A trade secret is a category of intellectual property specifically defined as any confidential proprietary information used by a business or individual to gain a unique economic and competitive advantage over competitors and its customers.
Some of the examples of trade secret include research and development information, software algorithms and source codes, formula, ingredient or recipe for a particular food product, list of customers, strategic business strategies, practices and processes, as well as instruments and devices, among others.
In the United States, some real world examples of trade secrets are the algorithm used in Google search engine, the recipe for Kentucky Fried Chicken, and the formula for Coca-Cola, among others.
Legal foundation of trade secret law in the United States
Constitutional and federal and state statutory laws, as well as court precedents are the basic legal sources or foundations of trade dress law in the United States. Take note of the following:
United States Constitution: Under Article I, Section 8, Clause 3 and Clause 8 of the U.S. Constitution give the U.S. Congress the power to regulate commerce, as well as to give individuals to entities exclusive rights to their writings and discoveries,
U.S. Common Law: Trademark law in the U.S. evolved from 19th century common law torts or court rulings and precedents related to breach of confidence and confidential relationship, common law misappropriation, unfair competition, unjust enrichment, and unauthorized access to property.
Uniform Trade Secrets Act: The Uniform Law Commission published the Uniform Trade Secret Act or UTSA in 1979 to provide a legal framework for protecting trade secrets of American companies operating in multiple states. Amended in 1985, UTSA is a state law that has been enacted by 47 states. It allows trade secret owner to sue in a particular state court individuals or organization suspected of stealing confidential information.
Economic Espionage Act: The Economic Espionage Act of 1996 is a federal statutory law that forms part of the trade secret law in the U.S. It specifically criminalizes economic espionage or theft of trade secret by individuals who want to steal confidential information from U.S. companies to benefit a foreign government or organization.
Defend Trade Secret Act: The Defend Trade Secret Act of 2016 or DTSA is a federal statutory law that allows an owner of a trade secret owner to sue in a federal court individuals or organization suspected of stealing confidential information. It essential extends the Economic Espionage Act.
Differences between trade secret and other intellectual property rights
One of the differences between trade secret and other categories of intellectual property is legal origins. Note that patent law and copyright law in the U.S. trace their origins from several hundreds of years ago. On the other hand, trade secret law primarily emerged from state court opinions in the middle of the nineteenth century.
There is also a difference between trade secret and patent as far as preference and convenience are concerned. Note that trade secret law can be a more viable alternative to the patent system. An individual or entity can have intellectual property rights over a particular information or invention that may not be able to satisfy the rigours standards of patent law.
Rights over a trade secret are easier and cheaper to obtain as compared to the expensive and rigorous process of acquiring a patent. There is no need for a formal registration to acquire trade secret rights. An individual or entity must only satisfy the legal requirements for an information to be classified as a trade secret.
Another difference between trade secret and patent is that the rights over the former are not restricted to a limited number of years. Note that patent rights last less than 20 years and beyond this duration, the involved invention becomes available and usable to the public.
Note that some companies oft to maintain a trade secret than to attempt to patent their invention. A patent provides a monopoly over an invention in exchange for public disclosure after a certain period. However, attempting to a patent an invention runs the risk of premature public disclosure. The risk becomes more consequential if the U.S. patent and Trade Office or courts denied the patentability of an invention.
With regard to the difference between copyright and a written trade secret, the latter involves a nature of confidentiality or in other words, its owner must give it reasonable protection from disclosure. However, note that a patented invention or a copyrighted proprietary information can also function as a trade secret.
Specific legal scope and definition of trade secret under U.S. laws
Under the Uniform Trade Secret Act, a trade secret is an information that (1) 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 (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
For an information to be considered as a trade secret thereby, the trade secret law of the U.S. mandates that it should provide the owner economic and competitive advantage. This means that the information should possess an economic or monetary value. In addition, there is an obvious and conscious effort to protect the information from disclosure. This does not mean that it must be kept absolutely and exclusively secret, but the owner must exercise due care in its protection.
The term “misappropriation” has been used in both the Uniform Trade Secret Acts and the Defend Trade Secret Act to pertain to the acquisition of a trade secret by a person who knows or has a reason to know that the trade secret was acquired by improper means. Within the U.S. trade secret law, the phrase “improper means” pertains to theft, bribery, misrepresentation, breach of confidentiality, and espionage, among others.
In addition, both the UTSA and DTSA use the word “misappropriation” to pertain to disclosure of a trade secret by a person who violates a confidentiality agreement. The word also corresponds to the use or disclosure with knowledge that the trade secret had been acquired improperly or through mistake.
There are instances that are outside the violation of trade secret law however. For example, according to the Restatement of the Law of Unfair Competition published by the American Law Institute, a party that independently develops the subject matter of a trade secret or that analyses publicly available information in order to discover confidential information is not violating trade secret law in the U.S.
Furthermore, in Kewanee Oil Company v. Bicron Corp., the U.S. Supreme Court said that reverse engineering is not considered an improper means of acquiring a trade secret. The court defined reverse engineering as a process of “starting with the known product and working backward to divine the process which aided in its development or manufacture.”
EDITOR’S NOTE: This article is part of a series about intellectual property rights in the United States. (1) An introduction to intellectual property rights in the United States; (2) Understanding copyright law in the United States; (3) Facts about patent law in the United States; (4) The basics of trademark law in the United States; (5) An overview of trade dress law in the United States; (6) Background on trade secret law in the United States