A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers. In some jurisdictions, such secrets are referred to as “confidential information” or “classified information”.
Trade secrets are like patents, but without the strict criteria for novelty and usefulness and without an expiration date. They’re basically confidential, valuable information that gives a company a competitive edge. Famous examples are the precise formula for Coca-Cola and the algorithms that Google uses to sort and filter the Internet.
In the United States, trade secrets are now protected by law in the same manner as trademarks or patents. Specifically, all are protected under Federal statutes, the Lanham Act, Patent Act, and now the Defend Trade Secrets Act (DTSA). Previously, trade secrets arose out of state laws. Most states adopted the Uniform Trade Secrets Act (UTSA). Only Massachusetts, New York, New Jersey, North Carolina, and Texas did not adopted the UTSA. One of the most significant differences between patents and trademarks and trade secrets is that a trade secret is only protected when the secret is not disclosed.
The DTSA attempts to harmonize divergent state laws by creating a single federal framework for trade secrets misappropriation lawsuits. This will lead to a relatively uniform body of case law when bringing trade secret disputes. The law has been described as the “most significant expansion of federal law in intellectual property since the Lanham Act in 1946.”
Businesses that fail to include the proper notice in their agreements will not be able to take advantage of the full range of remedies under the DTSA, including exemplary damages (up to twice the amount of actual damages) and attorneys’ fees for willful or malicious violations. To get the maximum benefits of this new law, employers will want to incorporate the immunity notice into their relevant employment agreements and policies as soon as practicable.
The precise language by which a trade secret is defined varies by jurisdiction (as do the particular types of information that are subject to trade secret protection). However, there are three factors that, although subject to differing interpretations, are common to all such definitions: a trade secret is information that:
- is not generally known to the public;
- confers some sort of economic benefit on its holder (where this benefit must derive specifically from its not being generally known, not just from the value of the information itself);
- is the subject of reasonable efforts to maintain its secrecy.
A company can also protect its confidential information through non-compete and non-disclosure contracts with its employees (within the constraints of employment law, including only restraint that is reasonable in geographic and time scope). The law of protection of confidential information effectively allows a perpetual monopoly in secret information – it does not expire as would a patent. The lack of formal protection, however, means that a third party is not prevented from independently duplicating and using the secret information once it is discovered.