Coca-Cola’s secret formula. McDonalds’ special sauce. Google’s search algorithm. Bumble’s dating software. This proprietary information is vital to these companies’ survival, and among their most valuable corporate assets. Each is protected as a trade secret. While patent law offers strong protections for proprietary inventions, obtaining a patent requires establishing that the invention is novel, non-obvious, and patent-eligible. It also requires disclosure of the invention itself in the patent application. And while patents last for twenty years, they do not last forever. By contrast, trade secrecy provides another avenue to protecting a company’s IP that allows the inventions to be kept secret and potentially protected forever.
What is a Trade Secret?
Trade secrets are intellectual property (IP) rights on confidential information which may be sold or licensed. In general, to qualify as a trade secret, the information must be:
- commercially valuable because it is secret,
- be known only to a limited group of persons, and
- be subject to reasonable steps taken by the rightful holder of the information to keep it secret, including the use of confidentiality agreements for business partners and employees.
The unauthorized acquisition, use or disclosure of such secret information in a manner contrary to honest commercial practices by others is regarded as an unfair practice and a violation of the trade secret protection.
Understanding a Trade Secret
Trade secrets may take a variety of forms, such as a proprietary process, instrument, pattern, design, formula, recipe, method, or practice that is not evident to others and may be used as a means to create an enterprise that offers an advantage over competitors or provides value to customers.
Information protected by trade secrets can be strategic for the long-term, like recipes or chemical compounds, or for shorter periods, such as the results of a marketing study, a brand name, price and date of launching of a new product or the price offered in a bidding procedure.
How are trade secrets used?
Generally, trade secrets are used to do several things:
- Ensure an invention or a design is not disclosed to the public before an application for a patent or an industrial design has been made
To obtain a patent for an invention, the invention must be new to the world and not known to the public. Similarly, industrial designs can only be registered if they are original in the world and aren’t known to the public. This can be difficult for inventors and designers, especially when they try to commercialize products, test products, launch a business, find financing or seek partners, because they usually have to disclose the invention to other people (the public). To ensure confidentiality before obtaining patent protection, inventors will guard their new inventions as trade secrets.
- Protect an invention through means other than patent protection
Because securing a patent can be costly and time consuming, some businesses and inventors choose to rely on trade secrets instead. This strategy is often used when the invention has a short lifespan or is difficult to reverse engineer.
- Protect valuable business information that is not formally protected through other intellectual property (IP) rights
Businesses that have a wealth of consumer data, recipes for food products or cutting-edge market research and analysis want to ensure that competitors do not get their hands on that information. This type of confidential information (IP) is generally not protected through patents, trademarks, industrial designs or copyright. To protect this confidential information, businesses use trade secrets.
Why are Trade Secrets Becoming More Important?
Trade secrets recently have become a more popular form of intellectual property protection for several reasons. These include the ubiquity of trade secrets and their broad range of eligible subject matter, the uncertainty inherent in the patent application process and a reluctance to disclose one’s “secret sauce,” the possibility of perpetual protection under trade secret law.
One of the biggest reasons trade secret law is on the rise is the flexibility and scope of protection it offers. Trade secret law can protect a wide range of subject matter that does not fall under traditional intellectual property schemes. Patent law, for example, protects subject matter limited to a composition, production process, machine, tool, new plant species, or an upgrade to an existing invention. Many of this era’s most important inventions are difficult to patent, including algorithms, correlations, and systems and methods that primarily rely on the same.
As trade secrets take on a more important role in the business world, the legal community, and society at large, companies should inventory their trade secrets, employ all reasonable measures to protect them, and assess the different legal tools to safeguard these valuable assets.