What is a trade secret?
Intellectual property includes trade secrets. A trade secret, according to U.S. state laws, can be any formula, pattern, physical device, idea, technique, or compilation of information that:
- Provides the owner of the information with a competitive advantage in the marketplace, and
- Is treated in a way that can reasonably be expected to prevent the public or competitors from learning about it, absent improper acquisition or theft.
Some examples of potential trade secrets include:
- The formula for an energy drink.
- Survey methods used by professional political pollsters.
- Recipes for cookies.
- A new invention for which a patent application has not yet been filed.
- Marketing strategies.
- manufacturing techniques, and
- Computer algorithms.
Unlike other forms of intellectual property, such as patents, copyrights, and trademarks, which all require registration to be completely effective; trade secrets are effectively “do-it-yourself” protection.
You don’t have to register with the government to keep your trade secret safe; you can simply keep it hidden. Without any statutory limits term, trade secret protection lasts as long as the secret is kept confidential. Trade secret protection, on the other hand, ceases whenever a trade secret is made public.
What types of information can trade secrets protect?
Intellectual property rights such as copyright, patents, and trademarks are well-known. Trade secrets, on the other hand, are an incredibly effective kind of protection that is frequently used to safeguard valuable technical or sensitive knowledge. Here are some examples of what trade secrets can protect:
- Ideas that give an organization or individual a competitive edge, allowing them to get a “head start” on the competition. This could be something as simple as a concept for a new product or marketing strategy.
- Competitors’ awareness of a product or service in development, as well as its functional or technical features, such as the inner workings of a new software programme.
- Marketing strategy, pricing and price statistics, and client lists are all examples of useful company information.
- So-called “negative know-how,” which refers to information gained during research and development about what not to do or what doesn’t work well. This information is frequently almost as valuable as the effective items or practices.
- Almost any other piece of knowledge with any worth that isn’t widely known by competitors. This might include, for example, a list of customers rated by their company’s profitability.
What rights do trade secrets confer?
People who are automatically bound by a duty of confidentiality not to disclose or use trade secret information, including any employee who routinely comes into contact with the employer’s trade secrets as part of the employee’s job, can be prevented from copying, using, or benefiting from its trade secrets or disclosing them to others without permission.
People who get a trade secret through illicit means such as theft, industrial espionage, or bribery, for example, a member of a company’s Board of Directors or leadership team.
People, who find out about a trade secret by accident or mistake, but have reason to believe the information is a protected trade secret.
People who sign nondisclosure agreements (also known as “confidentiality agreements” or “NDAs”) promise not to reveal trade secrets without the owner’s permission. This could be the most efficient technique for a trade secret owner to create a confidentiality obligation. See Using Nondisclosure Agreements to Protect Business Trade Secrets for additional information.
There is one category of persons who cannot be stopped from using trade secret knowledge. These are individuals who independently find the “secret,” that is, without resorting to criminal means or breaking agreements (such as NDAs) or state laws.
For example, analyzing (or “reverse engineering”) any lawfully obtained goods to uncover their trade secret is not a breach of trade secret legislation.
How can a business protect its trade secrets?
Simply declaring something a “trade secret” isn’t enough. A company must act in a way that demonstrates its intention to keep the information private. This entails adopting certain steps in the interest of confidentiality. Some businesses go to great lengths to achieve their goals.
The Coca-Cola formula (probably the world’s most famous trade secret) is held in a bank vault that can only be unlocked by a Coca-Cola Company board of director’s decision. Only two Coca-Cola employees are ever aware of the formula at the same time; their identities are never revealed to the public, and they are not permitted to fly together.
Fortunately, extreme steps to preserve trade secrets are rarely required. You don’t have to convert your office like an armed camp to protect any knowledge you consider a trade secret.
Documents holding trade secrets should be marked “Confidential,” trade secret materials should be locked away after business hours, computer security should be maintained, and only persons with a reasonable need to know should have access to secret information. These measures would demonstrate to a court that you wish to keep your information private.
Nondisclosure agreements are the most popular and effective method of protecting trade secrets (NDAs). Courts have consistently stated that the use of nondisclosure agreements is the most crucial approach to keep secret material confidential.
How can a business enforce its rights if someone steals or improperly discloses confidential information?
Theft or disclosure of trade secrets is illegal in every state. The Uniform Trade Secrets Act (UTSA), a model law written by legal professors, is the source of the majority of these statutes.
By petitioning a court to impose order (an injunction) prohibiting the future publication or use of the secrets, a trade secret owner can enforce his or her rights against someone who steals sensitive information. A trade secret owner can also seek damages for any economic loss incurred as a result of the improper acquisition and use of the trade secret.
A trade secret owner must show the following in order to win a trade secret infringement lawsuit:
- that the allegedly confidential knowledge creates a competitive advantage, and
- All the information is kept completely confidential.
In addition, the trade secret owner must establish that the knowledge was wrongfully obtained or divulged by the defendant (if the defendant is accused of commercial use of the secret or if the defendant is accused of leaking the information).
The “Inevitable Disclosure” Doctrine
In some situations, a corporation may ban a former employee from working for a competitor if it can show that employment with the competitor will undoubtedly result in trade secret exposure.
What makes it “inevitable” for information to be shared? PepsiCo successfully argued in a 1995 case that a former executive could not serve as Chief Executive Officer of Gatorade/Snapple because the executive couldn’t help but rely on PepsiCo’s trade secrets as he plotted Gatorade and Snapple’s new course, giving the competitor an unfair advantage over PepsiCo.
The inevitable disclosure theory has been rejected by several jurisdictions because it infringes on an employee’s fundamental right to change jobs. In many circumstances, courts will decline to apply the concept unless there is further evidence of bad faith, deception, or the use of inferior technology by a competitor. In the end, the court will have to decide this question based on the facts surrounding the employee’s knowledge.
Is stealing trade secrets a crime?
Theft of trade secrets with the intent to sell them is a crime under both federal and state laws. The Economic Espionage Act of 1996 is the most important federal legislation dealing with trade secret theft (EEA).
The EEA gives the US Attorney General broad rights to prosecute anybody or any company that steals, copies, or receives trade secrets, and it punishes willful stealing, copying, or receiving of trade secrets. Violations carry harsh penalties: Individuals might face fines of up to $500,000, while businesses could face fines of up to $5 million. An offender may also be sentenced to up to ten years in jail. The government has the authority to confiscate and sell all stolen property and revenues. If the thief is an American citizen or corporation, or if any conduct in furtherance of the offence happened in the United States, the EEA applies not just to thefts that occur in the United States, but also to thefts that occur outside the United States. If the theft is committed on behalf of a foreign government or agent, the company’s penalty might quadruple, and the prison sentence can be extended to 15 years.