Trade Secret

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Trade Secret

Any valuable commercial information that provides a business with an advantage over competitors who do not have that information.

In general terms trade secrets include inventions, ideas, or compilations of data that are used by a business to make itself more successful. Specifically, trade secrets include any useful formula, plan, pattern, process, program, tool, technique, mechanism, compound, or device that is not generally known or readily ascertainable by the public. Whatever type of information is represented by a trade secret, a business must take reasonable steps to safeguard it from disclosure.

Absolute secrecy is not required, however. Commercial privacy need only be protected from Espionage that can be reasonably anticipated and prevented. Trade secrets may be revealed to agents, employees, and others ordinarily entrusted with such information, so long as it is understood that the information is confidential and disclosure is forbidden. At the same time, keeping information strictly confidential does not make it a trade secret unless the information is useful or valuable. Information that is common knowledge will never receive protection as a trade secret. Information must rise to a sufficient level of originality, novelty, or utility before a court will recognize it as a commodity.

Similarly, merely because something has been classified as a trade secret does not make every public disclosure of it the theft of a trade secret. For liability to attach for trade secret theft, the owner of valuable commercial information must demonstrate that it was appropriated through a breach of contract, a violation of a confidence, the use of surreptitious surveillance, or other improper means. For example, most employees who work in a commercially sensitive field are required to sign a contract prohibiting them from disclosing their employer's trade secrets to a competitor or the general public. These contracts normally bind employees even after their employment relationship has ended.

In the absence of a contractual obligation, employees and others may still be held liable for disclosing a trade secret if a court finds they had reason to know that the information was valuable and were expected to keep it confidential. For example, engineers and scientists who consult on a commercial project are ordinarily bound by a duty of strict confidentiality that precludes them from later sharing any information they acquire or using it to facilitate their own research. Although many businesses require consultants to sign a nondisclosure agreement before beginning work on a sensitive project, this duty of confidentiality arises from the circumstances surrounding a particular venture, independent of any formal agreement reached between the parties.

Imposition of liability for theft of a trade secret is not contingent upon a relationship between the owner of commercial information and the individual or entity that appropriated it. Liability may be premised solely on the means used to acquire confidential commercial information. Industrial espionage, which includes both aerial and Electronic Surveillance, is an indefensible means of acquiring a trade secret. Trespass, Bribery, Fraud, and Misrepresentation are similarly illegal. However, the law permits businesses to purchase a competitor's products and subject them to laboratory analysis for the purpose of unlocking hidden secrets of the trade. Called "reverse engineering," this process is considered by some courts to be the only proper means of obtaining valuable commercial information without the owner's consent.

The owner of a trade secret has the exclusive right to its use and enjoyment. Like any other property right, a trade secret may be sold, assigned, licensed, or otherwise used for pecuniary gain. If the owner of a trade secret knowingly permits it to enter the public domain, however, he has waived the right to its exclusive use and enjoyment. An owner who has been injured by the wrongful disclosure or appropriation of a trade secret may pursue two remedies: injunctive relief and damages. An Injunction (a court order restraining or compelling certain action) is the proper remedy when the owner of a trade secret desires to prevent its ongoing use by the individual or entity who wrongfully appropriated it. Money damages are the appropriate remedy when theft of a trade secret has resulted in a measurable pecuniary loss to its owner.

Further readings

Cundiff, Victoria A., and Salem M. Katsh. 2002. Trade Secrets 2002: How to Protect Confidential Business & Technical Information. New York: Practising Law Institute.

Lockerby, Michael J., ed. 2000. The Trade Secret Handbook: Protecting Your Franchise System's Competitive Advantage. Chicago: Forum on Franchising, American Bar Association.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.

trade secret

n. a process, method, plan, formula or other information unique to a manufacturer, which gives it an advantage over competitors. Therefore, the trade secret has value and may be protected by a court-ordered injunction against use or revelation of trade secrets by an employee, former employee, or someone who comes into possession of the trade secret. The employer may seek damages against such a person for revealing the secret. In addition, the owner of a trade secret involved in a lawsuit may request a "protective order" from the judge to prohibit revelation of a trade secret or a sealing of the record in the case where references to the trade secret are made. A trade secret is a business process and not a patentable invention. (See: trade, patent)

Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.
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