Secret Sauce

How to keep your ‘secret sauce’ secret

The formula for Coca-Cola is often described as the world's most famous trade secret. Famous or not, trade secrets are valuable assets for many successful companies.

While patents, trademarks and copyrights are often the most visible aspects of a corporate intellectual property portfolio, trade secret protection lurks in the shadows. A firm understanding of how to build and legally protect trade secrets often generates a competitive edge in the marketplace.

All trade secrets are confidential information. However, not all confidential information may rise to the level of a trade secret. To be protected as a trade secret, the information must not be generally known to the public or to persons outside the company who are knowledgeable about the general subject matter.

The information must also be sufficiently secret to confer an actual or potential economic or business advantage or benefit upon the party who possesses the information.

Examples of trade secrets can include business and financial information such as budgets, customer and supplier lists and internal marketing plans. Trade secrets can also include engineering know-how including methods, processes, research findings and collections of data.

No formalities

Unlike patents, trade secrets are protected without registration. That is, trade secrets are protected without any procedural formalities. Consequently, a trade secret can be protected for an unlimited period of time.

The disclosure requirement of patent law, however, makes it impossible to obtain a patent on information the patent owner wishes to keep a trade secret.

Developing a portfolio of trade secrets requires active participation throughout many levels of an organization. A company’s directors, officers, supervisors and employees should regularly assess all company information within their purview to determine what information should be maintained as trade secrets.

Whenever possible, trade secrets should be documented in paper or electronic form. The trade secrets should also be accompanied by a notice of confidentiality.

Courts often require the trade secret owner to identify its alleged trade secrets at an early stage of litigation. Therefore, the company must be prepared to identify its trade secrets and show that it in fact viewed and treated them as such.

Like many aspects of intellectual property, trade secrets can be at the heart of various business transactions including know-how transfers, mergers and acquisitions, and licensing agreements. However, trade secrets should only be disclosed between parties after they have entered into a nondisclosure agreement. Ideally such disclosures should be limited to the information that is required under the circumstances.

Trade secret issues often come into sharpest focus when an employee leaves a company to start a new company, or work for a competitor. Therefore, as a condition of initial or continued employment, all employees should be required to sign a nonconfidential employment agreement setting forth their obligations with respect to the company’s trade secrets. Similarly, all new employees should be required to sign the company’s standard employment agreement, which should evolve with the times.

During the first week of employment, a company representative should meet with new employees to explain the company’s trade secret policy. The representative should ask if the employee has retained any confidential information, documents, or physical objects from a prior employer(s) after leaving such employment.

If the employee answers yes, and will be performing substantially the same nature of work in the new capacity, the company should seek legal advice to ensure the appropriate action is taken.

Within a week of an employee’s departure from a company, a representative should meet with the employee and remind them that the trade secret obligations of the employment agreement survive the termination of employment. The employee should identify all documents and physical objects the employee plans to retain after leaving the company’s employment.

The employee should be advised that he or she may not bring any information, documents or physical objects considered to be the subject of a trade secret into any future employer’s facilities. When an employee is terminated or laid off, the company should take steps to secure trade secrets and other proprietary information before informing the employee of such termination or layoff.

As a condition of initial or continued engagement, all independent contractors should be required to sign an agreement setting forth the contractor’s obligations with respect to the company’s trade secrets.

The Uniform Trade Secrets Act requires companies to institute and follow specific security measures to protect trade secrets. Only employees who need to know a trade secret for purposes of carrying out their employment duties may have access to such trade secret.

Materials containing trade secrets must be marked, stored and handled with sufficient care to maintain their confidentiality. Documents, physical objects and undocumented information (such as processes) containing or constituting trade secrets must not be left in plain view and must not be accessible to persons who are not authorized to have access to such information.

Patent or trade secret?

While a decision regarding whether to use trade secret protection should be evaluated on a case-by-case basis, it is generally advisable to use trade secret protection when the secret is not patentable.

If the secret information consists of a patentable invention, the question of whether to forgo patent protection to maintain a trade secret becomes more difficult. If the secret can be kept confidential longer than the term of a utility patent, and if others are not likely to discover the same invention in a legitimate way, trade secret protection may be the best option.

If the secret is relatively difficult to reverse engineer, as is the case with many formulas and production processes, trade secret protection may also be a company’s best option. In any case, trade secrets are important tools that companies should always consider in their intellectual property protection strategy.

contact Kyle Peterson is an attorney with intellectual property law firm Patterson, Thuente, Skaar & Christensen P.A. in Minneapolis: 612.252.1554;;

Kyle Peterson