Trade secrets are a type of intellectual property (IP). In other words, it can be one of the most critical and valuable assets of an organisation which sets it apart from competitors. For example, consider Colonel Sanders’ original recipe for KFC, the top-secret Coca Cola recipe or even the Google search algorithm. These are all the ‘crown jewels’ of these organisations’ intellectual property portfolio. So long as these trade secrets remains a secret, they bring tremendous value into their respective businesses.
Characteristics and examples of trade secrets
There are three important characteristics that are used to define a trade secret. These include:
- it must be information used in a trade or business;
- the owner must limit the dissemination of it or at least not encourage or permit widespread publication; and
- it is information, which if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret.
Other examples of trade secrets could include:
- Marketing strategies
- Computer algorithms
- Test data
- Blueprints and plans
- Unpatented recipes or formulas
What’s the difference between a trade secret and confidential information?
Trade secrets are a type of confidential information; however, not all confidential information qualifies as a trade secret.
Confidential information is generally defined as a trade secret if:
- The information is not known or available to the public and is used by the company directly for business;
- The information provides the company with an economic advantage; and
- The company takes reasonable efforts to protect the secrecy of the information.
Can you seek legal protection for a trade secret?
This can be complex to answer as every situation can be quite different. Generally speaking, the unauthorised use of confidential information by persons other than the holder is considered unfair practice and a violation of a trade secret. Therefore, the only method to protect your trade secret under intellectual property law is to patent the information. The downside of this is that patenting your trade secret imposes a time limit on the protection of the information.
Legal protection of a trade secret is simply not enough, given the increasing number of cyber security risks. An organisation needs to consider implementing rigorous administrative and technical measures to protect this information.
Some examples of good practice for managing this type of information could include:
- Robust governance and ownership process
- Have a good trade secret process and management systems in place
- Utilise confidentiality or non-disclosure agreements
- Develop contract provisions to help protect your trade secret from JV partners
- Conduct regular trade secret audits
- Have an awareness/education programme for employees about the trade secret policy and procedures
- Classify trade secrets in terms of their nature, date created, responsible person(s), value.
Seek professional help
If your business relies on sensitive information that you would consider to be a trade secret, we encourage you to consult with a legal practitioner for advice on maximising its protection.