Throughout these blog posts, we’ve focused primarily on the major three avenues for protecting innovation: patents, copyrights, and trademarks. There is, however, a fourth avenue: trade secrets.
The Uniform Trade Secrets Act (UTSA) defines a trade secret as information, including a formula, pattern, compilation, program, device, method, technique, or process that derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other person who can obtain economic value from its disclosure or use; and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy (UTSA § 1.4). Trade secret protection is thus broad and not limited as to subject subject matter in the same way that patents are.
While we may not think of trade secrets in our everyday lives (unless you’re an IP attorney!), we encounter them quite often. Some of the most well-known trade secrets are recipes such as the recipe for Coca-Cola, Listerine, Twinkies, McDonald’s Big Mac Special Sauce, and the formula for WD-40.
The primary legal framework for trade secrets is the UTSA. The UTSA is not a federal law, but a piece of legislation created by the Uniform Law Commission which has, as of 2024, been adopted by 48 states, the District of Columbia, the U.S. Virgin Islands, and Puerto Rico. The only current hold-outs are New York and North Carolina. While North Carolina has enacted its own trade secret act, New York has not. Thus, trade secrets in New York are governed under common law.
Under Federal Law, the Defend Trade Secrets Act (DTSA) was enacted in 2016, and it essentially cooperates with the UTSA. The DTSA provides a cause-of-action in federal court for trade secret misappropriation. Thus, a trade secret owner who has been harmed by the wrongful use or dissemination of a trade secret may sue the wrongdoer in federal court. The DTSA further allows the court to grant an ex-parte seizure order to prevent further dissemination of a trade secret.
But how do you establish a trade secret? Unlike patents, trademarks, and copyrights, there is no filing or registration process with trade secrets. Any information which meets the requirements of a trade secret may be considered a trade secret. Thus, to establish and maintain a trade secret, the information must abide by the following requirements:
1. The information must be secret, i.e. not generally known to the public and not readily ascertainable by proper means.
2. The information must have economic value to the holder because it is secret.
3. The holder must make reasonable efforts to maintain its secrecy.
“Reasonable efforts” to maintain secrecy is not a defined term, and the level of efforts may depend upon the circumstances. Typically, “reasonable efforts” include executing non-disclosure agreements with the appropriate parties, adequate employee training, document access restriction and control procedures, exit procedures for departing employees, and adequate network and computer security measures.
Trade secrets offer several advantages compared to other IP protection strategies. First, the protection begins immediately and extends indefinitely. There is no time limitation for trade secrets. As long as the information is kept confidential, trade secret protection is maintained. Second, trade secrets inherently do not involve any public disclosure as opposed to patents and copyrights. Finally, trade secrets are cost effective. The only costs in establishing and maintaining a trade secret are the costs of protecting the information in the first place. This can be as inexpensive as employee training. As long as the protection qualifies as reasonable efforts, the trade secret is maintained.
It is important to note that trade secrets should not be used in all cases. Once trade secret information is disclosed to the public, either purposefully or inadvertently, the information cannot be clawed back. Thus, inventions which are publicly sold may inherently disclose their construction or method of manufacture. For these cases, patent protection is typically favorable.
This has been a brief overview of trade secrets, the fourth avenue of IP protection. If you have a question regarding patents, trademarks, copyrights, or trade secrets, give us a call at (918) 587-2000 for a free consultation!
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