All About Trade Secrets: 5 Types of Trade Secrets

Trade secrets are a form of intellectual property covering processes, devices, designs, formulas, or compilations of information that give the owner a distinct advantage over their competitors. There is no universal, legally-binding definition of a trade secret, but it is widely agreed that trade secrets provide the owner with independent economic value. Those who possess trade secrets will practice trade secret protection with security features, non-compete agreements, and contracts to protect proprietary information.

There are distinct differences between trade secrets and patents. A governmental agency grants a patent, which has specific technical requirements. The United States Patent and Trademark Office must judge it as a non-obvious or novel product with demonstrable utility in deciding whether to grant a patent. After filing, patents are publicly available; the idea is that they will be legally protected from use by anyone other than the party who filed the patent application. Patent protection generally expires after twenty years.

Unlike patents, companies cannot file a patent to protect trade secrets, but there are certain legal protections for trade secrets that vary by country and state law. Officials in several states agreed upon the 1979 Uniform Trade Secrets Act (UTSA), the Economic Espionage Act of 1996 (EEA) further codified trade secrets, and the 2016 Defend Trade Secrets Act (DTSA) became the first federal law enforcing trade secret protection.

Companies need to show reasonable efforts to protect confidential information in trade secret litigation. Below are some examples of trade secrets:

1. 1. Processes: Anything a company innovates to increase efficiency in manufacturing processes can be a protected trade secret since this process, if not known to competitors or the general public, gives the company a competitive advantage.
2. 2. Formulas: A protected trade secret might be a recipe for a food product or an item in the chemistry or health care sector known only to one organization. For example, the ingredients and production process to make the French liqueur Chartreuse has been a secret formula for hundreds of years.
3. 3. Databases: Corporations typically keep detailed customer lists with specific information about buying habits. This information is often a protected trade secret, as it allows the company to conduct business using valuable, hard-won information about the marketplace.
4. 4. Programs: A proprietary software program that allows for greater information storage or faster information retrieval is another example of a trade secret. The trade secret owner benefits from this valuable information technology—so long as they are the only one in possession of it. For example, a search engines’ algorithms, which provide customized search results to users, are closely-guarded secrets.
5. 5. Business operations: Trade secrets can also be logistical practices or information about marketing, external costs, pricing, and other accounting data. If this business information is not publicly available, and steps are taken to keep it secret, it can be a protected trade secret.

Often, newly hired employees will have to sign non-disclosure agreements (NDAs) or confidentiality agreements as a condition of their employment. These agreements will cover the misappropriation of trade secrets for that company.

As intellectual property becomes more valuable, there is an increase in international trade and competition overall. Some ways trade secrets can affect business include:

• International reach: Increased lobbying by corporate powers has led to greater international, federal, and state laws for the protection of trade secrets, trademarks, patents, and copyrights. These often feature in international trade agreements, wherein sovereign federal courts will include hefty fines or other penalties to dissuade former employees from disclosing trade secret information (sometimes called a “breach of confidence”) or companies to engage in theft of trade secrets. The United States International Trade Commission is an example of this kind of arrangement.
• Innovation: Trade secrets form an integral part of tort law and unfair competition. By protecting a company’s reasonable measures to control its trade secrets, the investment in new ideas and processes can produce profits, thus incentivizing innovation.
• Reverse engineering: Trade secrets also lead to increased efforts to circumvent regulations, gaining an advantage while avoiding improper means. In the case of reverse engineering, competing companies will try to determine how a product is made by analyzing it and thereby gaining valuable information without violating trade secret laws.

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