Obtaining IP Rights: Trade Secrets

Unlike other forms of intellectual property (IP), trade secrets are not registered with any government or regulatory body. The trade secret right is automatic, as long as the criteria for protection have been fulfilled.

(Image: Getty images/Irina Devaeva)

Qualifying for trade secret protection

Generally, three steps must be met in order for an item of information to qualify as a trade secret:

  • Secrecy: The information must be sufficiently secret, in the sense that it is not generally known or easy to compile. Note that confidential personal information related to a business' customers is protected by privacy law and not by trade secret law.
    • Technical and Scientific intormation such as: manufacturing/development information (techniques, processes, methods, know-how), test results and quality control methods, product information (specifications, service/maintenance details, roadmaps for future releases), computer technology (source code, algorithms,formulas), research results (data in lab notebooks, "negative" know-how) and pending/unpublished patent and utility model applications.
    • Strategy information such as: business/marketing/advertising/investment strategies, business methods, expressions of ideas that give the business a competitive advantage, market research and competitive intelligence reports.
    • Financial information such as: cost and complex pricing information, financial forecasts, sales data and price lists.
    • Commercial information such as: Supplier names/terms of contracts/transaction details, customer information (names, addresses, backgrounds, purchase records), specific contract terms with consultants/vendors/service providers/partners, databases and data compilations.
  • Commercially valuable: The information must provide the owner with a competitive advantage or some sort of economic benefit because it is secret – not because of any inherent merit in it.
  • Reasonable measures: The owner must have taken reasonable security efforts to maintain the secrecy of the information.
    • Taking reasonable security measures;
    • Implementing computer passwords and firewalls;
    • Limiting access to the information to those who have a “need to know”;
    • Non-disclosure agreements with employees, suppliers, and partners prohibiting the recipient from making unauthorized use or disclosure of confidential information;
    • Training employees on trade secret policies and practical measures.

When to use trade secret protection

While a decision will have to be taken on a case-by-case basis, it would be advisable to make use of trade secret protection when:

  • the information can be kept secret for over 20 years (period of protection of a patent) and if others are not likely to independently develop the same information in a legitimate way;
  • the secret cannot easily be revealed by taking apart (reverse engineering) the product, the product has a short commercial life or if it relates to a manufacturing process;
  • obtaining patent rights is considered too expensive.

 Expert tip – Trade secrets are protected only against improper acquisition. There is no protection if the same information is acquired by another through independent development, reverse engineering, leakage or otherwise becomes generally known.

In addition, trade secrets are not a monopoly right like a patent. That is, if two companies independently create information that qualifies for trade secret protection, both will have trade secret rights in the same information, until one or both of them publish the information.

 

Protecting trade secrets from unlawful disclosure

Employees

The employment contract should contain terms that prohibit employees from using or disclosing your confidential information outside the scope of employment as well as prohibit them from using or disclosing confidential information learned during previous jobs.  Employees should be provided with training on what you consider confidential and what is expected of them in maintaining the confidentiality of your information.

Remember, employees are the biggest source of trade secret loss of companies.

Departing employees

Whenever an employee changes jobs, it is unavoidable that some of the employee’s previously acquired knowledge will be made available to the new employer. Contractual terms that prohibit post- employment competition or solicitation of customers may or may not be legal depending on the jurisdiction. The advice of an attorney should be sought.

Business partners

Remember to enter into non-disclosure agreements with all those you engage with in the course of your business and to whom you disclose your confidential business information.

 Expert tip – A trade secret may be protected forever as long as you keep the information secret. It is important to bear in mind, however, that:

  • trade secret protection is generally weak in most countries;
  • the conditions for, and scope of, trade secret protection can vary significantly from country to country depending on existing statutory mechanisms and case law;
  • the courts may require very significant and possibly costly efforts to preserve secrecy.

Case studies

The iconic Angostura Bitters bottle with its trademark oversized label
(Photo: Flickr/Dominic Lockyer)

A secret from the Caribbean

With its main IP being nearly two hundred years old, Angostura Limited from Trinidad and Tobago has found that the best way to protect its product is through using trade secrets.

Rubber, one of Thailand's most important exports, is used to create a variety of products
(Photo: Flickr/Glenn Brown)

Bridging the gap from lab to market

Although patents are the primary tool with which Thailand's National Science and Technology Development Agency protects its innovations, at times trade secrets are necessary, in particular for the protection of know-how.

(Photo: Liz West)

Moving healthcare to the cloud

American software company Tiatros Inc. protects its know-how and trade secrets to ensure its competitiveness.

Find out more

(Icon illustration credits: Getty Images/Momento Design/DStarky/Enis Aksoy)