Skip to main content

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

Labels

Labels:

Popular posts from this blog

A Breakdown of Fair Use

Is your small business trying to spruce up your website by adding some new pictures? Want to raise money for your nonprofit by hosting a community movie night? Trying to update your marketing materials with a brand-new promotional video with cool background music? If so, you could be opening yourself up to potential copyright lawsuits and should read up on the doctrine of fair use! An important aspect of starting a small business or nonprofit is exposure, and as organizations work to market themselves and increase awareness of their goals and activities in the communities they serve, they could open themselves up to legal danger. Litigation is expensive, and the cost can be especially devastating to small businesses and nonprofits. In all promotional or informational materials (including brochures, flyers, websites, etc.), organizations need to be sure that they are legally protected from copyright infringement claims.   What is Fair Use? Fair use is a legal doctrine that per...
Read more

The Bankruptcy Code and Black Business Owners: An Overview on the Racial Disparities that Exist in Bankruptcy Proceedings

"sisyphus paradox."   by   percipio symphony   is licensed under   CC BY 2.0   In a recent podcast for Bloomberg Law, University of Texas at Austin School law professor Mechele Dickerson discussed how the Bankruptcy Code favors white debtors over Black or Latino ones in various ways. [i]   Interviewer : “Is there a racist element in the U.S. Bankruptcy Code?” Professor Dickerson : “Intentional? No. But if you look at the way the Code is structured for human beings that file for bankruptcy, there are clear biases and it so happens that these biases favor a certain profile which I have called in the past an ideal debtor…” [ii]   This is a reality that has not gotten much attention in legal and business communities. Although there have been dozens of studies that have found Black debtors file for bankruptcy disproportionately more than other racial groups (yet get less permanent relief) there has been no definitive answer presented as to why. [iii] ...
Read more

Navigating Liability Across Multiple Ventures for Michigan Businesses: Alternatives to Series LLCs

  The Problem: Managing Liability Across Different Ventures   Many business owners manage multiple ventures. This often entails dealing with different types of risks and liabilities. Whether selling different lines of products or operating multiple services within a business, it is really important to keep liabilities isolated to protect assets. For example, consider a business owner who owns both a restaurant and a catering business. In the event that a customer sued the restaurant for something like a slip-and-fall accident, the owner’s catering business could also be at risk if the ventures are not legally separated. Without proper legal structures, a lawsuit or financial issue affecting one part of the business could easily spill over, putting the entire business at risk. For this reason, business owners should look for ways to separate liability across their ventures and ensure that issues in one area don't threaten the stability and success of the others.   Liab...
Read more