Trade Secrets
Businesses with valuable trade secrets need to understand how to secure, maintain, and protect those secrets. Learn the key details here.
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Understanding Trade Secrets:
What is a Trade Secret?
A trade secret is valuable intellectual property made even more valuable because it is not widely known. A trade secret’s power lies in its secretiveness and in the competitive advantage it provides to the business that holds it. If a trade secret becomes widely known—and thus, is no longer a secret—it also loses its legal protections.
The elements that make up a trade secret are threefold:
- The information must hold commercial value in its secret-status.
- Few people can know the secret.
- Efforts must be taken to maintain the secret.
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Trade Secret Protection
To hold any power, trade secrets must be protected. But since a trade secret’s power is related directly to it staying a secret, the process for protecting trade secret rights is not necessarily straightforward.
How do I protect a trade secret?
There are a few ways to help ensure a trade secret is protected and the information remains confidential:
- Don’t tell many people. The more people who know a secret, the more likely that secret is to squeak out. By telling only those who need to know, it shows you’re trying to keep the secret close to the vest.
- Use confidentiality or nondisclosure agreements. These are contracts between parties (often employers and employees/consultants/contractors) that prohibit the sharing of protected information. If an employee signs an NDA, and later discloses a trade secret to an outside party, the employer will have a clear avenue to legal recourse.
- Secure the secret. Whether this means protecting your networks against hackers or literally locking the secret in a vault, your trade secret should be distanced from prying eyes.
Do trade secrets need to be registered?
No. In fact, trade secrets can’t be registered. This makes trade secrets different from other types of intellectual property—such as trademarks, copyrights, and patents—which get some (or all) of their legal protection from being federally registered.
What if someone reverse engineers my trade secret?
Reverse engineering involves working backward to determine how a finished product came to be. This can mean determining the product’s recipe, functionality, composition, or process. It might seem like cheating, but reverse engineering is completely legal in most instances. If a trade secret is successfully reverse engineered, a competitor could theoretically create and sell a product with the same formula as the original, with no legal consequences.
In some cases, however, the use of a product may involve agreeing not to reverse engineer it. If you reverse engineer something (for example, a computer program) that prohibits reverse engineering in its terms and conditions, licensing agreement, or related policy, you might end up in hot water.
What if my trade secret is learned through legal means?
If your trade secret is learned through legal means, such as negligence on your part or someone else’s independent discovery, there’s not much you can do.
Once a trade secret is widely known, the legal protection it was granted for being a trade secret goes away. The best thing you can do for a trade secret is keep it under wraps, because once it’s learned, it’s learned.
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Learn More About Law on CallTrade Secret Misappropriation
Misappropriation is to trade secrets what infringement is to trademarks, copyrights, and patents. It indicates that trade secret information has been obtained, used, or disclosed improperly. For example, misappropriation occurs if a person knows that trade secret information was acquired through improper means—such as being disclosed by a person who’d signed an NDA related to the matter—and then uses the secret to develop a product anyway.
What if someone misappropriates my trade secret?
If you believe your trade secret has been misappropriated, you can take legal action. Keep in mind, however, that a secret cannot be unlearned. Going to court, while it may win you monetary damages or some other award, cannot undo the fact that that your trade secret has gotten into others’ hands.
Are trade secret rights really enforced?
Yes. Numerous trade secret-related cases are brought to both state and federal court each year. Generally, there are three tracks a defendant in a misappropriation case will attempt to take.
- Prove the plaintiff was negligent in keeping the trade secret under wraps.
- Prove the defendant developed the secret themselves prior to obtaining the trade secret information.
- Prove enough public information exists that the secret could have been developed through legally-sound research.
But, trade secret cases are complex and often multifaceted. Even if you believe your trade secret has been misappropriated, this can be hard to prove from a legal standpoint, as seen below:
Eli Attia Architect PC vs Google LLC, et al.
In 2010, architect Eli Attia and Google entered a partnership. Attia had created Engineered Architecture, a technology that uses artificial intelligence to aid in structural design and construction. The plan was for Attia and Google to work together using this technology for future projects and development. So, Attia revealed some of his trade secrets to Google, and with his permission, Google filed patents related to the trade secrets. Later, Attia was allegedly pushed out—Google forged ahead with product creation without him.
The case began in 2014 when Attia sued Google in California for both misappropriation and breach of contract. After moving through several courts and amendments, Attia’s charges were ultimately dismissed by the Ninth Circuit Court of Appeals in 2020.
The reason? As it relates to his claims of misappropriation, Attia’s trade secrets ceased to be trade secrets once Google filed the related patents. Misappropriation couldn’t be proven because there technically weren’t any trade secrets to misappropriate.
In this case, one of the classic misappropriation defense routes was ready for the taking: the information in question was in the public domain and no longer a secret at all.
Trade Secret FAQs
Do trade secrets expire?
Theoretically, a trade secret may never expire. How long a trade secret lasts depends on how long it remains a secret. If a trade secret never becomes widely known, it will remain a trade secret indefinitely.
How can a trade secret be protected from departing employees?
To protect trade secrets from departing employees, it helps to have good onboarding and exit plans. Having employees sign non-disclosure agreements at the start of their employment may help ensure trade secrets stay within the business. When employees leave, you may also want to do the following: conduct exit interviews, remind them of any confidentiality agreements or rules, collect company property (such as computers and hard drives), and immediately terminate access to company networks and information.
Is a client list a trade secret?
Potentially, yes. If a client or customer list has been kept confidential, it may be considered a trade secret.
How are trade secrets different from patents?
Trade secrets and patents are often confused because they tend to protect the same types of information—primarily unique trade insights, inventions, or processes. A main different between the two, however, is in how exactly they protect the information in question. While patents need to be federally registered (with the information disclosed and eventually made public in the process), trade secrets cannot be registered at all. If information that starts out as a trade secret is someday registered with the United States Patent and Trademark Office, it will cease to be a trade secret in the process.
What is the Uniform Trade Secrets Act?
The Uniform Trade Secrets Act (UTSA) defines trade secrets and related terms such as “improper use” and “misappropriation.” It also speaks to the remedies that should be pursued in trade secret cases. The USTA was introduced in 1979, and to date has been adopted by 48 states plus Washington D.C., Puerto Rico, and the U.S. Virgin Islands. (New York and North Carolina are the holdouts.) While states are allowed to amend the UTSA, a primary reason for adopting this uniform act was to attempt to have a more consistent understanding of trade secrets and misappropriation across the country.
What is the Defend Trade Secrets Act?
Signed into law in 2016, the Defend Trade Secrets Act (DTSA) allows trade secret misappropriation cases to be brought in federal court. Prior to the DTSA, plaintiffs could sue only in state court. The DTSA aims to provide a consistent framework for trade secret litigation. Like the UTSA, the DTSA offers trade secret-related definitions and misappropriation remedies. But the DTSA does not override the UTSA. Since its adoption, the DTSA has often been used in conjunction with state interpretations of the UTSA. It remains to be seen if the goal of uniformity comes to fruition over time.