IP’s Redheaded step-child: Trade Secrets

Patents, copyrights, and trademarks, oh my! The Big Three of intellectual property law always seem to get all the Trade Secret law: The first reason why computer companies buy safes (the second reason is zombiesattention and headlines leaving poor, neglected trade secret law feeling like the neglected, unwanted step-child. Patents, copyrights, and trademarks all have nice, (perhaps overly) broad federal laws providing both criminal and civil protections, but little old trade secret law has to chug away on somewhat varied state law and a rarely used federal criminal statute, 18 USC §1832. Trade secrets may soon be given uniform, nation-wide protection, but for now a patchwork of state law underpins the tenuous but potentially very broad protections known as a trade secret.

Despite legal inconsistency from state to state and the ethereal scope of protection, well established companies in industries as diverse as food service, personal hygiene, medicine, and aerospace rely on trade secret law in an attempt to “protect the family jewels.” Multi-billion dollar companies, such as Coca-Cola and KFC, have kept their processes for making their most famous products secret for decades, significantly longer than a patent would have lasted related to the same processes and formulae (assuming a patent could have been initially secured at all). Aerospace companies like Lockheed Martin, Boeing, and, more recently, SpaceX also have a long, somewhat troubled history with trade secrets. So what exactly is a trade secret and why do they matter?

What is a trade secret?

In states where the Uniform Trade Secret Act (UTSA) has been adopted (most states, but not Texas!), a trade secret is:

information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

To put that into ordinary English, any information that provides a company or individual with a competitive edge because the information is not generally known may be considered a trade secret! In order to ensure legal protection, companies and individuals should take reasonable steps under the circumstances to keep the information a secret. Examples include but are not limited to:

  • Formulas
  • Patterns
  • Compilations
  • Programs
  • Devices
  • Methods
  • Techniques
  • data (e.g. good data, information of failures (i.e. “negative research”), designs)
  • Images and video
  • Future product offerings
  • R&D plans
  • Customer lists and supplier lists (including supplier capabilities and turnaround times)
  • Business plans, and other business strategy documents.

Note that information doesn’t have to be truly new or known to only one company in order for it to be considered a trade secret! Protection is available as long as the information is “not generally known.” Thus, there can be situations where a few companies in a huge industry possess knowledge of some particularly efficient process, but that process is still eligible for trade secret protection. Additionally, a trade secret can exist in a combination of characteristics and components, each of which, by itself, is public knowledge if the unified process, design and/or operation (the “recipe”) are a not generally known. This is especially important to remember in the aerospace industry, since so much of what is being accomplished today builds upon publically available research NASA did decades ago.

Why take advantage of trade secret protections?

Most companies choose to protect their innovative products via patents because many products can be reverse engineered once the product is on the market. On the other hand, companies generally elect to maintain manufacturing processes as trade secrets since the techniques for manufacturing can more easily be maintained in confidence. Even where patent protection is ultimately sought, trade secret protection can be of enormous help because trade secret protection arises from the moment of creation and taking steps to ensure the secrecy of a development. This is a lot like copyright protection, which arises the moment an original work is put in a tangible form, like writing down a story or recording a song.

Trade secrets are extremely powerful because maintaining the secrecy of new developments, ideas, and other research prevents other businesses from quickly and inexpensively copying that research. Allowing competitors access to research and development (including failures!) may allow them to ride the researcher’s coattails, exploiting research the coat-tail riding comapny did not invest in or perform. Without this sort of protection, a company could easily lose its competitive edge, even where they were the truly innovative company.

Emerging aerospace companies should take note that protecting confidential information and trade secrets is important from an investor standpoint as well. To maintain a company’s value, it is essential that the company take steps to protect the investments that have been made in the company. IP protection is an essential part of protecting those investments. Protection of trade secrets is also crucial in attracting new investment because it demonstrates to potential investors that a company recognizes the importance of protecting and growing investments in the company and its technology.

Happy creating!

One thought on “IP’s Redheaded step-child: Trade Secrets

  1. Pingback: Trade Secrets Are Not Enough « IPinSpace

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