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What is a trade secret

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4 minutes

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Dvorah Graeser

Understanding Trade Secrets: Protecting Your Business's Competitive Advantage

Trade secrets are a business asset - just like your office building, computers or machinery. But unlike these physical assets, trade secrets derive their value from being kept, well, secret. 

And if you aren’t careful about how you protect your trade secrets, they can lose their value as business assets.

Defining Trade Secrets

A trade secret is any confidential business information that provides a company with a competitive advantage by not being generally known or readily ascertainable by others. This can include a wide range of information, such as formulas, patterns, programs, techniques, processes, customer data, and pricing strategies.

Legal Protection for Trade Secrets in the United States

For information to qualify as a legally protected trade secret in the United States, it must meet two essential criteria:

  1. Economic Value: The information must derive independent economic value from not being generally known or readily ascertainable by others who could obtain economic value from its disclosure or use. In other words, the secrecy of the information is what gives it commercial value.

  2. Reasonable Secrecy Measures: The owner must take reasonable measures under the circumstances to maintain the information's secrecy. This typically involves implementing physical and digital security measures, as well as utilizing confidentiality agreements and limiting access on a need-to-know basis.

Key Aspects of Trade Secrets

The following key aspects define a trade secret under U.S. law:

  • The information is not public knowledge or easily discoverable.

  • It provides actual or potential economic value to the owner precisely because it is secret.

  • The owner actively takes reasonable steps to protect its confidentiality.

Unlike patents, trade secrets are not publicly disclosed and can potentially be maintained indefinitely through proper security measures.

Protecting Your Business's Competitive Edge

To effectively protect your trade secrets and maintain your competitive advantage, it is crucial to implement a comprehensive trade secret protection plan. This plan should include:

  1. Identification: Clearly identify and document the information that constitutes your trade secrets.

  2. Security Measures: Implement robust physical and digital security measures to restrict access to your trade secrets.

  3. Confidentiality Agreements: Require employees, contractors, and business partners to sign confidentiality agreements that outline their obligations to maintain the secrecy of your trade secrets.

  4. Employee Training: Educate your employees about the importance of protecting trade secrets and their role in maintaining confidentiality.

  5. Monitoring and Enforcement: Regularly monitor for any potential breaches of confidentiality and take swift action to enforce your rights if a breach occurs.

By understanding the concept of trade secrets and implementing a strong protection plan, you can safeguard your business's competitive advantage and position yourself for long-term success.

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