Patents?

There are different statutes which are involved in the protection of different types of intellectual property. There are federal statutes, including the Lanham Act and the Patent Act, that protect trademarks and patents.

There are also state laws that apply to trademarks. Trademarks are required to be registered with agencies, including:

  • State;
  • Federal;
  • Foreign; and
  • International.

Copyright protections are a matter of federal law. An individual will be required to register the material they want to have copyrighted with the U.S. Copyright Office.

Copyright protections are available for:

  • Literary works;
  • Visual artwork;
  • Music;
  • Song lyrics;
  • Sound recordings;
  • Computer programs;
  • Movies;
  • Photographs; and
  • More.

A trademark cannot be considered a trade secret because it is visible to the general public as logos and website graphics. Copyrighted material, similarly, has to be protected because it is available to the public.

There are both state and federal laws that protect trade secrets. In most states, the Uniform Trade Secrets Act (UTSA) has been enacted.

The theft or misappropriation of certain trade secrets may be a federal crime. Pursuing a federal civil case for the theft of a trade secret became a possibility in 2016 when the Defend Trade Secrets Act (DTSA) was passed by Congress.

The DTSA created the right to sue for trade secret theft in federal court. It is important to note that there is a 3 year statute of limitations.

The remedies which are available for trade secret theft are very similar to those remedies found in state laws. Trademarks and patents are not kept secret from the public.

Trade secrets, however, are not supposed to be revealed. This is why, in some cases, owners of trade secrets do not seek a patent.

As noted above, if they registered for a patent, they would be required to reveal their trade secret. In many cases, it is advantageous for the owner of a trademark or a patent to let as many individuals as possible know that they own that specific trademark or patent.

On the other hand, a trade secret is concealed from the public because, if that information became public, the owner of the trade secret would lose their competitive edge. Another consideration related to protecting trademarks and trade secrets is the fact that court decisions in recent years have made the protection of patents more difficult.

Because of this, more companies have become interested in protecting their competitively advantageous information as a trade secret rather than as patented information. There are a number of exemptions that apply to trademarks and patents that do not apply to trade secrets.

Typically, trademarks can be satirized or parodied. In general, parodies and satires of trademarks are considered speech that is protected by the First Amendment.

Additionally, patents are subject to expiration after 20 years, while a trade secret never expires and may be protected indefinitely.

How do Businesses Protect Their Trade Secrets?

Businesses may legally protect their trade secrets by adding certain terms to their employment contracts. One of the most straight-forward types of protections are non-disclosure agreements (NDAs). An NDA requires an employee to keep company information confidential.

A company may also use a non-compete covenant to prevent their ex-employees from disclosing their trade secrets to competitors. A company may develop policies and procedures for the employee’s use of the trade secret as well as any communications related to the trade secret.

A company may address these policies in training or in orientation as soon as the employee is hired. A company should clearly convey their intent to maintain the confidentiality of the trade secret.

What are the Difficulties Surrounding Trade Secret Lawsuits?

The majority of trade secret lawsuits occur between the alleged holder of the trade secret and a competitor or a former employee. In a lawsuit against a competitor, the competitor will, in many cases, claim that they created the trade secret first.

For this reason, it is very important for a company to maintain a record of the dates of when the trade secret was created. As discussed above, companies can also use NDAs and non-compete agreements to prevent their former employees from disclosing trade secrets to competitors.

Another strategy for a company, as noted above, is to develop policies and procedures regarding the use of the trade secret by employees in addition to policies and procedures that govern internal communications regarding the trade secret. If a company does not have these types of policies, it should clearly communicate the intent to maintain the confidentiality of the trade secret so that all of the employees are aware of the necessity of confidentiality.

Do I Need an Attorney?

If you believe that another individual or company is using your trade secret without your permission you should consult with an experienced intellectual property lawyer. Your lawyer can determine whether you may have a valid claim.

If you do have a claim, you may be entitled to monetary damages or an injunction to stop the use of your trade secret. If another individual or business uses an unlawful means, such as theft, to acquire your trade secret, the perpetrator may also be subject to criminal penalties.

If you are considering using information which may be someone else’s trade secret or if you have been accused of taking a trade secret, it is important to consult with an attorney as soon as possible to evaluate your potential liability.