October 1, 2019Blog

Trade Secrets: What Are They? (Part 1)

There are different ways to protect your idea, or at least how you express your idea. While all forms of protection – trademark, trade dress, patent, copyright, trade secret – should be considered, trade secret protection should be at the forefront of your strategy. Why? The costs for protecting a trade secret are relatively minimal compared to other forms of protection. Obtaining a patent can be a rigorous, expensive, and time-consuming activity. And, you must disclose how the technology works so that others can copy your idea after patent protection expires. Copyright often can be an alternative or parallel route to protect your innovation, but you still need to disclose it.

What if you want to protect your idea and keep it to yourself? Trade secret protection can provide you with an effective option for protecting what you have developed without having to publicize your idea or pay a lot on the front end to protect it. But what is a trade secret?

Generally, a trade secret is any information that derives economic value (actual or potential) from being a secret. The information to be protected as a trade secret must meet two requirements:

  • The information must be a secret (i.e. not public knowledge or general knowledge in an industry); and
  • Reasonable efforts must be made to keep the information secret.

Whether something is secret is fairly easy to discern. If the ‘secret’ idea can be reverse engineered, then you should consider protections other than a trade secret. What constitutes "reasonable efforts" depends on the information to be protected, how sophisticated your company is, and the general practices for your industry. You should breathe a bit easier knowing that "reasonable efforts" does not mean all conceivable efforts. Generally, "reasonable efforts" include the use of confidentiality/non-disclosure agreements, security precautions (locks, passwords, badges, etc.), and "need to know" compartmentalization of knowledge to keep information secret. Historically, trade secret protection is handled under individual state law and common law, and now most states having enacted the Uniform Trade Secrets Act that governs the protection of such rights. The Federal Government also has enacted the “Defend Trade Secrets Act,” which provides federal causes of action for trade secrets that are allegedly stolen.

Advantages and Disadvantages

Trade secrets have several benefits. First, a trade secret is not limited to a specific term, but can be protected indefinitely as long as the information is preserved as a secret and retains its economic value. Second, trade secrets can protect innovations that may not meet the statutory requirements for patentability or copyright. And obviously, trade secrets are not published or otherwise required to be public.

With this said, there are limitations to trade secret protection. One significant drawback to trade secrets is that they do not protect against independent development. For instance, if a competitor independently develops a process or system that is similar or identical to your trade secret – without obtaining relevant information about your trade secret inappropriately (e.g., via theft, espionage, or improper disclosure by a (former) employee) – you would be left with little to no protection (depending on whether the competitor publishes their process or system) and no options for recovery. You also must make ongoing "reasonable efforts" to keep the idea a trade secret. If your reasonable efforts lax, or cease, the trade secret protection can be lost.

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