Trade Secrets

Frequently Asked Questions

What is a trade secret?

A trade secret is a formula, pattern, physical device, idea, process or compilation of information that is secret, and provides the owner with a competitive advantage in the market palace over others who do not have the information. Trade secrets are protected under State law rather than Federal law. This protection may be by virtue of common law or statutory law, such as the Uniform Trade Secrets Act.

What factors determine whether something is a “trade secret”?

Factors include:

• the extent to which the information is known outside the business;
• the extent to which it is known to those inside the business, i.e., by the employees;
• the precautions taken by the holder of the trade secret to guard the secrecy of the information;
• the savings effected and the value to the holder in having the information as against competitors;
• the amount of effort or money expended in obtaining and developing the information; and
• the amount of time and expense it would take for others to acquire and duplicate the information

Who owns a trade secret?

The originator owns the trade secret. As a form of intellectual property, however, trade secrets may be assigned, licensed, or otherwise transferred either explicitly by agreement or inferentially by legal implication. Such relationships as employer and employee, company and consultant, and partner and joint development partner, present fact patterns that complicate the question of who owns a particular trade secret.

Can I register a trade secret?

No. There is no process for application or registration of trade secret.

How do I mark something “trade secret”?

Trade secrets are maintained by taking reasonable measures to preserve secrecy and are protected by contract and tort law.

How is a trade secret protected?

For example, a trade secret may be protected through the use of contracts, primarily non-compete and non-disclosure agreements – which carefully define the trade secret . Therefore, it is advisable regarding any work for hire by an employee or independent contractor that there be confidentiality, non-disclosure agreement or non-compete agreements in place.

NB There is one group of people that cannot be stopped from using information protected under trade secret law. These are people who discover the secret independently, that is, without using illegal means or violating agreements or state laws. For example, it is not a violation of trade secret law to analyze (or “reverse engineer”) any lawfully obtained product and determine its trade secret.

How long does trade secret protection last?

The life of a trade secret may last forever so long as the secrecy is maintained.

How can a business enforce its rights if someone steals or improperly discloses confidential information?

Every state has a law prohibiting theft or disclosure of trade secrets. Most of these laws are derived from the Uniform Trade Secrets Act (UTSA).

A trade secret owner can enforce rights against someone who steals confidential information by asking a court to issue an order (an injunction) preventing further disclosure or use of the secrets. A trade secret owner can also collect damages for any economic injury suffered as a result of the trade secret’s improper acquisition and use.
What is the “inevitable disclosure” doctrine?

The “inevitable disclosure,” is applicable to a special class of cases: in some situations, a company may prevent a departing or former employee (who has not yet disclosed trade secrets and affirmed that he/she will not do so) from working for a competitor if the company can demonstrate that employment with the competitor will inevitably lead to disclosure of trade secrets.

Some states have rejected the inevitable disclosure doctrine because it challenges an employee’s basic freedom to switch employers. in Schlage Lock Company v. Whyte (2002) 101 Cal. App. 4th 1443, the California Court of Appeal rejected the inevitable disclosure doctrine but acknowledged the availability of injunctive relief for an employer for “threatened” disclosure of trade secrets by a former employee.
How do trade secrets differ from patents and which form of IP protection better protection? Some considerations are:

• Duration. The term of a patent is twenty years from its earliest effective filing date; trade secrets have a potentially infinite term. Perhaps a company seeks protection beyond the limited term a patent provides.
• Disclosure. A patent applicant must make full disclosure of an invention in the patent document for others to practice the invention upon patent expiration; disclosure is end of a trade secret.
• Cost. Patents can be expensive to obtain. A company may want to develop relatively low-cost, ongoing procedures to protect certain types of confidential information and know-how (namely, trade secrets) from disclosure to competitors or the public.
• Information Type. Patent law requires that an invention meet certain statutory requirements; trade secrets need only meet the definition provided above. However, the risk of either independent discovery or reverse engineering two perfectly legal actions that destroy the competitive advantage offered by a trade secret, may render trade secret protection impractical.

Can software be protected as a trade secret?

Yes. Trade secret law may be used to preserve proprietary rights to computer program code and its functionality.

How should unsolicited ideas be dealt with?

The answer depends on the company/owner’s goals, business, and sensitivity to risk. Some companies simply refuse to accept any unsolicited ideas. Some accept them without reservation. Still others receive unsolicited ideas only after the submitter signs a disclosure agreement stating that any submission is on a non-confidential basis and does not obligate the recipient in any way.

Is trade secret status lost if the trade secret is made public? Can trade secret status subsequently be recovered?

Generally, trade secret status is lost forever after public disclosure, unless the trade secret information became public through an unlawful act. Even then, however, the owner may have effectively lost the trade secret because of uncontrollable or widespread distribution.