Trade Secrets
Trade secrets are a type of intellectual property that comprise formulas, practices, processes, designs, instruments, patterns, or compilations of information that have inherent economic value because they are not generally known or readily ascertainable by others, and which the owner takes reasonable measures to keep secret. In some jurisdictions, such secrets are referred to as confidential information.
The precise language by which a trade secret is defined varies by jurisdiction, as do the particular types of information that are subject to trade secret protection. Three factors are common to all such definitions:
A trade secret is information that
- Is not generally known to the public;
- Confers economic benefit on its holder because the information is not publicly known; and
- Where the holder makes reasonable efforts to maintain its secrecy.
In international law, these three factors define a trade secret under article 39 of the Agreement on Trade-Related Aspects of Intellectual Property Rights, commonly referred to as the TRIPS Agreement.
Similarly, in the United States Economic Espionage Act of 1996, “A trade secret, as defined under 18 U.S.C. § 1839(3)(A),(B) (1996), has three parts:
- Information
- Reasonable measures taken to protect the information
- Which derives independent economic value from not being publicly known.”
Value of Trade Secrets
Protection of Trade Secrets
In contrast to intellectual property that has been registered, trade secrets cannot be shared with the whole world. Instead, owners of trade secrets try to keep competitors from getting their hands on trade secret information by putting in place special ways to handle it and technological and legal security measures. Non-disclosure agreements (NDAs), work-for-hire clauses, and non-compete clauses are all legal protections.
In other words, if an employee wants to work for a company that keeps secrets, they may have to sign agreements promising not to tell anyone their prospective employer’s secret information, giving up or giving their employer ownership rights to intellectual work and work-products made during (or as a condition of) employment, and not working for a competitor for a certain amount of time (sometimes within a given geographic region). If you break the agreement, you might have to pay a lot of money. This is meant to discourage you from giving out trade secrets.
But it can be hard to prove that a former stakeholder broke an NDA when they are legally working for a competitor or that they broke a non-compete clause and won a lawsuit. A person who owns a trade secret may also need similar agreements from vendors, licensees, and board members with whom he or she works.
As a company can protect its confidential information through NDA, work-for-hire, and non-compete contracts with its stakeholders (within the limits of employment law, which only allows reasonable geographical and temporal restrictions), these protective contractual measures create a monopoly on secret information that doesn’t end like a patent or copyright would. The lack of formal protection that comes with registered intellectual property rights, on the other hand, means that a third party who is not bound by a signed agreement can copy and use the secret information on their own once it is found, for example through reverse engineering.
So, trade secrets like secret formulas are often kept secret by telling only a few trusted people the important details. Chartreuse liqueur and Coca-Cola are well-known examples of products that are protected by trade secrets.
Since trade secret protection can, in theory, last forever, it may be better than patent protection and other registered intellectual property rights, which only last for a certain amount of time. For example, the Coca-Cola company does not have a patent for the recipe for Coca-Cola, but they have been able to keep it secret for many more years than the 20 years that a patent would have given them. In fact, Coca-Cola refused to tell at least two judges what its trade secret was.