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Trade
Secrets
What are trade secrets?
How are trade secrets protected?
Limitations to trade secret protection
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.
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