Trade Secrets and Business Strategy

Trade secrets are secrets that add value to a business. While most companies that engage in extensive research and development still regard patent protection as their primary intellectual property tool, trades secrets are gaining recognition as a better way to protect certain intellectual assets. When the value of a particular intellectual asset arises primarily from the fact that it is not generally known – such as Google’s search algorithm – trade secret protection is generally the best way forward.

Most states have now adopted some version of the Uniform Trade Secrets Act (“UTSA”), which defines a trade secret as “information, including a formula, pattern, compilation, program, device method, technique or process that: (1) derives independent economic value from not being generally known, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” So nearly any commercially valuable and sensitive information – a business strategy, a new product roadmap, or list of suppliers and customers – can qualify as a trade secret. Unlike other forms of intellectual property, trade secrets are not registered or subject to filing fees. There is also no threshold requirement the secret be novel, useful, or source-identifying. And unlike patent filings, where the limited exclusivity comes at the price of public disclosure of the invention, trade secret rights require no such disclosure.

Patents have several limitations. European patent law explicitly excludes computer programs and business methods from patent protection. And in the US, patent rights, once granted, last only 20 years. Yet there are many formulas, methods, processes, codes, techniques, recipes, programs and algorithms which are so valuable to the companies which own them that they wish to hold them in confidence indefinitely. The great advantage of trade secrets, both as a form of intellectual property and as a tool of business strategy, is meeting this need. A well-kept trade secret has a potentially infinite duration, compared with the 20 years offered by a patent.  Coca-Cola has successfully kept its recipe as a trade secret since the formula was first mixed over 125 years ago. That would not have been possible with a patent.

However, if trade secrets are easier to acquire than other forms of intellectual property, they are easier to lose as well. The failure to take simple precautions can release a company’s crown jewels into the public domain. To protect them, trade secret owners are required to exercise efforts that are reasonable under the circumstances to maintain their secrecy. What is reasonable will depend on the nature of the trade secret and the extent to which others are using them. And trade secrets cannot be enforced against anyone who independently discovers the secret. Indeed, before choosing the trade secret form a company must assess the likelihood competitors can “reverse engineer” the secret from a finished product. If the invention cannot be practiced without revealing such information, patents are the way forward.

While nearly every US jurisdiction has now adopted some version of the UTSA, laws relating to the formation and misappropriation of trade secrets still vary considerably from state to state. Companies seeking to protect key intellectual assets by means of trade secret are therefore well advised to consult with counsel to design a trade secret program that satisfies the requirements of their jurisdiction.

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  • About the Author

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    Joseph Robinette

    Joseph Robinette’s practice focuses on corporate transactions, commercial agreements, antitrust counseling, intellectual property (IP) law and licensing, and unfair competition law. Before joining Wood + Lamping, Joseph served for many years as General Counsel to the United States Playing Card Company, the manufacturer of the well-known Bicycle® brand. He was also a member of the team of attorneys who wrote the winning motion for summary judgment in the significant antitrust case, Medical Center at Elizabeth Place v. Premier Health Partners, case 3:12–cv.26, Southern District of Ohio (2014).

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