A trade secret is a type of intellectual property. Trade secret laws protect valuable confidential information from theft by others. You don’t have to register your information for it to be your trade secret. Rather, all you need to do is to take reasonable steps to keep it a secret.
For example, you don’t register your customer list but your customer list is considered to be your trade secret. You would take care that no one has access to your customer list. The steps you take to safeguard your customer list are proof showing that your customer list is your trade secret. Trade secret protection lasts for as long as the information remains confidential. You have a trade secret in your customer list for as long as it remains a secret. Once the information is known to the public, the information ceases to be a trade secret.
What qualifies as a trade secret?
A trade secret is:
- information that is not known to the public;
- information that is financially valuable because it is not known to the public; and
- information that its owner has taken steps to keep secret.
Once the information has become known to the public, it is no longer secret, and thus the information is no longer protectable as a trade secret.
State and Federal Trade Secret Laws
Each state has its own laws related to trade secrets. Many states have enacted a modified version of the Uniform Trade Secret Act. California’s trade secret law is contained in Cal. Civil Code Sections 3426-3426.11. However, this proves a great baseline for learning the basics of trade secret protection.
Two federal trade secret laws were recently passed. They are the Economic Espionage Act of 1996 and the Defend Trade Secrets Act of 2016.
What do trade secret laws protect against?
Trade secret laws protect against the unauthorized taking of valuable confidential information of a company. Most of these thefts are not by force but voluntarily given to others. For example, someone may call an assistant and convince him or her to send over confidential information. If you don’t believe that this can happen, then read this. In 2016, a few people stole the formula for COKE and tried to sell it to Pepsi. But, little did these thieves know that Pepsi couldn’t use the information because they knew that the Coke formula was stolen. Pepsi reported them to law enforcement.
Trade secret laws do not protect against independent creation. For example, if you have technical knowledge that can change the world but someone else discovers the same information without your help, the second person has not violated the first person’s trade secret rights. The second person did not steal the information from the first person.
This leads us to the patent discussion. An invention when first conceived starts out as a trade secret of the invention. Once they start to market the invention to others, the invention ceases to be a trade secret. To continue to protect the invention, inventors must file a patent application. If there are two inventors that conceive of the same invention at the same time, both have trade secret protection but it is the one that wins the race to the patent office that will be awarded patent rights.
What types of ideas or information should be protected by trade secrets?
Recipes and inventions that cannot be reverse engineered are good candidates for trade secret protection.
What types of ideas or information should not be protected by trade secrets?
Information that can be reverse engineered cannot be protected by a trade secret. If your invention is a mechanical product, then anyone can reverse engineer your product once they purchase your product. Inventions can be protected as a trade secret up until they are marketed to the public. If the invention is a software product and the inventive aspect occurs in the cloud and others can’t reverse engineer how the software works, then it could be protected by trade secrets.