Aug 03, 2010

Trade Secrets

A trade secret is a process, method, plan, formula or other information unique to a company, which gives it an economic advantage over competitors. Therefore the trade secret has value and may be protected by a court-ordered injunction against use or revelation of trade secrets by an employee, former employee or someone who comes into possession of the trade secret. The employer may seek damages against such a person for revealing the secret. In addition, the owner of a trade secret involved in a lawsuit may request a “protective order” from the judge to prohibit revelation of a trade secret or a sealing of the record in the case where references to the trade secret are made. A trade secret often is a business process and often not a patentable invention, but it can be.

Trade secrets are not protected by registration or submission to a US governmental agency, but are protected without registration or with any procedural formalities. Consequently, a trade secret can be protected for an unlimited period of time. There are several conditions for the information to be considered a trade secret, some of which are that the information:

  1. Must be secret (i.e. it is not generally known among, or readily accessible to, circles that normally deal with the kind of information in question).
  2. Must have commercial value because it is a secret.
  3. Must have been subject to reasonable steps by the rightful holder of the information to keep it secret (e.g., through confidentiality agreements).

Before you decide whether the information should be kept as a trade secret or patented, you should consider, among other things, whether the information is patentable and, if so, whether it would not be better protected by a patent; make sure that only a limited number of people know the information and that all those who do are well aware that it is confidential information; include confidentiality agreements within employees’ contracts; and sign confidentiality agreements with business partners whenever disclosing confidential information.

Trade secrets have some advantages over patent and copyright. Trade secret protection is not limited in time (patents last in general for up to 20 years) and may therefore continue indefinitely as long as the secret is not revealed to the public. Trade secrets involve no registration costs, although there may be high costs related to keeping the information confidential, and does not require compliance with formalities such as disclosure of the information to a government authority. Trade secrets have immediate effect and you do not need to wait to see if the USPTO will grant a patent or the US Copyright Office will issue a copyright registration.

There are, however, several disadvantages to trade secrets. If the secret is embodied in an innovative product, others may be able to reverse engineer it and discover the secret and be thereafter entitled to use it. Trade secret protection does not provide the exclusive right to exclude third parties from making commercial use of it if the third party comes across the trade secret information legitimately. Once the secret is made public, anyone may have access to it and use it at will, even if the disclosure was inadvertent or intentional. A trade secret may be patented by someone else who developed the relevant information by legitimate means.

Trade secret protection can be valuable when the secret is not patentable and when the likelihood is high that the information can be kept secret for a considerable period of time. For example, if the secret information consists of a patentable invention, trade secret protection would only be convenient if the secret can be kept confidential for over 20 years (the period of protection of a patent) and if others are not likely to come up with the same invention in a legitimate way. Trade secret protection can be tricky to maintain and you should contact a lawyer well-versed in trade secret law before attempting to implement a trade secret policy.

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