Trade Secret FAQ

In broad terms, a trade secret is information which gives a business an advantage over its competitors. Examples of trade secrets include customer identities and preferences, vendors, marketing strategies, manufacturing processes, formulas and other competitively valuable information.

One of the most famous examples of a trade secret is the Coca-Cola formula. This formula gives the Coca-Cola Company a significant business advantage in the soda market, as there is no other soda that tastes the same. Accordingly, the Coca-Cola Company has put numerous security measures in place to keep its formula a secret. In fact, the Coca Cola Company ensures that no one knows every step of the formula!

Yes, two (or more) individuals or entities can claim rights to the same trade secret on the same technology if both independently developed that technology and both keep it a secret, as long as the technology is not “generally known.”

Both trade secrets and patents are forms of intellectual property and can be used to protect innovation. The overall subject matter that can be protected by trade secrets is broader than that which can be protected by patents. Trade secret protection is available for both technical information and information that does not relate to technical innovations. Non-technical information for which trade secret protection can exist includes: business and marketing plans, and customer lists. Patent protection is generally available for technical innovations, including a new and useful process, machine, manufacture or composition of matter. Software and software-implemented business methods have the potential of being protected by both patents and trade secrets.

Another significant difference is that patent protection requires the protected information become available to the public (through the publication of the patent application and/or patent), However, because patents and patent applications are made public, a third party is barred from duplicating and using the invention until the term of the patent is expired. Additionally, unlike trade secrets, patents can be enforced against someone who independently develops or “reverse engineers” an invention.

A trade secret has its own advantages. One significant advantage is that the term of protection for a trade secret has the potential to last forever – as long as the invention is kept a secret – whereas patents are only protected for a limited number of years (20 years from filing). Also, trade secrets can be less expensive to protect and to enforce.

In sum, the selection between patent protection and trade secret protection requires careful consideration of several factors. In particular, it is important to consider the nature of the subject matter being protected. Questions relevant to this decision include: Can it be independently developed? Can it be reverse engineered? Can it be maintained as a secret? How long will the subject matter have market value? Does the market value support investment in patent protection/enforcement?

Contrary to other types of IP, trade secrets are protected by non-disclosure and the information must be kept confidential. Thus, an advantage of trade secrets is that they can be protected for an unlimited amount of time. However, trade secrets also have their disadvantages over other forms of IP protection. Unlike patents and copyrights, which grant a monopoly for a fixed period of time, there is no guaranteed monopoly for trade secrets.

No special registration of government filing is necessary to create trade secrets. The critical requirement for trade secret protection lies in maintaining the secret. Under the Uniform Trade Secret Act (UTSA), information must meet the following three basic criteria to qualify as a trade secret:

1.) the information must not be generally known or readily ascertainable through proper means;

2.) the information must have “independent economical value due to its secrecy”; and

3.) the trade secret holder must use “reasonable measures under the circumstances” to protect the secrecy of the information.