Trade Secrets

What Is A Trade Secret?

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A trade secret is commercial information, not generally known or readily ascertainable by the public, that is actually or potentially valuable to a business and for which the business has taken reasonable measures to keep secret. A trade secret generally provides the business with an advantage over competitors who do not know or use it.

What Kind of Information Can Be A Trade Secret?

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Commercial information such as financial, business, scientific, technical, economic or engineering information may be treated as trade secrets. Illustratively, trade secrets can include customer lists (the more information contained, the more likely it will qualify for trade secret protection), manufacturing processes, formulas, ingredients, bills of materials, specifications, computer codes, business and marketing plans, financial information, research and development, inventions, drafts of patent applications and pending patent applications before publication, and product prototypes.

Can A Trade Secret Be Registered?

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Unlike a patent or copyright, a trade secret cannot be registered.

Should an Invention Be Patented or Kept As a Trade Secret?

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Several factors should be considered before deciding whether to apply for a patent or keep an invention secret. If the invention is embodied in a product to be sold in the marketplace, it may not be possible to maintain secrecy as the product may be reversed engineered, that is, taken apart to discover the secret. The invention may be kept secret if it cannot be easily reversed engineered or if a patent cannot be obtained or only very narrow patent protection is available. Some inventions may be kept secret for longer than the 20 year duration of a patent. The costs for obtaining a patent may be considered to be prohibitive. In some cases, patent protection may not be available for the subject matter of the secret, e.g., customer lists or marketing strategies, which can only be protected as trade secrets.

What Must A Business Do To Protect Its Trade Secrets?

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A business must use reasonable measures to preserve secrecy. Reasonable measures include limiting access to secret information, confidentiality agreements with employees and third parties (such as distributors, sales representatives, franchisees, licensees), using passwords and firewalls to protect digital information, requiring encryption of mobile electronic devices like laptop computers and flash drives, prohibiting use of personal electronic devices and personal emails for work-related tasks, establishing policies concerning what employees can discuss about the business on social media, employing physical security measures such as fenced and locked areas, keycard access areas, locked cabinets, video surveillance and taping, alarming doors and windows, employing guard services, issuing security badges, sign in and sign out logs, visitor passes, agreements and escorts, using codes to refer to secret documents and materials, transmitting secret information in sealed packages and security pouches, labeling documents, including password-protected digital information, as “Confidential and Proprietary,” numbering copies, identifying and tracking the distribution of secret materials, for example, by using bar codes, RF labels, holograms and GPS devices, new employee background checks, and using education programs and employee exit interviews. Businesses typically use non-disclosure agreements to protect trade secrets that must be disclosed to other persons for business purposes.

What Is A Non-Disclosure Agreement?

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A Non-Disclosure Agreement (“NDA”) is a contract providing that a recipient of another’s information will not use or disclosure the information in any manner except as may be authorized under the NDA’s terms and conditions. A NDA protects the confidentiality of information in situations where it may be desirable and necessary to reveal it, for example, in order to evaluate an invention, idea, business proposal or product for licensing, manufacturing or other purposes. NDAs are also referred to as confidentiality agreements, confidential disclosure agreements, proprietary information agreement and secrecy agreements.

What Constitutes A Violation Of Trade Secret Laws?

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Trade secret rights may be violated by unauthorized use or disclosure of the secret, or by obtaining a trade secret by improper means.

What are “Improper Means” of Obtaining a Trade Secret?

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Improper means includes conduct which is improper, e.g., for example, computer hacking, illegal surveillance, theft of documents, bribing a business’ employees and infiltrating secured facilities. Improper means includes conduct which is improper under the circumstances, even conduct that might otherwise be lawful conduct, e.g., using a drone or airplane to obtain aerial reconnaissance to determine the competitor’s plant layout during construction of the plant, and dumpster diving if a dumpster is located on private property against a building or inside a fenced enclosure marked “No Trespassing.”

What May Be Done Properly to Ascertain Trade Secrets?

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Trade secret rights do not protect against reverse engineering of products, that is, by starting with the known product and working backward to find the method by which it was developed, provided that have been sold or independent discovery by a competitor. Proper means, among other things, also includes the observation of an item in public use or on public display, or obtaining information from published literature and independent invention.