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Trade Secret

What is a Trade Secret & How You Can Protect It

 
computer laptop screen containing encoding for software program
 
 

What is a Trade Secret?

A trade secret is any information of any type, such as formulas, recipes, inventions, patterns, computer programs, databases, methods, etc., that gives you some economic value over your competitors. Unlike copyrights, trademarks, or patents, trade secrets are governed by state law instead of federal law, making the requirements of obtaining a trade secret potentially different in every state. This article will only address California trade secret law.

As the owner of a trade secret, you will have the sole right to use or disclose the secret and will be protected from the unauthorized acquisition of that secret (people stealing your secret without your permission). A trade secret will remain a trade secret for as long as it qualifies as a trade secret, which is discussed in the next section below.

How You Can Protect Your Trade Secret

For information to be considered a trade secret and have trade secret protection, you must meet the following three core requirements:

  1. The Information Must Actually be Secret

    • This is not an absolute requirement as there may be others who need to know the secret to operate your business

    • Trade secret protection is not lost if you share the secret with someone else if that person has a duty of confidentiality to keep the secret a secret

    • Keep in mind that once a secret is disclosed and is known by the public, you will lose trade secret protection for it and it cannot be a trade secret again

  2. You Must Make Reasonable Efforts Under the Given Circumstances to Prevent the Information From Being Disclosed

    • This is an ambiguous standard that courts take on a case by case basis

    • However, you can help prove that you make reasonable efforts when you can show that your business used confidentiality agreements, put employees on notice of the information being a trade secret, and restricted access to the secret

  3. The Information Must Give You an Economic Advantage Over Your Competitors

    • The economic advantage it gives you must not be generally known or be easily learned by your competitors

Limitations on Trade Secret Protection

Trade secret protection is not absolute and it will not protect your secret if another person independently and lawfully acquired the same information that you are keeping a secret. For example, if another person independently invents the same computer program that your business developed years ago and has been keeping it a secret, the person would be entitled to use the computer program.

Also, if a person buys your product, which contains your trade secret, and reverse engineers it to discover what your trade secret is, you will not have the right to stop that person from disclosing or using your secret that the person reverse engineered.

 

*The above article is for general informational purposes only and should not be taken as legal advice. Please contact a business lawyer to find out how any information here applies to your particular circumstances.