While many companies have come to understand the incredible value of their intellectual property, trade secrets are often considered niched assets whose value is often misunderstood. Failing to defend your trade secrets can leave a crucial piece of your valuable IP portfolio vulnerable to misappropriation and infringement. 

It is worth noting that trade secrets may be lawfully obtained through processes such as reverse engineering, independent discovery, or inadvertent disclosure due to the holder’s failure to implement necessary protective measures. In such cases, individuals who can recreate or replicate intellectual property or acquire information not properly protected are not in violation of any laws. 

In other instances, however, breaches like cyberattacks or contract violations can result in the outright theft of your trade secrets, putting your market position and your company’s viability at risk. In these cases, there may be legal remedies for damaged parties. Trade secret litigation is a last line of defense against misappropriation, though such litigation is very costly and can take years to see through. Trade secret litigation may be avoided by implementing a robust regime of IP awareness and education throughout your company as part of an active IP-aligned business strategy.

In this guide, I will explore the concept of trade secrets, look at examples of well-known trade secrets, discuss protective measures, and provide insights into trade secret litigation.

What is a Trade Secret?

A trade secret is a form of intellectual property characterized by confidential information that provides a competitive advantage to the company holding it. It is a valuable asset that shields unique aspects of a product or service, allowing a company, brand, or product to set itself apart from others in the market. 

The definition of a trade secret can vary across jurisdictions, but it commonly encompasses a range of confidential information that businesses need to keep hidden from competitors in order to maintain their viability in the marketplace. 

Unlike patents, trademarks, or copyrights which are legal instruments governed by the force of domestic and international law, trade secrets rely on company-specific internal protocols for protection, many of which are backed by the force of law, but can often be more difficult to prosecute. The power and value of a trade secret lies in its ability to remain hidden, allowing the company to retain a strong position in the marketplace.

There are three required criteria to be considered a trade secret for legal purposes are as follows:

  1. Economic Value: The information must have actual or potential independent economic value by virtue of not being generally known.
  2. Limited Access: It must be known to only a limited number of individuals who cannot legitimately obtain it through alternative legal means.
  3. Confidentiality: The information must be subject to reasonable efforts to maintain its secrecy.

If any of these elements are missing, the intellectual property is not considered a protected trade secret.

Trade Secrets Examples

Examples of trade secrets can include proprietary manufacturing processes, customer and supplier information, marketing strategies, and innovative business models. This confidential information can take a number of diverse forms, such as formulas and recipes, patterns and designs, special techniques, processes and methods, client lists, research and development data, devices or inventions, and algorithms.

While thinking of a trade secret as well-known might sound like a contradiction in terms, there are a number of “famous” trade secrets we can look to for examples:

  • Coca-Cola’s Secret Formula: Coca-Cola’s secret formula, currently housed in an elaborate, publicly viewable vault on the grounds of the World of Coca-Cola in Atlanta, is perhaps the world’s most famous trade secret. According to the company, only two employees hold the complete formula at any given time, and an unusual protocol ensures its safeguarding. These custodians are prohibited from traveling together, and in the event of one custodian’s passing, the surviving custodian must select a successor within the company to pass on the guarded secret. The identities of these two privileged employees remain a closely guarded secret in themselves. 
  • Google’s Search Algorithm: The impact of Google Search, introduced in 1997, on the way people navigate the internet is immeasurable. Google revolutionized online exploration with its ambitious goal to crawl the entire web and organize the world’s information. Google’s breakthrough came with the introduction of the “PageRank” ranking algorithm. This innovation marked a departure from simple keyword matching, a prevailing method at the time among competitors like Yahoo. PageRank instead focuses on counting and indexing the number and quality of links pointing to a website. By prioritizing websites linked to by numerous other high-quality sites, Google’s algorithm brought about a transformation in search relevance and brought about their ascent as the preeminent search engine, reshaping how individuals interact with information online. While Google has, at times, faced pressure to reveal the inner workings of their algorithm, they have thus far been able to stave off any such attempts at revealing their trade secret.
  • KFC’s Original Recipe: The closely guarded secret of KFC’s Original Recipe – a proprietary blend of “11 herbs and spices” – is stored within layers of security. A copy of the recipe, personally signed by Colonel Sanders himself, resides in a vault at KFC’s headquarters in Louisville. The vault also houses 11 separate vials, each containing one of the essential ingredients. To ensure the utmost confidentiality, KFC employs two separate firms – Griffith Laboratories and McCormick & Company – in the formulation process. Each firm is entrusted with a different half of the recipe. These legendary security measures, including the transportation of the recipe in armored vehicles, underscore the paramount importance KFC places on protecting this integral trade secret.

Misappropriation of Trade Secrets: What to Do When There’s an Infringement

When a trade secret is improperly taken, the owner faces pivotal decisions. In many instances, seeking a court-ordered injunction is a common initial step to halt any further disclosure of the intellectual property. Simultaneously, the owner may pursue legal action to recover financial losses incurred as a result of the alleged breach. Attorneys pursuing legal action must consider three critical elements:

  1. Defined Category of Trade Secret Protection: The subject matter at the heart of the dispute must fall within the parameters of trade secret protection. Establishing that the information qualifies for such protection is a foundational step in trade secret litigation.
  2. Establishment of “Reasonable” Precautions: The holder of the trade secret must demonstrate that “reasonable” precautions were taken to prevent the disclosure of the sensitive information. This underscores the proactive responsibility of the trade secret owner in maintaining the confidentiality of their intellectual property.
  3. Proof of Misappropriation or Wrongful Taking: A crucial element in trade secret litigation is establishing that the information was indeed misappropriated or wrongfully taken. This requires presenting evidence that demonstrates unauthorized access or acquisition of the trade secret.

The remedies for trade secret breaches vary based on the state in which they occur and whether the secrets were used in interstate or foreign commerce. In 2016, the Defend Trade Secrets Act (DTSA) created a federal private cause of action for trade secret misappropriation. This legal framework enhances the consequences for those who misappropriate trade secrets, providing a robust mechanism for addressing trade secret theft that extend beyond state or national borders.

Cost and Timeline of Trade Secret Litigation

Embarking on trade secret litigation is a significant undertaking, marked by both substantial costs and extended timelines. The notable costs associated with trade secret litigation, often running into the millions of dollars, are matched by the prolonged duration these cases often endure. With cases that can run 3-5 years, these protracted timelines underscore the complexity and meticulous nature of trade secret disputes, emphasizing the need for strategic planning and endurance throughout the legal process. Businesses and legal practitioners, therefore, must be prepared for a comprehensive and sustained commitment. 

How to Protect Trade Secrets

Given its great expense in terms of time and money, and the potential ramifications to the reputation of your brand and company, the best way to navigate trade secret litigations is to avoid them entirely. Litigation ought to be considered an option of last resort which is why it’s vital to make sure you’ve done everything possible to protect your trade secrets from misappropriation. 

Recognizing the critical significance of safeguarding trade secrets, you must establish a comprehensive protection program. A multi-faceted approach is essential to shield proprietary information effectively. Here are key steps that form the foundation of a robust trade secret protection strategy.

  1. Develop a Comprehensive Trade Secret Protection Program: Implementing a trade secret protection program involves creating a structured framework that covers policies, procedures, and employee training. You should also make sure that contractual language used in your agreements with employees, vendors, and contractors is clear when it comes to maintaining the security of your trade secrets and other IP. This program serves as the cornerstone of safeguarding valuable intellectual property.
  2. Implement an Internal IP Alignment Strategy: Ensure that employees are not only aware of the existence of trade secrets but are also educated on their crucial role in protecting them. A well-structured internal IP alignment strategy, coupled with regular employee training sessions, reinforces the importance of confidentiality and mitigates the risk of inadvertent disclosures.
  3. Identify and Classify Trade Secrets: Conduct a meticulous inventory of the organization’s trade secrets. Clearly identify and classify these secrets to determine their significance and prioritize protection efforts accordingly. This proactive step lays the groundwork for targeted security measures.
  4. Label Documents as Confidential: Elevate awareness among employees by clearly marking documents containing trade secrets as confidential. Implementing a labeling system ensures that individuals handling these documents are cognizant of their sensitive nature, fostering a culture of heightened security.
  5. Secure Computers and Networks: Robust cybersecurity measures must be employed to prevent unauthorized access to digital trade secrets. This involves encryption, access controls, and regular system audits to identify and address potential vulnerabilities.
  6. Create a Comprehensive Theft/Incident Plan: Anticipating and preparing for potential misappropriation is a crucial aspect of trade secret protection. Develop a comprehensive theft/incident plan outlining immediate response actions. This plan should also include the necessary legal steps to be taken in the event of a breach, ensuring a swift and effective response to any attempted unauthorized access or disclosure.

By integrating these key steps into your trade secret protection strategy, you can create a proactive and resilient defense against misappropriation. This not only safeguards your intellectual property but also fosters a culture of IP awareness and responsibility among employees, making them active participants in the protection of the company’s most valuable assets.

Final Thoughts

Remember that safeguarding your trade secrets is not just a legal obligation but also a strategic imperative that can have a profound effect on the efficacy of your business. Because trade secrets are such invaluable assets, businesses must recognize the importance of implementing comprehensive protection programs to safeguard their proprietary information. Trade secret litigation serves as a last line of defense, ensuring that companies can seek legal recourse when misappropriation occurs.

For businesses navigating the complexities of trade secret litigation, quality legal counsel is indispensable. Experienced attorneys must be well-versed in state-specific procedures and consider federal and/or international statutes when applicable so they can provide guidance, assess the strength of a case, and navigate the legal intricacies involved. If you find yourself in need of representation, seek out a legal professional who specializes in intellectual property and trade secret litigation.

Michael Dilworth

This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. The opinions expressed in this article are those