What Is a Trade Secret?

What Is a Trade Secret?

by Joe Runge, Esq., September 2016

One way to protect your intellectual property is to tell no one. The invention, the composition that great business idea—no one can steal them from the vault of your mind. Lock the door, hide the key, and no one will take it from you.

But then you can't use it either.

Intellectual property protection exists so inventors and authors have control over their work after they share it. You do not have to keep it secret: Build your invention. Publish your composition. Franchise that business. With appropriate intellectual property protection, you still can control your work even after the secret's out.

What is a trade secret? A trade secret is more than just a secret. Trade secrets are protected intellectual property and, with appropriate protection, you can enforce a trade secret like you would a patent or copyright.

Protecting trade secrets, however, requires discipline, care, and good planning. One of the things that trade secret law looks at is the effort its owner takes in protecting the trade secret. If you are going to claim trade secret protection, get ready to prove that your secret is very, very safe.

A Secret You Can Keep—and Protect

For example, you run an artisan, small batch ice cream shop. One night, after closing, you rearrange the mixers and churns and dramatically boost your efficiency. Then you think big. A year later, you have a factory with a dozen mixers and churns and you are producing artisan, small batch ice cream by the truckload. No one can beat your quality for your cost. Sales are through the roof.

Factory configurations are common examples of trade secrets. Factories lend themselves to keeping secrets. They are complex and hard to understand—even when you are standing on the factory floor. Factory owners can install curtains or small rooms to make it even harder to understand how their work is organized.

Owners can lock doors and hire guards to control access to their factories. Internally, they can limit access to factory master plans so that only the most senior personnel know them. The worker on the mixer may have no idea how the product gets to the churn. Every employee can sign protective nondisclosure agreements and abide by confidentiality policies. All of these factors are critical to prove your secret is a trade secret.

Protecting your trade secret gives you rights that most secret holders do not have. For example, if your junior partner takes the master plan and sells it to your rival, then a well protected trade secret gives you a remedy. The junior partner and your competitor committed misappropriation of trade secrets. If you have made the effort to maintain your trade secret, then the court can stop your competitor from using your trade secret and punish your junior partner.

In May 2016, the Defend Trade Secrets Act created federal jurisdiction for litigation relating to trade secrets. Previously, trade secrets were covered under state law, which created a patchwork of different laws. The Uniform Trade Secrets Act, published in 1979 and amended in 1985, has sought to harmonize these state laws and assist companies operating in multiple states.

Keeping the Right Secret

Even your most sophisticated customers cannot tell the organization of your factory by tasting your ice cream. While knowing the distance between the mixer and the churn improves the price per pint, inside it's the same small batch artisan goodness. In that way, trade secret protection works for a factory.

Trade secret protection does not work for the products the factory produces. For example, you come up with a novel design for smoke detectors and are now able to produce them at half your competitor's price. The only problem is that, once your competitors open your smoke detectors, they'll instantly be able to copy to your design.

It is helpful to understand trade secrets vs. patents. A patent, vs. trade secret, allows protection for what the factory produces. Moreover, the patent prevents anyone else from using that idea—even if it was invented independently. Trade secret protection only works for your intellectual property that can be kept secret. Your smoke detector is prone to reverse engineering.

It is important that the secret you try to protect as a trade secret is a secret you can keep. Once you create a product and send it out into the world, then your competitors can copy it. Copying is not misappropriation of a trade secret. No one is sneaking into your factory or bribing your janitor.

Trade secret protection is an outstanding option for the right kind of intellectual property:

  • It has to be a secret that you do not have to disclose in order to sell your products.
  • You have to be able to document all the work that goes into keeping the secret: your internal policies, security measures, and access to the secret.
  • Most importantly, it has to be a secret worth keeping.

If eligible for protection, a trade secret will give you additional legal powers to keep that secret protected.

Have a trade secret that you want to talk to an attorney about? When you sign up for the business legal plan, you can talk to an attorney who answer your questions and help you determine if you should file a patent. Learn more about our prepaid legal plan for businesses.