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What should I know about trade secrets in business?
May 17, 2007

Confidential business information, or trade secrets, can be vital to a company’s operations.  Just look at Coca-Cola—without its long-standing secret formula for Coke, it wouldn’t have attained its measure of success.  But you needn’t be a giant corporation nor a manufacturer to have trade secrets worth protecting. Many small and medium-sized businesses, including retailers and service companies, have valuable and protectable trade secrets.

What is a trade secret

Generally speaking, a trade secret is (1) any information or idea, (2) that is not generally known, (3) that gives an actual or potential commercial advantage to its owner and (4) has been maintained as a secret by its owner. 

Despite what you may think, a trade secret is not necessarily something like a top-secret high-tech invention or computer design. A trade secret can consist of information, such as a revenue forecast or a business plan. Perhaps the most common type of  trade secret is a confidential customer list, or a compiled list of business prospects that is not publicly available.

Business “know how,” such as a method of doing business, or minor improvements to known processes, may also be trade secrets. That special recipe that you developed for baking extra large, yet exceptionally moist muffins, may be a protectable trade secret, so might your written strategy plans for marketing them to new outlets. Even “negative knowledge” such as failed avenues of research may be protectable trade secrets.  In other words, knowing what doesn’t work can be a valuable trade secret.

The key point is that for information to receive protection under the law as a trade secret, it must be safeguarded with a reasonable degree of secrecy. A trade secret can lose its status should it be disclosed to the public. 

Most states have specific laws that define trade secrets and provide legal remedies for trade secret owners.

How is a trade secret different from a patent?

A trade secret doesn’t have to be new or unique, and a company can establish protectable rights in a trade secret merely by the process of keeping the information confidential. Trade secret protection in theory can last forever, that is, for as long as the secret is kept.

In contrast, to be patentable, an idea or process must be a new and unique invention. In order to obtain patent protection, an application must be filed with and approved by the U.S. Patent and Trademark Office. Patent protection is limited to (usually) 16 years, and the idea or process is made public as part of the patent process. After the patent expires, in general, anyone can make use of the idea or process that was covered by the patent.

Our next post will discuss how businesses can protect their valuable trade secrets.

The posts on this blog reflect the personal views of Jeffrey D. Neuburger, in his individual capacity, and do not necessarily represent the views of his law firm or his clients, and are not sponsored or endorsed by them. The information contained in this blog is provided only as general information for educational purposes, and no warranty or representation is made about the accuracy of the information provided. Blog topics may or may not be updated subsequent to their initial posting. This information is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice. This blog should not be used as a substitute for competent legal advice from a licensed attorney in your state.

Posted by Jeff Neuburger on May 17, 2007 | Comments (0)