I Can Understand a Patent and a Trademark, but How the Heck do Trade Secrets Work?

December 20th, 2007

Trade secrets are a deceptively simple idea: like the fabled Coca-Cola formula, they are proprietary ideas that have never been shared. Because they are “secret” they are entitled to intellectual property protection.

But what does that really mean, and how does one keep something “secret”? Clients ask me this with some frequency (hm- $30k to obtain a patent that I then need to spend more money to enforce, or $0 to keep a secret?) and I’d like to share some of the basic concepts. There are some excellent “deep” resources out there, so I will focus on the common questions I get from clients.

What is a Trade Secret?
Under California law, a trade secret is (i) information that (ii) has economic value, (iii) is not generally known, and (iv) is subject to reasonable efforts to keep secret. It can be an idea, a process, software, knowledge of ideas that don’t work, and many other things. Essentially it needs to provide an economic advantage to the holder, and steps need to be taken to protect the secrecy. Since efforts to protect secrecy can easily lead down a slippery slope, it is worth noting that extreme, expensive measures to prevent industrial sabotage are not required.

How Can I Lose My Trade Secret?
The one word answer is “disclosure”. Inadvertent or intentional disclosure will both blow the protection. In the latter case damages may be available for breach of secrecy obligations, but accidental disclosure will do the job as well. Workers should be told the information they are handling is confidential, steps should be taken to recover records from departed workers and reasonable measures should be taken to make sure that information is maintained on a “need to know” basis if the secret is a critical one.

It is also worth noting that independent development of the information will terminate trade secret rights. Reverse engineering does not violate trade secret protection laws, and a “hot” idea that is not generally known when developed can become known later and lose protection as a secret.

How Do I Know I am Not Infringing Someone Else’s Secret?
This is tricky. Patents and (registered) trademarks require public filings, so a company can find it if there is existing protected IP in a given area. Trade secrets are secret by nature, so it is entirely possible that one could develop technology that inadvertently duplicates someone else’s trade secret right.

The answer is, again, that independent development by itself does not infringe a trade secret. The key here is to have enough notes, research records and other facts to back up the argument that one developed one’s information independently and without reference to the competitor’s secret information. In a small field where the players know one another well this may be easier said than done.

Talk to Your Lawyer
These ideas scratch the surface of trade secret law and probably beg more questions than they answer, like “what do I do if someone discloses my secret”, “how can I make sure my employees protect my secrets” and “what are the remedies for theft of a trade secret?” Anyone asking these questions should definitely talk to a lawyer- the answers are too complex and likely depend on specific facts. Still, I hope this gets some people pointed in the right direction with regard to what trade secrets can and can’t do, or at least helps figure out what further questions need to be asked.

Tags: ,