💡Intro to Intellectual Property Unit 5 – Trade Secret Basics

What Are Trade Secrets?

• Valuable business information not generally known or readily ascertainable by others
• Provides a competitive advantage to the owner due to its secrecy
• Can include formulas, patterns, compilations, programs, devices, methods, techniques, or processes
• Must be subject to reasonable efforts to maintain secrecy
• Protected by state law, with some federal law protection (Defend Trade Secrets Act)
• Examples include Coca-Cola's secret formula and Google's search algorithm
• Differs from patents as trade secrets are not publicly disclosed and have no fixed term of protection

Key Elements of a Trade Secret

• Information must have independent economic value from not being generally known
  • Value can be actual or potential
  • Information is more valuable because competitors do not have access to it
• Reasonable efforts must be made to maintain secrecy
  • Includes physical, technical, and legal measures
  • Examples: non-disclosure agreements (NDAs), access restrictions, and employee training
• Information must not be readily ascertainable by proper means
  • Reverse engineering or independent discovery can legally uncover trade secrets
• Duration of protection lasts as long as secrecy is maintained

Types of Trade Secret Information

• Technical information (manufacturing processes, software algorithms, chemical formulas)
• Business information (customer lists, pricing strategies, marketing plans)
• Financial information (cost data, profit margins, sales forecasts)
• Negative know-how (failed experiments, unsuccessful designs)
• Compilations of public information that have value due to the effort of compilation
• Some trade secrets can be a combination of these types (technical + business info)
• Examples: KFC's secret recipe (technical), Netflix's recommendation algorithm (technical + business)

Legal Protection for Trade Secrets

• Primarily protected by state law, with some federal protection
  • Most states have adopted the Uniform Trade Secrets Act (UTSA)
  • Federal Defend Trade Secrets Act (DTSA) provides additional causes of action
• Misappropriation of trade secrets can lead to injunctions and monetary damages
  • Misappropriation includes acquisition by improper means or breach of confidentiality
  • Improper means include theft, bribery, misrepresentation, and espionage
• Independent discovery and reverse engineering are not considered misappropriation
• No formal registration process; protection begins when information gains trade secret status
• Protection lasts indefinitely, as long as secrecy is maintained

Maintaining Trade Secret Status

• Implement reasonable security measures to protect secrecy
  • Physical measures (locked doors, restricted access areas)
  • Technical measures (encryption, password protection, firewalls)
  • Legal measures (NDAs, confidentiality agreements, employee policies)
• Limit access to trade secrets on a need-to-know basis
• Clearly mark documents as confidential or proprietary
• Conduct employee training on handling trade secret information
• Regularly monitor and audit security measures for effectiveness
• Have a plan in place for responding to potential misappropriation or leaks

Trade Secrets vs. Other IP Rights

• Patents require public disclosure; trade secrets remain confidential
  • Patents have a fixed term; trade secrets can last indefinitely
  • Patents provide stronger protection but are more expensive and time-consuming to obtain
• Copyrights protect expression, not ideas; trade secrets can protect ideas and information
• Trademarks protect brand identity; trade secrets protect valuable business information
• Trade secrets can be used strategically with other IP rights (patenting some aspects, keeping others secret)
• Example: WD-40 uses a trademark for its brand, but the formula is a trade secret

Famous Trade Secret Cases

• DuPont v. Christopher (1970): aerial photography of a plant construction was improper means
• PepsiCo, Inc. v. Redmond (1995): doctrine of inevitable disclosure prevented employee from joining rival
• U.S. v. Hsu (1997): first federal Economic Espionage Act prosecution for trade secret theft
• Waymo v. Uber (2017): alleged misappropriation of self-driving car technology trade secrets
  • Case settled with Uber agreeing to pay $245 million in equity to Waymo
• Zenimax v. Oculus (2017): misappropriation of virtual reality technology trade secrets
  • Jury awarded $500 million in damages to Zenimax

Practical Considerations for Businesses

• Conduct a trade secret audit to identify and prioritize valuable information
• Develop and implement a comprehensive trade secret protection plan
  • Include physical, technical, and legal security measures
  • Regularly review and update the plan as needed
• Use NDAs and confidentiality agreements with employees, contractors, and business partners
• Implement a clear trade secret policy and train employees on their responsibilities
• Consider the strategic use of trade secrets in conjunction with other IP rights
• Have an action plan for responding to misappropriation or unauthorized disclosure
• Weigh the risks and benefits of trade secret protection vs. other options (patenting, publishing)