Trade Secret

Trade Secret: Definition and Key Points

A trade secret is confidential business information—such as a formula, process, method, design, pattern, compilation, program, device, or technique—that gives a company a competitive or economic advantage. Unlike patents, trade secrets are not publicly disclosed; protection depends on maintaining secrecy.

Key traits of a trade secret:
* Not generally known or readily ascertainable by others.
* Derives actual or potential economic value from being secret.
* Subject to reasonable efforts by the owner to keep it confidential.

How Trade Secrets Work

Companies create and preserve trade secrets through internal controls and procedures:
* Access limitation (need-to-know basis).
* Confidentiality agreements (NDAs) with employees, contractors, and partners.
* Physical and electronic security measures (restricted access, encryption, vaults).
* Documented policies and employee training on handling confidential information.

If secrecy is lost—because the information is independently discovered, publicly disclosed, or inadequately protected—trade-secret protection ends.

Legal Framework

U.S. protection for trade secrets is a mix of federal and state law:
* Economic Espionage Act of 1996 addresses criminal theft of trade secrets.
* Defend Trade Secrets Act (DTSA) of 2016 creates a federal civil cause of action for misappropriation.
* Most states have adopted versions of the Uniform Trade Secrets Act (UTSA), creating state-level remedies.

Federal and state laws generally define trade secrets to include financial, business, scientific, technical, economic, and engineering information in tangible or intangible form, provided the owner took reasonable steps to keep it secret and the information has independent economic value.

Examples

• Coca‑Cola’s syrup recipe — a long-kept formula stored and guarded as confidential.
• Google’s search algorithm — proprietary code and models that are closely controlled and regularly updated.
• The New York Times bestseller methodology — a compilation and process that is not purely transparent and affects outcomes.

What Cannot Be a Trade Secret

Information that is:
* Public knowledge or widely known within an industry.
* Readily discoverable by lawful means.
* Lacking economic value or potential value from secrecy.

Routine or obvious information and facts that competitors can independently develop typically fail trade-secret tests.

Duration of Protection

A trade secret can last indefinitely so long as it:
* Retains economic value from secrecy.
* Is continuously and reasonably protected by its owner.

This contrasts with patents, which provide time‑limited exclusive rights in exchange for public disclosure.

Why Protecting Trade Secrets Matters

Trade secrets can be central to a company’s revenue, competitive position, and long-term viability. Effective protection preserves market advantages without the disclosures required by patenting and can avoid the costs and limits associated with obtaining patents.

Practical Steps to Protect Trade Secrets

• Classify and inventory confidential information.
• Limit access and implement least-privilege controls.
• Use NDAs and enforceable confidentiality clauses with employees and partners.
• Maintain physical and cybersecurity safeguards.
• Monitor for unauthorized disclosures and act promptly if misappropriation occurs.

Bottom Line

Trade secrets are a flexible form of intellectual property relying on secrecy and reasonable protective measures. They can provide enduring competitive advantage when properly safeguarded and are supported by both federal and state legal remedies for misappropriation.