Intellectual Property Law Basics

Part 5: Trade Secrets (IP In Business)

Your business may have knowledge that is extremely important to it, that you wouldn’t want competitors to know. This information might include information about the actual costs of making your products, supplier information, customer lists, lists of potential sales leads, and the like. Your product may contain a formulation or combination of qualities that makes it unique. All of these types of information might fall under trade secret protection.

A trade secret, as defined by the Uniform Trade Secrets Act, is something that:

(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

So, to qualify for trade secret status, the relevant information must gain value from its secrecy, and your business must be taking “efforts” to maintain that secrecy. Thus, a client list may be important to you, but it is not going to be a trade secret if you post it on your website. Conversely, the nicknames you give people on your team might be a secret that you keep inside your company, but it’s unlikely to have great economic value. Neither would likely be protectable as a trade secret. A list of your suppliers and the prices you pay them, if kept only accessible to people within your company and trusted outside advisors who need to know that information, would likely attain trade secret protection.

Unlike other types of IP, trade secrets are not “infringed,” but they can be misappropriated, (i.e., stolen). This means that if you gain access to a trade secret improperly, or if you use trade secret information in a way that you know the owner of the trade secret does not authorize, you can be liable to that owner. But generally, if you figure out someone else’s trade secret on your own, using legal means (by, for example, reverse engineering, or through your own research on publicly-available information), you’re free to use it as you see fit.

The go-to example of a trade secret is the formula for Coca-Cola. That formula is valuable to its owners in part because of its secrecy. But if you figure out the exact ingredients on your own, you can market a competing product. Of course, you could not call it Coca-Cola without running into trouble (because of trademark law).

As another example, the formulation of materials for use in the sole of a shoe might be protectable via patents or trade secrets. If you think it’s going to be easy for competitors to reverse-engineer your product, patent protection is generally the better route. If it’s going to be hard for anyone to figure out how you make a product, and if you are confident you can enforce rules that retain secrecy of your materials and methods, trade secret protection is a valid decision. How easy will it be for someone else to figure out what that shoe sole is made of, and how important is protection of that information to your company? Those are the types of questions that go into these decisions.

Trade secret protection was traditionally based on state-specific law, but it was eventually made largely uniform via the Uniform Trade Secrets Act, a version of which has been adopted by almost every state. Trade secrets can remain trade secrets for as long as they are kept secret and retain value to their owners.

This article is part of a five-part series. Read Part 1 here.

This is provided for information purposes only and does not constitute legal advice. If you have questions about any of these topics, you should consult with a lawyer.