FAQs: Trade Secrets

What are trade secrets?

A trade secret may consist of any formula, pattern, device, or compilation information which is used in one's business, and which gives one an opportunity to obtain an advantage over competitors who do not know it. It may be a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. A famous trade secret is the formula for Coke.

Trade secrets must be "secret," but they can be divulged to a limited extent without destroying their status as trade secrets. Owners of trade secrets must take reasonable steps to ensure that the secrets are kept secret. Contexts in which trade secrets are sometimes disclosed include where an unsolicited idea is disclosed, an employee competes with the former employer, information is disclosed during negotiation for the sale of a business, or persons without any relationship to or contact with the owner of the trade secret take the secret.

How are trade secrets protected?

Trade secrets are generally protected by contract. Non-disclosure or non-compete agreements are the primary methods used to protect trade secrets. Non-disclosure agreements essentially require employees, contractors, or any other persons likely to come in contact with the trade secret to state that they will not disclose the secret. Non-compete agreements prevent former employees from competing with the former employer within a limited geographical area from the employer and for a certain time period after employment ends.

Limitations to trade secret protection.

Trade secrets must be secret. Some information about the trade secret may be divulged, but the amount of divulged information must be very limited. If the owner of a trade secret does not take steps to keep the secret as a secret or the trade secret has become public knowledge, the trade secret is no longer protectable. A competitor may reverse engineer a finished product and find a trade secret in the process. A competitor may similarly develop the trade secret with its own volition and independent research. For instance, if Bob's Soda independently developed or reverse engineered the exact formula for Coke, there has not been a trade secret violation. If, however, Bob's Soda pays an employee of Coke to steal the secret formula, there has been a trade secret violation.

There are practical limits to trade secret protection as well. If a retributive employee tells a trade secret to competitors who have no knowledge that the information is a trade secret, the employee will be liable for a trade secret violation. The competitors, however, will not be liable. The information will be disclosed with little recourse for the employer.