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About Trade Secrets

As per WIPO (World Intellectual Property Organization), Trade secrets are intellectual property (IP) rights on confidential information which may be sold or licensed. In other words, they can be broadly defined as information that is not generally known or easily accessible to others, and which confers an economic benefit or advantage on the businesses that possesses it. Unlike patents, trademarks, or copyrights, trade secrets are protected by keeping the information secret, rather than through registration or disclosure. Trade secrets can encompass various types of information, including manufacturing techniques, recipes, algorithms, pricing methods, business plans, marketing strategies, customer lists, and proprietary software. Coca-Cola formula and the Google search algorithm are some of the famous examples of trade secrets. Trade secret protection varies across countries, and businesses operating globally should be aware of the legal frameworks in different jurisdictions. Some countries have specific trade secret laws, while others rely on general legal principles, contract law, or unfair competition regulations to protect trade secrets.

 

Managing trade secrets

Trade secrets are distinct from other forms of intellectual property, as they follow a different establishment and management approach. Unlike these other types, trade secrets do not require any formal registration and can be protected indefinitely without a specific time limit.

Most states have implemented some form of the Uniform Trade Secrets Act, which provides a framework for the definition and protection of trade secrets. Although specific legal definitions may differ slightly among states, a common understanding is that a trade secret is information that holds economic value by virtue of not being widely known and is being actively protected through reasonable measures to preserve its confidentiality. The act encompasses a broad range of information that grants a business its competitive advantage. However, as the language indicates, that a company is expected to take appropriate measures to safeguard the confidentiality of the information.

Businesses that need to protect the confidentiality of information or their trade secrets must keep the following information handy:

1. Identify new information that you wish to protect
2. Label “confidential” on documents that need to be protected
3. Monitor and secure all sources where vital information is stored
4. Include secrecy with outside vendors
5. Limit public access to the company
6. Contact an IP attorney to protect your trade secrets

 

Duration of Trade Secrets

Scientific and technical information, drawings, blueprints, production and marketing plans, business strategy plans, production recipes, other sensitive business information like ideas for a new marketing approach, cost and price list, vendor data and customer and market analysis reports are some information categories that qualifies as trade secret.

Unlike patents or copyrights, trade secrets can potentially be protected indefinitely, if the information remains a secret and continues to provide a competitive advantage. However, trade secret protection can be lost if the information becomes public knowledge or is independently discovered by others.

 

Trade Secret Misappropriation and Remedial Action

Trade secret misappropriation can take place through different methods, such as violating nondisclosure agreements, publishing the information, engaging in theft, fraud, or bribery.

There are several defences available against accusations of trade secret misappropriation. The accused party may argue that they independently developed the trade secret without any knowledge of the original information. Alternatively, they might claim that they reverse engineered the trade secret through testing, such as identifying the ingredients in a secret formula for a sports drink. Another defence could involve disputing the existence of a trade secret, asserting that the supposedly confidential information was not truly secret, or that the owner failed to take sufficient steps to maintain its secrecy.

Once a trade secret is misappropriated and widely disclosed, it typically loses its status as a trade secret and consequently loses its protection. Therefore, it is of utmost importance to closely safeguard trade secrets. If you possess trade secrets, it is advisable to seek legal counsel to determine the necessary measures for their adequate protection.

Establishing an alleged trade secret requires a business to provide evidence for the EONA proofs: Existence, Ownership, Notice, and Access. Without substantiating these proofs, a valid claim of trade secret misappropriation cannot be made. Additionally, there must be a clear causal connection between the trade secret itself and the act of misappropriation.

Misappropriation of a trade secret can be established through three primary avenues: unauthorized acquisition, unauthorized disclosure, or unauthorized use of the trade secret.

Both the Uniform Trade Secrets Act (UTSA) and the Defend Trade Secrets Act (DTSA) provide definitions of misappropriation. According to these acts, “Misappropriation” refers to:

• The acquisition of another person’s trade secret by someone who knows or should know that the trade secret was obtained through improper means; or
• Misappropriation of a trade secret occurs when someone, without proper consent, discloses or utilizes someone else’s trade secret. This includes situations where the person acquired the trade secret through improper means or derived it from another person who was under an obligation to keep it confidential.

According to the Uniform Trade Secrets Act (UTSA) and the Defend Trade Secrets Act (DTSA), “improper means” is defined to encompass actions such as theft, bribery, misrepresentation, breaching or inducing a breach of duty to maintain secrecy, or engaging in espionage through electronic or other methods. It is important to note that this list is not exhaustive, and there may be additional actions that could be considered “improper means” in the context of trade secret misappropriation.

 

Securing Trade Secrets

Courts are increasingly emphasizing the importance of businesses taking “reasonable steps” to safeguard their confidential corporate assets. These measures extend beyond securing computer networks and encompass integrating trade secret protection into overall business operations and processes.

A comprehensive protection plan to secure trade secrets include:

1. Confidentiality and non-disclosure agreements with employees and business partners – To ensure compliance with corporate policies and uphold protections, companies should develop procedures and document adherence to these policies. Confidentiality and non-disclosure agreements, when established with employees and business partners, serve as a strong initial defence and have garnered approval from the courts. Consistency in following policies, procedures, and maintaining records is vital to meet the requirement of “reasonable steps.”
2. Control electronic and physical access – The vitality of physical and electronic security in safeguarding intellectual property is widely recognized by companies, and courts are placing increasing emphasis on its implementation. Companies are advised to integrate measures for protecting confidential information into their planning for physical and information technology (IT) security systems. This includes implementing restrictions on system access and regularly evaluating and enhancing these systems to ensure their effectiveness.
3. Risk assessment – As a first step, it is advisable to establish an internal registry to document trade secrets. Subsequently, a comprehensive assessment should be conducted to evaluate the potential risks associated with theft. This assessment should identify areas that are most susceptible to breaches and leaks, as well as departments that may be particularly vulnerable. Once these areas and departments are identified, additional measures should be implemented to enhance security and safeguard these critical aspects.
4. Conduct vendor training – Providing training is crucial for both employees and third parties so that they understand what is expected of them while handling sensitive information. Neglecting these straightforward measures, which may extend beyond standard corporate training, has led to certain companies being denied legal protection.
5. Make trade secret protection a priority – To safeguard critical business information, organizations must enhance security measures and, significantly, establish comprehensive systems to ensure the protection of trade secrets. This proactive approach allows companies to minimize risks and fulfil the obligation of taking “reasonable steps” in the event of trade secret compromise.

 

Examples of Trade Secrets

1. Coco Cola formulation – Coca-Cola made a strategic decision to safeguard their recipe as a trade secret rather than seeking a patent, which would have required revealing the ingredients. One reason for this choice could be the historical presence of cocaine as one of the possible ingredients, leading Coca-Cola to prioritize the confidentiality of the recipe. The trade secret surrounding Coca-Cola’s recipe has generated its fair share of rumours. Speculations range from the inclusion of bugs or insects in the recipe to the notion that only two employees possess partial knowledge of the complete formula, or that only two individuals hold the combination to the safe where it is securely stored.

 

2. KFC’s secret recipe – The secret formula for KFC’s original recipe was initially stored solely in Colonel Sanders’ memory. Over time, he decided to document the recipe, and the original handwritten copy is now securely kept in a safe located in Kentucky. The knowledge of the recipe is limited to a select few employees who are bound by strict confidentiality agreements.

To enhance the safeguarding of the recipe, two separate companies are involved in blending portions of the herb and spice mixture. This process ensures an added layer of protection and consistency before the blended mixture is distributed to KFC restaurants.

 

3. Chemical composition of Listerine Mouthwash – Listerine is a classic illustration of trade secret, often discussed in law schools. The original inventor of Listerine granted a license for the secret formula to Lambert Pharmaceuticals. Even though the formula was eventually disclosed during over 70 years, Lambert Pharmaceuticals (now Pfizer) continued to make royalty payments to the inventor’s family.

However, Pfizer attempted to cease the payments after already paying more than $22 million for a formula that was no longer considered a trade secret. In its lawsuit, Pfizer argued that it was no longer obligated to pay licensing fees. The court, considering that Pfizer had initially acquired the formula while it was still confidential and had gained a competitive advantage from it, ruled that the contract did not stipulate the termination of payments if the trade secret was legitimately discovered by others.

 

4. Google Search Algorithm – Leading search engine Google has created a search algorithm and consistently updates and improves it. While certain changes to the algorithm are announced publicly, many modifications are undisclosed. This ongoing refinement of the algorithm aims to prevent manipulation and ensure fair and relevant search results.

 

Researchwire specializes in providing comprehensive research assistance for trade secret cases. With our expertise, we have successfully aided our clients in trade-secret misappropriation cases where significant financial stakes were involved, reaching into the hundreds of millions. Our services include conducting global evidence of use searches, enabling a thorough examination of trade secret violations.

If you require assistance in the remedial process and the provision of global evidence of trade secret violations, do not hesitate to get in touch with us.