What is a trade secret?

February 10, 2016

Topics: Employees as Competitors

Your state’s law may have a specific definition which material must satisfy in order for company information to qualify as a trade secret, however, generally the following three requirements must be met:

  1. The information must be the type that companies generally protect. Under many state laws, this list includes “a formula, pattern, compilation, program, device, method, technique, or process”;
  2. The information must not be generally known outside of the company, which gives the company that owns it an economic benefit or competitive edge; and
  3. The company must have taken reasonable steps to protect the secrecy of the information.

Examples of trade secrets are soft drink formulas (such as the classic Coke formula), recipes for a fast food restaurant’s signature sauce (think Big Mac Special Sauce, or Kentucky Fried Chicken herbs and spices), software codes, customer lists, pricing information, and new inventions that have not yet been patented.

Owners of trade secrets are expected to take reasonable steps to prevent others from learning the information.  This could include limiting the number of people who know the trade secret and/or have access to information about it, and implementing policies and procedures to ensure that employees protect the confidentiality of company information.  This may include keeping the material in locked cabinets, in locked offices, or electronically behind barriers with additional passwords required for access.   Requiring employees to maintain the confidentiality of company information even after separating from the company, and enforcing the company’s rights by responding to any breach, also demonstrates that the company takes actions to protect the information’s secrecy.

A trade secret is subject to protection for as long as the company maintains its secrecy. Once the owner of the trade secret makes it public, it is no longer protected.