How does trade secret protection work?

How do you get trade secret protection?

Trade secrets are like the One Ring: Keep it secret, keep it safe! The only way to obtain a trade secret is to keep the information or idea a secret. Trade secrets are in many ways the anti-patent: they are destroyed by revealing them to others (unless there are special restrictions in place—more on that later), and they are mostly governed by state law rather than federal law.

What do you have to do to keep a trade secret safe?

Trade secrets, as we know from a previous post, have to be subject to reasonable protections to keep them secret. Whether a particular kind of protection is reasonable depends on what the trade secret is. For example, it would be reasonable to protect a unique hand-written recipe by locking it in a safe, if that copy were the only copy of the recipe. But it would not be reasonable to protect a digitally recorded recipe by locking a computer containing a copy of the recipe in a safe. Owners of trade secrets have to take into account what specific measures make the most sense for protecting their trade secrets, but the following methods are examples of commonly used protective measures:

  • Locked filing cabinets or safes
  • Strong passwords
  • Encryption
  • Secure-card access for buildings or specific parts of buildings
  • Controlling copies by digital marking
  • Non-networked computers
  • Separating portions of the manufacturing process geographically
  • Supply chain management
  • Measures to prevent reverse-engineering

Many larger companies have a trade secret protection program. The program describes what kinds of things the company considers to be trade secrets and how to protect them. The program may be tiered, so that different types of trade secret material are subject to different kinds of protection, depending on the nature and sensitivity of the trade secret.

What happens if someone reveals a trade secret?

The trade secret has been destroyed. Trade secrets can exist only so long as they are secret. A trade secret owner may be able to obtain an injunction if there is reason to believe that someone is planning to reveal a trade secret; and if the trade secret has been revealed, the owner may be able to collect damages. But the trade secret is gone if it’s been revealed, absent special restrictions.

You’ve mentioned special restrictions twice. What are they and how do they help?

The special restrictions allow trade secrets to be useful. Trade secrets cannot be kept so secret that they are unusable. In our example of the hand-written recipe in the safe, the recipe has to come out now and then so that someone can consult it to make something. In some cases, the trade secret has to be shared with others in order to be useful, and those others may be either inside and outside the company that owns the trade secret. When that happens, the people with access to the trade secret must generally sign a nondisclosure agreement.  A nondisclosure agreement, often referred to as an NDA, places special restrictions on people with access to a trade secret. It is essentially a legally binding promise not to reveal or use information, and it sets out consequences of failing to keep that promise, ranging from monetary damages to termination of employment. The NDA is best entered into before the recipient receives the trade secret information, so that there is no question that the trade secret information should not be shared with anyone else.

If trade secrets are so easy to destroy and so much effort to get, why would you use them? What is the benefit of trade secret protection?

Trade secrets are the only way to protect certain categories of intellectual property, such as recipes and ideas. Trade secrets can also be useful as a temporary form of protection. For example, if you have written a novel and do not want to have information about the plot revealed before the novel goes on sale in bookstores, you can treat the novel as a trade secret until its release date and time. J.K. Rowling did this with later Harry Potter books, with varying degrees of success. Finally, trade secrets can be a good choice for items that are patentable but could give the owner a competitive advantage for longer than the 20-year period of patent protection. For trade secret protection to work well in this context, the item cannot be easy to reverse-engineer; reverse-engineering will reveal the secret to someone else, thus destroying the trade secret.

How much does trade secret protection cost?

This depends entirely on what reasonable protection measures are taken to protect a given trade secret. Cost can be a factor in determining reasonableness of the level of protection, so in general, trade secret protection should not be prohibitively expensive relative to the value that the trade secret creates.

Who is the owner of a trade secret?

Anyone can own a trade secret. If you are a freelance writer, you may have a secret formula for writing a viral blog post in a short period of time. If you are an employee of a company, you may have signed an agreement with your employer that gave your employer the right to own any trade secrets you create as part of your job. Generally, the owner is whoever has a claim to the intellectual property and has put in the effort to keep the trade secret a secret.

How long does trade secret protection last?

Like trademark protection, trade secret protection can theoretically last indefinitely. So long as the owner is able to keep it secret, it is still a recognizable trade secret.

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