September 7th, 2016

The Pros and Cons of Trade Secrets

Trade Secrets are a potentially valuable, inexpensive, fourth-form of intellectual property, separate from Patents, Trademarks and Copyright.

A submission by our mystery correspondent.

Trade Secrets are a potentially valuable, inexpensive, fourth-form of intellectual property, separate from Patents, Trademarks and Copyright.

A trade secret is any business information which provides a business with a competitive advantage which is not generally known; the information can be a process, design, formula, instrument, etc., so long as the secret is not readily ascertainable by third parties.

Trade secrets can be treated pretty much like any other intellectual property. The specific details vary from state to state, but typically, you may sell or license a trade secret, and you may sue anyone who steals – or attempts to steal – it from you.

The formula for Coca-Cola™ is a well-known example of a trade secret that had been kept for over a century – which highlights their main attraction – a trade secret has no expiry date. As long as you keep it secret, it remains a trade secret – and there are no legal bills, annuities or renewal fees to pay.

The big drawback with trade secrets used to be the danger of losing your rights to your own invention.

This was possible because anyone who invents an improved method of producing a product has two options: patent it, or keep it secret. In the past, if you chose to keep it secret – and someone else independently invented the same improved method, and patented it – they were then legally entitled to prevent you using your own improved method. This naturally made people very cautious about choosing to keep an invention as a trade secret rather than patenting it.

Since the signing of the America Invents Act (AIA) in September 2011, the situation has changed significantly, thanks to the Act’s extension of a “prior use” defense to all patents. “Prior use” is the defense that if you can demonstrate having used the method that was subsequently patented, in a commercial context, for at least one full year before the filing date of your opponent’s patent on the invention, you may continue to use your invention with no penalties. Trade secrets are, therefore, no longer the risky gamble they were.

So how do you keep a trade secret?

First you need something worth keeping secret, i.e., information, including, but not limited to, a formula, a pattern, a compilation, a program, a device, a method, a technique or a process that derives independent economic value, actual or potential, from not being generally known.

Second, you need to ensure that that the information is the subject of efforts that are “reasonable under the circumstances to maintain its secrecy”. Meaning that you should carry out – and preferably document – procedures such as not even telling employees if they don’t need to know, and then only after they have signed confidentiality agreements that clearly bars them from disclosure. Circumstances may dictate the exact nature of the precautions needed, but general guidelines are to err on the side of over-protection, and to maintain as much documentary evidence of what efforts you make.

But the bottom line is: If you treat information as a trade secret – it is a trade secret.

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