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Trade SecretsIP Law Essentials

Trade Secrets: What Are They and Do They Impact Me?

May 1, 2020

Trade SecretsIP Law Essentials

Trade Secrets: What Are They and Do They Impact Me?

May 1, 2020

 

Almost every business, no matter its size or industry, has information that could be a trade secret. Theft of trade secrets happens often—according to a recent report on the theft of U.S. intellectual property, the estimated cost of trade secret theft ranged from $180 billion to $540 billion.[1]

Here are answers to five commonly asked questions about trade secrets.

Q1.   What is a trade secret?

A trade secret is information that (1) derives independent economic value from not being generally known to or readily ascertainable by proper means by others and (2) has been subject to reasonable efforts to maintain its secrecy.

Trade secrets can be just about anything: formulas, processes, designs, instruments, patterns, commercial methods, and more. They can range from complicated source code to something as simple as a customer list.  Anything that took time and effort to develop—even compilations of public data—can be a trade secret if it provides value to the owner because it is a secret.

Two popular examples are the formula for Coca-Cola and the recipe for KFC’s original fried chicken. Search engine ranking algorithms are also widely-recognized trade secrets. Beyond recipes and algorithms, they can be a company’s profitability, cost, and revenue information, and of course future product development and business plans.

The precise definition of “trade secret” varies from jurisdiction to jurisdiction. At the federal level, it is defined under the Defend Trade Secrets Act (DTSA), but each of the 50 states promulgates its own definition.

Q2.   What does it mean to be “secret?”

According to the dictionary, a secret is “something kept hidden or unexplained.”[2] Turning to the legal definition, “secret” means “not generally known to or reasonably ascertainable by others.”

If an alleged trade secret is susceptible to reverse engineering or can otherwise be “figured out” without much effort, then it is likely readily ascertainable and therefore not secret. Similarly, information that is common knowledge (e.g., within a specific industry and among people with particular know-how) is also unlikely to be considered secret.

Trade secrets may also lose their secrecy if accidentally disclosed to the public, such as by inadvertently being shared on a company website or elsewhere on the Internet. Importantly, a total failure to take any steps to preserve secrecy may, alone, be enough for a court to determine that no secret exists.

Q3.   What does it mean to have “independent economic value?”

Put simply, a trade secret has independent economic value if it gives the owner a competitive edge in the marketplace. This does not necessarily mean that the secret must be vital to the business, but rather it is enough that the secret would be useful to a competitor and requires some effort to duplicate. In reality, trade secret disputes rarely center on this requirement; more often, disputes revolve around secrecy and whether reasonable efforts were taken to maintain secrecy.

Q4.   What are “reasonable efforts” to maintain secrecy?

The issue of “reasonable measures” is context-dependent, thus no single answer exists. In general, however, more precautions mean better trade secret protection and therefore a greater likelihood that those efforts will be found “reasonable.”

Despite this ambiguity, one thing is certain: trade secret holders must do something to protect their trade secrets if they want to preserve their right to bring misappropriation claims in court. Otherwise, a trade secret holder plaintiff could be looking at an early motion to dismiss from a defendant. Why should a court spend resources to protect a trade secret if the owner failed to take measures to protect it in the first place?

Q5.   What can I do to protect my trade secrets?

First, identify your trade secrets. What do they consist of, and what are their boundaries? Then, on an “as needed” basis, clearly communicate them to recipients in a manner that ensures that recipients know they are trade secrets. Have recipients sign non-disclosure agreements (NDA) and include confidentiality provisions in other contracts, where applicable. Employees, contractors, suppliers, collaborators, and customers are a few examples of individuals who may be exposed to your trade secrets, and should therefore be required to sign NDAs and confidentiality agreements.

Other steps that may be taken include:

  • Labeling trade secrets as such
  • Password-protecting trade secret information on computer systems
  • Locking tangible trade secrets in a safe
  • Requiring badge access to places where trade secrets are stored
  • Using cameras, alarm systems, and restricting visitor access

Employees deserve special mention because they are common recipients of sensitive information. For employees, consider the following:

  • Implement a formal onboarding program to protect your trade secrets, with guidelines for employees for the duration of employment
  • Formalize exit interviews, emphasizing that trade secret information must be returned to the employer and deleted from personal devices
  • Consider hiring someone whose job it will be to enforce the program and guidelines.

Stay tuned for more on reasonable measures that may be taken to preserve secrecy.

Q6.   How are trade secrets different than confidential information?

While all trade secrets must be kept confidential, not all confidential information can qualify as a trade secret. Indeed, “confidential information” is more loosely defined and encompasses a broader set of information than “trade secrets.” Trade secrets are afforded greater protection by the courts than confidential information. But to earn that protection, trade secret owners must satisfy the more specific requirements outlined above.

***

Understanding how to maintain trade secrets and effectively enforce trade secret rights is crucial to effectively utilizing intellectual property. More to follow on all things related to trade secrets.

 

[1] The National Bureau of Asian Research, Update to the IP Commission Report 2 (2017).

[2] Secret, Merriam-Webster Online Dictionary, https://www.merriam-webster.com (17 Apr. 2020).

More questions? Contact the authors or visit Fish’s Intellectual Property Law Essentials.


The opinions expressed are those of the authors on the date noted above and do not necessarily reflect the views of Fish & Richardson P.C., any other of its lawyers, its clients, or any of its or their respective affiliates. This post is for general information purposes only and is not intended to be and should not be taken as legal advice. No attorney-client relationship is formed.

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Esha Bandyopadhyay | Principal

Esha Bandyopadhyay, a Principal in Fish & Richardson’s Silicon Valley office, has been practicing intellectual property and technology-related commercial litigation and counseling in the Bay Area for close to two decades. She has successfully tried and managed...

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Felix A. Eyzaguirre | Associate

Felix Eyzaguirre is a litigation associate in Fish & Richardson’s Silicon Valley office. His practice focuses on patent litigation, including Hatch-Waxman litigation. Felix has experience conducting research, preparing pleadings, drafting motions, and helping with various discovery efforts. Felix’s engineering background and experience...

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