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Trade Secrets

The law concerning trade secrets aims at preventing the disclosure and use of information that is discovered by improper means or through a breach of confidence. Confidential relationships may be created either by express agreement or implied by the nature of the relationship between the parties.

A trade secret includes information, such as a formula, pattern, compilation, program, device, method, technique, or a process. Information protected by a trade secret:

  1. Derives independent economic value, actual or potential;
  2. Is not generally known to other persons and is not readily ascertainable by proper means;
  3. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

The measures to maintain secrecy depends upon (a) The necessary disclosure to use the secret adequately, (b) The extent to which the information is disclosed to others and their relationship to the owner of the trade secret, and (c) The measures taken to protect the trade secret.

The information protected as a trade secret need not be original or novel. In addition, the owner of a trade secret does not necessarily have exclusive rights to use the information. Others may use a trade secret as long as it is obtained by proper means. As long as the information is not generally known, several persons may have identical rights in the same trade secret.

Some examples of trade secrets are formula for a new beverage, survey methods used by professional agencies, recipes, a new invention for which a patent application has not yet been filed, marketing strategies, computer algorithms, manufacturing techniques, data relating to customers, merchandising, cost and pricing, know-how, procedures and forms.

Trade secret protection lasts for as long as the secret is kept confidential and requires no formal registration with the government. The protection ends once the secret reaches the public domain either through disclosure by the secret holder or by the discovery of others. The disclosure may be accidental or inadvertent.

Trade secrets can be lost or stolen in a number of ways. For instance:

  1. Disclosure by current or former senior employees in violation of fiduciary or trust obligations toward their employer.
  2. Disclosure by current or former employees in violation of their confidentiality agreement with their employer.
  3. Disclosure by third parties, such as suppliers, consultants, contractors, etc., with whom the owner of the trade secret entered into nondisclosure agreements.
  4. Industrial espionage.
  5. Sale of products that embody the trade secret, where the secret can be determined from the actual product being sold.
  6. Reverse engineering, i.e. dismantling a product to determine its design, manner of operation and any method or process of forming the product.
  7. Issuance of a patent.