What are the basics of trade secrets?
What are the basics of trade secrets?
Studies indicate that trade secrets are the most prevalent form of intellectual property protection. Historically, trade secrets prevented foreign enemies from obtaining covert military advancements. Today, trade secret protection extends to many types of information, including a design, compilation, formula, research, strategy, technique, practice, instrument, pattern, process or even sometimes a customer list. The most widely known example of a trade secret is the secret recipe for Coca-cola, which remains a secret today.
Definition of Trade Secrets
A trade secret is information that confers an economic benefit to a business because it is not generally known or readily learned by others. This is also referred to as a competitive advantage.The information will not be recognized as a trade secret unless its holder makes a reasonable effort to maintain its secrecy.
Trade secrets are governed by state law. Texas courts weigh six factors to determine whether a trade secret exists: 1) the extent to which the information is known outside the business, 2) the extent to which information is known by employees and others involved in the business, 3) the extent of measures taken to guard the secrecy, 4) the value of the information to the business and competitors, 5) the amount of time, effort and money expended by the business in developing the information, and 6) the ease or difficulty with which the information could be properly acquired or duplicated by others.
How Trade Secrets Differ from Other Forms of Intellectual Property
Trade secrets provide a cost benefit over other forms of intellectual property because they do not require any formal registration or application process. However, the cost of maintaining the confidentiality of a trade secret may offset those savings. Unlike a patent, a properly preserved trade secret contains no expiration date and can extend indefinitely. In addition, trade secret status does not require that information be original, unique, or novel.
Trade secret protection may be as easily lost as it is created. Trade secrets only retain their protected status for as long as their secrecy is preserved. Although written confidentiality agreements are not required, a business can protect its trade secrets through non-compete (See Non-Compete White Paper) and non-disclosure agreements. However, trade secret law does not prevent competitors from independently duplicating secret information by reverse engineering or other proper means.
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This article has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation under federal law and the applicable state or local laws that may impose additional obligations on you and your company. © 2023 Klemchuk PLLC