Trade Secrets
What are Trade Secrets?
A company can protect its confidential information through non-compete non-disclosure contracts with its employees (within the constraints of employment law, including
only restraint that is reasonable in geographic and time scope). The law of protection of confidential information effectively allows a perpetual monopoly in secret
information - it does not expire as would a patent. The lack of formal protection, however, means that a third party is not prevented from independently duplicating and
using the secret information once it is discovered.
The sanctioned protection of such type of information from public disclosure is viewed as an important legal aspect by which a society protects its overall economic
vitality. A company typically invests time and energy (work) into generating information regarding refinements of process and operation. If competitors had access to the
same knowledge, the first company's ability to survive or maintain its market dominance would be impaired. Where trade secrets are recognized, the creator of
knowledge regarded as a "trade secret" is entitled to regard such "special knowledge" as intellectual property.
The precise language by which a trade secret is defined varies by jurisdiction (as do the particular types of information that are subject to trade secret protection).
However, there are three factors that (though subject to differing interpretations) are common to all such definitions: a trade secret is some sort of information that:
(1) is not generally known to the relevant portion of the public; and
(2) confers some sort of economic benefit on its holder (where this benefit must derive specifically from its not being generally known, not just from the
value of the information itself); and
(3) is the subject of reasonable efforts to maintain its secrecy.
Trade secrets are not protected by law in the same manner as trademarks or patents. Probably one of the most significant differences is that a trade secret is protected
without disclosure of the secret.
Protecting Trade Secrets.
Trade secrets are by definition not disclosed to the world at large. Instead, owners of trade secrets seek to keep their special knowledge out of the hands of competitors
through a variety of civil and commercial means, not the least of which is the employment of non-disclosure agreements (NDA) and non-compete clauses. In exchange
for the opportunity to be employed by the holder of secrets, a worker will sign an agreement not to reveal his prospective employer's proprietary information. Often, he
will also sign over rights to the ownership of his own intellectual production during the course (or as a condition) of his employment. Violation of the agreement generally
carries stiff financial penalties, agreed to in writing by the worker and designed to operate as a disincentive to going back on his word. Similar agreements are often
signed by representatives of other companies with whom the trade secret holder is engaged, e.g. in licensing talks or other business negotiations.
Trade secret protection can, in principle, extend indefinitely and in this respect offers an advantage over patent protection, which lasts only for a specifically delimited
period, for example twenty years in the U.S. For example, Coca Cola has no patent for its formula and has been very effective in protecting it for many more years than a
patent would have. However, the "down side" of such protection is that it is comparatively easy to lose (for example, to reverse engineering, which a patent will withstand
but a trade secret will not) and comes equipped with no minimum guaranteed period of years.
A company can protect its confidential information through non-compete non-disclosure contracts with its employees (within the constraints of employment law, including
only restraint that is reasonable in geographic and time scope). The law of protection of confidential information effectively allows a perpetual monopoly in secret
information - it does not expire as would a patent. The lack of formal protection, however, means that a third party is not prevented from independently duplicating and
using the secret information once it is discovered.
The sanctioned protection of such type of information from public disclosure is viewed as an important legal aspect by which a society protects its overall economic
vitality. A company typically invests time and energy (work) into generating information regarding refinements of process and operation. If competitors had access to the
same knowledge, the first company's ability to survive or maintain its market dominance would be impaired. Where trade secrets are recognized, the creator of
knowledge regarded as a "trade secret" is entitled to regard such "special knowledge" as intellectual property.
The precise language by which a trade secret is defined varies by jurisdiction (as do the particular types of information that are subject to trade secret protection).
However, there are three factors that (though subject to differing interpretations) are common to all such definitions: a trade secret is some sort of information that:
(1) is not generally known to the relevant portion of the public; and
(2) confers some sort of economic benefit on its holder (where this benefit must derive specifically from its not being generally known, not just from the
value of the information itself); and
(3) is the subject of reasonable efforts to maintain its secrecy.
Trade secrets are not protected by law in the same manner as trademarks or patents. Probably one of the most significant differences is that a trade secret is protected
without disclosure of the secret.
Protecting Trade Secrets.
Trade secrets are by definition not disclosed to the world at large. Instead, owners of trade secrets seek to keep their special knowledge out of the hands of competitors
through a variety of civil and commercial means, not the least of which is the employment of non-disclosure agreements (NDA) and non-compete clauses. In exchange
for the opportunity to be employed by the holder of secrets, a worker will sign an agreement not to reveal his prospective employer's proprietary information. Often, he
will also sign over rights to the ownership of his own intellectual production during the course (or as a condition) of his employment. Violation of the agreement generally
carries stiff financial penalties, agreed to in writing by the worker and designed to operate as a disincentive to going back on his word. Similar agreements are often
signed by representatives of other companies with whom the trade secret holder is engaged, e.g. in licensing talks or other business negotiations.
Trade secret protection can, in principle, extend indefinitely and in this respect offers an advantage over patent protection, which lasts only for a specifically delimited
period, for example twenty years in the U.S. For example, Coca Cola has no patent for its formula and has been very effective in protecting it for many more years than a
patent would have. However, the "down side" of such protection is that it is comparatively easy to lose (for example, to reverse engineering, which a patent will withstand
but a trade secret will not) and comes equipped with no minimum guaranteed period of years.
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