What Is a Trade Secret?

A trade secret is any company information, such as aꦇ practice, a process, a formula, a technique, or device, that is kept confidential from all except those with a need to know.

Information considered to be a trade secret gives a company a competitive advantage over its competitors and is often a product of internal 澳洲幸运5官方开奖结果体彩网:research and development.

To be legally considered🔥 a trade secret in the United States:

• A company must make a reasonable effort to conceal the information.
• The information must have actual or potential economic value.
• The information has value to others who can't obtain it legally.

Trade secrets are a part of a company's 澳洲幸运5官方开奖结果体彩网:intellectual property. Unlike a patent, a trade secret is not publicly known.

Understanding a Trade Secret

Trade secrets may take a variety of form𝄹s, such as a proprietary🥀 process, instrument, pattern, design, formula, recipe, method, or practice that is not evident to others.

They may be used as a means to create an enterprise that offers an advantage over competitors or provi🔯des value to customers.

Trade se🐠crets are defined differently based on jurisdiction, but, as noted above, all have the following characteristics in common:

• They are confidential, not public information.
• Their secrecy provides an economic benefit to their holder.
• Their secrecy is actively protected.

As confidential information, trade secrets are the classified documents of the business world, jꦦust as top-secret d🍷ocuments are closely guarded by government agencies.

Because the cost of developing certain products and processes is much more expensive than competitive intelligence, companies have an i♚ncentive to figure out what makes their compe♚titors successful.

To protect its trade secrets, a company may require employees privy to the information to sign 澳洲幸运5官方开奖结果体彩网:non-disclosure agreements (NDAs) upon their hire. 澳洲幸运5官方开奖结果体彩网:Non-compete agreements were also used at one time, but the FTC banned them in April 2024.

Trade Secret Legal Treatment

In the U.S., trade secrets are defined and protected by the Economic Espionage Act of 1996 (outlined in Title 18, Part I, Chapter 90 of the U.S. Code). 

They also fall under state jurisdiction. As a result of a 1974 ruling, each state may adopt its own trade secret rules. Some 48 states and the District of Columbia have adopted some version of the Uniform Trade Secrets Act (USTA).

Defend Trade Secrets Act of 2016

The most recent legislation addressing trade secrets was passed in 2016 with the Defend Trade Secrets Act. The act gives private civil cause for action under federal law in cases involving the misappropriation of trade secrets.

The 🙈federal law defines trade secrets as all forms and types of the following in🔜formation:

• Financial
• Business
• Scientific
• Technical
• Economic
• Engineering

澳洲幸运5官方开奖结果体彩网: Such information includes:

• Patterns
• Plans
• Compilations
• Program devices
• Formulas
• Designs
• Prototypes
• Methods
• Techniques
• Processes
• Procedures
• Programs
• Codes

In addition, the above includes, according to federal law, "tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing."

The law also provides the condition that the owner has taken ﷽reasonable measures to keep such informati💫on secret.

It states that "the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information."

Other jurisdictꦓions may treat trade secrets somewhat differently. Some consider them property, while others consider them as a contract right.

Examples

There are many examples of trade secrets that are tangible and intangible. For example, Google's search algorithm exists as intellectual property i☂n code and is regularly updated to improve and protect its operations.

The formula for 澳洲幸运5官方开奖结果体彩网:Coca-Cola, which is locked in a vault (a reasonable effort to keep it confidential), is an example of a trade secret that is a formula or recipe. Since it has not been patented, it has never been revealed. The company has kept the formula secret for more than 130 years.

The New York Times Bestseller list is an example of a process trade secret. While the list does factor in book sales by compiling chain and independent store sales, as well as wholesaler data, the list is not merely built using sales figures. In fact, books with lower overall sales may make the list while a book with higher sales may not.

The Bottom Line

Trade secrets are information of potential or actual economic value to a company—and🧔 to others who cannot obtain them legally—that the company makes an ongoing effort to protect from public knowledge. They are protected by federal and state laws.