What is a trade secret? The phrase conjures up images of dark-suited men wearing sunglasses carrying briefcases filled with key corporate information, or perhaps of Tom Cruise dangling from a rope hacking into a laptop in a room full of lasers. In real life, business trade secrets aren’t usually this glamorous or action-packed, but they are critical parts of running any business. In this blog post, we’ll talk about the definition of a trade secret, how to protect your trade secrets in Austin (or anywhere else), and the difference between a trade secret and a patent.
What Is a Trade Secret?
A trade secret is any proprietary information that a business maintains to give it a competitive advantage in the marketplace. In plain English, a trade secret is secret information your business has that could significantly damage your bottom line if it were to get out.
Trade secrets are generally governed by state law where each state maintains a definition for what a trade secret is according to that state’s trade secret statute. The United States passed the Defend Trade Secrets Act (DTSA) in 2016 and the DTSA’s definition of a trade secret is similar to those of many states. This is similar to the Uniform Trade Secrets Act (UTSA), which many states have enacted (though sometimes with their own changes). Generally speaking most state statutes, the DTSA and the UTSA have the following three criteria for a trade secret—and your trade secret must meet all of them:
- [a trade secret] is information that has either actual or potential independent economic value by virtue of not being generally known,
- [a trade secret] has value to others who cannot legitimately obtain the information, and
- [a trade secret] is subject to reasonable efforts to maintain its secrecy.
Or again, to put it in plain English, the USPTO considers something a trade secret only if it has the following properties:
- It is information only known to a select group of people or an organization.
- It has value specifically because of its secrecy.
- Reasonable effort has been made to ensure that it remains secret.
The archetypal example of a trade secret is the recipe for Coca-Cola, which is famously kept in a vault. Let’s see how the recipe for a Coke fits these three criteria:
- Only specific people, all within Coca-Cola (or else sworn to secrecy), know the recipe for Coca-Cola. (Check!)
- If competitors knew the recipe for Coca-Cola, they could duplicate it, harming Coke by letting them nab some of its market share with a generic knockoff. (Check!)
- Coca-Cola is fiercely protective of its recipe and does not share it with anybody. (Check!)
As we can see, by any definition, the recipe to Coca-Cola is a trade secret. It’s important to know that all three of these criteria must be met for the USPTO to consider something a trade secret. For instance, how your business formats its email addresses may be something you keep private to avoid annoying solicitations, but those email addresses don’t have economic value because of their secrecy, either to you or someone else. Therefore, they are not a trade secret.
Similarly, if you opened a fast-food chain and published your “special sauce” recipe online, it would not be a trade secret because you clearly didn’t see anything wrong with letting the world know about it.
How to Protect a Trade Secret
Here’s the good news about using a trade secret, as opposed to a patent: you don’t have to file anything or take any steps to designate something with the government to make it a trade secret. The only thing that matters is the three criteria outlined above.
So, whether you’re trying to protect a trade secret in Austin, or Seattle, or Pittsburgh, all that matters is that you take care to guard this secret as well as you can, and courts will then recognize it and give you protections accordingly.
What does that mean? It means that you should:
- Clearly indicate that this information is confidential or proprietary wherever it can be found. If it’s on a piece of paper, for instance, make sure that piece of paper has a CONFIDENTIAL heading that can’t be missed.
- Clearly discuss the importance of this information with new hires, and as part of the onboarding process, make sure they know that this is key information that cannot leave the company.
- Ensure that contractors, vendors, clients, and anyone else who may have access to the information are similarly informed of its status as a trade secret and the penalties that could befall them if they leak it.
- Whenever an employee leaves the organization, remind them of the proprietary status to discourage them from going to competitors. Non-disclosure agreements (NDAs) can also help.
Fortunately, the UTSA (Uniform Trade Secrets Act) has been adopted by 48 states, DC, and Puerto Rico, including Texas, going a long way to standardizing state trade secret laws.
Trade Secrets vs. Patents
If this information is so important to you, you might think, why not file for a patent? Patents are indeed very valuable and offer superior protection, but you may want to keep things as a trade secret, depending on the circumstances. Let’s look at the differences between the two.
A trade secret is a secret as long as you can keep it one, whereas a patent grants exclusive rights for a limited period of time, usually 20 years, after which the patent protection no longer applies. If Coca-Cola had patented its formula, the exclusivity rights would have expired decades ago.
Trade secrets have less legal protection
Chiefly, patents protect against independent invention or reverse engineering. If you have a trade secret process for making the soles of running shoes, for instance, and a competitor develops this process independently on its own and can document its discovery (proving that they didn’t steal anything), then you’re out of luck. Similarly, if a genius scientist chemically analyzed the formula of Coca-Cola and was able to reverse engineer it, there’s nothing stopping them from using it. With a patent, they couldn’t take advantage of their own ingenuity during the period of the patent monopoly.
Patents are more expensive
Patents require official filings, which means schematics, exhaustive descriptions, and lots of input from lawyers and experts. This can add up. Especially given that a trade secret only requires you to keep it secret.
Trade secrets can’t apply to everything
Imagine you were a sushi restaurant that invented the idea of conveyor belt sushi. You couldn’t possibly claim that this was a secret when anyone who came into your restaurant could see your innovation right there in the flesh. This is something that could only be protected by a patent, not a trade secret.
Do you have questions about trade secrets or patents? Do you want to know how you can best protect your trade secrets in Austin or anywhere else? Contact Berkeley Law & Technology Group today.