๐Ÿ’กIntro to Intellectual Property Unit 5 โ€“ Trade Secret Basics

Trade secrets are valuable business information kept confidential to maintain a competitive edge. This unit covers their key elements, types, and legal protections. It also explores how trade secrets differ from other intellectual property rights and examines famous cases. Businesses must implement security measures to maintain trade secret status. This includes physical, technical, and legal safeguards. The unit also discusses practical considerations for companies, such as conducting trade secret audits and developing protection plans.

What Are Trade Secrets?

  • Valuable business information not generally known or readily ascertainable by others
  • Provides a competitive advantage to the owner due to its secrecy
  • Can include formulas, patterns, compilations, programs, devices, methods, techniques, or processes
  • Must be subject to reasonable efforts to maintain secrecy
  • Protected by state law, with some federal law protection (Defend Trade Secrets Act)
  • Examples include Coca-Cola's secret formula and Google's search algorithm
  • Differs from patents as trade secrets are not publicly disclosed and have no fixed term of protection

Key Elements of a Trade Secret

  • Information must have independent economic value from not being generally known
    • Value can be actual or potential
    • Information is more valuable because competitors do not have access to it
  • Reasonable efforts must be made to maintain secrecy
    • Includes physical, technical, and legal measures
    • Examples: non-disclosure agreements (NDAs), access restrictions, and employee training
  • Information must not be readily ascertainable by proper means
    • Reverse engineering or independent discovery can legally uncover trade secrets
  • Duration of protection lasts as long as secrecy is maintained

Types of Trade Secret Information

  • Technical information (manufacturing processes, software algorithms, chemical formulas)
  • Business information (customer lists, pricing strategies, marketing plans)
  • Financial information (cost data, profit margins, sales forecasts)
  • Negative know-how (failed experiments, unsuccessful designs)
  • Compilations of public information that have value due to the effort of compilation
  • Some trade secrets can be a combination of these types (technical + business info)
  • Examples: KFC's secret recipe (technical), Netflix's recommendation algorithm (technical + business)
  • Primarily protected by state law, with some federal protection
    • Most states have adopted the Uniform Trade Secrets Act (UTSA)
    • Federal Defend Trade Secrets Act (DTSA) provides additional causes of action
  • Misappropriation of trade secrets can lead to injunctions and monetary damages
    • Misappropriation includes acquisition by improper means or breach of confidentiality
    • Improper means include theft, bribery, misrepresentation, and espionage
  • Independent discovery and reverse engineering are not considered misappropriation
  • No formal registration process; protection begins when information gains trade secret status
  • Protection lasts indefinitely, as long as secrecy is maintained

Maintaining Trade Secret Status

  • Implement reasonable security measures to protect secrecy
    • Physical measures (locked doors, restricted access areas)
    • Technical measures (encryption, password protection, firewalls)
    • Legal measures (NDAs, confidentiality agreements, employee policies)
  • Limit access to trade secrets on a need-to-know basis
  • Clearly mark documents as confidential or proprietary
  • Conduct employee training on handling trade secret information
  • Regularly monitor and audit security measures for effectiveness
  • Have a plan in place for responding to potential misappropriation or leaks

Trade Secrets vs. Other IP Rights

  • Patents require public disclosure; trade secrets remain confidential
    • Patents have a fixed term; trade secrets can last indefinitely
    • Patents provide stronger protection but are more expensive and time-consuming to obtain
  • Copyrights protect expression, not ideas; trade secrets can protect ideas and information
  • Trademarks protect brand identity; trade secrets protect valuable business information
  • Trade secrets can be used strategically with other IP rights (patenting some aspects, keeping others secret)
  • Example: WD-40 uses a trademark for its brand, but the formula is a trade secret

Famous Trade Secret Cases

  • DuPont v. Christopher (1970): aerial photography of a plant construction was improper means
  • PepsiCo, Inc. v. Redmond (1995): doctrine of inevitable disclosure prevented employee from joining rival
  • U.S. v. Hsu (1997): first federal Economic Espionage Act prosecution for trade secret theft
  • Waymo v. Uber (2017): alleged misappropriation of self-driving car technology trade secrets
    • Case settled with Uber agreeing to pay $245 million in equity to Waymo
  • Zenimax v. Oculus (2017): misappropriation of virtual reality technology trade secrets
    • Jury awarded $500 million in damages to Zenimax

Practical Considerations for Businesses

  • Conduct a trade secret audit to identify and prioritize valuable information
  • Develop and implement a comprehensive trade secret protection plan
    • Include physical, technical, and legal security measures
    • Regularly review and update the plan as needed
  • Use NDAs and confidentiality agreements with employees, contractors, and business partners
  • Implement a clear trade secret policy and train employees on their responsibilities
  • Consider the strategic use of trade secrets in conjunction with other IP rights
  • Have an action plan for responding to misappropriation or unauthorized disclosure
  • Weigh the risks and benefits of trade secret protection vs. other options (patenting, publishing)


ยฉ 2024 Fiveable Inc. All rights reserved.
APยฎ and SATยฎ are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.

ยฉ 2024 Fiveable Inc. All rights reserved.
APยฎ and SATยฎ are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.
Glossary
Glossary