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What is a Trade Secret?

In the world of business, a trade secret is a powerful thing to have on your side. It can also be a bit confusing as to what exactly qualifies as a trade secret. Is it a trademark, copyright, or patent? Just what exactly is the trade secret definition?

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What is a Trade Secret?

A trade secret is the intellectual property of a company in the manufacturing or distributing of goods. This could involve several things, including formulas, customer lists, programs, designs, production processes, patterns, techniques, or devices. Another qualifier for a trade secret is that it is only known to a limited group of people, and measures have been taken to make sure it remains a secret. Trade secrets, especially those of successful companies, are valuable specifically because they are secrets.

There are two factors that can qualify something as a trade secret:

  1. Something that is so well-guarded that it actually gains value from the fact that it is a secret.
  2. There must be efforts taken to maintain the secrecy of the trade secret.

What isn't a trade secret is anything that can be figured out just by dissecting a product. For instance, if you can take something apart and figure out how it was assembled, then it is not a trade secret. For example, if your company is using social media for marketing, it isn't a trade secret. However, if you were to invent an algorithm that enhanced your marketing abilities on social media, that would be a trade secret.

Trade Secret Law

There are international and national trade secret laws. In the United States, there is the Uniform Trade Secrets Act. It is recognized by 48 states, with the exceptions of New York and North Carolina. In the states, there are common law torts to protect trade secrets.

Companies are allowed to sell trade secrets to one another or to third parties. But since there is so much gray area with what constitutes a trade secret, transferring information within a trade secret is more difficult. It can get even messier if there are disputes regarding the transferred secrets.

The unauthorized acquisition of trade secrets is a violation of trade secret protection. Stealing a trade secret can lead to criminal charges.

Trade secret law can be tricky, so having a knowledgeable attorney is crucial.

Trade Secrets vs Patents

Trade secrets aren't obtained through registration like trademarks or copyrights. Instead, trade secret protection is gained through documentation such as non-disclosure agreements, non-compete forms, and contracts.

Trade secrets differ from patents because they aren't generally something new. Because of this, they would not meet the criteria to be considered a patent. However, there might be cases where a company would have to make the decision as to whether something was a trade secret or a patent. There are advantages to considering something a trade secret as opposed to a patent. They are:

  • There are no time limits on trade secrets, whereas patents generally last for 20 years.
  • There are zero costs to register a trade secret.
  • Trade secrets are less bound to public law and discussion.

There are disadvantages as well, especially if something meets the criteria as a patent. They are:

  • If somebody can figure out what your method is, then they can use it as much as they want.
  • If someone were to figure out your trade secret that would qualify as a patent, they could patent it before you do.
  • Once a trade secret is public, it is public, and anyone can use it. It then loses all protections.
  • It's harder to prove violations of trade secrets than it is of patents.

Famous Trade Secrets

Here are some of the most famous trade secrets:

Only a select few employees at KFC know the recipe for its fried chicken.

Rumors are that only two employees at Coca-Cola know the recipe; one knows half, the other knows half.

The New York Times will not divulge how it comes up with its best-seller list.

If you have questions regarding trade secrets, please contact Krogh & Decker, LLP, Business Attorneys at (916) 498-9000 or visit us online.

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