A trade secret is some information that gives a company an advantage over its competitors. Its value lies in the fact that it is not widely known, and making it known would deminish that value. Trade secrets are protected under law, notabley by the Lanham Act and Uniform Trade Secrets Act, however there is no formal registration procedure. Protection lasts only as long as the trade secret remains that way, but can last forever if nobody discloses the secret.

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Anything that has independent economic value for a company can be considered a trade secret. This includes:

  • Recipes and formulas, like the KFC Colonel's secret recipe

  • New inventions for which you have not filed a patent application

  • Marketing techniques unique to the company

  • Manufacturing methods

  • A company's customer information

Not all trade secrets are necessarily intended to be kept forever. You may only need to keep them secret until you are ready to reveal them. For example, if you plan to patent your invention, it is only a trade secret until you do so, because your patent application effectively makes the information public.

How to Secure Trade Secrets

Protecting trade secrets requires maintaining their secrecy rather than filing for protection. Taking reasonable measures to protect your secret not only furthers your goal of keeping the secret, it also strengthens your case against someone who does illegally reveal it. If you don't take security precautions the courts would likely rule that it wasn't a trade secret, and you wouldn't have grounds for legal action.

Depending on the form of the secret, you have a variety of options available for securing it:

  • Store it in a restricted area.

  • Use password protection and network security measures.

  • Limit the number of employees with access to the information, and grant access only to those who need the information to do their jobs.

  • Make it clear to everyone you tell that the information is a secret and should not be shared with anyone, even other employees.

  • When outsourcing, try to use multiple vendors for different components, to avoid letting one company know the whole secret.

  • Use non-disclosure and non-compete agreements as appropriate.

Revealing the information to select employees, potential investors or others does not terminate your trade secret rights, as long as you have made reasonable attempts to prevent widespread disclosure. You can include non-disclosure agreements in employment contracts and also with potential investors or partners to ensure they are legally bound to keep your secret. Non-compete agreements can help prevent ex-employees from sharing your secrets with competitors.

It's also important to keep good records detailing when you created the trade secret. Otherwise, you could have trouble proving that someone else did not create it before you.

Losing Trade Secret Protection

If your secret becomes widely known, then it is no longer a trade secret, and you are no longer entitled to trade secret protection. This is true even if the secret was revealed illegally, although you may have options for seeking compensation. A trade secret can also be revealed legally, and you have no recourse in this case, even if it was not your intention to reveal it.

Illegal disclosure may be made by people who:

  • Used illegal means, such as theft or bribery, to obtain the information

  • Learned the information from someone they knew had no right to reveal it

  • Got the information accidentally but should have known it was protected

  • Signed NDAs or other agreements to keep the secret but chose to reveal the information anyway

The federal Economic Espionage Act of 1996 makes these types of disclosures a crime. In addition, most states have enacted legislation based on the Uniform Trade Secrets Act, creating uniformity in defining a trade secret, as well as how to handle misappropriation of trade secrets.

If the information release was limited, you can try to contain the damage with a court injunction prohibiting additional disclosure. However, you will probably still lose trade secret status. You can also sue and collect damages, but you cannot recover trade secret status.

Not all disclosures are illegal, even if they were not your choice. Someone who reverse engineers your product has done nothing wrong, but you will still lose trade secret status if the information becomes public. Your secret could also be revealed if someone discovers it independently or your security measures were not good enough.

If your business has been hurt by the disclosure of a trade secret, talk with an IP attorney to discuss whether you have any legal recourse.

Remember, your only protection for trade secrets comes from keeping the secret. Take all precautions necessary to do that, and you can, in theory, protect your secret forever.

Get Started Protect your intellectual property Create IP documents and ask a lawyer your questions.

Get Started Protect your intellectual property Create IP documents and ask a lawyer your questions.