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Trade Secrets: What Are They and How Can They Protect Your Business’s Valuable Assets?

When growing a business, entrepreneurs are often concerned with how to best protect their creations and ideas. While trademark, copyright and patent protection are commonly used to protect intellectual property the benefits of trade secret protection should not be overlooked. Whether a business is trying to protect a food recipe, cosmetics formula, or list of important customers, trade secret protection can be an effective option.  

What is a Trade Secret

A trade secret is any “secret formula, pattern, compilation, program, device, method, technique, process, or other information”[1] that an owner has made reasonable efforts to keep secret and which gives that owner an economic advantage over competitors. There is no limit on the form that a trade secret may take. For example, something can still qualify as a trade secret even if it can be retained in one’s memory.[2] Unlike a trademark or patent, trade secret protection does not require any filing or registration with a state or federal agency. Additionally, unlike a patent, novelty is not a requirement for trade secret protection. This means that two different entities can develop the same secret and both can protect it as a trade secret. 

Requirements for Trade Secret Protection

            It is important to note that there is no presumption that a trade secret exists. The owner of a claimed trade secret is responsible for proving the existence of the trade secret. Businesses interested in trade secret protection should be mindful of three core requirements in proving the existence of a trade secret: 

(1)   The creation must actually be a secret. This means that any public disclosure of the secret relinquishes the owner’s protectable right. Of course, business owners often need to share secret information with their employees, manufacturers, or suppliers. In that case, nondisclosure agreements become key in protecting the secret. Furthermore, an owner does not lose trade secret protection if they disclose the information to a party that is bound by a duty of confidentiality (e.g., their lawyer).

(2)   The owner must make reasonable efforts to protect the secret from disclosure. Trade secret protection is largely dependent on the extent of the owner’s efforts to protect. What is considered “reasonable” efforts might depend on the point in time and the size of the business. Generally, the following is evidence of reasonable efforts:

●      Confidentiality agreements

●      Notifying employees of the trade secret status of information

●      Restricted access to the secret

●      Password protection when secrets are stored on a computer

It is also recommended that businesses only disclose secret information on a “need to know” basis and continuously remind employees of their confidentiality agreements.

(3)   The secret must give the owner an economic advantage over competitors. This is often the easiest element to satisfy. A secret is considered as having an economic advantage when it would require cost, time, and effort for the competitor to duplicate.

Advantages and Disadvantages

            Trade secrets have several benefits. First, as previously mentioned, trade secrets do not require any filings or registrations. This can make trade secret protection a much cheaper option than trademarks or patents. Second, unlike a patent, a trade secret is not limited to any specific term. As long as the trade secret is protected and retains economic value, it can be protected indefinitely. Third, trade secrets can protect information that does not meet the requirements of a patent or copyright, such as the novelty requirement.

            Although trade secrets certainly present many benefits, there are some limitations. One limitation is the Independent Development Doctrine, which states that there is no remedy against another party if they independently develop the information (e.g., without theft, espionage, or improper disclosure) or use reverse engineering. However, trade secret protection is not abandoned if that other party also keeps the information secret and the economic value is not ruined. Additionally, a business owner must ensure that he or she is continuously making “reasonable efforts” to keep the information secret. If efforts are reduced or cease, then the owner risks losing the trade secret protection. Lastly, the statute of limitations -- the time in which an owner can bring suit for a trade secret misappropriation -- is relatively short. An owner must bring suit within three years after the claimed misappropriation is discovered. Available remedies for trade secret misappropriation include: injunctive relief (an order restraining the party from using the secret), monetary damages, and attorneys’ fees.


[1]The author relied on this publication for the information provided here: https://plus.lexis.com/api/permalink/da8c4816-9ad1-4208-9f63-3be9eb2a8422/?context=1530671

[2] See, e.g., Pelican Bay Forest Prods., Inc. v. W. Timber Prods., Inc., 297 Or. App. 417, 431 (2019).

https://depositphotos.com/50721013/stock-illustration-top-secret-stamp.html


By Ivona Dimov

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