What Qualifies As A Trade Secret?
Randall Bateman explains that a trade secret is broader than most people realize. It must (1) be secret, (2) have economic value, and (3) be subject to reasonable steps to maintain its secrecy. While many think of famous examples like the Coca-Cola formula or KFC’s secret spices, trade secrets often include more practical assets such as customer lists, pricing models, or sales cycles. These provide competitors with an unfair advantage if disclosed.
Why Are Customer Lists Considered Valuable Trade Secrets?
Customer lists are often a company’s most vulnerable asset, according to Bateman. Employees who leave with such information can undercut pricing and timing to steal business. Protecting customer data through restricted access and confidentiality agreements is essential to preserving competitive advantage.
What Steps Should Companies Take To Protect Trade Secrets?
Bateman emphasizes the importance of restricting access to information on a “need-to-know” basis. This may include securing documents, limiting employee access, and implementing non-disclosure agreements (NDAs). Companies must be able to demonstrate in court that they took “reasonable steps” to maintain confidentiality—otherwise, the information may lose trade secret protection.
How Can Businesses Tell If A Trade Secret Has Been Stolen?
Identifying trade secret theft is often difficult. Direct evidence is rare, so companies must rely on circumstantial signs—such as when a competitor suddenly changes their product after hiring a former employee. In some cases, discovery in litigation is required. Remedies typically involve economic damages for lost profits, but in severe cases, trade secret theft can result in criminal prosecution and imprisonment.
How Are Trade Secrets Different From Patents And Copyrights?
Trade secrets require no government filing; protection is achieved by keeping the information secret. Patents, by contrast, require disclosure to the U.S. Patent and Trademark Office, granting exclusivity for a limited time in exchange for public disclosure. Copyrights protect creative expressions and require registration with the Copyright Office. Bateman notes that trade secrets are the opposite of patents—protection comes from secrecy, not disclosure.
Can Software Be Protected As Both A Trade Secret And A Copyright?
Yes. Randall Bateman explains that while software code can be copyrighted, portions of the code may remain confidential as trade secrets. Companies may redact certain parts of their code when registering copyrights to preserve proprietary methods.
What Role Do Ndas Play In Protecting Trade Secrets?
Non-disclosure agreements are crucial for reinforcing employee obligations to maintain confidentiality. Even in states that restrict non-compete agreements, NDAs remain enforceable. Bateman highlights the importance of properly signed and stored agreements, noting that many companies fail to maintain organized records—making enforcement difficult in court.
Are Non-compete Agreements Still Enforceable?
Non-compete agreements have faced increasing restrictions, with some states banning them and the FTC attempting (but failing, due to court rulings) to implement a nationwide ban. Bateman explains that while non-competes may still be enforceable for high-level executives or in the sale of a business, they are often considered abusive when applied to low-level employees. NDAs, however, remain widely valid and essential for protecting confidential information.
When Should A Company Choose Trade Secret Protection Over A Patent?
Bateman advises clients to consider two key questions:
- Is the information easily reverse engineered? If yes, a trade secret is a poor choice.
- Is the information patentable? If patent protection is unlikely due to obviousness or prior art, maintaining the information as a trade secret may be better.
Trade secrets are most effective when the process or formula is difficult to replicate and can remain confidential indefinitely.
What Should A Business Do If It Suspects A Trade Secret Has Been Compromised?
The first step is to investigate. Bateman recommends hiring a professional investigator to determine how the information was leaked. If employees left to start a competing business, the source may be clear. Otherwise, litigation may be required to uncover whether improper conduct occurred. Because trade secrets are difficult to detect once stolen, these cases can be expensive and complex.