Trade secrets are intellectual property (IP) rights on confidential information which may be sold or licensed.
What qualifies as a trade secret?
In general, to qualify as a trade secret, the information must be:
- commercially valuable because it is secret,
- be known only to a limited group of persons, and
- be subject to reasonable steps taken by the rightful holder of the information to keep it secret, including the use of confidentiality agreements for business partners and employees.
To qualify as a trade secret, companies must work to protect proprietary information actively. Once the information is public knowledge, then it’s no longer protected under trade secrets laws. Assets may be tangible or intangible, and a trade secret can involve information that’s:
- Business
- Financial
- Technical
- Economic
- Scientific
- Engineering
Trade secrets are a company’s intellectual property that isn’t public, has economic value, and carries information. They may be a formula, recipe, or process used to gain a competitive advantage.
Two well-known examples include the recipe for Coca-Cola and Google’s search algorithm. Although a patent is public, trade secrets remain unavailable to anyone but the owner.
The unauthorized acquisition, use or disclosure of such secret information in a manner contrary to honest commercial practices by others is regarded as an unfair practice and a violation of the trade secret protection.
What kind of information is protected by trade secrets?
In general, any confidential business information which provides an enterprise a competitive edge and is unknown to others may be protected as a trade secret.
Types of trade secrets
Trade secrets encompass both technical information, such as information concerning manufacturing processes, pharmaceutical test data, designs and drawings of computer programs, and commercial information, such as distribution methods, list of suppliers and clients, and advertising strategies.
A trade secret may be also made up of a combination of elements, each of which by itself is in the public domain, but where the combination, which is kept secret, provides a competitive advantage.
Other examples of information that may be protected by trade secrets include financial information, formulas and recipes and source codes.
What kind of protection does a trade secret offer?
Depending on the legal system, the legal protection of business secrets forms part of the general concept of protection against unfair competition or is based on specific provisions or case law on the protection of confidential information.
While a final determination of whether trade secret protection is violated or not depends on the circumstances of each individual case, in general, unfair practices in respect of secret information include industrial or commercial espionage, breach of contract and breach of confidence.
A trade secret owner, however, cannot stop others from using the same technical or commercial information, if they acquired or developed such information independently by themselves through their own R&D, reverse engineering or marketing analysis, etc. Since trade secrets are not made public, unlike patents, they do not provide “defensive” protection, as being prior art. For example, if a specific process of producing Compound X has been protected by a trade secret, someone else can obtain a patent or a utility model on the same invention, if the inventor arrived at that invention independently.
How can a trade secret be protected?
Companies should take preventive measures to protect trade secrets against theft or misappropriation, including:
- Non-disclosure agreement (NDA): employees and business partners should sign a non-disclosure agreement that prevent them from disclosing a company’s confidential information.
- Non-compete agreement (NCA): employers should ask employees, contractors and consultants to sign a non-compete agreement to prevent them from entering in competition when their employment/service agreement ends.
- Robust IT security infrastructure
- Controlling the accessibility of important documents