Trade Secrets

Most entrepreneurs are surprised to find that trade secrets are protected like other forms of intellectual property.  Moreover, trade secret protection lasts as long as the information is kept a secret.  Think Coca-Cola.  They  managed  to keep  the  recipe  for  Coca-Cola  a  secret  for  as long  as  the  company  has  been  in  existence.  Other famous secrets include the recipes for Kentucky Fried Chicken and Famous Amos cookies.  

Your business does not  need  to  have  a  famous secret to get the benefit of trade secret protection.  Moreover, under the recently enacted “America Invents Act”, there are certain advantages to keeping business trade secrets.

What is a Trade Secret?

A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably  ascertainable,  that  gives  a  business  an economic advantage.  This is a pretty broad protection.    As  such,  trade  secrets  can  be  found anywhere in your business because they can be as simple as a practice or process that you put in place,  or  information  that  you’ve  collected  to help you do a better job for your business.  

In  theory, this  means  that  everyone  in  your company could be practicing or in possession of some  form  of  trade  secret.  For  example,  your selling  organization  may  have  trade  secrets  in the  form  of  customer  lists,  pricing  policies  and selling  strategies.    Your  accounting  department may  have  a  way  of  billing  that  really  benefits people in your industry.  Your manufacturing or engineering group may have trade secrets in the form of suppliers,  materials  or  construction processes.   Or an employee in your manufacturing  area  may  have  found  a  clever  way  to  get more efficient production if it is the type of information  that  cannot  easily  be  reverse  engineered, it may be a good candidate for trade secret protection.

Trade Secrets in your Business

Not everything your business does is a valuable trade secret, of course, but effective managers will want to be  kept  apprised  of  the  things that add value to the company, so these can be protected.  Notably, trade secrets are most often held  by  the  employees  and  are  completely  unknown  to senior management because they are skills and tricks developed by the employees to do their specific jobs.  This means managers will need to take a little extra effort to uncover what might possibly be a  trade  secret  and determine the value of that trade secret.   One test for a trade secret is to ask yourself how  you  would  feel  if  the  employee  left  and took the practice or information to a competitor.   Of course, employees are allowed to keep an acquired  skill,  but  some  information  they  acquire may belong to you as the employer.

Trade Secret Protection is Affordable   

One of the best things about trade secrets is that they are  relatively affordable  to  protect.  There is nothing to file, but your business must take some steps to make people aware the information  is  a  secret  and to actively prevent  that   information   from   being   disseminated.  These  steps  include  informing  your  employees about what information is considered a trade secret so they will know what to keep secret and how to do it, and adopting company policies and procedures which require employees to exercise reasonable efforts to maintain the secret.  For instance,  require  your  employees  to  keep  the  secret locked up; to mark any documents discussing  it  as  confidential;    and  to  not  disclose  any secret when dealing with outside vendors unless absolutely necessary, in which case these outside parties must be required to sign a nondisclosure agreement  before  the  secret  can  be  revealed  to them.

Trade secret protection is not perfect, but it can still be very effective.  For  example, your competitors may try to discover trade secrets through lawful methods like reverse engineering.  Unfortunately, if they successfully reverse engineer your trade secret, the law will not help you.  However, if they use any improper means to  discover  the  secret,  such  as  industrial  espionage or employee theft, they may be stopped and as a result, the secret may be deemed misappropriated and you may recover damages and stop them from practicing the trade secret.  

Moreover, under the America Invents Act, a company that develops and keeps a trade secret may have an affirmative defense against accusations of patent infringement.

Trade secret law can also be very helpful for a startup company in its infant stages, when cash is always in short supply.  The proper use of nondisclosure agreements can make discussing business  plans  with  potential  partners  and  employees a lot less expensive.  Not every idea for a  young  company  is  actually  a  trade  secret,  of course, but the “big idea” that kickstarted your company  and  the  ways  to  implement  that  idea are worth the time and effort to create a nondisclosure agreement.

Indeed,  a  company  gets  a  lot  of  protection for just a little bit of effort.  The trick is to identify what is a trade secret and to take a reasonable effort to keep it an actual secret.  In this regard, it would be smart to consult an intellectual property lawyer to design a strategy to protect what may be your company’s most valuable assets.

Mr. Pete Tormey heads the Intellectual Property Group for Antero & Tormey LLP.  He has a J.D., an MBA in marketing and a BS in electronic engineering.  He is licensed to practice in California and before the US Patent and Trademark Office.  He can be reached at pt@AnTLegal.com or at (925) 352-9842 in San Francisco, Walnut Creek, Silicon Valley and other Bay Area locations. 

The advice included in this article is for education purposes only; consult a patent professional for specific information about your invention.