Trade Secrets

Trade secrets cover a substantial amount of business intellectual property, some of which may not qualify for patent protection. Trade secrets can include business strategy, processes and methodologies, customer data, recipes, etc. To qualify as a trade secret, the information must provide the business with a competitive advantage and must be confidential, not known to the public or competitors. The information must be safeguarded by the business.

Unlike patents, there is no disclosure requirement and no term limitation on the length of protection. The protection and its benefits remain as long as the trade secret is kept confidential. However, there is generally no protection against a rival reverse engineering the trade secret and discovering the information.  A notable example of a trade secret is the formula for Coca Cola (Coke). If the inventor of Coke had applied for a patent for Coke, he would have had to disclose the formula, and assuming the patent was granted, it would have long ago expired and would now be in the public domain, free for anyone to produce Coke. Instead, quite wisely, the inventor kept the formula a trade secret that is the foundation of a multinational corporation.

Since there is no need for the application or registration of a trade secret, there are no external costs associated in obtaining trade secret protection. To maintain the required secrecy, businesses will typically utilize non-disclosure agreements (NDA) and non-compete agreements (NCA) to prohibit employees and other entities who have access to the trade secret from disclosing it. The typical remedy for the misappropriation of trade secrets through theft and unauthorized disclosure is a court ordered injunction. However, in most instances, once the information has been breached, an injunction will be an ineffective sanction to undo the harm caused by the dissemination of the trade secret.

In the early stages of a business startup a considerable amount of IP is likely to be created. In consultation with its IP attorney, the business will need to assess and determine how best to protect its critical data. If there are trade secrets which also qualify for patent protection, the business should consider the strategic value of each form of protection. While the ease and in-expense of obtaining trade secret protection may make economic sense initially, the decision should necessarily consider if the business could survive a disclosure of its trade secret.