What is a Trade Secret?

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What is a Trade Secret?

A trade secret is information such as a formula‚ pattern‚ compilation‚ program‚ device‚ method‚ technique‚ or process that derives a unique and significant value from its secrecy. In other words‚ a trade secret is valuable because it is kept secret. While the information may be useful or beneficial to others‚ by keeping the information secret‚ trade secret holders are able to monopolize the information for their benefit. Examples of trade secrets include the formula for Coke and KFC’s fried chicken recipe.

Requirements for a Valid Trade Secret

There is no registration or evaluation process for trade secrets. Requiring a trade secret holder to register and disclose its trade secrets to a governing body such as the USPTO would defeat the very purpose of a trade secret. Because there is no overseeing body‚ a trade secret holder will only be required to prove the validity of its trade secrets if it is forced to bring a trade secret misappropriation action. The court will analyze the trade secret and determine if it satisfies the jurisdictional requirements for trade secret protection under the Uniform Trade Secrets Act (“UTSA”) or other state laws.

Under the UTSA‚ in order to be protected as a trade secret‚ the information must meet three major requirements. First‚ a trade secret must derive economic value from its secrecy. Second‚ the information must not be readily known or ascertainable. Third‚ the trade secret holder must utilize reasonable efforts to preserve the secrecy of the information.

Economic Value from Secrecy

A trade secret must derive economic value from not being generally known in the industry. To determine whether such information has economic value resulting from secrecy‚ factors such as the value of the information to the trade secret holder‚ the value to competitors‚ and the amount of effort or money expended in developing the information may be considered. If information is valuable to a business because it is kept out of the hands of competitors‚ it may be protected as a trade secret.

For example‚ if a paper manufacturer had a machine‚ method‚ or process that could recycle used paper into new paper more quickly‚ efficiently‚ and with less expense than its competitors‚ it could sell its post-consumer paper products for a lower price while still maintaining a profit. Such information would be highly desired by competitors and uniquely valuable to the paper manufacturer‚ allowing it to overcome the competition and dominate the market. By maintaining the information as a trade secret‚ the paper manufacturer could capitalize on its invention. Were the paper manufacturer to elect to patent the invention‚ it would have to disclose the information and would forfeit the opportunity to monopolize it after the patent term expired.

Not Generally Known or Readily Ascertainable

In order to maintain a valid trade secret‚ the information may not be widely known or easily discoverable by another using proper means. Not only must the information be secret‚ it must also be capable of remaining secret. For example‚ if the process used to manufacture a product can be discovered simply by looking at the product‚ the process will not qualify for trade secret protection as it is easily ascertainable. In that case‚ the inventor would be advised to seek patent protection.

To determine whether information is known or discoverable‚ certain factors are considered including the ease that the information could be acquired‚ duplicated‚ or reverse engineered‚ the extent the information is known outside of the business‚ and the extent the information is known within the business. If information is widely known or can easily be discovered or duplicated‚ it will not qualify for trade secret protection. In addition‚ if some method‚ process‚ or technique can be easily reverse engineered‚ it may not meet the qualification for a valid trade secret.

Reasonable Efforts to Maintain Secrecy

Finally‚ and perhaps most importantly‚ the holder of a trade secret must at all times expend reasonable efforts to maintain the secrecy of its trade secrets. To ensure that reasonable efforts are maintained‚ a company should enact a combination of protective measures including but not limited to restricting access of trade secrets to only essential personal‚ marking documents as confidential‚ marking sensitive areas as restricted‚ placing physical barriers such as walls‚ locked doors‚ and security guards around sensitive areas‚ restricting computer access through the use of passwords and other measures‚ and requiring confidentiality agreements for all employees who may come across trade secrets at work. A literal lock and key is the best policy for trade secrets. By enacting sufficient security measures‚ a trade secret holder will be better able to prove this element in a trade secret misappropriation action should it be necessary.

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