Trade Secrets

A trade secret is a formula, practice, process, design, instrument, pattern, commercial method, or compilation of information which is not generally known to the public or reasonably ascertainable by others. By definition, a trade secret must confer an economic advantage over competitors or customers upon the business.

Trade Secret Criteria

In most jurisdictions, a trade secret must meet these three criteria:

• Is not generally known to the public.
• Confers some sort of economic benefit on its holder. The benefit must derive specifically from not being publicly known, not just from the information itself.
• Is the subject of reasonable efforts to maintain its secrecy.

Legal Protection of Trade Secrets

By definition, trade secrets are not disclosed to the public. Therefore, owners must seek to protect trade secret information from competitors and the public by implementing special procedures for handling it, technological & security safe guards, and proper legal protection.

Legal protections include:

• nondisclosure agreements (NDA),
• noncompete clauses (note: noncompete clauses are not enforceable in California),
• Employee assignment of intellectual work produced during the course (or as a condition) of employment to the employer, and
• Nondisclosure agreements and noncompete clauses with vendors and licensees.

Legally protecting confidential information allows a perpetual monopoly in the secret information – the duration of a trade secret does not expire as a patent would. However, the lack of formal protection means that a third party is not prevented from independently duplicating and using the information once it is revealed to the public.

Coca-Cola is the most famous company to use trade secrets. It has no patent for it’s Coca-Cola formula, and has been very effective in protecting the trade secret for decades (upwards of 20 years longer than if they had opted to get a patent on the formula). The disadvantage is that Coca-Cola has no protection if the information is ever uncovered by others through legal means (ex: reverse engineering).

Changes may occur in this area of law. The information provided is brought to you as a public service, and is intended to help you better understand the law in general. It is not intended to be legal advice regarding your particular problem or substitute for the advice of a lawyer.