So what exactly are trade secrets? How do they differ from patents? Is any piece of confidential corporate information considered a trade secret? For those outside the world of intellectual property, these are common questions. Here is a quick tutorial on the basics of trade secrets.
What are trade secrets?
In short, trade secrets can be divided into two categories:
- Product formulas
- Product designs
- Manufacturing processes
- Computer code
Business and financial information
- Customer lists
- Consumer preferences
- Pricing information
- Marketing and business plans
And to be considered a trade secret, it should provide “commercial value” to its owner, be information that is “undisclosed” and importantly, the owner has taken “reasonable steps to keep it secret.”
For a more official explanation, many reference the definition of “trade secret” set forth in the U.S. Economic Espionage Act (“EEA”). It is similar to the definition of trade secrets under the Uniform Trade Secrets Act that has been enacted by 47 American states and several U.S. territories, consistent with Article 39 of the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and Article 2 of the Japanese Unfair Competition Prevention Act. Under the EEA, trade secrets are:
… all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if – (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public …
What are examples of trade secrets?
When talking about trade secrets, many will point to examples including:
- Product formulas for Coca Cola or Chartreuse liqueur; or even genetically modified corn
- Algorithms and other technical information of companies including Google and Facebook
- Know-how and formulation of Michelin rally tires or Gore-Tex material
- Production process for products such as Corning’s Thin Film Transistor (“TFT”) Liquid Crystal Display (“LCD”) glass
Why are trade secrets important?
Trade secrets can be central to a company’s competitive advantage. Proprietary business and technical knowledge can also drive further innovation within a company, help a company secure additional investment and drive profits.
How do trade secrets differ from other forms of intellectual property?
In addition to trade secrets, intellectual property typically resides in the following categories:
- Copyright: The legal protection of creative or technical expression. Books, newspapers, photography, software, and music are common examples of copyrighted materials.
- Design rights: The new and novel appearance of a product and prevent others from imitating or copying the design with authorization. Design right protection can apply to all aspects of the appearance of a product or its packaging, including their shape, texture, color, contour, and ornamentation.
- Patents: Patents protect inventions that can be a new product or a new way of doing something. Patents exclude others from making, using, or selling a protected invention.
- Trademarks: Trademarks are any distinctive word, name, symbol, or other marking that identifies and distinguishes the source of good or services of one party from another.
A trade secret is different in that it is first ‘secret’ and not legally registered for protection. Many companies will classify important technical and business information internally as a trade secret to avoid the public disclosure associated with the patent process. Additionally, some potential trade secrets, such as customer lists, are not eligible for patent protection.
It can be confusing. Take the example of Google’s PageRank: An algorithm that analyzes links and is used to assign a numerical weighting to each element of a hyperlinked set of documents and to measure its relative importance. “PageRank” is a Google trademark; the PageRank process is patented; and PageRank manipulation tools are among Google’s trade secrets.
What are the challenges with trade secrets as a form of intellectual property?
Much of the value of trade secrets is in the ‘secrecy’ of the information. As such, if there is a disclosure, the value can be compromised. Numerous actors – competitors, foreign intelligence services, transnational criminal organizations, hacktivists and malicious insiders – can target and steal trade secrets. Secrecy can also be lost through unintended actions by insiders who have knowledge of the trade secrets – case in point: a product prototype left in a bar by a software engineer.
Stay tuned for more articles in this series – about threat actors, case studies and risks.
- CREATe – PwC: Economic Impact of Trade Secret Theft: A framework for companies to safeguard trade secrets and mitigate potential threats
- Estimate of trade secret theft
- Threat actors: Overview, motivations, methods
- Five-step framework: Tool for companies to identify, assess and manage trade secrets
- “Reasonable Steps” to Protect Trade Secrets: Leading Practices in an Evolving Legal Landscape
- International, regional and national laws featuring the “reasonable steps” requirement;
- The types of protections that companies have implemented;
- Analysis of the types of “reasonable steps” that court cases have examined in determining whether to give trade secret protection to particular material;
- Checklists and examples of practical steps that companies can take to put protections in place in the eight categories that CREATe recommends for an effective trade secret protection program.
- Trade Secret Theft: Managing the Growing Threat in Supply Chains
- Case studies of trade secret misappropriation among third parties
- Steps companies can take when working with supply chain partners
- Trade Secret Model Policies
- Sample policies for companies to use with employees and third parties
- CREATe Leading Practices for Trade Secret Protection
- A three-step service to benchmark and improve practices for protecting trade secrets
- eLearning Course: Protecting Trade Secrets
- A introductory course to educate employees and third parties about how they can protect trade secrets
- Secrets: Managing Information Assets in the Age of Cyberespionage
- OECD Report: Approaches to Protection of Undisclosed Information (Trade Secrets) (Including the Trade Secret Protection Index)
- Administration Strategy on Mitigating the Theft of U.S. Trade Secrets