← Back to Blog

A Deep Dive Into Trade Secrets and How to Protect Yours

A cold glass of Coca-Cola. A bucket of KFC’s original fried chicken. Google’s search results pages. What do these things all have in common? They are enjoyed and used by billions of people worldwide, but only a few actually know how they are made. They are all products of well-kept trade secrets.

What Is a Trade Secret?

A trade secret is a form of intellectual property owned by an individual or a business. It is highly confidential information that a company relies on to conduct business, drive sales further, and outperform the competition. Trade secrets give a business its competitive edge. They are things that, if everyone else knew about, it would cause the company to lose its advantages in its market.

What Can Be a Trade Secret?

According to federal laws, a trade secret is any form or type of financial, business, scientific, technical, economic, or engineering information. The info a business uses to gain and maintain a leg up over its competition counts as a trade secret and should be protected from reaching the realm of public knowledge.

Some of the most common examples of trade secrets are top-secret recipes or formulas. However, trade secrets can include anything from:

  • Codes
  • Compilations
  • Designs
  • Formulas
  • Methods
  • Patterns
  • Plans
  • Procedures
  • Processes
  • Programs
  • Program devices
  • Prototypes
  • Techniques

A business can have numerous trade secrets to protect, ranging from research and development methods to manufacturing processes, distribution methods, product designs, advertising strategies, customer lists, and more.

What Are the Criteria for a Trade Secret?

The criteria required for business information to be considered a trade secret varies between jurisdictions. However, there are three traits that all trade secrets have in common:

Trade secrets are not public.

In order for something to be considered a trade secret, it cannot be made public. How the company maintains secrecy is up to them, but a trade secret must remain a secret from those not a part of the company or business.

Some of the most long-lasting trade secrets are still unknown by the public because only a small few within the company know the secret or have access to documentation that reveals it. For instance,

KFC’s original recipe, handwritten by Colonel Sanders himself, is locked away in a safe that only a few within the company have access to. (And those few are bound by a weighty confidentiality agreement that has significant consequences should it be broken.)

To ensure the recipe remains a secret, KFC uses two different companies to assemble the mix—one company is given a few of the ingredients, and the other is given the remaining list. That way, neither is privy to the full recipe and cannot leak it to the public.

Trade secrets provide a competitive edge for the business.

Whether it’s a particular process, procedure, formula, or anything else unique to the company’s success, the secret information must positively impact the company’s performance in its market. In other words, the secrecy of the information provides the company with a competitive advantage.

For example, the codes that make up Google’s algorithm are highly detailed and complex. Google is constantly updating and modifying its algorithm to ensure it provides the most relevant, high-quality user experience with every search conducted on the search engine. Other factors contribute to Google’s success, but its secret algorithm is definitely a part of the reason the company is the search engine leader with a massive market share.

Trade secrets must be actively protected.

To bolster the argument that your company’s information should be considered a trade secret, it’s important to work to maintain secrecy and protect any information from reaching the wrong hands or entering the public sphere.

Companies must employ effective methods to protect a trade secret. There are several ways to go about doing this, such as:

  • Locking secret-revealing documentation away and providing access to a select number of employees.
  • Providing certain employees with partial access to the secret so they can know what they need to know without being privy to the entire secret.
  • Making those in the know about a trade secret sign hefty or weighty non-disclosure agreements or confidentiality agreements.
  • Applying several layers of security measures to reach the protected information. Examples can include having encryption and password protection for digital data, or having a safe that is locked away in a vault that is only accessible through a biometric access control system for tangible information.

How Can I Legally Protect My Trade Secrets?

Trade secrets are a form of intellectual property and are protected by law. To ensure information remains a secret from the public, trade secrets do not require registration with government entities the same way something like a patent would. However, since there is no formal protection or procedures that cover trade secrets, it can be tricky to know whether your trade secret really is legally protected or not.

The Federal Defend Trade Secrets Act, the U.S. Uniform Trade Secrets Act, the Economic Espionage Act, and even the EU Trade Secrets Directive all include legal protection of trade secrets so long as the information in question satisfies the criteria of being withheld from the public, providing a competitive edge, and being actively protected by the company who owns it.

The most challenging aspect of a trade secret to prove in a court of law is whether the information is being protected through sufficient and reasonable measures. In a study of trade secret violation cases between 2009 and 2018, researchers discovered that defendants, or those accused of stealing a trade secret, had an easier time arguing that the information was not considered a secret because it was not well protected. Judges ruled in favor of the defendant whenever evidence showed that reasonable protective measures were not applied.

The takeaway from the study for many is that, if you have a trade secret, being overly protective is better than applying minimal or insufficient protection. Trade secret violation cases are nuanced and vary from case to case. However, the more you protect your information prior to a theft, the more protected you will be in court should a theft ever occur.

Are you facing the consequences of a trade secret violation? Have you been accused of stealing or distributing a trade secret? The business litigation lawyers at Clark, Smith & Sizemore will fight for you.

If you are dealing with the ramifications of a leaked trade secret, another intellectual property violation, or any sort of issue involving business litigation,  talk to the team at Clark, Smith & Sizemore. We are well-versed in the laws surrounding business litigation, contract disputes, and intellectual property. We will fiercely represent you in your journey to resolution. Call us today for a free consultation: 478-254-5040.

Thanks for checking out part 6 in our 6-part series about business litigation. If you missed any of the articles in our series, check them out here!