The Very Basics of Trade Secret, Part 1

Small businesses are often strongly encouraged to obtain copyrights, trademarks, and patents.  There can be a lot of pressure from the small business community to fill your intellectual property portfolio with these types of intellectual property (IP).  Often, the perception is that you need copyrights, trademarks, and patents to make your company valuable.

While these types of IP can add value to your business, the reality is that copyrights, trademarks, and patents can be expensive, especially for up-and-coming small businesses.  There is, however, another option.  Trade secrets are not registered with any state or federal agency.  Because they’re secret, trade secrets tend to get less buzz than the other types of IP, but trade secrets can be just as valuable.

First, what is a trade secret?  A trade secret is valuable information that is unknown by the owner’s competitors.  Trade secrets can include methods and formulas, software, inventions, and protocols.  Surprisingly, trade secrets also include data and customer and supplier lists, and really any compilation of information that is valuable to your business because it is secret.  Trade secrets are valuable because they are secret; they give their owner an advantage.  Once trade secrets are released to competitors, they lose their value.

Trade secrets are very different than copyrights, trademarks, and patents, all of which are displayed for competitors to see.  That’s actually the point of registering these types of IP.  For example, a patent is a right to exclude others from making, using, or selling an invention.  In order to get a patent, you have to disclose the full instructions for making your invention.  There are no secrets in a patent.

The pharmaceutical industry is a good example of the patent system at work.  The owner of a pharmaceutical patent must describe, as part of the patent, what the drug is used for and how to make it.  The patent owner then has the exclusive right to make and sell the drug for a number of years before the patent expires.  Once the patent expires, the owner no longer has the exclusive right, and others are then permitted to create generic versions of the drug.

Compare that to a trade secret, which will never expire, so long as it is kept secret.  However, keep in mind that trade secrets do not prevent others from trying to recreate a trade secret.  For instance, the Coca-Cola® recipe is a famous trade secret that has lasted for decades.  While the actual recipe is still claimed to be secret, it does not stop others from trying to imitate and recreate the recipe.  Of course, many consumers still believe that generic versions of Coca-Cola® do not taste exactly like the original, suggesting that no one has successfully recreated the recipe.

Small businesses can get caught up in other types of IP and forget to protect their trade secrets.  This is a huge mistake.  Trade secrets are a great way to protect your company’s IP without shelling out many thousands of dollars in filing fees and attorney bills.  However, you have to follow some smart business protocols to keep your trade secrets a secret.

Check back soon for Part 2 of this post, “The Very Basics of Trade Secret,” for suggested ways to protect your trade secrets.

 

The law is always changing.  We cannot guarantee that the information provided herein is current and accurate.  Every situation is different.  Do not refrain from seeking legal advice from a lawyer because of anything contained in this blog.  Consult an attorney for individual legal advice regarding your own situation.