FAQ/IP 101s
Trade Secret Guide: What to Know About Trade Secret Protection
Trade secret protection is a form of intellectual property that is easy to understand.
In the United States, many top brands have staked out a competitive advantage on their trade secrets. The Coca-Cola recipe is a good example of a high-profile trade secret, as is the blend of ingredients used to make Kentucky Fried Chicken’s signature dish. (KFC’s proprietary mix of herbs and spices is said to be locked in a digital safe encased in two feet of concrete and monitored 24 hours a day.)
These famous recipes and formulas are just two examples of a growing and increasingly litigious area of IP law. Trade secrets play an essential role in fueling the U.S. economy and giving businesses a competitive advantage against their competitors. Indeed, Reuters reports that more than 80 percent of senior executives believe trade secrets are critical to their operations, with 50 percent assigning them a higher value than patents and trademarks. One-third said maintaining secrecy was a top priority for their organization.
With that in mind, here’s a guide on trade secrets and how a business can ensure legal protection of its innovations.
What Qualifies as a Trade Secret?
Federal law defines trade secrets as:
“all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if
(A) the owner thereof has taken reasonable measures to keep such information secret; and
(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”
Essentially, trade secrets are a company’s IP rights to their confidential information.
The world of trade secrets is vast, and many different forms of confidential information a business has may be subject to trade secret law: An internal process, research data, blueprints, and customer lists are all items that may be considered trade secrets.
What Does Not Qualify as Trade Secret Infringement?
Generally, it is not a violation to:
- Reverse engineer a product to figure out how a product was made
- Independently develop the information in a trade secret
- Review publicly available information or products to discover secret information
Trade Secrets vs. Patents
There are several key differences between a trade secret and a patent.
While both are forms of intellectual property, in contrast to trade secrets, a patent is a property right granted by a government to an inventor or business to exclude others from making, using, selling, offering for sale, or importing the invention for a significant time.
The differences between the two forms of intellectual property are significant. First, to secure a patent, inventors must publicly disclose information about their inventions to gain exclusive rights to them. Because of this process, the general public may search and find information on patents. They can’t search for trade secrets because those are, by their very nature, secret.
Second, patent protection is limited to a certain period of time, while there is no similar time limit for a trade secret being in effect. Likewise, copyrights are also limited to a particular term (usually much longer than patents).
However, one thing a patent shares in common with a trade secret is that both may be sold or licensed for use by another. Trade secrets complement patents and other forms of IP that a company may have.
Trade Secrets vs. Patents
| Characteristic | Trade Secrets | Patents |
|---|---|---|
| Granted By | The Owner | Federal Government |
| Disclosure | None | Public Filings |
| Time Limit | None | 20 Years |
| Monetization Opportunities | Yes - Can Be Sold | Yes - Can Be Sold |
Impact of Trade Secret Theft and Disclosure
Trade secrets are vulnerable to theft and disclosure. According to a 2019 FBI report, the annual cost to the U.S. economy for trade secret theft (along with counterfeit goods and pirated software) ranges from $225 billion to $600 billion.
Such theft is seen as unfair competition in the marketplace and can cause significant harm to the company whose information is breached.
What Are Some Examples of Trade Secret Theft?
Trade secret theft can involve actors both inside a company and outsiders. Employees with access to a company’s trade secrets may take what they know to new positions to use for their advantage. Additionally, competitors or foreign actors may seek to access a company’s confidential information and use it to their advantage.
In addition to theft, public disclosure of trade secrets can damage companies. For example, if a company’s secret information is disclosed on a public website, the business can lose its trade secret protection.
How Can I Protect My Trade Secrets?
Not only is protecting one’s trade secrets essential to keeping ahead of one’s competitors, it’s also key to establishing in court that a trade secret is, indeed, a trade secret.
So, how can a company maintain secrecy around its most significant assets? The following are a few steps a company can take.
Identify and Adequately Mark Confidential materials and Documents as Confidential.
Before you can protect your trade secrets, you have first to identify what trade secrets your business has in its possession. Consider the above-listed items and make sure to mark them as confidential properly.
Require Employees to Sign Agreements.
More than 85 percent of trade secret misappropriation litigation involves an employee or business partner, according to Cornerstone Research. Consider requiring your employees or contractors that have access to sensitive information to sign a non-disclosure agreement, also known as an NDA. Another option is the non-compete agreement, which prohibits employees from joining a competitor in a particular geographical area for a certain amount of time. Through these contracts, employees agree not to disclose confidential information or use it to compete against the business in the future.
Physically Protect Top-secret Information.
Physically limit employee access to confidential materials, including specific business documents, to only a few employees, on a need-to-know basis.
Maintain Robust Cybersecurity Measures.
The rise of technology in the workplace has presented new challenges for companies in terms of protecting their trade secrets. Increasingly, in addition to the above, businesses need to ensure that their networks are secure and that their employees know the basics of keeping information safe online. Password protection is an example of how you can better protect digital documents.
What If Trade Secrets are Stolen or Misappropriated?
Of course, requiring an employee to sign an NDA isn’t a bulletproof strategy, and sometimes confidential information and know-how may be disclosed unintentionally. Even improper use of inadvertently disclosed information that someone should have known was confidential may be a form of misappropriation that can be actionable.
Whether the disclosure is inadvertent or on purpose, state and federal IP laws offer protections for companies regarding their trade secrets.
Under these laws, an individual or company can sue to stop the unauthorized use and ask a judge to order that a trade secret be protected from public exposure. In more rare cases, a judge may also order the seizure of a misappropriated trade secret. Additionally, a person may be criminally charged for stealing trade secrets.
The Defend Trade Secrets Act
One avenue for civil lawsuits is the Defend Trade Secrets Act of 2016, which established a means for an individual or a company to sue others for misappropriation.
The DTSA does not preempt existing state trade secret laws – those looking to enforce their trade secrets can choose whether to bring their suits in either state or federal courts.
At the end of a lawsuit, if the owner of a trade secret can prove a violation of the DTSA, courts can award them damages, court costs, reasonable attorneys’ fees, and a permanent injunction, if warranted.
Uniform Trade Secrets Act
An individual or a company also has recourse for misappropriation of trade secrets under the Uniform Trade Secrets Act or UTSA. Since its introduction in 1979, the legislatures in most U.S. states, including Washington, have adopted the law.
Breach of Contract Claims
If a business has required its employee to sign an agreement regarding secret information, and the employee breaches the agreement, the company may be able to seek damages under a breach of contract claim. To bring a breach of contract claim, a plaintiff needs to prove that a valid contract existed between the parties, that the plaintiff performed their part of the contract, while the other party failed to uphold their end of the deal, resulting in damages to the plaintiff.
The Economic Espionage Act
In addition to civil litigation, under the Economic Espionage Act of 1996, the theft of trade secrets is a federal crime. The law defines the term “economic espionage” as the theft or misappropriation of a trade secret with the intent or knowledge that the offense will benefit a foreign government, instrumentality, or agent.
Trade Secret Litigation By the Numbers
1990-2019
The five largest awards each topped
million
How Intellectual Property Lawyers Can Help
IP attorneys who practice trade secret law can offer many helpful services to companies. Not only can IP attorneys provide counseling on the process needed to ensure full legal protection for your proprietary information, they can also:
- Draft employee and contractor agreements
- Advise on compliance issues
- Review documentation of protected confidential information
- Draft documents licensing your IP for others’ legal use
- Litigate disputes over protected trade secrets
Need assistance with trade secret protection?
Trade secret protection is critical to a company’s overall IP strategy. Consider what steps you can take to protect your confidential information — and gain an edge against your peers — today.
Whether your company needs help developing processes to better protect your data or drafting an employee agreement, the search for a qualified intellectual property law firm doesn’t have to be difficult: AEON Law has the services you need. Our clients benefit from our deep IP experience and knowledge.
Our IP attorneys are ready to assist with your trade secret prosecution and enforcement needs. Contact us today for a free, confidential consultation to discuss how we can help.
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