What Are Trade Secrets?
What Are Trade Secrets? Trade secrets are any valuable business information that are kept confidential and secret. In general, they provide a business advantage over a competitor and the owners of the trade secret have made reasonable efforts to keep it secret.
Trade secrets are commercial, scientific and/or technical information, which are consistently treated in a confidential manner by business. Trade Secrets are information that are generally not known. They are any confidential business information that provides a company with a competitive edge.
They are a useful alternative to protect business information and intellectual property without having to go through the formal process of intellectual property protection.
How do Trade Secrets Arise?
Trade Secrets rises from the duty of confidence identified in common law (case law). The duty of confidence arises when confidential information is disclosed and the recipient has agreed that the information is confidential.
In answering the question of what is a trade secret, it is important to note that the actual definition of a trade secret can vary between jurisdictions.
What Are Trade Secrets?
Trade secrets can be formulas, practices, designs, patterns, data compilations, devices or instruments, processes, etc. A trade secret can also be protected by contract such as in the context of a confidentiality agreement. A trade secret must have the following elements:
- the information must be secret in that it is not generally known
- It must have commercial value
- the owner of the information must take reasonable steps to keep it secret such as through a confidentiality agreement
Founders may use trade secrets and non-disclosure agreements (“NDAs”) to protect their intellectual property instead of spending the money on filing for intellectual property protection. It’s not always a good idea.
It is always advisable to apply for intellectual property protection instead of relying on trade secrets. Despite a tight greatly worded intellectual property clause in an agreement, there’s still improvements or other holes that can come out of an NDA. An NDA doesn’t always contemplate every scenario and protect fully.
What Are Trade Secrets? How do Business Use Trade Secrets?
- Trade secrets are used to ensure an invention is not disclosed to the public before applying for a patent or industrial design
- Businesses may protect an invention through trade secrets instead of through patent protection which is more costly.
- Trade secrets protect valuable business information that is not formally protected through other intellectual property protection. Certain information such as recipes, consumer data, ideas, market research may not be protected through patents, trademarks, industrial designs or copyright. To protect this confidential information, businesses use trade secrets.
Advantages of Trade Secrets
Companies use trade secrets instead of patents due to the high costs of obtaining a patent.
Protection through trade secrets also helps in avoiding having to disclose company technologies through the patent process.
Avoid disclosing company technologies which is required through the patent process in patent publications.
Trade secrets allow you to protect our secrets longer than the period for protection of a patent.
Trade secret protection last forever as long as the information remains secret.
Disadvantages of Trade Secrets
However, trade secrets are weaker protection than patents and anyone with a similar trade secret developed independently can go ahead and use it and apply for a patent.
A competitor can still independently develop your idea, secret or technology and can turn around and patent the same invention.
Who Should Sign a Non-Disclosure or Confidentiality Agreement
A confidentiality agreement or non-disclosure agreement is a contract in writing in which the parties agree not to disclose the confidential information or information that is secret.
This ensures that the information does not become available to the public as once it does, it is no longer protected under law. Furthermore, a disclosure could prevent information that may be subject to a patent from being patentable.
- Partners in a Joint Venture
- Independent Contractors
What Are Trade Secrets Developed through Common Law
There is no formal intellectual property process to protect a trade secret. In order for a business to protect a trade secret, a business has to keep the information secret, obtain value for it and take all measure to ensure it remains a secret.
Trade secrets have commercial value and is not publicly available or in the public domain. It is reasonably protected and communicated to others in confidence. You can keep a trade secret a secret through the following:
- Non-disclosure or confidentiality agreements
- Confidentiality clauses such as those found in employment agreements
- Encryption of valuable business information
- Password protection to access valuable business information
- Lock up valuable business information in a safe
What Are Trade Secrets? Examples of Confidential Info
- Customer & supplier lists
- Documentation, manuals, processes, methodologies
- Business operations & business plan
- Financial information
- Pricing policies
- Marketing plans
- Employee salaries
- Customer arrangements
- Sales methods
- Manufacturing process
- Distribution methods
- Advertising strategies
Protect your business processes and ideas through duty of confidence at common law or through a confidentiality agreement if something is non-patentable or too expensive.
Only some trade secrets qualify for intellectual property protection by statutes.
Protection of trade secrets arises under a common law duty of confidence and why trade secrets can be described as confidential information.
The duty of confidence arises when a person receiving confidential information is notified that it is confidential or agrees that it is confidential.
Strategies for Start-Ups to Protect Your Confidential Information
- Identify and mark it
- Document access to confidential information
- Institute documentation destruction practices
- Visitor badges
- Review marketing materials
- Develop a company policy
- Have confidentiality agreement or non-disclosure agreement signed (especially since it’s difficult to prove that notice of confidentiality was given to another person)
What Are Trade Secrets? What is Included in an NDA?
- Definition of confidential information (and what is not confidential information)
- The following may fall outside of what is considered confidential information:
- Information in the public domain
- Information that becomes known through other sources
- Information that is independently developed by the receiving party
- Disclosure under court order or pursuant to an applicable statutory or regulatory authority
- Purpose of the disclosure outlining any purposes and limits where the information may be disclosed (i.e. Lawyers, accountants, etc. provided they keep it confidential as well)
- The right to sue for damages and obtain an injunction as any breach of confidential information would cause irreparable harm which cannot be adequately compensated by damages, and that injunctive relief should be permitted
- The company shall remain owner of the information being disclosed and no property rights in the disclosed information is being granted by the company to the receiving party
- Disclosed information to be returned to the company or destroyed when the purpose of the original disclosure has been accomplished or completed
Additional Measures to Protect Trade Secrets and Confidential Information
- Identify and mark as confidential all confidential documents
- Control and document everyone that has access to the documents by its employees
- Implement a document destruction policy
- Restricts access to company’s premises by visitors
- Review all marketing materials, executives speeches and other communications to ensure there hasn’t been any inclusion of confidential information
Venture Capitalists & NDAs and Trade Secrets
- Most will refuse to sign an NDA
- Check reputation of the venture capital firm or company you are meeting with
- Research the firm
- Mark written materials as “confidential information” so that you can rely on common law duty of confidence
- Be selective about what you share with investors and don’t share everything all at once
- Implement a phased disclosure schedule where you only disclose the most sensitive information once trust has been established