What is a Trade Secret?

A Trade Secret is information valuable to a business that is not generally known and that the company takes reasonable steps to keep confidential.  In theory, a Trade Secret could be kept ‘secret’ indefinitely, i.e., the recipe for a “secret” soft drink formula. Note that a Trade Secret is private, non-disclosed information.  But a Trade Secret is no longer a secret if it can be discovered by reverse engineering.  By comparison, to obtain a patent and exclusive enforceable rights over a period of time, an Inventor must disclose the invention to the public in a patent application.

Trade Secret Law

Introduction

Trade secret law is part of the broader law of unfair competition, affording protection for confidential business information. The extent of protection – the extent of trade secret rights – is generally limited to protection against misappropriation. Trade secret law does not give rights enforceable against the public at large, but rather only for misappropriation by those parties having contractual or other special relations to the trade secret owner. In short, the trade secret law provides protection against misappropriation or other inequitable conduct.

Definition

A working framework for intellectual property protectable under the law of trade secrets is:

An intellectual property right enforceable under the law of trade secrets is created by the expenditure of time or money with a resultant recognition of value and utility in subject matter which is held confidential and is not generally known in the trade.

A definition of “trade secret” commonly used by the courts is:

A trade secret is any formula, pattern, device, or compilation of information used in a business that gives an advantage over competitors who do not know it or use it.

Trade Secret Rights

Trade secret rights may be defined by the following factual inquiries:

Time or Money – There can be no trade secret absent an investment of time or money in confidential subject matter through continuing development programs, design programs, document creation, maintenance programs, etc.

Value and Utility – The next question in evaluating a trade secret is whether it has value and utility to the “owner.” If not, the “owner” has no protectible rights in the trade secret. In this regard, if the trade secret is not used by the ·’owner,” proof of trade secret rights is more difficult, because direct proof of value and utility, or use, is missing. Indirect proof, for example, intent to use or other proof of recognition of value and utility, may be available but it is generally less persuasive. Hence, trade secret litigation can tum on the fact, or not, of actual use.

Confidentiality – An absolute secret – the formula for an adhesive that provides a certain non-adherent characteristic (i.e., sticky notes) – is necessarily confidential. Without absolute secrecy proof of confidentiality is problematic. To test for confidentiality, the courts often look to the security measures a party follows and whether the subject matter was treated internally as confidential? Written security protocols are critical to trade secret protection. As a rule, to protect trade secrets access to them must be limited, and when granted it must be granted on restrictive conditions.

Derivation – Once the rights of the owner are established, derivation is a crucial prerequisite of trade secret enforcement.

Practice – Another prerequisite of trade secret enforcement is whether the actor had permission to independently recreate the trade secret and use it without answering to the ”owner.” Since the same trade secret can be owned by more than one owner. Consequently, trade secrets are typically enforced against former employees, or others who worked closely with the owner to gain access to the information, who then use the information for their own unfair competitive advantage.

Enforcement – Trade secret actions can be brought in State Court, or in Federal Court if diversity jurisdiction is satisfied, or if ancillary to a related patent suit. Relief in trade secret litigation includes:

(a) preliminary injunctive relief restricting dissemination and use during the lawsuit;

(b) money damages after trial on the merits; and

(c) permanent or time-limited injunctive relief after trial on the merits.

Other topics with Trade Secret considerations:

Trade Secret, Unfair Competition, Trade Disparagement Matters

Confidentiality and Restrictive Covenant Agreements

Corporate Trade Secret protection programs

Counseling and Litigation regarding Competition and Disparagement matters