What is a Trade Secret?
In this blog, Sand, Sebolt & Wernow partner and experienced patent lawyer, Howard Wernow, answers questions about what constitutes a trade secret, outlining the three basic elements that define a trade secret by the federal Defend Trade Secrets Act (DTSA). If you want to know more about how to protect your company’s trade secrets, read on.
Unlike patents, trademarks, and copyrights, there is no standardized registration or repository for trade secrets due to their nature and the necessary privacy that surrounds them. Unlike registered intellectual property rights, trade secrets derive their value from remaining confidential.
In the United States, a trade secret is any information not known to the general public that gives a business a competitive advantage and is securely protected by thecompany. Any confidential business information which gives your company a competitive edge is considered a trade secret and should be safeguarded. Businesses of all sizes rely on trade secret protection to preserve proprietary information and maintain their competitive advantage.
Trade Secret Laws
Under the federal Defend Trade Secrets Act (“DTSA”), there are three basic elements that define a “trade secret”: (1) confidential information that (2) has an economic value to the owner and that (3) the owner has taken reasonable measures to secure from the prying eyes of unauthorized employees, computer systems, or outside parties. Trade secrets often include sales methods, customer or prospect lists, distribution plans, advertising strategies, proprietary formulae, prototypes, processes, and, crucially in today’s modern world, data. Businesses may pursue legal remedies for trade secret misappropriation when confidential information is improperly acquired, disclosed or used.
Proprietary information that a business accumulates or develops internally is all appropriate to be considered a trade secret. Trade secrets may also take the form of “know-how”, as long as such knowledge is safeguarded by the owner. Information that is not generally known or readily ascertainable should be considered by any company to be that company’s “trade secret” – and protected as such. Proper trade secret management policies help strengthen legal protection if litigation becomes necessary.
Almost every state has adopted some version of the Uniform Trade Secrets Act (“UTSA”) to protect trade secrets at the state level as well. It is important to keep in mind that some states’ versions of this UTSA vary considerably, so always consult with an experienced attorney. An experienced trade secret attorney can help businesses understand both state and federal trade secret laws.
Coca-Cola: The Classic Example of a Trade Secret
Perhaps the most famous example of a trade secret is the original recipe for Coca-Cola ® Classic. Developed in 1866 and not committed to paper until 1919, the precise mixture for the world’s most well-known beverage rests in its own vault today. Visitors to the company’s World of Coca-Cola in Atlanta can see The Vault of the Secret Formula, where the piece of paper from 1919 is stored securely. Reportedly, only two employees have access to this vault, making this example one of the gold standards of trade secret protection.
Another famous example of a trade secret is KFC (formerly “Kentucky Fried Chicken”)’s Original Recipe. The original Colonel Sanders chose to keep this secret recipe of “11 herbs and spices” as a trade secret rather than seek patent protection for it, because he did not want to disclose the recipe, as would have been required during the patent application process.
Other, classic examples of trade secrets include proprietary notes or information on internal research and development; computer code, algorithms, or software written by an employee or specifically for exclusive use and control by the owner, that is only used internally; customer or sales lists; and proprietary manufacturing processes.
These well-known examples demonstrate why businesses often choose trade secretprotection instead of patent protectionwhen confidentiality provides greater long-term value.
What Can I Do to Help Protect My Company’s Trade Secrets?
While you don’t need a Vault of Secrets to secure your company’s trade secrets like Coca-Cola, this example does illustrate the crucial element of “taking reasonable measures” to safeguard your confidential information and keep it “in house” and secure. Implementing strong trade secret protection policies reduces the risk of unauthorized disclosure and intellectual property theft.
Reasonable measures to protect trade secrets include more than just simply telling your employees or those with whom you do business not to copy or distribute the information. Measures such as password-only access and data encryption and/or secure storage of information for electronic records are standard ways to protect data, but with the caveat that said password should only be given to limited employees or officers of the business or organization. Additional best practices include employee confidentiality training, restricted access policies and ongoing information security procedures.
A good non-disclosure agreement (or “NDA”) is always helpful. It is important to remember that NDA’s should be used with a company’s employees and officers and also with a company’s manufacturers, sales force, and supply chain partners, if such businesses or individuals are or may become exposed to your company’s proprietary information. In some cases, extra steps may even be necessary in order to establish that you have exclusive control of such information and are taking reasonable measures to protect it.
Working with an experienced intellectual property attorney can help ensure your confidentiality agreements and trade secret protection strategies are legally enforceable and tailored to your business.
About Howard Wernow, Patent Attorney
Howard Wernow is a partner and registered patent attorney at Sand, Sebolt & Wernow, focusing on patent preparation and prosecution, trademark counseling and copyright law and related litigation, as well as intellectual property licensing and technology transfers.
Howard counsels clients ranging in size from Fortune 500 companies to individual entrepreneurs.
He keeps an active international intellectual property practice, counseling companies from around the world on United States patent and trademark law and has clients from the United Kingdom, Canada, and Australia.
Howard has been named a Rising Star by Super Lawyers.