23.5: Trade Secrets

Last updated
Save as PDF

Page ID: 49182

\( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \) \( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)\(\newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\) \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\) \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\) \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\) \( \newcommand{\Span}{\mathrm{span}}\) \(\newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\) \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\) \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\) \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\) \( \newcommand{\Span}{\mathrm{span}}\)\(\newcommand{\AA}{\unicode[.8,0]{x212B}}\)

A Trade secret is a formula, process, device, or other business information that is kept confidential to maintain an advantage over competitors. The scope of trade secret protection goes well beyond patent law. Unlike patent law, protection under trade secret law is not tied to the information’s novelty. Instead, the essence of a trade secret is its relative secrecy.

Elements of a Trade Secret

Information that:

Is not generally known or ascertainable;
Provides a competitive advantage;
Has been developed at the owner’s expense & is used continuously in the owner’s business; and
The owner intends to keep it confidential.

A trade secret is, in short, secret information. This information may include a process, formula, pattern, program, device, method, technique, or compilation. For many companies, lists of suppliers, costs, margins, and customers are all trade secrets. Soft drink recipes, the Big Mac’s special sauce, and even the combination of wood that is used in the burning process to make Budweiser beer are all trade secrets. Additionally, Google’s algorithm for conducting web searches is a trade secret.

Trade secrets are unlike patents in that with a patent, the inventor must specifically disclose in the application the details of the invention. Thus, the inventor has not protected the secret of the invention. However, in exchange for this disclosure, a patent owner has a legal monopoly over the property for a specified period of time. Even if others discover how the invention works (which often is not difficult because patent applications are public record), they are prohibited from making, using, or selling it without the patent holder’s permission. After the patent expires, the patent holder no longer has a property right to exclude others.

Trade secrets can last forever if the owner of the secret keeps it a secret. If someone uses lawful means to uncover the secret, then the secret is no longer protected. Therefore, some companies would rather not make their confidential information public knowledge through a patent application in return for a temporary monopoly. Instead, they choose to protect the confidentiality of the information or product internally with the hope of a longer period of protection. For example, Google protects its search algorithm as a trade secret to maintain a competitive advantage in the market for as long as possible.

A claim for misappropriation may be brought when a trade secret has been wrongfully obtained, such as through corporate espionage or bribery. Generally, misappropriation occurs if the secret was acquired by improper means, or if the secret was disclosed or used without permission from the secret’s owner. Damages may include actual loss and unjust enrichment not captured by actual loss. Additionally, in cases of willful or malicious misappropriation, double damages may be awarded, as well as attorney’s fees.